TRANSCRIPTION:
Prothman Report
Presentation
Presented by Greg Prothman to the City of Sultan Council, Jan. 11, 2006
Mayor Tolson: That moves us on now to the Prothman report. And I’ve appreciated getting Greg Prothman and his group. It’s been very informative. And so we will turn the floor over to Greg and Kathy.
Greg Prothman: Thank you very much, Mr. Mayor, members of council, ladies and gentlemen, it’s a pleasure to be here again and see you tonight. First of all, let me introduce my colleague Kathy [sounds like, “oh-zer”]. She’s also the vice president of the company and was instrumental in helping to put this, uh, report together.
By way of history¸ first of all let me apologize for not jumping to my feet and, and running around to the podium and making my observations from the podium. But I had a small problem with a broken leg as of December – mid-December which I’m healing nicely, but I’m going to remain seated for awhile, so. Uh, so forgive me for, for, uh, for talking from, uh, from the table here.
Uh, by way of history, uh, the council passed initially to do a small, by a small contract to really sit down with them and understand what their concerns might be. We did that. Um, [we] developed a scope of work as a result of that, and as a result, um, they, con—contracted with us to do a complete analysis of a number of areas that they had concerns about. Uh…we’re very close to issuing our report. It’s in draft form still. However, it should be in final form as of tomorrow, which I intend then to email up to the good mayor. And I think it’s your intention, then, to make copies –
Mayor Tolson: Um-hmm.
Greg Prothman: -- and then also to have that available electronically, if I’m not mistaken?
Mayor Tolson: Yes.
Greg Prothman: So, um, for tonight, with your permission, I’d like to go over essentially the high points of, of, of what we discovered and, and, and, and mostly in summary form. Kathy is handing out some of the talking points and the, uh, some of the graphs and things that I’ll be referring back to, and I hope that’s helpful in, in – as I go through my observations tonight. Really, in a nutshell – and I don’t mean to be glib about this, the City is in dire financial straits, in my opinion. Um, and this is – and for my part, due to the Eyman initiatives that began back in the, in 2000 sort of really adversely affected residential communities, of which you are a residential community, primarily. And what that term means is that unlike Tukwila or some of these, you know, Lynnwood where you have large malls and [a] large sales tax base which really carries the finances of the city, Sultan is primarily residential in its make-up and has a much smaller, uh, commercial district, and doesn’t enjoy the kinds of sales tax dollars that the more lucrative cities, as I mentioned earlier, do. And so as a result, the, the Eyman initiatives really hit hard the residential communities.
Um…and so…without trying to understand how this all happened, the fact of the matter is that you’re in very, very serious financial condition right now. And it’s going to require some immediate actions, in my opinion. Either by further reducing services or by creating new revenue streams. But the choices have got to be one or the other. You simply can’t continue to go forward in the position you’re in today. And it was very clear from our analysis.
So probably the first thing to refer to is, uh, a little chart we pulled together is revenue by capita, or per capita, rather. You’ll notice – and for those of you that have a handout – that is two – the Year 2000, you averaged about $549 per resident. It’s pretty healthy. You’re not bad. And in the ensuring four years you lost 33% of your general fund revenue. Let me repeat that: That’s 33% of your general fund revenue. That’s like taking 33% of your staff and saying, “Okay, you guys all now don’t have jobs.” Okay? If you reacted appropriately and decided that that was your, your mode of reactions by cutting services.
Now, you’re not the only community that was faced with this cundundrum (sic – “conundrum”). Many, many communities in the Northwest recognized and forecasted these [unintelligible] revenues, and began to do a couple of different things. They slowly reduced, um, services, but also began to increase other revenue sources in the forms of fees and taxes and utilities, creation of utilities. And they did it over the course of four or five years so it wasn’t a huge impact. Unfortunately, Sultan chose to do neither of those – take neither of those actions, from our, our investigation.
If you go to Page 2 of our handout, again it shows that the – pretty graphically the deficit spending that Sultan engaged in over the ensuing four years. It’s to the credit of the City with this year – and this will be the first year in four years that it appears the City will have had a positive ending fund balance at the end of this year.
