Council hears from public on city funds transfer plan

Sean C. Morgan

During a public hearing last week, several members of the public objected to a proposed transfer in the 2019-20 budget of money from the Police Department and library levies to a new Internal Services Fund to pay for administration and finance expenses.

The City Council must hold a public hearing on a budget approved by the Budget Committee and then adopt a budget by June 30, when the current fiscal year ends.

The Budget Committee, which includes all seven city councilors – Mayor Greg Mahler, Susan Coleman, Diane Gerson, James Goble, Lisa Gourley, Cortney Nash and Dave Trask – and citizens Bob Briana, Derek Dix, Kenneth Hamlin, Dave Holley, Dave Jurney and Gerritt Schaffer, approved the proposed budget April 30.

The City Council held a public hearing May 14. It will consider adopting the budget at its regular meeting at 6:30 p.m. May 28 in the Sweet Home Police Department training room.

At issue was the budgeted transfer of $180,000 from the police levy and $47,000 from the library levy to the new Internal Services Fund. The city’s departments and funds, including the General Fund, pay into the Internal Services Fund to cover primarily the costs of the city’s executive and finance departments and various other shared expenses.

Public Works has for many years transferred money to the General Fund to help pay finance and administration costs.

It is a practice used by other cities and is considered a best practice by the Government Finance Officers Association (GFAO), said City Manager Ray Towry, and administration and finance are expenses the departments incur as part of their operations.

Opponents of the transfer are primarily concerned that this use of the funds is different from what voters expected in 2015 when they approved the current police and library levies. They urged the Budget Committee and then the City Council to hold off charging the levies for administration and finance until the next election when city officials can explain their intention to voters.

The library and Police Department are currently funded by local option levies. They must be renewed periodically. The current levies are for five years and expire June 30, 2021.

“Staff has prepared a budget which we believe meets the goals of the City Council, continues to move the city forward, progress to continue much-needed improvements to the city’s infrastructure and has been before the Budget Committee and has been approved,” Towry said, in introducing the approved budget to the City Council during the public hearing.

Finance Director Brandon Neish said: “City staff proposed a budget that they believed was the best budget to advance the goals of the City Council, while providing the most good for the most people for the longest period of time.”

The budget totals $19,761,737.

Addressing points raised by citizens during Budget Committee meetings, Neish said, the GFAO defines indirect cost allocation (the transfers and the Internal Services Fund as shared administrative expenses, where a department or agency incurs costs for support that it provides to other departments and agencies.

“This is considered a GFOA best practice and lines up with council goals,” Neish said. “The recommendation of the GFOA is that they encourage governments to allocate their indirect costs.

“Indirect cost allocations are not new to the City of Sweet Home. The city has used indirect cost allocations since the 1986-1987 fiscal year in the form of transfers to the General Fund. They included all of the Public Works divisions. The police and library funds also provided indirect cost allocation funding during the 1986-1987 budget year. It skipped two fiscal years, from 1988 through 1989 and resumed in fiscal years, which included 1990 to 1997.”

That was the last time the levies transferred money to the General Fund, he said. “Our assumption is that those levies weren’t able to afford those cost allocations any longer, and so the General Fund was able to help support those departments.”

Included in the cost allocations are the city manager’s office, the city attorney, the communications team, the costs for the city website, the annual audit, recording city ordinances, a contingency as required by city policy and the Finance Department, minus 10 percent of the finance director’s labor cost, Neish said. Also in the Internal Services Fund is utility billing for water and wastewater and Public Works administration, which are charged only to Public Works.

“One of the things that we’ve heard through this process is the potential drawbacks of this fund, and so we just wanted to take a second to walk through where the calculation method comes from and what’s included,” Neish said. Among those calculations, the city manager’s office is split as a percentage of total city staff among the departments.

Neish told The New Era that the expense is divided based on the city manager’s human resources function, but the benefits provided by the office are more than that.

