Cost Accounting in Local Government

City Report: Riverside, CA

The following article was written by Barbara Steckel, finance director and treasurer for the city of Riverside, California. At the time of writing, Riverside had just received the initial draft of a report prepared under contract by an independent consultant. The scope of the report was to analyze the cost of fee-chargeable services and recommend changes in fees and charges to better reflect those costs.

A need for new revenue sources has caused the city of Riverside, population 210,000, to look at the services it provides and decide how much can and should be charged for those services. The city must decide which services should recover their full cost and which ones should be subsidized because of their nature. Some of these are administrative issues, but many are political questions for the elected body to answer. It is very difficult to make any of these decisions without information about the cost of services.

Identifying Sources of Revenue

A driving force in Riverside’s decision to look at the cost of all services was the city council’s desire to add services when there was not enough revenue to make the additions. During the mid-year budget review process for the 1987/88 budget year, revenue and expenditure projections for the following two years were presented to the city council. With this information was a list of possible new revenue sources. Since we could not raise property taxes because of Proposition 13, we had to look at other sources of revenue. The list of possible revenues included an increase in the business license fee, which had not been increased in over 15 years; an increase in the utility user tax added to all utility service bills and an increase in the maximum amount paid by large users; an increase in the contribution to the general fund from the city’s electric utility; contributions from the sewer, refuse, and landfill enterprises; implementation of a lighting and landscape assessment district for park maintenance; and implementation of a street lighting assessment district. A fees and charges study was suggested, which it was estimated would generate at least $5 million in revenue across all funds.

The city council referred the matter to the three-member finance committee and asked for its recommendations. The finance department provided information on each of the alternative revenues: how they could be implemented and the approximate revenues that might be received. The council was looking for enough revenue to increase public safety spending by about $3 million, and to add a few other services. In addition they recognized the need to start building up a reserve of approximately three percent of the following year’s general fund budget, so it became apparent that they would have to consider several of the alternatives.

Over the past few years, there had been a gradual erosion of Riverside’s general fund balance in order to meet the demand for increasing services in this rapidly growing area. Riverside’s population has grown 27 percent over the past decade. Revenues were not growing at the same level as expenditures. The sales tax plays a very important role in general fund revenues — during 1989 and 1990 it constituted about 30 percent of the anticipated general fund revenues — and yet it is a revenue that the city has relatively little control over. Business continues to develop outside of the city limits, despite the development efforts within the city, and the sales tax is not growing at the same level as the services it supports.

A number of measures were recommended by the finance committee and adopted by the council to increase revenues for the 1988/89 budget year. First, the utility users’ tax was increased, requiring only an ordinance change. The electric utility contribution to the general fund was also increased. Steps were taken to implement the street lighting assessment district, to free up about $3 million dollars of general fund revenues. While these increases would take care of the following year’s needs, it was acknowledged that some long-range solutions were needed.

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