Originally Published: December 31, 2008 10:08 p.m.
Housing crisis hits home as local governments slash spending, jobs
Caught up in the housing market crash, local governments rushed to cut everything from employees to electricity use as revenues plummeted in 2008.
With revenue sources heavily dependent on sales taxes from construction and retail/tourism, the state and its counties and municipalities faced some tough decisions.
Arizona, California and Nevada were among the hardest-hit states in the housing foreclosure crisis.
Prescott Valley was issuing as many as 143 single-family home building permits per month this century, but in 2008 the monthly count never even hit 20. The town's budget dropped 17 percent in the current fiscal year that started July 1, as the town initiated a hiring freeze and cut departmental budgets by 10 percent.
Chino Valley cut this year's budget a whopping 69 percent and laid off 13 employees in April.
Prescott eliminated even more positions, 30, as it sought to bring expenses in line with revenues.
The relatively new and small municipality of Dewey-Humboldt had an easier time shouldering the economic downturn, cutting its budget by eight percent or a half-million dollars. The town actually cut its two-percent sales tax in half this year, after incorporating with the higher tax about four years ago.
Yavapai County, on the other hand, still has to figure out how to deal with a $3.7 million shortfall this fiscal year after voters rejected the county's attempt to increase its jail district sales tax by a quarter-cent.
The county already supplemented its jail district with $1.9 million from its general fund, cut eight positions, and postponed major capital improvement projects such as a new courthouse and justice complex.
Schools also felt the economic pinch, even though they depend heavily on property taxes. Chino Valley Unified School District, for example, cut 24 positions.
Local governments fear more losses in the form of state revenue sharing, as the Arizona Legislature prepares to convene for its 2008 session on Jan. 12.
The Legislature cut its current budget by $300 million compared to the previous fiscal year that ended June 30, and now lawmakers expect they'll have to cut this year's budget again by more than $1 billion when they convene this month.
County economy goes from bad to worse in 2008
The Yavapai County Board of Supervisors started the year with high hopes and grand plans to build new government buildings, remodel existing offices, build a new juvenile detention center and pave the county with new and improved roads.
However, the county economy went from bad to worse and by the time the 2008-09 budget hearings started in May, the board found itself facing tough decisions not only about how to pay for its capital improvements program, but also how to balance the budget. The board needed an extra $5.7 million to pay off the jail district debt - $1.9 million for fiscal year 2007-08, and a projected $3.8 million deficit for 2008-09.
The board in June approved an $81 million balanced budget by freezing employee salaries, enacting a hiring chill, cutting county vehicle use and transferring $1.9 million from the general fund to the jail district.
In April, the board signed a $50 million lease-purchase agreement to pay for some of its capital improvement projects that included a new Camp Verde Superior Courthouse; a new juvenile detention center and government building complex along Prescott Lakes Parkway; a new evidence storage building and impound yard for the Sheriff's Office; and a re-design and remodel of county offices and buildings on Commerce Drive.
Despite the budget cuts, the county laid-off eight employees in October. In a last-ditch effort to get money for the jail district deficit, the board asked voters to approve a one-quarter cent jail sales tax on the November ballot.
Voters rejected the ballot leaving the county general fund and jail district $3.7 million in the hole.
By the end of the year, the board put capital projects on hold except for construction of the Camp Verde courthouse and site preparation and preliminary design work at the Prescott Lakes Parkway site.
At the board's Jan. 5 meeting, Board Chairman Tom Thurman promises to re-prioritize the county's construction program and discuss cutting road projects, county services and closing the Gurley Street jail.
Prescott takes long-term approach to economic woes
For more than a year, the responses to a faltering economy have been gradual at Prescott City Hall - an approach that has resulted in fewer obvious impacts to the general public.
Even though the city has eliminated some 30 staff positions, deferred many of its vehicle purchases, and limited its raises, overtime and travel for employees, the average local resident probably has felt minimal effects.
"We've been doing it methodically and thoughtfully," City Manager Steve Norwood said of the steady cuts that have taken place. "So there is less shock publicly."
That all could change next year, however, if the economic downturn continues.