“Every time there is an action, there’s a ripple effect throughout the city,” Towry told The New Era. Improvements in the parks, for example, affect the Police Department.

Everything in the city is interrelated, he said, and his office serves as a linchpin.

Some expenditures are divided as a percentage of the city’s total expenditures, Neish said during the hearing. That includes the city attorney, communications, the city audit and the contingency. Website and codification of ordinances expenses are equally split among all departments.

Finance department expenses are calculated based on the cost to produce a check, approximately $81.84 per check, and charged based on the total number of checks, including paychecks and accounts payable, that each department issues.

Following the staff report to the council on the budget, Mayor Greg Mahler opened the floor to questions from an audience of nearly 40.

“If you were not to take the indirect expense out of your police levy and your library levy, would somebody lose their job within the General Fund?” asked Sweet Home resident Kristin Adams.

“That would be up to purview of the council,” Neish replied.” We would be forced to make cuts in the General Fund, and I can’t speak for the council as to how they would like to allocate those cuts. With the General Fund in its current condition, we wouldn’t be able to sustain current expenditures.”

“When these levies were passed, was it written within the levy that General (Fund) operating expenses would be part of that levy?” Adams asked.

“These items included in these indirects are items that go to support these departments,” Neish said. “They help those departments function. Without payroll, there isn’t staff to work in the departments.”

Adams noted that General Fund projections without the transfers show the fund going into a deficit in 2023-24.

“The fund will be negative in those fiscal years, but in the current fiscal year, with expenses the way that they are currently aligned, it would leave a three-month fund balance,” Neish said. “City policy requires four months.”

“Was there any discussion, then, on any cuts that would be made or are we just back-funding the General Fund off of the levies?” Adams asked.

“No, as far as the back-fund,” Towry said. “The Internal Services Fund is a completely separate fund, and everything pays into the Internal Services Fund, including the General Fund.”

“So there’s no other discussion of other cuts?” Adams asked.

“We had those discussions internally,” Towry said.

“It was also part of the conversation in the Budget Committee regarding whether the Internal Service Fund was appropriate for the city going forward, conversations surrounding what other cuts would need to be made if this was not the chosen option,” Neish said, adding that the management team did have to reduce some expenses based on feedback that some items did not belong in the Internal Services Fund.

Among them were street lights. An increase in a payment on a loan from the Water Depreciation Fund to pay for renovations at the new City Hall also required adjustments.

“The driver to this is projects,” Towry said during the hearing. “Projects would be shifted back, I guess, is what our discussions were. There would be projects, personnel issues we’d certainly have to look at how we’re going to fund.”

Adams replied: “I manage large grants, and the School District takes 4 percent of my grant every time for indirect expenses. I get that.

“We also have a swimming pool levy, and the swimming pool levy is within our General Fund. We don’t take any money out of that levy. That levy was passed by the voters to operate the swimming pool. We pay for the maintenance of that through the levy. We pay for the employees through the levy. We don’t pay for our superintendent. We don’t pay for our finance director. The levy was passed to maintain the swimming pool.

“If the levy goes away, the superintendent doesn’t go away. Our finance director doesn’t go away.”

Adams said she was concerned about equipment deficiencies at the Police Department, including old vehicles and needed supplies.

“I sit on the LBCC board. We’re looking at a $2 million shortfall this year. We had to make cuts. We had to look at cuts, and you’d have to look at resources. To me, what I see, and it’s just a perception, but what I see is you just looked at your resources and you tapped into what looked like some extra funding.”

Neish responded: “I agree that any scenario in which you’re building a budget, looking at cut packages is an option. What city staff proposed is continuing the work to advance our park system and continuing the work to encourage building and planning and development in this city.”

“We didn’t vote for that when we voted for the police levy and public library levy,” Adams said.

“To clarify, those two departments got everything they asked for in their budgets,” Towry said. “There were no cuts to those departments in their budget requests. They are getting everything they’ve asked for.”

