gmhTODAY 21 gmhToday Aug Sept 2018 - Page 28

Gilroy and Morgan Hill Budget Facts A Financial Tale of Two Cities Written By Marie Blankley, CPA Shortly after I was appointed to the Gilroy City Council in January of this year, Mayor Roland Velasco asked if I would do a comparison of the revenues and expenses for the City of Gilroy and the City of Morgan Hill. Having recently received Gilroy’s annual audited fi nancial statements (City of Gilroy, California, Comprehensive Annual Financial Report, Year Ended June 30, 2017), I acquired the same report for the City of Morgan Hill (City of Morgan Hill, California, Comprehensive Annual Financial Report, Year Ended June 30, 2017). Using my 30 years of experience as a Certifi ed Public Accountant, I got to work. The purpose of this study is not to propose changes or to make judgements on the figures or to influence policy but, rather, to report the actual numbers as they compare between the two cities for all governmental funds for the same period on a per person basis. Population figures from the official census estimates for 2017 (Gilroy 55,936; Morgan Hill 44,145) were used. Actual population figures will not be available until after the 2020 Census. While the intent was to make comparisons within the general fund alone, that was not possible. Because there were not the same definitions and accounting for both cities, differences in accounting allocations made the comparisons difficult. Instead, all governmental funds were used, and comparisons of broad categories were used to render an apples-to-apples comparison. Looking at the big picture, the results were surprising. On a per capita basis, the Cities of Gilroy and Morgan Hill have about the same amount of revenue, but Gilroy has more expenses. REVENUE The results were unexpected. Although Gilroy has significantly more sales tax revenue than Morgan Hill, and Gilroy has a utility tax revenue that Morgan Hill doesn’t have at all, the total governmental fund revenue for both cities on a per capita basis is about the same. How can that be? What about property tax revenue, transient occupancy tax revenue, licenses and permits revenue? Surely there’s something that gives Morgan Hill a revenue edge, isn’t there? Not exactly an edge but, rather, something that makes up for where Gilroy’s sales tax and utility tax far exceed Morgan Hill’s. Specifically, “Charges for Services,” the revenue each city collects to recover the costs of the services it provides. Where Gilroy has greater revenue in certain categories, Morgan Hill makes up for it in charges for services, primarily in recreation. Specifically, the City of Morgan Hill recovers about 93% ($6.8 million) of the $7.3 million they spend on recreational services ($8 million for the 2017-18 fiscal year). Through the Centennial Recreation Center, the Sport’s Park and the Aquatic Center, the City of Morgan Hill provides a much more extensive recreational programing. The City of Gilroy, however, recovers only 33% ($1.1 million) of the $3.1 million they spend on recreational programs ($3.4 million for the 2017-18 fiscal year). The bottom line is that each city has differing amounts of revenue in individual categories, but when viewed in total per capita, they show a level playing field when it comes to revenue. EXPENSES Two things stand out. Gilroy spends more on public safety than Morgan Hill, and Gilroy has significantly more debt, attributable almost entirely to the new police station and the library. With regard to public safety, it should come as no surprise that Gilroy spends more in total because Gilroy has a larger population and, therefore, more public safety personnel, including their own fire department. For police, because Morgan Hill pays their police officers more than Gilroy does, when costs are viewed per capita Morgan Hill’s costs should be higher. They are not. In fact, for the fiscal year ended June 30, 2017, Gilroy spent 12% more per capita than Morgan Hill on police, and 40% more per capita on fire. For sworn officers, Gilroy has 1 per 860 people, as compared to 1 per 1,130 people for Morgan Hill. For non-sworn officers, Gilroy has 1 per 1,512 people, as compared to 1 per 2,006 people for Morgan Hill. With respect to fire personnel, Morgan Hill uses the county, CalFire, for fire service while Gilroy has its own fire department. One reason for the difference in debt is that the City of Morgan Hill was able to build things like the Community Cultural Center, the Centennial Recreation Center, the Sport’s Park and the Aquatic Center with RDA (Redevelopment Agency) monies. Gilroy did not pass an RDA and instead uses general fund monies to service the debt on the new police station, and revenue from a parcel tax to service the debt on the library. The RDA no longer exists, and now Morgan Hill is faced with the reality of staffing and maintaining these facilities. ISSUES THESE NUMBERS DO NOT ADDRESS Both Gilroy and Morgan Hill, like most cities, are unable to budget for many costs that they know will need to be paid eventually. Unbudgeted costs are also known as unfunded liabilities. No matter 28 GILROY • MORGAN HILL • SAN MARTIN AUGUST/SEPTEMBER 2018 gmhtoday.com Gilroy and Morgan Hill Budget Facts A Financial Tale of Two Cities Written By Marie Blankley, CPA REVENUE S hortly after I was appointed to the Gilroy City Council in January of this year, Mayor Roland Velasco asked if I would do a comparison of the revenues and expenses for the City of Gilroy and the City of Morgan Hill. Having recently received Gilroy’s annual audited fi nancial statements (City of Gilroy, California, Comprehensive Annual Financial Report, Year Ended June 30, 2017), I acquired the same report for the City of Morgan Hill (City of Morgan Hill, California, Comprehensive Annual Financial Report, Year Ended June 30, 2017). Using my 30 years of experience as a Certifi ed Public Accountant, I got to work. The purpose of this study is not to propose changes or to make judge- ments on the figures or to influence policy but, rather, to report the actual numbers as they compare between the two cities for all governmental funds for the same period on a per person basis. Population figures from the official census estimates for 2017 (Gilroy 55,936; Morgan Hill 44,145) were used. Actual population figures will not be available until after the 2020 Census. While the intent was to make comparisons within the general fund alone, that was not possible. Because there were not the same definitions and accounting for both cities, differences in accounting allocations made the comparisons difficult. Instead, all governmental funds were used, and comparisons of broad categories were used to render an apples-to-apples com- parison. Looking at the big picture, the results were surprising. On a per capita basis, the Cities of Gilroy and Morgan Hill have about the same amount of revenue, but Gilroy has more expenses. 28 The results were unexpected. Although Gilroy has signifi cantly more sales tax revenue than Morgan Hill, and Gilroy has a utility tax revenue that Morgan Hill doesn’t have at all, the total govern- mental fund revenue for both cities on a per capita basis is about the same. How can that be? What about property tax revenue, transient occupancy tax revenue, licenses and permits revenue? Surely there’s something that gives Morgan Hill a revenue edge, isn’t there? Not exactly an edge but, rather, something that makes up for where Gilroy’s sales tax and utility tax far exceed Morgan Hill’s. Specifi cally, “Charges for Services,” the revenue each city collects to recover the costs of the services it provides. Where Gilroy has greater revenue in certain categories, Morgan Hill makes up for it in charges for services, primarily in recreation. Specifically, the City of Morgan Hill recovers about 93% ($6.8 million) of the $7.3 million they spend on recreational services ($8 million for the 2017-18 fiscal year). Through the Centennial Recreation Center, the Sport’s Park and the Aquatic Center, the City of Morgan Hill provides a much more extensive recreational programing. The City of Gilroy, however, recovers only 33% ($1.1 million) of the $3.1 million they spend on recreational programs ($3.4 million for the 2017-18 fiscal year). The bottom line is that each city has differing amounts of revenue in individual categories, but when viewed in total per capita, they show a level playing field when it comes to revenue. the new police station and the library. 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