"If we continue to eliminate positions, we can't keep doing it without reducing services," Norwood said.
And by most estimates, the city's sales tax revenues - which pay for services such as police, fire, and parks, recreation and library - have yet to show any sign of recovery.
City Budget and Finance Director Mark Woodfill said the economic slowdown began in about the first quarter of 2006, and basically has been on a downward trend ever since.
And for the next fiscal year, Woodfill said, "It wouldn't be prudent to project any type of increase in sales tax."
Norwood projects a turnaround by about summer 2010 - still more than a year away. And even then, he said he doesn't expect dramatic changes, because "people's behaviors have changed."
Mayor Jack Wilson noted that local sales tax is not the only area where the city is experiencing a downturn; state-shared revenues in categories such as income tax, state sales tax, and gasoline tax are also down dramatically.
"Basically, we've got a big, big problem," Wilson said. "We're at the mercy of the state."
PV government avoids layoffs by trimming costs
The town government has weathered the economic slowdown by preparing as early as October 2007 for a drop in revenues, town officials said.
"I think we are keeping our heads above water generally," Economic Development Manager Greg Fister said. "We are experiencing some bad times, but I don't think it is as tough as some (local governmental) jurisdictions in the state."
With bad times on the horizon, Town Manager Larry Tarkowski in October 2007 imposed a freeze on hiring and new capital projects, and instructed department heads to cut their budgets by 10 percent. He said the town has about 225 employees, with the hiring freeze creating a vacancy rate of 8 percent.
Tarkowski's foresight proved true for a local government that lacks a property tax and derives 30 to 35 percent of its revenue from new residential and commercial growth.
Town officials anticipated a continuing slump when they prepared the budget for 2008-2009, which concludes June 30, 2009. In fact, the Town Council adopted a budget of $92 million for 2008-09, down from $111 million for the past fiscal year.
The council adopted a smaller budget in part because a number of capital projects had been completed, according to Bill Kauppi, management services director.
Prescott Valley collected $4.1 million in sales tax revenues from July through October, down 9 percent from $4.5 million during the same period in 2007-08, Fister said.
The direst news came on the home front. The town issued only one permit for single-family homes in September.
The downward trend began in August 2007 with 27 permits for single-family homes, Fister has said.
Town officials also seek to get a piece of the pie from the economic stimulus package that incoming President Barack Obama has promised.
Businesses feel effects of slow economy
The housing glut, credit crisis and foreclosure wave are just part of the economic tsunami that tore through the tri-city area in 2008.
Linens N Things closed at the Prescott Gateway Mall, American Home is closing its doors at the Frontier Village Center, Ted Lamb shut down his Subaru dealership but Tim's picked up the Subaru line. The new Wal-Mart Supercenter in Prescott Valley may not open until later this year or in 2011.
Employers cut jobs, homebuilders shut down and Prescott Valley had only one single-family (detached) new home permit in September.
Greg Fister, manager of economic development for the Town of Prescott Valley, says the economic downturn is unlike anything he has experienced.
"I've never seen the number of projects that have been postponed or cancelled in the past year," he said.
Fister says declines in consumer spending and tightening credit markets are taking a toll on retailers and other business owners.
"So it's up to me to make sure we don't fall completely off the radar and stay in the minds of companies like Trader Joe's," he said.
Jane Bristol, director of economic development for the City of Prescott, said she was doing one to three site visits a month with business owners 18 months ago.
Business owners are grappling with excess inventory and downsizing their workforce.
Some are unable to sell or lease existing space and having difficulty tapping capital or finding available credit.
"Luckily not all businesses are affected by everything listed, but many are facing these challenges for the first time," she said.
But it's not all doom and gloom for the local economy.
Cracker Barrel and The Home Depot opened in Prescott Valley while Tim's Toyota and the York family celebrated anniversaries of their car dealerships in 2008.
The local housing market also offers some great buying options and prices at the pump went from more than $4 per gallon in summer 2008 to a state average of $1.589 per gallon in late December.
Citing lackluster economy, CV cuts workforce
In late April the Town of Chino Valley laid off 13 employees, one of whom it rehired, primarily because of poor economic conditions around the state.