Marks Ridge resident Bonnie Neal asked whether the Police Department and library handle their own finances on the computer, “and all the city has to do is finalize it? Is that understanding correct?”

“Not entirely,” Neish said. “Yes, the departments do enter their own purchase orders. The employees enter their own time sheets, and they’re approved by supervisors in their own departments. Those are then pulled into the finance system to be reviewed, changed if necessary to comply with state laws, federal laws, leave balances, contracts.

“That’s the job of my office. Related to the purchase orders, yes, they enter their own purchase orders. We then pull that into a system and our staff reviews for correct accounting, reviews documentation to ensure that the documents are correct and that the dollar figures are correct. It’s an auditing component.”

The staff does often find errors and must send things back for departments, Neish said. It’s often over a matter of interpretation.

“We do often find issues with the payroll, from overused leave balances or somebody accidentally entering 40 hours for vacation a day instead of eight, so yes there are issues that we catch in our office and correct,” Neish said. “The idea here is that those costs in our office are to provide those services, to produce those checks, to balance the books, to provide reporting, to cover auditing costs. There’s a whole setup of functions that are required.”

Neal asked whether the Finance Department handled these functions in the past.

“No functions of the finance office have changed,” Neish said.

“So all of the sudden now, you just decided that they have to pay more?” Neal asked.

“It was a proposal,” Neish said. “City staff is charged with making a proposal to the Budget Committee, and that’s what was done in this case.”

After a brief discussion of how budgets are proposed and approved, Neal asked how the library and Police Department levies have extra money.

“We used to lose 35 percent of the revenue received from property taxes straight to compression,” Neish said, referring to the effects of property tax limitations approved by voters in 1990 and 1997. “Over this last year, we’ve seen that compression rate come from 35 percent down to, I want to say, 23 percent. So there was a significant increase in the amount of revenue being received by these departments.”

Darren Schultz, a Sweet Home resident, wondered whether department heads would have asked to spend more money had they known about the proposal to transfer funds.

Neish said they were aware of it when they were making their budget requests.

“I’m going to ask the City Council, do you feel like this is going to affect how I vote?” Schultz said. “This is not what I voted for.”

“We all thought were were supporting the Police Department and the library,” said Marilyn Schlimm, a Sweet Home resident. “If you want to take that money and use it somewhere else, when you go to get another levy, you’re not going to get it. Because you’re finagling with the money that we thought was going somewhere else.

“You all sat there and said, yeah, let’s do it. There it is. There’s some money we need. And also the taxes. Taxes are up now. Property values are higher. We’re getting taxed more on our property, so you guys will have more money from our taxes to play with too coming up.”

“I’m a little bit confused as to the way the public hearing’s going,” said Budget Committee Chairman Dave Holley. “I think there’s a lot of misconception, misunderstanding or whatever. The city manager and the finance director are being kind of painted as the villains in this, and they’re not. Their job is to provide a budget back to the council based on the council’s goals, what the council sees as best for the city and go from there.

“Council tells them, ‘We want to work on parks. We want to work on streets. We want to do this. We want to do many other things.’ They come up with a budget that meets these goals and fall within the parameters of it.”

The Internal Services Fund has been “called a sham, a scheme and a method to transfer money,” Holley said. “It’s none of those things. It’s simply a change in the accounting methods. You can go back to, and our recommendation to council, based on all the things I’m hearing here, would be to go back to what we’ve always done, the transfers go to General Fund and go from there. The bottom line does not change. It’s the same money.”

“Administrative costs, they’re charged based on the amount of people, based on what services are provided for those people.

“A few days after the first budget meeting that we had, I met with the city manager and finance director. I asked councilor (Dave) Trask and (Diane) Gerson to sit in, to go over a few of the things that were in the budget and what we were going to be talking about. In that meeting, I told them that I was against these transfers.

“I’ve talked against them before, coming from Public Works – not the transfers themselves, but the amount. After going through the budget, looking at the details, looking at what we would have, wouldn’t have, I changed my mind on the whole thing. I just didn’t think there was a way to do it without making those transfers.”