On Page 3, it gets a little more specific about the actual numbers of deficit spending that the City has incurred. And so you’ll notice that we have, uh, at least an estimated number of $93,798. Now, in all fairness to our finance and clerk treasurer, she’s still closing out her books as she’s required to do by state law, to the end of the year, and so that, I suspect that number’s going to drop probably another Twenty to Thirty Thousand Dollars, and I, I think that’s wholly appropriate. And I, I, I asked her for her number as she had it today for a couple days back, and, but she quickly added the caveat, and I agree with her, that that number will drop a bit. So stay tuned for the final number once, uh, she’s done closing out her books.
But nonetheless, it’s to the credit of the council and staff and everybody else that you’re in positive territory. How did you do that? You did it by not funding a number of, of key positions that have gone vacant and by, by severely restricting [unintelligible] revenues. So essentially what’s you’ve done is cut services again, okay? My necessity.
One of the council members – or somebody asked me, “Well, how could a city go through this kind of deficit spending over the course of four years and not recognize, or at least, at least, how do you survive something like this?” By, my, my quick addition here, I mean, you’re $600,000 in the hole with this deficient spending. Well, it started with, in 2000. You had good reserves. You had reserves of, of Three Hundred Thousand-plus dollars. And so the City burned through those reserves, and then by necessity, began to use moneys from the utility fund, transferring moneys from utilities to the General Fund. And so now you’ve accumulated about a $300,000 debt. Which, I think, is no surprise. You’ve all recognized that and I understand that at the last meeting you’ve adopted a repayment plan, which is laudable, over a 10-year period toi begin to repay that debt.
But it still…puts an exclamation mark that really all well-managed communities have substantial reserves in their general fund that are about 10% to 15% and many cities have 20%. Your, your general, if I recall correctly, is a little less than $2 million. So you should have at least a two to four mill—or $200,000 to $400,000 of reserves in that fund alone, which – and you have none, really – in addition to the $300,000 that you need to repay by state law. And that’s, that’s an audit finding to repay those…you know, back to the, uh, to these, uh, utility funds.
So, you know, you’re anywhere between, you know, um, $500,000 to $700,000, really, in debt. And I wanna – I want to re-emphasize that. That really, from our position, you’re about $700,000 in debt. And that’s what you need to attack. And you need to adjust either your spending or your income streams appropriately to get out of this hole. So that’s, that’s the nature of the problem you’re facing. So [clears his throat].
Having said that, we really arrived at three major conclusions that I think that…that’s precipitated this condundrum (sic), and this problem. Number one, like many small cities, you retain an organizational structure that is, that can best be found in cities that are less than a thousand in population. And the city has not really evolved in its organizational structure accordingly. And moreover, you’re asking, um, a number of employees to take on two separate jobs that could well be, you know, separate jobs by themselves and I think it, it sets you up for some administrative failures as a result. So that’s one area that I think you need to look at very seriously, and it’s modernizing your organizational structure. Secondly as, as I mentioned earlier is you have the problem of decreasing revenues. And an increase in [unintelligible] and that needs to be addressed. And addressed aggressively, I might ad. And lastly, um, this is basic poor financial management and planning. You’ve had a number of aud—increasing audit findings that need to be addressed and we have a number of other recommendations that also need to be addressed. So it’s a combination, I think, of those three issues that has led to the City finding itself in this position.
So let me talk about the citywide reorganization. And I have a number of recommendations, um, that I think in the end will leave you with an organizational structure that can…that [unintelligible] I think in a better position to help you manage your community and your finances.
