The Orchard City trustees, at their Jan. 4 work session, opened a dialog on the problem of declining town revenues, dwindling cash reserves, and on possible ways to reverse the trends.
Among the ideas suggested was whether to allow marijuana businesses to operate in town and so provide more tax revenue for local government.
No decisions were reached at the work session, but further discussions are planned.
Mayor Ken Volgamore said the issues will be taken up again at the next work session on Wednesday, Feb. 1, at town hall beginning at 7 p.m. The work session will be open to the public. (See related story).
Trustee Dick Kirkpatrick presented a report he had researched, detailing financial challenges being created by the declining trend in town revenues that is requiring big spending from reserves. He reported declining revenue trends and declining cash reserves in the water fund, the general fund, and in the road fund. "Solutions will be difficult," the report states.
Kirkpatrick concludes in the report, which is based on current and past budget numbers, "It is prudent that we maintain our reserves at or above the level they are currently at, and increase the reserves back to a more acceptable level."
The report goes on to say, "The trending deserves our attention," and then it turns attention to the town's all-important water fund saying, "The water fund is by far the worst of all the funds and has been experiencing large decreases in reserves since 2012 . . . The water fund is experiencing the fastest decline in revenues and we need to address a rate increase to stop this trending to a negative balance."
Water fund revenues remain fairly constant in the face of continually increasing expenses. To fill the growing money gap, cash reserves in the water fund have been spent down and dropped from a high of $1.84 million in 2012 to $1.14 million in 2016, explains the report. The 2017 budget year will see another drop of $373,000 in water fund reserves, according to the 2017 town budget.
The report concludes that if current financial projections hold true, "We are looking at approximately three years before [water fund reserves] go negative, and this further flags the reality that we need to act soon and reverse this trend."
In the general fund, "Revenue for 2016 is $332,000 and that is the lowest in the past eight years. The revenue ranged from the highest $518,000 in 2009 to this year's low," states the report.
Projections for 2017 see a further decline of $108,000 in general fund reserves. The fund is expected to see total revenues of $261,000 which will come up short of meeting expenses that will total $369,000 this year.
Declining revenues for the road fund have caused depletion of its cash reserves also. Needed road repairs will make expenditures outpace revenues by $90,000 in 2017, Kirkpatrick's report states.
The report lays out four possible ways of increasing town government revenue, including the option of allowing marijuana businesses to operate in Orchard City.
"We have been approached with a request for the town to allow growing and manufacturing operations for both medical and retail marijuana. This could generate funding via excise taxation," the report states.
The report's next paragraph adds a second marijuana option: "We have also been approached with a request for the town to look at allowing the retail sales of marijuana. This could generate funding via a sales tax strictly on the retail sales."
A third option proposed is to raise the town's water rates. This idea could include a rate hike sufficient to help cover costs of the town's governmental obligations to residents including roads.
A fourth possibility would be asking voters to approve a first-ever town sales tax. A possible rate of 2 to 2.5 percent on the approximately $5 million of annual taxable retail sales in the town could yield $125,000 per year for roads, and for other uses. Trustees have noted that a sales tax could also require imposition of a business license in order to track tax collections and payments data. Should the sales tax option be pursued by the town board, voters can demand ahead of any vote that the proposed uses for any tax money raised be specifically stated in the tax vote ballot question.
The report compiled by Kirkpatrick also suggests issues that the trustees should be focused on as they try to address the downward trends in town finances. Those issues include:
• Trustees need to determine a level of reserves maintained in each of its budget funds (i.e. roads, water, etc.). Delta County aims to keep a 25 percent-of-budget cash balance reserve in each of its departmental budgets and in each of its budget funds. The county's $31.5 million in projected spending next year includes over $600,000 taken out of reserves, according to the county administrator. Budget documents provided by the Town of Cedaredge show it will spend over $151,000 from its reserves across all of its budget funds in 2017.
• Can a recovery in the minerals leasing and severance tax revenues be expected with new activity at North Fork Valley mines?
• Will a sales tax be enough to maintain needed levels of general fund and road fund?
• Is a professional [water] rate study needed?
• If the community rejects the idea of marijuana business taxes as a means of funding town government, then are higher water rates and a town sales tax the only available options?