Less than two months before the city of Cortez is expected to adopt a balanced 2019 budget, the proposed budget is running in the red, and the fiber-optic internet installation program is draining hundreds of thousands of dollars a year from city funds.
City Council members sat down with some department heads on Thursday for the first of two budget workshops. Looming over the meeting was a budget deficit between $500,000 to $1.2 million.
City Manager John Dougherty said in an interview Friday that the actual deficit figure is a moving target because the number of capital project requests and reserve fund balance has not yet been determined.
Still, Dougherty, who was hired as city manager in July, apologized to the City Council for presenting an unbalanced budget.
“This is not how I normally do a budget,” Dougherty said at the workshop. “I normally bring it to you balanced.”
The fiber program is one culprit for the deficit. Cortez Finance Director Kathi Moss spoke in candid terms at the workshop about the program’s sustainability. She said the high-speed internet technology is bringing in about $290,000 in revenue – with connections to the hospital, local schools, the county and several businesses – but costs nearly $500,000 in operational expenses and $500,000 in capital costs this year. The $1 million cost is close to the level of revenue Cortez receives from marijuana sales.
Moss told the City Council she fears the fiber installation program, which has been going on for about five years, is at a “danger point.”
“I’m at the point now where, I’m sorry, but we have to halt construction on this project,” Moss said at the workshop. “We keep going farther and farther into debt to other funds, and yet we have no way of repaying those other funds at this point in time.”
Dougherty said fiber installation has inched forward while expenses clearly outpace revenues. He said he would like to put out a request for proposal to potentially hire a third party to take over the entire program and market fiber to local businesses and residents.
Several City Council members shared the financial concern. Councilwoman Sue Betts said she doesn’t want to bankrupt the city. Councilman Orly Lucero said there has to be a bottom somewhere.
“Year after year, we just keep going lower, lower and lower,” Lucero said.
Despite the funding issues, there is support for fiber. Dougherty said it’s vital for economic development in rural areas like Cortez and is particularly important for rural hospitals. Although Moss strongly advised the City Council to stop installation, she told The Journal on Friday that she wants the public to know that fiber is not going away.
“It just means we need to come up with some type of a game plan or a business plan to operate this like an enterprise fund, which operates just like a business,” Moss said.
On top of the fiber expenses, Moss said Friday that the proposed capital projects for 2019 came in at $1.4 million, but last year, City Council proposed a capital expense of just $250,000 for 2019. The approximate $1.2 million shortfall is all from capital projects, she said. But there’s still time to make adjustments.
“We’re going back to look at this and calling in departments, and of course, obviously, we’ll be making cuts,” Moss said.
Dougherty had a meeting with Public Works Director Phil Johnson and Police Chief Roy Lane on Monday – the two department heads with the largest 2019 budget discrepancies. He said the deficit comes from requests for capital projects.
“If we knocked out a majority of the capital, then we balance in no time at all,” Dougherty said.
There’s also the question of just how much money the City Council wants Cortez to keep in reserve. Dougherty said government finance officers recommend a minimum of 25 percent of annual expenses or three months of operating expenditures as a bare minimum. Cortez has typically kept 20 percent in reserve.
Dougherty said Friday a 15 percent reserve fund would produce an approximate deficit of $560,000, a 20 percent reserve fund would produce a $1 million deficit and a 25 percent reserve would be closer to $1.5 million.
In the coming days and weeks, Dougherty said he will be meeting with staff to work out their priorities and then bring their recommendation to City Council.
“We will get together and come back with a balanced budget,” he said.