The city of Ceres is projecting to end the current budget year less optimistically than planned with expenditures a little higher and revenues a little lower. The difference would mean a three percent lower difference in the city's General Fund reserve - from $4.1 million to $3.6 million.
But during a special Tuesday City Council meeting City Manager Toby Wells indicated that growing revenues from three development agreements permitting marijuana facilities in Ceres could lead to a balanced budget in the near future.
The budget snapshot presented by Wells is only a projection required for an audit in March.
Wells said the city has made some adjustments and should end the year on June 30 with the council's minimum reserve of 18 percent.
When the 2016-17 fiscal year budget was adopted, Ceres only had one developer agreement pertaining to marijuana operations. Under a developer agreement with the city approved in May 2017, Mike Reynolds, proponent of the Kase Manufacturing facility at 4111 Brew Master Drive, pledged to give the city $50,000 per month for the first year of operation, $75,000 per month for the second year and $100,000 per month for the third year. Since it took a while for the plant to get up and running, the city expected to receive $300,000 for the budget cycle and budgeted that revenue into the budget.
Since then, however, the city has approved developer agreements for two medical marijuana dispensaries - one for Pacafi Cooperative at 1442 Angie Avenue and the other for Kase's Journey at 4030 Farm Supply Drive. Both dispensary operators pledge to pay the city a monthly fee of $40,000 if the firms earn $500,000 or less in gross receipts that month. The fee rises to $50,000 per month for gross receipts between $500,001 and $800,000; $75,000 per month for sales of $800,001 to $1.1 million; and $100,000 monthly for sales more than $1,100,001.
The city has budgeted marijuana revenues at their minimum level, said Wells. Pacafi started operating in December so those revenues are being plugged into the current budget at $40,000 per month but could go up to $100,000 monthly.
Kase's Journey is not operational, said Wells, but could be selling medical marijuana by March 1 with revenues rolling in by April.
The budget will also be helped out by anticipated revenues to be given the city for participation in four statewide fire strike teams. The state is expected to pay Ceres $228,961 for strike team reimbursements against $110,000 in fire overtime costs for those strike teams. The difference will go into the general fund.
Councilwoman Linda Ryno asked if it should go into fire vehicle replacement, to which Wells said, "We would not recommend that based on our current fiscal situation. We think long-term that is a better place ... however the pressure is on our general fund this year."
Ryno asked about some departments which seem to be spending more than what's coming in. Wells said the city has never exceeded the approved budget "that I'm aware of." He said if some departments are trending higher in expenditures seven months into the budget year, adjustments will be made to bring them in line with what's approved. He said some things occur that are unforeseen, such as two police officers out for an extended medical leave which have put overtime costs higher.
When Ryno pressed that the city is not learning to "live within our revenue," Wells said, "I would suspect in (20)17-18 we will be really, really close to balanced based on where we are today. We're showing - as you look at that bottom line item - $163,000 of expenditures exceeding revenues. It only takes two or three really good months from one of our new facilities and that will be really close to balanced."
Related to the budget process to craft the 2017-18 budget, originally Wells wanted to present the budget by May but Finance Director Suzanne Dean has been snagged for a jury trial that could sideline her for five weeks.
"Right in the middle in the heart of the budget season it makes it quite difficult to expedite our budget process," said Wells.
He now expects the budget to be in the council's hands by May 25 and approved by June 25, which Wells said makes him uncomfortable.
She joked that she was unable to get out of jury duty after announcing she was friends with Police Chief Brent Smith, that her husband is an attorney and that she is a finance director and was needed to craft the budget.
For the 2017-18 budget, Wells plans to conservatively include revenues of $750,000 from Kase Manufacturing, and $480,000 from the two dispensary operations.