In response to an assertion in an editorial in the May 8 edition of The New Era that the real story behind this is a spending problem, Holley said he added up the revenues and costs in the General Fund. Revenues were $1.66 million. Costs were $1.48 million. Add costs for auditing, Social Security withholding and information technology services, and the General Fund would have just $39,000 left.

“We don’t have a spending problem,” Holley said. “We have a bill-paying problem. We’re paying the bills. Nowhere in this scenario did you hear any money for parks. This budget already had taken away $125,000 that was a planned transfer to the parks. It left $125,000 in it. If the transfers from police and library levies do not happen, that $125,000 is going to go away.”

“Didn’t the public vote on the library and police?” asked Trisha Van Eck, the wife of a department employee.

“Yes, they did,” Holley said. “They voted on levies to fund police services and library services.”

“It’s not using the funds correctly, is what it boils down to in my opinion,” Van Eck said.

“The language in the levy was about operational expenses,” Towry said. “The voting language that was used in the levy and was also used in the educational materials was to support operations of both of those departments, which is why everything that you’ve seen is a direct operational expense of both of those departments. There is no subsidization taking place out of those levies for anything that is not a cost incurred by those departments. Everything is charged based on operational expenses incurred by the departments, every department.”

“There was $125,000 budgeted for new equipment for dispatchers, $50,000 for a supervisor’s SUV to respond to incidents,” Holley said. “The money was there. They requested it. It stayed in the budget, and it was approved that way. There were no cuts made.

“Last year, at the request of the chief, we elevated two sergeant positions to provide better supervision at night, take some of the pressure off him. Council has tried to meet every need that they’ve come up with. If it was in the budget, it was approved. If it was asked for, it was approved.

“The only thing that the committee as a whole is saying is that if we want to do anything else, it’s time that some of these internal costs are shared. It’s not fair that the ones that really have the (issue) are the water and wastewater users who have been (paying) these administrative costs for quite a few years now and taking up that slack when the General Fund doesn’t have enough money to do the things that it wants to do.

“These folks are answering to the council’s goals and desires. Nobody’s trying to take anything. All we’re trying to do is provide the best we can with what we’ve got and make sure the costs are spread equally.”

Adams suggested the council set a percentage to charge for administration fees, and Holley agreed it was a good idea.

Sweet Home resident Lois Jarvis said that a spending problem is at issue.

“Didn’t I read somewhere that these ambitious goals were going to create a need to spend this next year, an increase of (18.8) percent more than previously to meet these goals as established by City Council,” Jarvis said. “That still comes back to spending any way you look at it. You want to meet the goals, which doesn’t say that the goals aren’t great, what I’m hearing is, well, maybe we need a different timeline on these ambitious goals, not that they’re not great goals – but maybe we need a different timeline. And I think that is one of the things that is hard (but it still comes back to the ballot language).”

If the revenues were held in reserve for police services, she said, “I’m good with that. I voted for that. I know what I voted for, and that is what I voted for.”

“With regard to the Internal Service Fund, this is clearly a slush fund to be created by the powers that be in order to divert levy funds from two services, Police Department and library services,” said Roger White, a Sweet Home resident.

“Levy funds are approved by voters as supplementary funds when the city requested additional support for those services. Justifying this action by saying that the Internal Service Fund also receives transfers from other funds and departments is simply smoke and mirrors, since those funds and departments are already budgeted and funded under general tax revenue, i.e., your tax base, as are part of the Police Department and Library.

“The police services and library services levies were approved as supplements to those services and were not intended to pay for the basic operation provided for those services by the city’s general tax revenues.

“This one slush fund, then, is just robbing two departments of specially approved revenues in order to pay part of the costs for departments, for which costs are already provided under general tax revenues.

“I object to this practice. You can attach any label you choose, such as best practices, but it’s still not the right way to do things.

