ISSUE #23: The Ketchum Budget Process = Council Irresponsibility

The joke is at our expense--literally at our expense (5-yr deficit projection: $20mm)

It’s budget season for the City of Ketchum. Anyone who has done household budgeting or budgeting for a business or non-profit would find the City’s process to be farcical confusing.

How Ketchum’s Budget Process Works

The Council has a series of budget “workshops,” during which each department asks for more money.

The Council members ask a few questions to make it look like they are doing something. There is never enough money for all the requests, so the Council cuts some of the requests back. They are being fiscally responsible! The departments all know how this works, so they ask for a bit more than they really need and then graciously accept a couple of cuts. Then, the Council approves the budget—almost always unanimously.

That’s it. Look at the chart above. They haven’t even gotten the first step right. No wonder the rest is such a mess. The process is a total waste of time, and the City Administrator could do this in a day.

A Master Class in Obfuscation

The first budget workshop was on June 18. The agenda and materials they used are here. The packet does not provide the information a Council member would need to make an informed decision on spending at the department level; it is just a list of asks. Here is a link to the follow-up information provided to the Council by staff for its 7/1 meeting. Take a look and comment below on whether you can follow it.

After reading it, do you feel fully informed as a resident and able to make reasoned public comments on the process? I was a professional financial analyst for 30 years. I am a Chartered Financial Analyst. I have taught courses in corporate finance. I sit on the audit committee of a publicly traded corporation. I am approved by the SEC as a qualified financial expert. I cannot make heads or tails from the City’s budget process. How can our City Council, none of whom have any experience in accounting, know the implications of what they approve?

The Mayor was the Global Head of Utilities Equity Research at JP Morgan and presumably knows how budgeting should work. He has controlled Ketchum’s budget process for six years, so one could reasonably infer that it works exactly how he wants it to.

How Ketchum’s Budget Process Doesn’t Work

Do you know what’s not in the budget process? Any semblance of accountability to the community. There is no link between the budget and the Comprehensive Plan. There is seldom any link between the budget and any plan other than the only one the Council spends significant time on—the Housing Action Plan. See last week’s issue for more on that.

No department is held accountable for achieving any key performance indicator. Here is one example. The City is being asked to fund $130k for the County Sustainability department, so they can hire another person. It sounds good. Who is against sustainability? But what deliverable do the people of Ketchum get for that money? How much of a GHG reduction occurs because of that expenditure? No one knows. No one even bothers to ask.

We spend almost $1mm a year on Mountain Rides. How much of the ridership is workers? Tourists? What is Mountain Rides doing to get commuters out of cars and onto the bus? No one knows. No one even bothers to ask.

We spend over $2mm a year on police. That doesn’t include other subsidies we provide them, like just handing over to Blaine County Sheriff’s Office equipment that they themselves determine is surplus for Ketchum’s use. What are our crime statistics? How does our policing stack up against other similar communities? Non one knows. No one even bothers to ask.

Our water/sewer charges go up 5% every year. Why 5%? Why not 3%, or 7%? Because the maximum the City can raise the water tax without a referendum is 5%. Of course, they don’t budget for depreciation in the water treatment facility (or anything else), so that was a bond we approved last year to pay for the $34mm needed to rebuild a 40-year-old plant. Do you know how much cost/benefit analysis or how many alternatives were presented to the City Council for this, the most expensive item in Ketchum’s history? None. Do you know how much time the Council spent debating this expenditure? About 5 minutes.

Did last year’s budget achieve the goals it was intended to achieve? Not measured.

No criteria are employed to allocate scarce taxpayer resources to achieve the community's goals. There is no cost-benefit analysis, no evaluation of return on investment, and no scenario planning.

No Return on Investment?

Zero effort is made to generate any return on the assets the City owns on its residents' behalf.

For example, the City owns Lift Tower Lodge (“LTL”) and uses it for transitional housing. That seems like a good thing. It receives $95k per year in rent. The City values the land alone at $7mm, and the building is probably worth another $1mm (a guess). The return on that asset? 1%. It’s less than that because, presumably, the building requires some maintenance. Let’s be generous and say the net return is 0.5%. $8mm in a money market would make 5%. So, the taxpayers are subsidizing LTL to at least $360k per year. It's more than that because, in private hands, the property would pay at least $30k in property taxes. So let’s round that to $400k yearly, which the locals contribute to the dozen people housed at LTL. That may or may not be a reasonable amount. Maybe the people would rather have the cash? However, not $1 of that is included in any City budget.

Also outside the budget is the $2.5mm the City was awarded from HUD to develop LTL, which will require it to have income caps and no work requirement, just like Bluebird.

The City could sell LTL, take the $7mm and buy one of the trailer parks, house perhaps five times the number of people in a better location for the residents, and generate property taxes on the LTL location. That would dramatically improve the return on assets for the community.

None of this analysis has ever been presented to the Council, yet this property has been committed to redevelopment into Bluebird 3. This is another piece of evidence that indicates the Housing Action Plan isn’t really about workforce housing.

At a recent City Council meeting, Ms. Breen said the City shouldn’t be in the commercial real estate business when Mr. Cordovano suggested bringing some small businesses to Forest Service Park. (I don’t understand why we want to commercialize a public park.)

The City is already in the commercial real estate business with the Visitor Center. That asset has to be worth at least $2mm. It houses a Starbucks, which is heavily used, and a visitor center, which is barely used. The yield to the taxpayers on this asset also hovers around zero. Why not sell the building to Starbucks and put the proceeds to a higher return public use?

