Archive for December, 2009
Proposed Budget Balancing for FY 2010 & 2011 from:
City Manager Mike Letcher dated 12/28/2009
Here is my take on the plan. I also offer my own observations and recommendations:
The plan is likely to avert insolvency
The plan is almost certain to lead to a significant drop in our credit rating
The plan reduces the level of core services
The plan does not produce a budget that is ‘structurally balanced’
Liquidity has been evaporating and necessitates quick action to avert insolvency
The plan ignores many potential areas of cost savings
We must make structural changes to our cost structure
Arizona State Treasurer, Dean Martin, has stated that revenue levels have dropped back to levels seen in 2004/2005. 2007 marked the high water mark of economic activity and we will not see these levels again for 6 to 7 years or longer. This is a long-term, structural drop in revenue -and- expense levels must also adjust. We do not have 7 years of one-time fixes. We must begin immediately to make structural changes to our cost structure. This can be augmented with revenue sources that have a more stable profile. Taxpayers have a very limited stomach for new revenue sources or taxes.
Landlord/Renter Tax
One the positive side, this revenue source is more stable than sales tax revenue and this helps with sustainability. The tax does hit a specific demographic segment that tends to be a lower socio-economic profile.
Utility Tax
The Utility Tax was increased for FY 2010. This tax is broad-based as it impacts almost every demographic profile -and- is a more stable revenue source. If new revenue sources are to be imposed, I recommend they meet these 2 criteria: broad-based & more stable.
Parks and Rec Fees
Councilman Glassman has frequently spoken of ‘Cost Recovery’. Currently, many Park and Rec activities are offered at no cost to participants or very low cost (example 25¢/day to swim). This is not consistent with ‘cost recovery’. We must immediately begin to recover a larger portion of the actual cost of every program. If our target is simply 50% cost recovery; this would produce additional revenue of over $7 million/year. (source: FY 2010 Adopted Budget; pgs B-67to B-77)
Sun Tran – Van Tran
The general fund subsidizes bus service with $32 million/year; this is in addition to large subsidies from other governmental entities. The actual cost to offer the service is almost 5 times the fare paid by riders. We must reduce this subsidy through a combination of reduced routes and fare increase. If our target is 50% cost recovery; this could have a positive impact on the budget of as much as $15 million/year. (source: FY 2010 Adopted Budget; pgs B-91 to B-98)
Outside Agencies
This area is ripe for favoritism and facilitating ineffective agencies. This needs to be a thorough and arms-length competitive process. If you are effective you receive more, if you are ineffective you get nothing. There is a perception that once your organization gets on the list you are on the list forever. There needs to be political will to remove ineffective agencies. I work with and financially support the Community Foundation for Southern Arizona (CFSA). CFSA has in place a competitive process to evaluate grant applications from charitable organizations. This includes site visits, program evaluations, financial review, effectiveness evaluation vs. similar organizations, fundraising… Perhaps CFSA would be willing to directly assist the City with applications. At the very least we need to adopt this model.
Credit Rating
The rating agencies are very clear about what we must do to maintain our credit rating. We must: 1) Produce a budget that is ‘structurally balanced’, i.e. not reliant on one-time fixes; 2) Rebuild the rainy day fund to 10% of general fund ‘promptly’ to about $42 million.
The plan proposed by the City manager does NOT produce a ‘structurally balanced’ budget for several years. The plan leaves the rainy day fund at the current level of about 2% to 3% of general fund. In addition, the Self Insurance Fund remains with a large deficit which is sure to catch the attention of the rating agencies. I expect our credit rating will drop several notches within the next few months.
(Source: Fitch, Standard & Poor’s, Moody’s reports from May 2009)
HERE Are we Taking Tucson Back?????
Sometimes it takes a small thing to bring larger issues into focus. For me, it was the announcement last week that the Wall Street Journal’s MarketWatch had issued its annual ranking of “Best Cities for Business.” Tucson’s ranking? No. 95 out of 101.
What really brought it into focus for me was that Detroit was ranked higher than Tucson, but then so was New Orleans, and Albuquerque and El Paso and, of course, Phoenix.