The first is to eliminate the position of city administrator-slash-city planner, the one that Rick’s currently in. As I was telling Rick on the way in tonight, as we were chatting, I’m not sure Superman could do both of those jobs together. I mean those are really two 45-50-hour a week jobs that you’re expecting one person to do. I think that’s…you’ve, you’ve long since outgrown that model. So accordingly, we’re recommending that we eliminate that position and create a separate position of City Administrator and a separate position of Community Development Director. Now, the latter position, the Community Development Director, is, is a new, new title here, uh, and really speaks to a much different kind of planning department. It, it really talks about combining all the planning functions into one large group where it can be managed by a competent manager. And so I’m anticipating taking the Building Official and putting that person reporting to the Community Development Director. [I’m] also recommending you hire a Senior Planner and bring a lot of the, the, the current planning functions that occur—now done by consultants – you, you, you, you currently have about $200,000 a year of consulting fees in the planning department, many of which are wholly appropriate and many cities do [have them] for long-range planning, but I think now it’s time to take some of those moneys and hire a planner and bring some of the current planning exercises that you have, uh, consultants doing and bring them in-house. And I think that will add for a much higher level of efficiencies.
Um…the next area is the area of the Clerk-Treasurer position. Again, I think it’s time to get a, a, a, a true Finance Director and then break the Clerk’s duties out of that. And, and so I’m recommending that you eliminate that position and create the position of Finance Director, but also create a second position of Clerk-Treasurer—or Clerk-slash-Administrative Assistant and assign that person to the, the new position of City Administrator.
Um, some other recommendations include – and this is more of a reporting function – currently the Police Chief reports to the mayor. Under the new City Administrator form that we’re recommending, we also recommend that that department director report directly to the City Administrator.
In terms of modernizing and, and, and making other efficiencies, currently there’s a part-time City Engineer [who] reports to the Mayor. I’m going to recommend that that position now report to the Public Works Director so there is commonality in function there, I think, and that would help, I think, with some of the inefficiencies that might be occurring.
Then also in the Public Works Department, [I’d] highly recommend you re-hire as soon as you can, the Field Supervisor. I think that’s a critical position that really puts the Public Works Director in, in a difficult position trying to do her job and also manage the field crews. And so I think it’s important to get that position refilled.
Let’s see. Have I missed anything?
Okay, the…That really is the end of my comments on the, on the reorganization side.
On the issue of revenues or service reductions…. I mean, this is a
policy question that the City Council has to wrestle with and, and decide
what’s best for your community. You certainly have the option of further
reducing services. But as a practical matter, most of your costs are in – are
in personnel at this point. So if you choose to head down a path of reducing
services, you’re really looking at reducing FTE counts and (sic) within the
City. Now, um, you have 25 employees with a number of positions that you have
FTEs created for but not filled. So if you wanted, uh, to reduce services,
really you have two primary areas that you have to look hard at. One is your
public works crews and reduce those, and reduce police officers. And those are
the two major areas where you have lots of, of, of personnel. Um, I’m here to
tell you I’m not recommending that. I think in my experience, as a
full-service city you’re running very lean and mean right now. I mean, almost
to the point where I think you’re going to have problems, if you’re not already
having problems, providing basic municipal services. The police department,
if my, if my, uh, recollection is correct, is down a sergeant and two officers.
And you’re down one very critical person in the, in the Public Works
department. And if you further, um, reduce those numbers, I think it’s, it’s
going to be very problematic.
So, again, [a] policy decision. Leave that in your hands. But if you choose to head down the path of increasing revenues, there are a number of opportunities that we’ve investigated that I can tell you about tonight.
The first is, um…a, a new revenue stream that was put in place about two to three years ago, and I think as a reaction to many of the residential communities that have – are struggling with reduced revenues because of the Eyman initiatives. And it’s called a – a, a, basically, there’s not a title for it, but you have an opportunity to cut your sales tax revenues in half, strategically – that’s just part of the formula – and double your real estate excise tax collections. And so for communities that don’t have an awful lot of sales tax, but have seen an awful lot of growth in their, in the real estate growth, this oftentimes would, would generate a substantial amount of money for, for that community. And that, in fact, is the case for, for Sultan. Using, uh, numbers provided by the Clerk Treasurer – and I thank her for those – um, it looks like this year that would generate about an additional – [to Kathy] – do you have that number handy? – just want to make sure I quote, quote them accurately here. I just caught Kathy by surprise here, but I…I want to make sure I quote these numbers accurately as, as we examine those.
Kathy O.: [unintelligible].
Greg Prothman: Yeah, it would generate about a, an additional $118,000 for the City. So a substantial amount of money.
