The city of Arnold is traveling towards a budgetary crossroads, City Administrator Bryan Richison said.
Arnold’s newly adopted budget shows the city ending the 2021 fiscal year with a $2,845,871 shortfall in its general operating fund, so the city will have to use reserve funds to make up for the deficit spending and balance the budget.
City officials are starting this fiscal year, which began Sept. 1 and runs through Aug. 31, 2021, with an estimated $9,553,400 in reserve funds.
The City Council voted 7-0 Aug. 20 to adopt the 2021 budget. Ward 2 Councilman Brian McArthur did not attend the meeting, which was held via the Zoom video conferencing app.
“In general, our expenses have just been outpacing our revenues,” Richison said. “It is getting tougher every year to balance the budget. At some point, if we continue on this trajectory where our expenditures keep growing faster than our revenues, then we are going to run out of money (in reserve funds). We are on borrowed time, and we will have to address that.”
The numbers
The new budget shows the city bringing in $18,450,889 in revenue. However, Arnold anticipates spending $20,866,374 for general operations and transferring $430,386 from its general operating fund to subsidize the operation of the Arnold Recreation Center. That’s a total of $21,296,760 from operating funds this fiscal year.
After using reserve funds to make up that, it will leave Arnold with $6,707,529 in reserves at the end of this budget year, city documents show.
Richison said he personally would not want the city’s reserve funds to dip below $5 million, although that is not a “hard-fast rule.” He also said he had not talked to council members about how much of Arnold’s reserves may be used before the city looks into cutting expenditures.
“For me, a budget that would lose $2.4 million again would take (the reserve fund) number down too low,” Richison said. “That could be a big topic next summer. That is why I say we are on borrowed time.”
Expenditures
The city’s largest expense each year is the salaries and benefits for its employees.
Arnold has 185 full-time and part-time employees, and the city anticipates spending $12,011,906 on their salaries and benefits this fiscal year, director of finance Bill Lehmann said.
The new budget includes a 2.5 percent pay raise for employees, which translates into the city spending $991,270 more on salaries and benefits than last year, when there were 186 full-time and part-time employees and salaries and benefits cost $11,020,636, Lehmann said.
“A big part (of the rising expenditures) is the pay increases,” Richison said.
Another large expenditure in the new budget is an anticipated $750,000 bill for a road and stormwater improvement project in the Melody Lane subdivision.
The project will cost an estimated $2 million and is designed to improve the roads and drainage systems on Melody, Temp, Harmony and Rhythm lanes. The council is expected to vote tonight (Sept. 3) on a construction contract for the project, which means work could start soon, Richison said.
Richison said the city plans to draw $1 million from its share of Jefferson County’s 1/2-cent sales tax for road and bridge projects to help cover the road improvements in the Melody Lane subdivision, and Arnold has a $250,000 grant from the state to cover the rest of the project.
The city initially planned to use funds from the $9.2 million profit Arnold received after selling its sewer system to Missouri American water in 2014. However, the city already has used that money to fund other major road projects and routine maintenance over the past five years.
Another large expenditure for the upcoming fiscal year is the construction of a $370,000 wash station for Public Works. The station will be built at 2900 Arnold Tenbrook Road between two new buildings that are being constructed for the city’s Public Works and Parks and Recreation departments.
The new wash station should allow city employees to better maintain Arnold’s dump trucks, which are used for snow removal, because workers will be able to get under the trucks to remove salt that has damaged the city’s seven trucks by corroding the underbelly of the trucks and damaging the engines. Richison said it costs the city about $15,000 each time it has to repair a truck. Arnold had to spend $28,634 to repair two trucks and arrange to lease a new truck this fiscal year.
Richison said the new wash station will likely save Arnold money in the long run since proper maintenance should extend the lives of its trucks.
“By the time it is all said and done, it will have paid for itself in the money we save from repair and maintenance,” Richison said.
Rec center
The city expects to spend $175,139 more to operate the rec center at 1695 Missouri State Road during this fiscal year than last fiscal year. The 2020 budget had the city paying $255,247 to subsidize the rec center’s operations, while the current budget calls for Arnold to pay $430,386 to keep the rec center open.
Arnold anticipates the rec center generating $2,310,072 in revenue this fiscal year, while costing $2,740,458 to operate. Richison said the revenue projection may be too high since the rec center has seen a decrease in memberships and activity because of the COVID-19 pandemic.
Richison also said it will cost more to operate the rec center during the upcoming fiscal year because of the increased expense for cleaning supplies and providing personal protection equipment for employees to try to limit the spread of the coronavirus.
“The revenue is pretty stagnant because people are not using (the rec center),” Richison said. “I don’t blame them. I wouldn’t be that excited to use exercise equipment that a bunch of people have used no matter how much you try to clean it. We are expecting a bad year because of COVID.”
Richison said Arnold has put off some expensive repairs for the rec center for a second straight year. City documents show $933,500 worth of maintenance projects at the rec center that are not included in the current budget, and most of those projects were not funded in the 2020 budget either.
Richison said the city had been lowering its cost to run the rec center, but COVID-19 and the age of the buildings are starting to reverse that trend and lead to a rise in expenditures.
He also said the city still has to pay off the $8,455,000 debt it incurred to build the facility. Arnold spends $889,650 each year to pay off the bonds it sold to finance the rec center, and the city should have the building paid off in August 2031.
“We are just trying to do our best to get to when the debt is paid off, and that will help,” Richison said. “If people come back like they used to, we will be in good shape. If the numbers are going to be permanently lower, that makes it tougher. I don’t know what to expect.”
COVID-19 concerns
Richison said one big obstacle in preparing Arnold’s 2021 budget was the uncertainty of how the COVID-19 pandemic will affect revenue. So far it has not greatly affected the city’s sales tax revenue, with Arnold collecting more from sales tax in 2020 than it did in 2019, he said.
However, with uncertainty surrounding how long the pandemic will last and its overall effect on the economy, Richison said it is hard to predict how much revenue the city can expect to collect.
“You would like to have more confidence in the numbers you are putting together, and it is hard to do that in this environment,” Richison said.