City would have 10 months to make cuts if Prop. 409 fails

August 12, 2018

Lake Havasu City officials have stated that a no vote on Proposition 409 would result in cuts to city services.

What exactly those cuts would be, however, is anyone’s guess.

According to City Manager Jess Knudson, if the ballot intuitive is voted down by voters on Aug. 28, the city will have 10 months after the fact to determine what specific services and programs would be cut. He said the cuts would impact the 2019-2020 fiscal year and is estimated to be about 20 percent of the general fund.

“We would have the time it takes to have those discussions and talk to the residents about what services and programs that they would like to see cut,” he said after stating it was inappropriate to speculate on the outcome of the election.

Implemented in 1979, state-imposed expenditure limitations control how much cities and towns can spend in any given year, which is determined by a formula. Havasu’s formula consists of a base limit of $4.7 million – which was the city’s operating budget in the fiscal year 1979-1980 – that is adjusted each year for full-time population and inflation growth since 1979-1980.

Over the years, however, Havasu has outgrown its formula, outpaced by population growth and higher-than-expected costs to the city, according to Mayor Mark Nexsen.

“It (the formula) doesn’t necessarily reflect inflation for our community;” he said. “Look at housing and construction costs right now. … You can’t even find somebody to do the work, they’re so busy and if they’re going to do the work, it’s at a cost that’s much higher than has anything to do with inflation.”

A permanent base adjustment ballot initiative, dubbed Prop. 409, will go before voters later this month proposing a $5 million increase to the city’s current base limit in the formula. According to the ballot’s text, if passed, the city’s expenditure limitation in the fiscal year 2019-2020 is estimated to increase from approximately $61.5 million to $126.7 million.

In June, the City Council approved a $144 million budget for the 2018-2019 fiscal year. The city’s general fund within the budget fell below the year’s $59,782,853 expenditure limitation.

Exceeding the expenditure limitation can result in a penalty of withheld money from the state, which, according to Councilman Cal Sheehy, would total about $2.5 million. He added that, over the last two budget years, the city has used credits to avoid exceeding its expenditure limitation but that those credits will not be available next fiscal year.

“If next year’s budget was identical to this year’s budget, excluding the credits that we were able to apply, we would be over the expenditure limitation and, at that point, we would lose the penalty for being over the expenditure limitation,” said Sheehy.

In the past, the city has also issued debt as a way around its expenditure limitation because debt proceeds and repayment towards a debt are excluded from expenditure limitation calculations. However, city officials say it’s impractical to use debt to continue paying for ongoing costs, such as salaries, even though that’s one option allowed by the state constitution.

“It’s irrational to take a one-time loan to pay for ongoing services because it could get us by for a year but then what do you do on year two?” said Knudson.

Both Nexsen and Sheehy reiterated that, whether passed by voters or not, the ballot initiative would not result in increased or decreased taxes.

“Our budget is based on the annual revenues we receive and we just don’t want the state telling us … that they’re not going to let us spend it to repair a park or repair a pipe or whatever,” Nexsen said. “What it (a permanent base adjustment) allows us to do is budget locally based on the revenues we receive on an annual basis.”

Update hourly