Um, the next opportunity you have is a Utility Tax. Virtually….almost all Western Washington communities now have instituted some form of, of a utility tax. [The] city council, uh, under the RCW, has the opportunity to impose a 6% utility tax, uh, by vote of the council. Anything above a 6% utility tax requires a vote of the people. So if you remove---uh---and impose a utility tax of 6% on your current utilities, city-owned utilities, ‘cause you already have a utility tax on, I think, uh, phone and natural gas and some of the others that are out there, but if, if you impose a utility tax on, on garbage, sewer and water, uh, it would raise an additional $103,000.
The last area, the last big area, I think, is the implementation of a Surface Water Management Utility. Again, most communities have been doing this, um… starting as early as 1996. Um, unfortunately Sultan is, does not have one in place, though I understand you’re, you’re moving down that path and you’re working with a consultant and would be sending back and ordinance here in the not-too-distant future that would give the opportunity to implement one of those. What that does is right now, your, your general fund is subsidizing the surface water management portion providing services. And the state legislature gives you this opportunity to create this utility. And so what that does is it creates a new revenue stream that then allows [the] general fund not to have to fund the two or three maintenance people that, that, that maintains your ditches and the catch basins and all of your piping that you use with your surface water. So essentially that’s a, a net increase back to your general fund once you im—impose the, the utility. I think the utility’s going to raise, um, about $120,000, is it?
Kathy O.: Uh, $120[,000].
Greg Prothman: $120,000. So again, a sizeable amount of money, uh, for the, uh, for the City.
There are some opportunities for service reductions that I think you need to look at. Um, I’ve only identified two. Um, one is the…if I recall correctly as I mentioned earlier, you had three positions in the, in the police department that are currently unfilled, though I understand that you’ve just authorized the Chief to move forward and hire one of those positions. I strongly recommend you, uh, you hire the sergeant just as soon as you can. I would ask, however, or recommend to you that you, you, you hold in abeyance and not hire one of the FTEs, uh, one of the police officer positions, for a period of 12 to 24 months until you—your revenue stream begins to stabilize.
Mayor Tolson: I want to stop you right there, just so the Chief understands. Right now we have six officers. We’ve authorized you to hire a seventh patrolman. I think there’s some – maybe some miscommunication. He was thinking you had eight patrolman. And so – but it’s, it’s actually – and the authorization to get the sergeant back quickly. So we’re getting back to where we were three months ago, quickly.
Greg Prothman: Okay, so I think that our recommendation is for one officer position; keep the FTE but not fund it for one year.
Mayor Tolson: That’s, that’s – Well, there actually wasn’t an eighth patrolman.
Greg Prothman: There’s not?
Mayor Tolson: There was only seven.
Greg Prothman: Okay.
Mayor Tolson: So that’s – [simultaneous comments] – we’re, we’re getting back in this, this… [trails off].
Greg Prothman: Okay, so I, really, I, I miscounted FTEs. But then, if in fact, there’s not that eighth position, there’s not a savings, then, as I had thought and that would reduce the, the amount of dollars saved over the course of that year by that, that estimated FTE position.
The other is, the other service, uh, reduction would be to take money out of the, um, uh, consulting dollars that you’d use for planning and use those dollars to hire a, uh, um, a senior planner.
The last area is, um…I would recommend you conduct a fairly detailed analysis on what services [the] general fund is providing to your¸ your utilities. The City does a, uh, an analysis now based upon, um, uh, uh, wages, but I think there’s other areas that can be considered. And that might generate an additional $15,000 to $18,000, perhaps. That’s just my gut reaction. We haven’t conducted that analysis, but having nine years as a city manager experience, I, I can just tell you that there’s probably some other areas that the general fund is currently subsidizing the utilities from.
So if…you were to follow… And, and that’s really the extent, um, of your revenue opportunities, to my knowledge.
Lastly, the City simply has to clean up its, its financial practices. And there’s a number of recommendations in the auditor findings, and we make other recommendations that I would encourage you to follow.
So that really covers the three areas of which we, we, I’d spoke about when I began my recommendations today.
