The city budget report looks a lot less bleak than it has in recent years

by: CITY OF MOLALLA - Adopted Budget The city of Molalla has been through rocky financial times, dropping deeply into the red during the past couple of years. But according to reports from city Financial Director Heather Penni, the city is now in the black.

“We are in a cautiously optimistic spot,” Penni said last week. “The city is in a place where we are not just looking at the fiscal year, but three to five years down the road, planning how to achieve future goals.”

Penni said putting the city budget back on track involved a different philosophy than has been used in the past.

“We were previously functioning on a reactionary basis, but now we are working on a positive vision,” she said. “By February, things will come together. So when we sit down to look at the 2014-15 budget, we will be not only looking at what to do in that fiscal year, but also be working towards five years from now. The budget is the master plan for the city.”

In the city budget message, Penni states that in the last three years, the nearly half a million dollar planning deficit that was assumed by the general fund has been eliminated. The ineligible SDC expenditures have been resolved; there are no more outstanding inter-fund loans; and the discovered planning department debt to Clackamas County for permitting services, and to the water fund has been settled.

As a result, she reports, the general fund is projected to have a positive beginning fund balance of $138,413.72, in compliance with budget law.

by: PEGGY SAVAGE - Dan Huff, Molalla city manager“This is a good place to be in the city,” said City Manager Dan Huff. “How is the city doing? We are ok.”

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“[Our heads are above water, and we will do good things here in the near future,” Huff said.

What does that mean on a visual standpoint? Huff likened the city workings to building a house. “People don’t see the changes at first — sewer lines get dug and covered up, etc. — but construction will eventually get under way, we just have things we need to do first.”

Penni said that in July, the ending fund balance for the general fund was drastically different than seen in years past, when the city started its fiscal year with a negative balance.

“Now we are started in a positive balance,” she said. “We stepped on hot coals the last couple of years, but now we’ve learned how to be good fiscal stewards. We’ve learned community responsibility for money we collect. Department heads are now looking at the budget monthly. I am looking at each fund carefully. If my forecast is on the money, then I will end 2014 in the black with greater ending fund balance than this year.”

In March 2012, the city of Molalla, already facing a serious budget deficit, was told by an auditor that it had one year to repay $2.5 million in misspent development fees.

When asked about the city’s $2.5 million deficit last year, Penni said, “When that surfaced, we buckled down. But there was no fraud. Money was taken out of the wrong fund. Now we have put the money back into the SDC fund.”

Penni said the issue revolved around the city’s aquatic center fund.

“We put that money back,” she said. “Money was pulled from the SDC funds to pay for the aquatic center, but it should have come from the general fund. We can’t do that.”

Huff said 95 percent of the $2.5 million was paid out of the SDC fund, but that money should have gone for capital improvements.

“The city council took a lot of heat on this,” he said. “A lot of them had some hard decisions to make.”

The city adopted budget report notes that property tax revenue is budgeted to remain flat. Although Measure 47/50 allows for a 3 percent increase per year, compression is restricting increases.

“We don’t get property tax funding until five months after the fiscal year begins, so for a while, we are in no-man’s land,” Huff said. “We have to bridge that gap, and yet we still have to pay the bills.”

There are multiple ways cities can do that, such as building a cash carryover, but by starting the year with a positive balance, the city will have that ability, he said.

Penni said the city also has recently brought up its bond rating, now that it is in the black With bond rating the financial institutions look at the city debt, how it is managed and how it manages its reserve fund.

“We are in good shape,” she said. “If we want to purchase a bond, we are now rated at A/Stable, which is very good news. We are meeting our expectations, and for a small city that has walked the storm we’ve walked, this is wonderful. I am proud of it.”

Penni said she is optimistic about where the city is heading financially.

“I’ve learned my lessons, so we are moving forward,” she said. “We will be stronger. We have very little wiggle room for gray. It has to be black and white. It’s good to be a black and white person when you are a finance director.”

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