But, Detroit? Better for business than Tucson? How could that be? And then, I looked at how they determined their ratings. Parts of the rankings were based on job growth versus population growth and the ability to prevent job loss in this economic downturn (from September 2008 to September 2009) and even long-term unemployment (jobless rate in September of 2001, 2005 and 2009).
When you look at all of the factors, the real reason that we came in 95th out of 101 is that we earned it. Not just this year, but over the long term. We earned it. And “we” means we the voters, we the business community and we the citizens of Tucson.
We earned it by electing political leaders who were nice enough, but who didn’t have the experience or the guts to make tough political decisions. We earned it by letting small groups with narrow points of view, out-shout and outmuscle those of us who should have been protecting the community’s general welfare.
We accepted policies and decisions that ignored or actively worked against the concept that the foundation for Tucson’s economic prosperity comes from a vibrant, successful business community.
We elected policymakers who talked about quality of life, but voted to choke the life out of the very businesses who provide jobs and salaries and tax revenues for our citizens. They discouraged new businesses with impact fees and the creation of bureaucratic mazes that may have provided public sector jobs but did nothing to help get private business functioning and productive.
When Detroit is ranked better than Tucson for business, we really are in trouble, and, we had better not take it any more. It is time to elect smart policymakers who have real-world business experience and who care more about the entire community’s long-term success than about getting re-elected.
It is not about being a partisan. There are Republicans and Democrats and “no preference” people with the experience and perspective willing to pull us up from that ranking of 95th and the time to recruit them is right now.
It starts with replacing those nice people on the Tucson City Council with smarter, more focused, more effective policymakers. Can we wait until the next regularly scheduled election? Go talk to your fellow citizens who used to have jobs and don’t any more. Go ask the volunteers at the Community Food Banks about whether we can wait to fix the problem.
How did we get in this position? We earned it. We may have complained about the bureaucracy or about the impact fees or about the time it took things to get through city government, but if we didn’t go out and actually do something about it, all we did was help to earn our ranking of 95th.
It’s time to act. Let’s take our city back.
E-mail Humberto S. Lopez at info@takebacktucson.com
Genuine leadership tops 2010 “Wish List” from business leaders
BUSINESS NOTEBOOK: ‘Nightmare of Oh-Nine’
By Roger Yohem, Inside Tucson Business
Published on Saturday, December 26, 2009
In just a blink, 2009 will be history. It marks the end of a chaotic decade that will forever be persona non grata. It will take years for the economic, social, and political carnage to fade away.
The “Nightmare of Oh-Nine” challenged my favorite philosophy about life, a valuable lesson that certainly applies to the business world. Taught as a problem-solving technique by my favorite college professor, it’s the classic test of people’s attitudes.
When water is poured into a glass, is it half-full or half-empty? Whether you’re an optimist or a pessimist, both perspectives are wrong. The better approach is to ask: How do I fill the glass?
uccessful businesspeople have to be good problem solvers. So in hopes of making our community a better place to do business, I asked a few of them for their 2010 Business Wish List:
My wish for Tucson is that city, county, and state elected officials would try to do a better job in leading our community forward. Too many times, I see leadership doing what is best for the people in their own back yard, not what is best for the community as a whole. I know this is easier said than done, but that is my wish.
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James Marian, Chapman Lindsey Commercial Real Estate
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Dan Cavanagh, Freeport McMoRan Copper & Gold
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Peter Herder, The Herder Companies
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John L. Strobeck, Bright Future Business Consultants
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Rick Kaneen, Kaneen Advertising & Public Relations
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Rick Grinnell, Smart United Business Strategies
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James J. Kuliesh, Alliance of Construction Trades
- Mike Bolchalk, Bolchalk FReY Marketing
And here’s my wish: Diversify our economy! Set up a statewide task force to attract quality companies. Go after manufacturing, mining, and trade. And fill the glass by preparing our workforce with excellence in education.
Contact Roger Yohem at (520) 295-4254 or . His Business Notebook appears biweekly and weighs in on local political, social and business issues.
ryohem@azbiz.com