City intends to monitor cash flow in troubled economy

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The city of Hillsboro?s drainage project under way at Oak and D streets will not be impinged by cash-flow issues, according to City Administrator Larry Paine, but other capital-improvement projects will be during 2009.

In tough economic times, fiscally responsible households and businesses keep a closer than usual eye on their cash flow.

Larry Paine, Hillsboro city administrator, believes fiscally responsible city governments need to do the same thing.

For only the second time in his 35 years in city administration, Paine has initiated a monthly cash-flow planning approach to the city budget.

?I am planning to monitor 17 key funds out of the 39 that we manage (in the city budget), to watch when cash comes in and when cash goes out so that month by month we have a positive cash flow all the way across,? Paine said.

The cash-flow approach means a lot more work, he said, but it will enable him to better monitor the financial position of the city as it sails into an uncertain national economy in 2009.

By tracking cash flow, Paine said the city is less likely to find itself in a crisis late in the year when money for budgeted projects already has been spent without adequate budgeted revenue coming in.

?It?s going to be a royal pain ?with every letter in capitals?to monitor that,? he said. ?But I think at this point that?s what we?re going to have to do.

?People in this town need to know that we don?t have our head in the sand, and that we?re working with (revenue) we know we can get, and that we will get, in order to make the organization efficient within the realm of the resource we have.?

Revenue decline

One thing Paine noticed is a marked decline in city revenue during the last of half of 2008.

?We are finishing up the fiscal year with not nearly as much cash in ?08 as in ?07,? Paine said. ?We haven?t busted any budgets; in fact, we?ve been under budget. Everything is fine.

?What?s not fine is the fact that we didn?t have nearly as much revenue coming in as we had expenses going out,? he added.

?All of that turned at the end of the year?and by that point we had spent a lot of money and were expecting some things to happen financially, on the revenue side, that didn?t happen.?

Impact of fuel prices

One significant budget culprit in 2008 was record-high fuel prices during the summer. The city ended up paying $300,000 more for ?raw? electricity than its rate schedule had allowed for.

The highest fuel prices came after the city had already adjusted its customer utility rates to catch up with expenses.

?We were planning the fuel-cost adjustment to be 0.0098 cents per kilowatt hour,? he said. ?In August we paid 0.31 cents per kilowatt hour. That?s 316 percent more.?

That overage can be covered with another rate adjustment in the future, but in the meantime it has affected the general fund.

By Paine?s reckoning, utility expenditures exceeded revenue by some $150,000 in 2008. That meant the city did not have the $127,000 it had budgeted to be transferred from its utility funds as revenue into the city?s general fund.

The general fund includes such things as street maintenance and most other ?discretionary? programs and projects.

Paine said fixed expenses such as bond payments must be covered; staff salaries, and the resources that enable staff to work, are the next priority.

?Everything that?s left is what I have to adjust (according to available revenue),? he said.

Invisible impact

Residents may not notice a reduction in projects this coming year because they may not be aware the projects were on the ?to-do? list in the first place.

Paine said the capital-improvement project along Oak and D streets, designed to improve stormwater drainage on the west side of town, will proceed as planned because the money has already been approved.

Likewise, projects related to the construction of the new wastewater lagoon system will be completed this year.

Even the sledding hill and ice rink project, which uses waste dirt from the D and Oak streets project, will proceed because the actual cost to the city is negligible.

But, for example, $20,000 designated to replace curb and gutter along city streets ?might not get done,? Paine said.

Also, the city will not move ahead as agressively as first planned in putting in the infrastructure?streets, water and sewer?in the newly formed Hillsboro Business Park on the north edge of town.

Instead, the city will put in only as much as needed to accomodate the construction of a new dealership facility for Midway Motors.

Wait and see

Whether further cost-saving measures will need to be implemented depends on the course the economy takes over the next year, Paine said.

He decided not to fill a job opening in the street department so the savings could be used for repair materials. But right now he doesn?t anticipate further staff adjustments.

?We?re not doing anything on salaries at this point,? he said. ?Everybody?s going to keep their job as long as I can keep some cash flow going. But we?re going to have to not spend a lot of money on a lot of other things.?

Currently, Paine is projecting the general fund impact to be a 28 percent reduction in 2009.

He added that so far sales tax revenue?which helps fund street repairs and is paying for the new swimming pool?continues to be ?doing well.?

?If that changes, then we?ll have to make up those funds in some other way,? he said.

Unpredictable future

Paine said the first time he initiated a cash flow management approach was in 1998 when he became city administrator at Baldwin City. Financial mismanagement by employees had drained the city of cash.

?The year I did this in Baldwin City, the problem worked its way out,? Paine said. ?But that was in a relatively good economy. What we?re going to experience in the next 12 to 18 months?who knows??

Aside from the uncertain economy itself is the potential impact on the city?s cash flow of unforeseeable weather issues or other emergencies.

?In the long run, our ability to keep these sorts of things working is going to be a bit of a trick,? Paine said.

?Doing this cash-flow planning is our way of saying, ?I might not have control, but I?m going to work this thing month by month so that we don?t go outrageous and fall into municipal bankruptcy.?

?It might happen anyway, but it?s not going to happen because we have our head in the sand.?

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