Um… [long pause] If the council and the mayor…conducts the reorganizations as I, as I’ve recommended, imposes the additional fees and taxes as recommended, it will bring you a revenue surplus annually of about $200,000. Maybe slightly less. I want to redo the mathematics now that I’ve been corrected on the, the one FTE. However, it does put you in a positive financial position to being whittling down the debts and whittling down your ending fund balance deficits that you need to restore. But I think it puts you in a position of financial health for at least the foreseeable future. It provides you with a much more modernized, efficient staff at the managerial level, which is critical. One of the observations I saw is that the City real---really reacted on a 12-month time horizon exclusively. There was no advance planning over a three- to five-year timeframe. There was no planning for revenue streams over a three- to five-year timeframe. And it’s critical path stuff for staying ahead of the curve of these kinds of problems, in my view. It provides you with the personnel you got now and it provides you with the revenue streams to start getting yourself out of financial debt.
So that’s really the substance of my observations tonight. Um, as I said, the draft report will be made available in final form tomorrow to the mayor, electronically and, and, and as I said, you’ll have a, um, I think you said you’re going to post it on the internet as well as –
Mayor Tolson: Yes.
Greg Prothman: -- on your internet site as well as make it, make hard copies available? And it really wraps up our, our work for you in this phase. I want to end by saying thank you very much. I want to thank the staff, first and foremost, for being candid in their observations with us. Laura’s been very, very helpful in providing this information. The council, you’ve been outstanding in, in, in being candid with us. Been a pleasure working with you and I look forward to a continued, uh, relationship, if that’s your desire.
Mayor Tolson: All right. Thank you very much.
Councilman Derek Boyd: Mr. Mayor? Can we get a quick uh, for the public, get a quick background – [can] you give us some background on, uh, who you’ve worked for and stuff like that.
Man in assembly: Yeah. How old is he? Who is he, anyway, you know?
Greg Prothman: This is my first job. I’ve never done this before. [laughter from the assembly] Actually, you’re right. I, I apologize for not giving, uh, some more background as to who I am and how I got, uh, to get sitting here. As I mentioned earlier, I’m Greg Prothman. Um, I started my municipal career as a city manager. I worked for the City of Des Moines as the Assistant City Manager for three years and then served in Des Moines for nine years as their City Manager. Uh, [unintelligible] time I’m a little less than 30,000 now. Um…I left city management as a practitioner in 1996. I joined a consulting group called The [sounds like, “Waldron”] Company, where I did executive search work and management studies, and we also started, uh, new cities. Uh, we formed this company in 2001. Uh, we started the brand new city of Spokane Valley of 80,000, where we worked, created a city from a tabletop thought process to a fully-functioning city in five months. Um, we specialize in doing executive search, interim placements, meaning interim city managers and some planning directors, uh, contract basis and we also have a robust, uh, consulting practice doing work like this, uh, for this city, among others, and, again, a wide variety of, of, of, of management consulting. Does that help you?
Man in assembly: Well, yeah, kind of.
Greg Prothman: Okay.
Man in assembly: Are you in with Lake Roscoe (sic –he probably means the proposed FCC at Lake Roesiger), the little city they want to do up there? Do you know about that?
[Mayor Tolson lightly taps his gavel several times.]
Mayor Tolson: I understand, but that has….
Greg Prothman: Yeah, the answer’s no. I, I have no connection to that.
Man in assembly: Oh, okay.
Greg Prothman: Thank you, though.
Mayor Tolson: At this particular point in time, because this is a draft and we will be receiving the final report tomorrow, we will not be able to take action as far as the council to receive this. Uh, however, it is my intention as mayor to begin implementing, uh, and instruct, uh, staff be working on the, uh, resolutions necessary to begin implementing these recommendations, because there’s a great number of them to come forward. So, um, I want to thank, uh, Greg and Kathy for their time and the numerous phone calls and our communication –
Greg Prothman: You’re welcome.
Mayor Tolson: And I am sure we will be in further communication.
Greg Prothman: All right.
Kathy O.: Thank you.
Greg Prothman: Thanks so much. And we’ll say good night.
[light applause from the assembly; end of transcription.]