The layoffs affected all of the town's departments and every level of employee. Later in the year, Parks and Recreation Director John Willoughby, Finance Director Linda York and Public Works Director Jim Confer retired.
At a town council study session in early February, Town Manager Jerry Stricklin said he did not anticipate the municipality laying off anyone.
For fiscal year 2008-09, the town temporarily froze employees' cost of living adjustments (COLA), merit increases and benefits to offset a projected $1.4 million shortfall in the budget.
In April, the budget reflected total General Fund revenues of $9,552,489, but preliminary revenue estimates for the upcoming fiscal year showed a conservative estimate of $8,459,258.
As of Jan. 31, York said the town's General Fund was running 7.6 percent, or $695,170, behind revenue projections. A sharp decrease in construction sales tax revenue was partly responsible.
In response, the town made two rounds of budget cuts, reducing operating costs by $546,791 while obtaining $270,956 in salary savings.
"Our department heads have made fairly significant budget cuts and have monitored expenses, so we're now in a stable condition with revenues and expenditures," Stricklin said in February.
With $817,747 in total cuts, the budget stabilized, but York said the economic downturn in the residential construction market would negatively affect the FY 2008-09 budget.
Stricklin said the "bare bones" budget provided for basic service levels with no new capital projects.
Chino's 2008-09 total budget with transfers is $24,491,963. Its 2007-08 budget was $79,792,071.
The town did not include any new positions in its current budget, which assumes its hiring freeze would continue through next June.
State cuts weren't enough to bridge gap
The Arizona Legislature struggled until the final days of its fiscal year to approve narrowly a 2007-08 budget, as the housing crunch hit the Copper State especially hard.
The 2008 legislative session lasted 166 days, just seven days short of the 173-day record set in 1988. Facing revenue shortfalls, legislators further cut their 2007-08 budget to $10.2 billion, and then quickly approved a 2008-09 budget of $9.9 billion on June 26. That's about the same as the 2006-07 budget after years of revenue leaps.
Alongside lump-sum chops to state departments, the budget cut hospital reimbursements, froze payments for developmentally disabled service providers, deferred state payments, and suspended college building projects in anticipation of new lottery proceeds that haven't necessarily materialized.
Municipalities sued the state in November after Gov. Janet Napolitano billed them $30 million to help cover the state shortfall without a two-thirds vote of the Legislature.
All three predicted a special session would occur for more cutting, but that never materialized.
State lawmakers generally agree the current year's budget now faces at least a $1.2 billion shortfall in corresponding revenues. Revenue estimates have continued to worsen since July, alongside the housing market and general economy. Next year isn't looking any better.
"Everyone knew it was going to be bad, but we decided to postpone making courageous and bold budget fixes and now we've put ourselves further in the hole," said Rep. Andy Tobin, R-Paulden, who opposed the plan.
Other local lawmakers, Rep. Lucy Mason, R-Prescott, and Sen. Tom O'Halleran, R-Sedona, voted for the final budget that the Senate negotiated with Democratic Gov. Janet Napolitano.
State leadership is changing this year, with a more conservative Legislature and Republican Jan Brewer replacing Napolitano as she leaves for an Obama Cabinet post.
Operating in the black, Dewey-Humboldt looks to improve infrastructure
Dewey-Humboldt's Town Council in early June approved the municipality's $5,697,919 fiscal year 2008-09 budget, highlighted by an allotment of more than $1 million for roadway improvements.
Town Manager William Emerson said Dewey-Humboldt is operating with a surplus because of the conservative budgets that the council has approved since the town's incorporation in 2004.
As part of the 2008-09 road upgrades, the town hired crews to grade and chip seal public dirt roads and provide some construction where rights-of-way exist without a road.
Included in the total budget's Roads and Engineering section is a recommended 10-year flood culvert to fix the town's Prescott Street Agua Fria River crossing near downtown Humboldt.
During certain times of the year, motorists have difficulty crossing the connector road, particularly during summer monsoons.
The crossing provides the only way for Humboldt residents driving east of the Agua Fria to reach properties west of the river without traveling to Highway 169.
