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Durango sees budget shortfall on the horizon

General fund revenues will not keep pace with expenditures

Basic city services such as street maintenance, 911 communications and police operations may face a budget shortfall come 2020.

Sales-tax collections and other revenue streams aren’t expected to keep pace with expenses needed to fund many municipal services, such as public safety, that rely on the city’s general fund, according to long-term budget forecasts. Other basic services, such as water, sewer, trash and recycling, are paid for through utility bills and are managed separately from the general fund. They are on stable financial ground after rate increases in recent years.

The city expects that in 2020, general fund expenses will be about $39.2 million and revenues will be about $39.1 million, a shortfall of $100,000. But in 2021, the shortfall is expected to be $600,000, and in following years, if nothing changed, the problem would continue to worsen. By 2027, the gap would be about $2.3 million.

The city, it would appear, needs to tighten its belt or increase revenue. Residents must weigh possible tax increases against reductions in service, said City Manager Ron LeBlanc in an interview.

“What we need to do is have a community conversation,” he said.

He expects the process will include surveys, public workshops and other outreach efforts to community groups.

Cost drivers and projections

Salaries and health insurance benefits are largely responsible for the projected shortfall because those expenses make up 59 percent of the general fund budget, and as they increase, it is a large hit to the budget, said Finance Director Julie Brown in an email. The projection includes hiring new staff based on trends from previous years, but the new employees are not predetermined.

“As the community conversations and priorities are discussed, this would guide us on staffing level increases or decreases,” Brown said.

To come up with the projections through 2027, Brown reviewed 10 years of expenses and found costs rise at about 5 percent a year.

On the revenue side, sales tax collections have increased about 2.66 percent on average each year over the last 10 years, and she projects that modest sales-tax growth would continue.

Internet sales, oil and gas declines and the corresponding population decline in Farmington could all be contributing slow sales-tax growth seen in recent years, LeBlanc said.

“In talking to some businesses, some of the traditional stores are doing OK. Others are struggling. I think the grocery stores reflect just flat sales, and that’s a big part of our market basket,” he said.

Lower enrollment at Fort Lewis College could also be a factor in slow sales-tax growth, Mayor Dick White said.

The sluggish growth is not a statewide issue. A recent survey showed many Colorado cities are seeing sales tax grow, said Sam Mamet, executive director of the Colorado Municipal League.

Raising revenue

The departments with the greatest expenses in the general fund are public safety services, including police, the 911 center and the city’s contract with the Durango Fire Protection District, Brown said.

City voters will be asked this November to raise property taxes for the fire district, but that will not solve the larger budget imbalance.

Parks and Recreation is another large part of the general fund, but it covers 90 percent of its expenses through fees, Brown said. In contrast, Durango Police Department has limited opportunity to collect fees.

Overall, fees account for only 11 percent of the general fund revenue, and as a small portion of the budget, fees would have to increase significantly to make a difference, she said.

Voters could be asked to reallocate the 2005 half-cent sales and use tax to help the general fund. The tax generates about $4.3 million each year and half is used to pay for the Durango Public Library and Florida Road reconstruction, and the other half funds open space purchases, parks and trails.

The half that is not dedicated for debt could be used for general fund operations, but it would not be a cure-all.

“We would still be struggling to tackle infrastructure, deferred maintenance and facility needs,” Brown said.

Raising property taxes is another possible option. The city’s property tax accounts for 3 percent of revenue and generates about $1.37 million annually, while sales- and use-tax revenues generate about 62 percent of the budget.

“To cover ongoing operational expenses for the next five years or so, the mill levy would have to be increased to generate approximately an additional $3 million per year,” Brown said.

Meeting all the city’s budget needs will likely require a number of ballot questions, White said.

City officials started the conversation about city long-term needs during a series of meetings in September. There’s great value in having discussions long before putting a question on the ballot, White said.

“Most communities have been willing to raise taxes for understandable issues,” he said.


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