HOLBROOK — The Navajo County Board of Supervisors got a look at the preliminary fiscal year 2020 county budget of $42.9 million, and the cuts planned thus far to meet the challenge of the county’s decreasing revenues.
Navajo County is dealing with an estimated drop in county revenues of about $2 million due to the loss of income from the closure of the Kayenta Mine and the Cholla Power Plant.
Paige Peterson, county finance director, made a presentation with an overview of the upcoming fiscal year’s budget at the the board’s meeting on Tuesday. She said that the county will have a balanced budget in 2020, even with rising costs and declining revenues.
The fiscal year 2020 county budget reflects a $1.2 million in cost-cutting measures.
“It’s really a county-wide collaborative effort,” she said, of the budget cuts at the meeting. She said that the county departments have worked to keep costs low and control spending.
“We asked the departments to bring forward reductions they can incorporate over two years, and the percentage varies between approximately 4 percent to 13 percent. Elected officials and department directors came together and were able to come up with $1.2 million in year one and $2 million in year two,” Peterson said in an email to the Independent in which she laid out the budget in greater detail.
“Each one of them expressed concerns to the board about how their operations will be impacted as we implement so many more reductions in year two,” she wrote.
Seventeen positions have also been eliminated, according to Peterson, county officials said that all of the staff reductions but one have occurred through retirement or leaving vacant positions unfilled.
Although the county has been successful so far in accomplishing a budget downsize, Assistant County Manger Bryan Layton says that doesn’t mean the proposed jail tax that, Prop 421, that will be on the ballot this fall is unnecessary.
“This year and next year, we will have to make more deep cuts in services in order to balance the budget with coal revenues now disappearing. Our elected officials and department directors have told the Board that the further cuts planned will be devastating to their operations and have explained in detail what that will look like. If coal revenues are not replaced, we’re very concerned about the negative impact on residents, police departments, schools, fire/EMS districts, real estate, and local court services,” said Layton in an email.
Furthermore, Layton said that emerging industries such as helium fracking and possible biomass generation at Cholla are not in a position to produce much revenue right now, and may never produce as much as is being lost to coal.
“We are certainly excited about the prospect of biomass being used at Cholla — this would be an important addition to our region’s efforts for healthy forest management. We do not have exact estimates of how much of the $900K in Property Tax currently generated would be retained if one unit is converted to biomass, but we anticipate that it could be between $200K-$300K. This would be a welcome change, but residents will still lose $600K-$700K in Property Tax from the other units closing.
“We are analyzing the potential revenue impact of helium mining, but the initial assessment is that it may not bring much in the way of general fund revenue. We understand that helium is subject to TPT (sales tax) and the mine would be subject to property tax, but the rate can depend on the quantity of helium, how much processing is done on-site, and who is purchasing it. And once operational, we understand that the mine will not need to support a large number of jobs.
“In short, biomass and helium could help finances in a couple of years, but it’s not sufficient or timely enough to change our reality and outlook,” Layton concluded.
Peterson said there are a few bright spots in the matter of revenue. The humming economy has generated improved sales tax income both locally and from statewide shared sales taxes. State shared sales tax revenues in fiscal 2019 are up 6.57 percent to $12.6 million and local excise taxes are up 7.67 percent, to $7.5 million, according to county budget documents.
Property tax revenues are only a small portion of total county revenues, amounting to $7.4 million in fiscal year 2019. They are expected to climb a modest $101,000 owing primarily to new residential construction, but that will not offset the estimated loss of about $900,000 in property tax income when the Cholla Power Plant shuts down sometime in the next two to three years.
Another important source of revenue this past year has been income from housing federal inmates at the county jail and inmates from other jurisdictions, such as the White Mountain Apache Tribe.
“We are projected to generate approximately $2 million in federal inmate revenue this year,” Peterson wrote.
But, she said that it is not a reliable source of income, as inmates may be removed from the jails at any time, eliminating those dollars.
“(W)e can’t rely on it to pay for on-going operating costs which is why we allocate it for one-time expenses.The general fund has struggled to keep up with capital replacement costs for many years and the one-time inmate revenue has been used to pay for some of our capital needs,” she wrote.
Although the jail can generate extra income, the jail, county law enforcement and the cost of the court systems all add up to the biggest chunk of county expenditures. According to a presentation Peterson made before the supervisors, law enforcement and criminal justice making up 56.65 percent of the county’s total budget.
County-wide costs such as administration (which includes about five county departments including the board of supervisors, county manager and human resources), facilities management, information technology and other items make up the next biggest chunk at 17.53 percent of the budget.
State mandated services, which includes such departments as superintendent of schools, assessor, treasurer, elections and recorder, among others, is 8.21 percent of the county budget.
Payments made to the state such as indigent healthcare (AHCCCS), at $3.2 million, and so-called state cost shifts, payments to the Arizona Department of Revenue, make up another 7.83 percent of the budget.
The final portion of the budget is made up of the county’s contingency fund at 9.78 percent.
“Contingency is included in the budget each year and it is what allows us to manage our cash flow between property tax collection cycles. However, new for fiscal year 2020 is an amount reserved for financial sustainability in the amount of $2,788,592. The sales tax growth and the tight cost controls have allowed us to set this money aside for financial sustainability. This will help us adjust to the revenue loss that we will begin experiencing in in FY2020 as coal-fired power begins its shutdown,” Peterson wrote.