For future capital improvement plans, the council agreed May 20 that the town should not pursue buying downtown Humboldt's historic properties.
The council originally set aside $300,000 for the purchase, but the town's initial valuation of those properties is $900,000.
Council agreed to reallocate the $300,000 into a Capital Improvement Program - dedicated to improving infrastructure, such as roads and trails - and not spend the money immediately.
Also in this budget year, the town is receiving a slightly higher level of law-enforcement protection from the Yavapai County Sheriff's Office.
As part of the municipality's intergovernmental agreement with YCSO, a sheriff's officer will spend about half of his or her shift responding to calls and the other half patrolling for illegal activity within the town's limits.
School districts cut costs
The worsening economy forced area school districts to cut costs - some as simple as turning off lights and computers when not in use.
With utility bills that often exceed $1.5 million annually, school officials hope that small energy saving efforts will help them save money.
Humboldt Unified School District
The Humboldt School District Governing Board set a goal to reduce the district budget by five percent. The district office is leading energy saving efforts by reducing the use of overhead lights and turning lights off when a staff member is out of his or her office.
HUSD is using energy efficient lighting and low-flow water system in its new buildings. District officials expect the new lighting to save the district 55 percent of energy use costs.
HUSD also plans to replace kitchen appliances with Energy Star appliances when necessary, and officials are looking at installing solar panels on the large commodities freezer.
HUSD officials have consolidated bus routes and are thinking about reducing the number of students bused to school depending on the distance they would have to walk to school.
HUSD bought 25 new 72-passenger, fuel-efficient buses and retired old buses.
Superintendent Henry Schmitt said the district replaced vans with new 14-seat MicroBird buses for coaches with small teams.
District officials are analyzing tax credit donations to determine a way to pay for athletics, coaching stipends, AIA transportation and field trips.
The district reduced the number of vans available for employee use from eight to four. It also reduced the number of cars employees use to attend professional workshops and required meetings from three to one.
Schmitt said the district is encouraging employees to use a district car because bulk fuel rates are better than at standard gas stations.
Prescott Unified School District
At Prescott Unified School District an energy usage review by Arizona Public Service two years ago resulted in lighting changes and low-flow water systems. The district installed motion sensors in classrooms to turn lights off when the rooms are empty.
District officials also control classroom temperatures from a central computer. The temperature is set at 67 degrees. Teachers can adjust the temperature, higher or lower, by three degrees.
The PUSD Governing Board asked the high school athletic department to pay for 25 percent of AIA travel expenses.
Only two PUSD employees take home a district vehicle. A mechanic in the transportation department provides 24-hour response time for bus problems. An employee in the service center also takes home a vehicle to provide 24-hour response time.
PUSD officials developed a plan to help individual schools manage and monitor the use of substitute teachers. The district pays subs $75 a day.
For the past three years, the cost of paying for subs has exceeded the amount budgeted.
Assistant Superintendent Dr. Chris Reynolds asked building principals to identify employee who would require a sub. Reynolds multiplied that number by seven, establishing a "bank" of sub days for each school.
Site principals are developing individual plans to cover additional sub costs if his or her school uses its bank of days. The plans could include having other teachers cover a class during his or her prep time, or canceling pullout programs and putting that teacher in the classroom for the day.
Chino Valley Unified School District
CVUSD officials tried to budget for the worse case scenario, cutting 24 classified positions during the past year and eliminating seven certified positions through attrition.
Superintendent Duane Noggle said the district put several programs on hold, including the expansion of after school and alternative school programs. The district also postponed a Strategic Planning Project with an estimated cost of $80,000.
CVUSD implemented some immediate cost-cutting measures.
Noggle said maintenance crews removed every other fluorescent light in the hallway at Territorial Elementary School; put timers on the lights in the parking lot; and set thermostats at 68 degrees.
CVUSD officials urged employees to use the color copier only when necessary and use e-mail instead of paper for memos. District officials asked employees to use paperless leave forms.
District officials also tried to educate staff members how to cut energy costs, such turning the thermostat down when a classroom is hot instead of opening outside doors.
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