Aquatic Center, legal fees and city attorney settlement largely
responsible for red ink
The new Aquatics Center continues to drain city coffers as staff announced this week the center lost $411,000 last fiscal year.
The new facility, while popular among some local residents, has been a dark cloud for the city, which originally said the center could cover its own operating expenses in the first year. The city finished the fiscal year on June 30 $1.6 million in the red.
The latest report increases the money the city has spent to operate recently built Redevelopment Agency projects, such as the Aquatics Center and Community Cultural Center, to at least $871,000. Though RDA funds can pay for the construction and capital improvements on the projects; the city’s general fund must cover operational costs after they are built. While stating the city’s budget is still substantial, City Treasurer Mike Roorda told the City Council Wednesday night that the aquatic facility’s deficit of $411,000, along with legal fees spent by the city, contributed to the city’s deficit of $1.6 million for the fiscal year ending on June 30. These expenses, he said, contributed to a 21 percent jump in administration costs.
“The legal costs, for various reasons, affected the budget. The aquatics center had contributed $400,000 to the deficit also,” said Roorda.
Mayor Dennis Kennedy later disputed Roorda’s figures concerning the Aquatics Center’s impact.
“They still have not gotten in the correct numbers on the Aquatics Center yet. They just don’t have the final numbers as to report what the deficit will be. We don’t believe the $400,000 is the correct number, until we get all the numbers in from our finance staff,” said Kennedy. “Some of those expenses may actually be capital costs, which are related to construction costs and not part of the operational costs.”
Kennedy said the city had authorized about $600,000 during the year to do additional construction work at the center that opened last year, including installing a second water slide.
When contacted by the Times on Friday, Dile said the city is still verifying figures in the financial report, but the possibility of the loss containing capital costs is only a conjecture.
“We thought we’d covered all of the bases, but we need to re-check the figures again,” said Dile.
At press time, Finance Director Jack Dilles was on vacation and could not be reached for comment.
Roorda said the aquatics facility received $1.02 million in revenues, but had $1.43 million in expenses last fiscal year. In May, city officials first acknowledged the operating expenses would exceed revenue at the Aquatics Center. Though the city had anticipated the deficit, their projections were far below the actual amount. In a May budget workshop meeting, the city projected the Aquatics Center would lose $274,213 in its first year of operation. In early August, the city estimated that the Aquatics Center lost about $358,000 and only recovered 74 percent of its expenses. The new figure of $411,000 shows losses are about $137,000 more than the city projected when the new facility opened last year.
It wasn’t just the RDA project that contributed to the deficit, the council learned.
Last summer’s scandal over an alleged affair between City Manager Ed Tewes and former city attorney Helene Leichter also contributed to the increase in administration costs.
“Legal expenses, because of issues last summer and are hopefully a one-time expense, added to administrative costs,” Roorda told the Times.
The scandal cost the city more than $400,000 in legal fees, the city’s investigation and Leichter’s settlements. Although the affair was never proven, the scandal caused Leichter’s resignation and the city to offer a settlement as part of a separation agreement that she would not file a civil suit. The agreement cost the city $233,000, including $71,805 for salary and benefits and $161,250 to compensate for undescribed “alleged physical injury or sickness.”
Other factors contributing to the increased expenses were police and fire expenses, said Roorda. Expenses for police grew by 21 percent due to pension, salary and benefits, and a new facility. The financial report shows a total of $7.9 million from the general fund was spent last fiscal year for police administration, patrol, support and emergency services, special operations, animal control and dispatch. Likewise, fire expenses grew 12 percent, largely due to a new contract with Santa Clara County for fire services. The financial report shows fire services cost the city nearly $4.2 million.
In the finance report presented to the council, Roorda indicated total expenses grew 18 percent over last year. General fund revenues for the fiscal year ending June 2005 amounted to $17.68 million, while expenses totaled $19.35 million, leaving a balance of $9.2 million.
The city earlier projected it could have a deficit of $1.2 million this fiscal year, but the announcement by the state that it would pay off motor vehicle license fee money it had borrowed from cities and counties a year early reduced the deficit by $635,340.
“The general fund balance, which is at $9.2 million, is still substantial,” Roorda told the city council. “We’re still okay. If you compare us to other communities, we’re in very good shape.”
“Revenues are limited in terms of growth, but we’ve seen dramatic changes,” Roorda told the council. “Sales taxes now, as recently as last year, have seen substantial increase in the revenue base and we have an excellent property tax base.”
Sales tax receipts received for the 2004-05 fiscal year increased 27 percent from the year before. The city received a total of $5.5 million by the end of the fiscal year, which was nearly $1.2 million more than what it received at the end of the 2003-04 fiscal year.
He noted, “It was the first sales tax improvement in several years.”
“We see strength in property taxes, they are having good growth. Also, with the downturn in the economy, we still have a 9 percent good growth rate in hotel taxes. I hope it continues to contribute to revenues,” Roorda said.
The city financial report shows a 59 percent growth in property-related taxes and a 9 percent growth in hotel taxes from the year before. The city received $4.7 million in property related taxes and $956,327 in hotel taxes for the 2005 fiscal year.Overall, revenue increased by over 13 percent last year, according to Roorda’s report.
At the end of his report to the council, Roorda again stressed, “The sales tax trend is positive. I encourage people to shop in Morgan Hill.”
Mayor Dennis Kennedy repeated Roorda’s comments about shopping in the community first.
“I would like to reiterate Mike’s comments about shopping in Morgan Hill. We need to shop here first. … Invariably we can find, we can purchase what we have here. I’d like to reinforce that we shop in Morgan Hill first,” Mayor Kennedy stated.