“If you want to have the voters approve the next renewal, you will not do this. In fact, if you ever wish to request supplemental funding via levy for any service in the future, you might want to rethink the process. In the future, if you want indirect costs to be taken from levy funds, they need to be clearly stated within your request for that money.”

“The fund, I don’t care,” said Charlene Adams, a member of the Library Board. “Do whatever you want to do with that.

“My concern is that when this levy was passed, as has been stated, it did specify that it was to go toward the Police Department and the library. It did not make any provision for administrative costs. Perception. Perception. Whatever you mean, and I believe that you mean it for good – I don’t think that you’re dishonest – my concern is that when you do something like this, the perception of the person that’s out on the street.

“I’ve had a lot of people come to me about this, very upset over the thought that when they voted on the levy, they voted for it to be a specific use. So you have the perception now. When I was growing up, we were taught trust. When you lose it, it’s really, really, really hard to get it back, if not impossible.

“And I think that you need to think about this. We’re going to have the levy coming up, I believe, in less than two years. Next time, I think you’re right, put in the levy, 4 percent, 5 percent, 10 percent, I don’t care, that’s going to be for administrative costs. This particular levy did not specify that.”

“Please wait until the next levy is due and spell out your intention then,” said Sweet Home resident Gary Jarvis. “I believe this to my core, that if you do approve the budget in its current form, that what will happen is that next time these levies come up that they will go down. Not only that, but also when it comes to the schools, because once people feel like their intention is being contravened in some way of what they believed to be the case when they voted on it because the questions and answers did say, they will only be used to ‘help’ fund police and library operations.

“That’s a quote of what it said, so I really believe it will put a chilling effect on all levies. I really do believe that we are harming the future by doing this now.”

“Every one of these voters that I’ve listened to so far are not supporting you,” Neal said. “I was raised around here. You people are part of my life, and I hate to see you do this to yourself. Maybe you have to give something up.

“I’ve had to, in my personal budget, give something up that was very important. I didn’t want to give it up. I had to anyway, because that’s what happens. You do need to think very carefully about what you’re going to do this time because it’s being perceived as robbery, and I’m sorry. I’m sorry … but that’s the way it’s looking.”

“I am listening very carefully, and I am considering and weighing the options,” said Councilor Susan Coleman. “I’m really surprised that administrative costs aren’t being considered as part of operations. Administration costs us. It’s a quiet expense that happens that people don’t notice until it’s gone. It is a part of operations. That’s why I’m surprised at this response.

“If you don’t have administration, you don’t have a department. That’s why the other departments have been paying for an administrative fee. If you didn’t have the services provided by City Hall, the department wouldn’t run, the Police Department wouldn’t run. The library needs the services of City Hall. I want you to know I’m listening to what you’re saying, but I’m just really surprised, when considering the levy language, which says ‘operational costs,’ administration is considered an extra.”

“When you look at something that’s new, the amount of dollars we’re talking about, you combine it with all the other stuff that you’re doing, good, bad or indifferent, when you’re talking about renovating the City Hall, when you’re talking about raising the water rates, when you’re comparing it to issues of additional staff costs because of wage increases, which I support,” said Mike Adams, former Public Works director.

“Each one of these things I support individually, but when you add them collectively, it kind of looks like it might be a money grab, or at least give that perception. I encourage you to work through that and get out in front of the public because this is not going to go away, this perception. There’s comments out there, and I do feel like you’re risking the police and library levies in the future unless you get out and get in front of it and get in front of it now.”

“I understand what you’re trying to do,” said Bob Burford, retired police chief. “These levies have been going on for 20-plus years. This is the first time you’ve seen the need to do this. It’s not necessary right now. You’ve got two years. Tell the public what you’re going to do. Put it in the levy. We’ll vote yes. We’ll vote no. I don’t know which way it’ll go.”

He recalled a proposal in the past to move $80,000 from Municipal Court funds when the Police Department needed equipment.