None of these issues get raised in the budget “workshops.”

Fake Analysis?

Even when there is analysis, is it analysis? Take, for example, the analysis of the World Cup’s impact on City finances. Staff memos to the Council for approvals require a financial analysis of the decision's impact. Here is what the staff provided:

The city would likely need to provide in-lieu services to accommodate event road closures, trash and recycling services, bus services, water and electricity, police/security, and fire/EMS services. These funds are accounted for in the FY 2025 budget.

That’s it. That is the norm, not the exception. And the City Council never pushes back. Not even the new guys who are supposed to represent the locals. The rubber stamp is inked up and ready to go.

The staff does provide more analysis of the World Cup impact in the budget materials in the 7/1 Council Meeting Budget Packet. On slide 4, they do a single-point analysis that indicates the World Cup will generate about $300k in increased LOT tax revenues for the City. But slide 5 indicates that the incremental costs to the City are $180k for transportation, unquantified staff costs, and a confusing line about sponsorships. Note that the rest of the costs referred to in the staff memo are not included at all. My point: this is not an analysis that provides enough information to a Council to make an informed decision.

With the City Council's willing complicity, the City’s expenditures on the World Cup appear to be yet more corporate welfare and tourism subsidization paid for by Ketchum residents.

Personally, I am all for hosting the World Cup. I think it adds to the vibe. I’m just peeved that we all have to pony up to subsidize it when it should be a neutral to positive fiscal event for residents.

Don’t Upset the Developers

This is perhaps my favorite excerpt from the 7/1 Budget packet:

Cost Recovery

o Fee recovery is just for application, not long-range planning – 75%

o Department is still subsidized by the GF

o Comfortable going to 100% - didn’t get a lot of pushback from the developers

o “No brainer” by Tripp; Amanda – we have to acknowledge we’re taking a risk.

The Planning Department can legally recover its costs in handling development applications by charging developers. I would argue that fiscal responsibility requires them to. Why should the taxpayers subsidize developers? The City took the hit for years and didn’t recover its costs. Then, they went to 75% cost recovery to see how much pushback they would get from developers. It wasn’t so bad, so now the City will go up to 100%. Why do developers get to dictate the City’s finances? What “risk” are we taking?

5-Year Forecast: $20mm DEFICIT

Six years into the Troika administration, the City Administrator is trying to incorporate some longer-term capital budgeting and financial planning. But that process is not particularly sophisticated.

Depreciation is guesswork. The staff estimates the City needs $2.5mm per year in capital expenditures. Given the $2mm we are spending on just Main Street this year, that is obviously too low a number. There is no dedicated source of revenue for capex beyond about $300k a year from Idaho Power (that was supposed to go to undergrounding power lines).

Guess what else is not in the long-term budget—all the stuff The Troika plans to do but has not yet “officially” voted to do. Like the Bluebird buildings they plan to put up at Lift Tower Lodge, 6th/Leadville, and the YMCA parking lot, or the parking structure we will need to replace the parking The Troika is eliminating from the retail core.

Even without these items, the City of Ketchum is projected to run a growing annual deficit. Running a deficit when your economy is booming isn’t responsible government—this is when you should be running a surplus and paying down debt so you are prepared when the next bust comes. Yet The Troika has another year and a half to jam through more projects, imposing an increasing debt load on locals.

When The Troika entered office six years ago, Ketchum had almost no bonded debt. Currently, the City has about $25mm in bonded debt.

The Troika will leave office in 18 months, leaving Ketchum taxpayers holding the bag for their fiscal irresponsibility.

How Ketchum Spending Actually Works

If you have a budget and you ignore it, what’s the point of the budget? Like almost every other “plan” this administration has adopted, the budget is more of what Monty Python would call a “guideline.” If the Mayor decides he wants to take over a $7mm project from the State so he can have a bike turn lane on Main Street, does the budget stop him from doing that? Of course not.

Regardless of any budget or plan, The Troika of Bradshaw/Breen/Hamilton does whatever it feels like doing. They control the votes. They don’t like the budget? They change it.

Need more housing for low-paid transient workers for the out-of-town tourism industry owners? The locals who will be displaced can donate land for that. There is no analysis of alternatives that could generate more housing (actual workforce housing) in a different location. Remember the money that was allocated for urgent trailer housing two winters ago? Whatever happened to that? Poof.

Not enough money in the budget to pay for everything The Troika wants? No problem. If we can’t bond for it, KURA will pay for it “off-budget.” KURA has two Troika members, and most of the staff works for the Mayor.

The Housing Director wants Federal grant money for another Bluebird at Lift Tower Lodge, but she doesn’t want public oversight of how she spends it. That's no problem. The Council authorized her to apply for it as a City representative, but as soon as it came in, The Troika authorized her to give it all to BCHA. Oh, and she is also the Executive Director of BCHA.

The system is, as they say, rigged.

As I have pointed out in previous posts, the budget is riddled with corporate welfare. From housing to the visitor center to taxpayer-financed concerts and events for tourists to much of Mountain Rides' operations, millions of dollars of costs are shifted from the tourism corporations to locals in the budget “process.”

The best way to understand how The Troika spends the locals' money is to ask what would benefit out-of-town tourism business owners most. That tends to be their north star.

How Can We Fix Ketchum’s Budgeting Process?

We can’t.

The Troika controls the Council. Nothing will change as long as they are in power.

We need more competent people who care about Ketchum to run for public office in the next election. Hopefully, they will run a better budget process. Maybe they can undo some of the damage The Troika has done.

We can only hope.