The Midyear Budget Review and a Ten Year General Fund Analysis were presented at Tuesday's Fillmore City Council Meeting despite the fact that most sitting at the dais had had very little sleep the night before due to the Goodenough Fire that threatened the town.

A Financial Analyst, Frank Catania, was hired late January and presented the Council a Ten Year General Fund Analysis on where the City has been and where it may be headed, depending on different factors. Acting Finance Director Glenda D. Jay also presented a Midyear Budget Review which also was heavily dependent on varying factors.

The varying factors both Catania and Jay spoke of are the $2.9 million overpayment by the Board of Equalization (BOE) in FY 2008-09 and the 2003 Tax Sharing Agreements that have been in negotiations with BOE for the past three years. The overpayment was an error on the part of the BOE. The Tax Sharing Agreement concerned businesses that had an office located in Fillmore where their sales tax was credited, but the actual warehouses from where their products were shipped were located in various other cities. Those cities sued Fillmore stating the sales tax revenue should be credited to them. According to Catania this disagreement has resulted in millions of dollars being withheld by the BOE, adding that at the end of last year "...the BOE has withheld in excess of $25.6 million of local sales tax revenue due to the City....normally the City would retain $2.9 million of these withheld funds." Adding to this is the fact that the BOE is requiring Fillmore to pay back the overpayment by withholding its percentage of Sales Tax due the City. The FY 2011-12 Financial Statements show a $1.0 million unpaid balance owed to the BOE from the overpayment, along with an estimated $1.3 million future liability resulting from the sales tax sharing agreements; but that number could change when negotiations are finalized. Councilman Douglas Tucker asked how much money the BOE has held back in the last five years but was told by the City Attorney Tiffany Israel that that could only be discussed in closed session. Tucker then remarked that there was some confusion over the amount and said the previous City Attorney Ted Schneider disagreed with those numbers and he would like both Schneider and Israel to get together on the numbers to "know we're all on the same page" adding that having some historical knowledge might be helpful. There was then some discussion on how the BOE does not give out much information on such items basically leaving Fillmore to accept what amounts the BOE send them.

There is another factor that has impacted Fillmore's bottom line; the City's cost for legal representation has increased due to varying legal actions that include defending actions taken by the BOE and the cities associated with the Tax Sharing Agreements, the El Dorado lawsuit, and personnel actions. According to Catania, during the six-year period FY 2002-03 to FY 2007-08 the average cost for legal services was slightly over $100,000. The average cost from FY 2008-09 to FY 2011-2012 was an excess of $409,000 which is skewed by a $690,538 expense in FY 2009-10.

Not all the decisions made regarding these two fiscal problems were necessarily bad ones. For one, the decision to keep the overpayment was like the City getting a $2.9 million dollar loan at no interest and according to Catania that is what "...helped you get through these tough times...you'd be scrapping the bottom of the barrel if you'd paid that back."

Catania also reported that the 10 years prior to Jay's employment, the City kept poor records with inconsistencies; expenditures were charged and attached in different ways from year to year and a lack of detail sufficient to explain the variances. This was so much so that Catania stated "....it is not possible to guarantee that the amounts listed in the 10-year cash flow history and 10-year budget history are completely accurate.”

Other factors that have complicated the City accurately showing Fillmore's financial stability are that Fillmore received two large grants in 2006-2007 inflating the City operating revenue. One was a partial payment of $630,000 of a $700,000 grant from the Federal Emergency Management Agency (FEMA) for flooding in 2005. The other was a partial payment of $500,000 of a $600,000 grant from the California State Waste Management Board. This too has resulted in problems for the City. The FEMA grant may be rescinded and request the $630,000 be returned. The problems arose due to a change in the scope of the project to conflicting requirements from regulatory agencies.

Mayor Rick Neal asked if there were a substantial savings by contracting out utility billings. To which Israel responded that there may be legal restrictions when laying off city workers and contracting out their work.

Jay's Midyear Budget Review differed little from last year's report in that the General Fund has a projected zero fund balance as of June 30, 2013 and may have a deficit of $1.5 million June 30, 2014. Jay's report stated, "It is important to acknowledge that the General Fund cannot support the services it currently provides. Services in the General Fund equals about $6 million and the revenues coming in are about $3.6 million plus transfers in from other funds of about $900,000 for a total of $4.5 million......Even if the sales tax issue is resolved in favor of the City, it will result in an estimated $650,000-$750,000 increase in annual revenue, which is not enough to close the estimated annual structural deficit of $1.5 million gap.....some level of additional reductions may need to be made in the upcoming fiscal year." The bottom line is that either additional revenue must be found or there will be more cuts in services.

The two largest financial problems for the City to resolve are the Recreation Fund (cumulative deficit $49,067 annual deficit $4,339) and the Swimming Pool Fund (cumulative deficit $191,105 annual deficit $35,680) with a combined cumulative deficit of $240,172 and an ongoing annual deficit of $40,019. The Recreation Fund will receive $1,770 more than expected due to an increase of rentals of the parks and community center and fees, but the sports programs are generating less revenue than anticipated. The swimming pool is the most difficult to resolve. Closing the pool for three months and all the other efforts has cut the deficit in half but there is still $36,000 needed to break even. There are talks with the YMCA about taking over the operation of the pool part-time and trying to find sponsors, but if they cannot resolve this by June 30, 2013 the pool may have to be closed during the FY 2014 budget deliberations.

Tucker asked Jay how the City is still be running a deficit after all the layoffs to which Jay responded that there has been an increase in CALPERS (retirement funds to City employees) and insurance rates and other costs. Tucker then asked that the Council receive an analysis of benefits or savings in contracting out services compared to keeping City employees. He also asked for some alternative options that could be considered.

Neal asked about other funds such as the anti-graffiti supply fund that was cut from the budget last year and was told the City is still charging for graffiti supplies. Acting City Manager Rigo Landeros said they will ask some of the clubs in town such as the Rotary Club to help with buying supplies. There was also discussion of the $35,000 block grant received from the County for code enforcement, but the revenue from code enforcement fines basically goes to the courts. The discussions ended with Tucker stating, "I have a lot of red flags (relating to the Midyear Financial Report). Some of the questions we didn't get answers to." But he, along with the other Council Members, accepted the budget.

The Council then spoke of the firestorm that swept through part of Fillmore the night before. Landeros, who is also the city Fire Chief, stated, "I received emails from all the council members asking what they could do.”

He then informed everyone that gang officers came in from other towns and drove around the evacuated areas in unmarked cars watching over the homes. Mayor Pro Tem Manuel Minjares wanted to thank his neighbors, "They basically saved my home." Police Chief Monica McGrath responded, "This was a firestorm with its own mind and will" adding that everyone was so thrilled with the community support. "It could have been worse, but the wind just stopped." Landeros, who wears two hats had his hands, full fulfilling both jobs and said he was grateful that city employee Annette Cardona took care of various chores including working with the Red Cross to help evacuees. He also thanked Fillmore Citizens Patrol, adding that the City really came together.