“At that time, as much as I would have liked to have that $80,000, my discussion back to the Budget Committee was ‘that’s inappropriate, that’s wrong,’” Burford said. “The purpose of the Police Department, as far as writing citations, is to change driving behavior. It is not a revenue source. It would have been wrong for us to take that money and it was rejected. I believe that taking the money right now in the middle of a levy is also wrong.”

“This is very personal for me,” said Police Office Geoff Hamlin. In Josephine County, where he worked previously, “in 2012, our levy funding was cut because the voters said no to our current levy because they felt deceived by the administration of the Sheriff’s Office.”

He said he is very worried about being able to pass the next police levy.

“I have a lot more at stake now,” Hamlin said. “If I lose that job, I can go elsewhere, but I don’t want to, because Sweet Home is my community, and I am here for these people. I just ask that you please keep that in mind for the future of these levies. The community has a lot to lose by not having that money.”

“We appreciate the public comment,” Neish said. “We appreciate the involvement in this budget process. It’s exactly what the Oregon local budget law was designed for, to include that public comment, to include the ability for this community and communities across Ore-gon to be able to contribute to this process and have a say in the operation and the longevity of their community. I just want to make sure that everybody here knows that we appreciate the comments that have been made. We’ll do whatever the council and the community wish in this process.”

“What really kind of bothers me about the comments I’ve heard tonight is that someone will not vote for a levy the next time it comes around for the police,” Council member Dave Trask said in response to audience comments.

“We have given Jeff (Lynn, police chief) everything that he asked for, everything that he asked for in his budget.

“We have not cut one thing he’s asked for, not one. We have not cut one thing that Rose (Peda, library director) asked for. We have not taken any money that I can remember because we’ve been blessed with the taxes that we’ve got. I want them to be here. We gave them opportunities to be sergeants last year.

“That was a request that they gave us, and we followed through on that. He asked for an incident command (vehicle) this year. We did not deny that. We did not deny any of that. I absolutely agree with Councilor Coleman, this is a business. There are costs to run a business, and finance fees are part of that. Now we may be offline there with the amount we’ve put in there.”

An initial proposal of $250,000 was too high, Trask said. Staff went back and adjusted that, “and that’s what I approved of.”

The Police Department and library, for a long time, have not paid for administration and finance services, Trask said.

“If “Public Works and the other people should pay for it all, I think that’s not the right way to run things, but I understand your concerns. We’re not taking anything away from the Police Department.

“He asked, and we gave. Rose asked, and we gave. He asked, and we gave. I don’t know what more you can ask of us. There might be some perception problems, but I hope we can resolve those because we’re not doing anything that’s anywhere close to a scheme at all, none, none. We heard every one of you.”

“I understand everything you folks are saying. I’ve lived here all my life. I love these guys. They’re doing a heck of a job. Public Works is doing a heck of a job, and so is Rose.

“And if you don’t see what’s going in the budgets that we’ve had for the last year or so in the parks and in Public Works, then you’re not paying attention because it’s gone pretty doggone well. It really has. Go look at Sankey Park. Go look at Ashbrook. These guys are getting new vehicles. They don’t get turned down on anything, anything.”

“We will take all public comments to heart,” said Mayor Greg Mahler. “I assure you that. The budget has not been approved yet. We will as a council sit down and discuss this in further detail. I can assure you of that.”

Mahler said he was taken aback by some comments.

“I don’t think anyone on this council is dishonest,” Mahler said. “This City Council has done an excellent job. This is a very thankless job. I don’t see a whole lot of (people) standing up here wanting to join the council. We try our best. I can speak on behalf of the City Council. We do the best we can to look after the best interests of this city and our citizens. Everyone’s not going to agree with us — but in our hearts, we try to what is best for the citizens of this community. That is our goal, so we will take all comments to heart as to what was said tonight. We will not ignore them. We will have further meetings and discussions regarding this.”

The council will consider and may adopt the approved budget at its next regular meeting, at 6:30 p.m. Tuesday, May 28, in the Police Department training room.