First of three posts on the briefings on the City of Madison Executive Operating Budget prior to amendments.
This is the powerpoint they go through describing the summary of the Executive Operating budget. Dave Schmeidicke the Finance Director for the City goes through the highlights.
2014 Year to Date
Revenues are coming in ahead a little over $800,000, most of that is in the room tax, based on second quarter actual collections, it is up 10%, that would be $600,000. The other large area is the building permits due to strength of construction economy, 2nd quarter was strong, 3rd quarter was weaker. Investment income is down about $500,000 of our $1.2 million estimate. On the expenditure side we are over about $500,000 assuming no more allocations from contingent reserve. Snow and Ice removal is expected to be $1.3M over budget, they are right now assuming a normal start to the winter, they are $900K over budget. Municipal court revenues were projected to be higher and allocated to support community development costs, but based on actual collections, they think that will be down $200K because the police department did not receive as many federal grants for speed enforcement and that affects the court revenues. Positive variance on fringe benefits and police convert-to-pay and that gives us the $500K. We are about $300K above budget which is a good place to be. $564,000 is in the contingent reserve based on expenditures to date.
2015 Budget Overview
Assessed values we see that on average we have a 5.5% increase over past 20 years but in the past five years its .3% and we are still below 2009 peak year. Tax Increment District values went up nearly 20%, that has an effect on taxable mill rate, that is value growth and new growth. The average home value is up 3% which is a significant turn around and is reflecting stronger housing sales. Up 3% residential, 3% commercial, last year commercial was faster than residential, agriculture and manufacturing (small pieces) vary greatly from year to year. 2.5% increase in net taxable property. Lisa Subeck asks about the TIF number, is that the increment that is frozen so we don’t see it? Schmiedicke says that is the growth above the number, this is the increment in TIDs has grown 20% compared to last year. Some is new TIDs, new growth and growth in value of property in the TIDS.
The Executive Budget increases the Levy 2.2%, the mill rate is down .2% because the assessed value is up and the taxes on the average home will go up more than that because the increase in value is greater than that, 3%, so is about 2.72% increase.
Expenditures are up 2.6%, that is a combination of general and library funds. Debt service is up 1.4%. Revenues are up 2.3%, excluding property taxes. Some are events that won’t occur again, but they will build the base. Building permits are up 36% but that is not sustainable, that will be a challenge as we saw in the 3rd quarter. Room tax is expected to go up 10% in 2014 and up 7% in 2015. That plus a combination of events, mainly pay off of general obligation debt for Monona Terrace, the transfer to the general fund from room tax is up 75%, a little over $2M which is a major part of balancing the budget and that will not happen again. State aids are up .05%, if you include transit aid it is up 1.5%. Fund balance is down because 2014 had one time expenses applied.
The levy increases comparison chart is shown, it is well below the average. Expenditures are also well below the average. Taxes on the average value home up, but that is because of the increase in value of the homes. He re-explains for alders asking questions.
He goes over the summary info in the budget, there is $11.1M in increase in revenues, they have $4.7M that they are under the levy limit, the executive budget uses $4.4M. The room tax transfer is $2.2M and that is a major part of balancing the budget, continued strength in building permits is the other part of the increase. Street operating permit changes, traffic engineering is proposing a change to that and it will support positions to help with the permit review process. The payment for delinquent taxes, going to 4 payments is also part of it. Then state aids and ambulance fees. Larry Palm asks if the urban forestry fee is in there, is it in other revenues. Schmiedicke says it is in a special fund.
On the expenditure side the larger items are salary and benefit and debt service, those are about $6.2 millions. One time items from 2014 are items funded from fund balance but supported ongoing costs, that is Overture $750,000 and use of library fund balance to balance the budget in 2014 so they need to be paid for with revenue growth. Health insurance, police and fire wage increases, collectively bargained 3% increase for $2.5M cost, the other wage increase is 1.5% for other employees at $1.8M. Health insurance is based on rates they received and the retirement system. Other increases are from refining our wage beenefits instead of waiting until they pass the budget. That freed up some dollars that went towards education and longevity. Debt service and direct appropriation to capital is a netting, so the revenues compared to expenditures is a $3.6M positive balance. Mark Clear asks if those are variances from 2014, Schmeidicke says yes.
Cost to continue, the major element there is fire station 13 staffing that came from a SAFR grants that ends in 2015, so we have to put in $1M to continue to fund those positions. There were positions created in the 2014 budget, either partially funded in the year or funded by grants that is gone. We are on year three to fully budget for the convert to pay and that is another $100,000. The tipping fee is phased in over three years and that is the increase, route expansion in metro was partially funded in 2014, debt service for fleet for streets, fire, etc and that flows into the general fund. Insurance and workmans compensation costs were out of balance between expenditures and what they bill back to the agencies. Fuel is coming down dramatically and we are pretty confident they can reduce fleet by $200K and Metro deisel budget is locked for this and next year. There were another $300,000 in other minor adjustments. All that leaves $1.6M in revenue growth still available, there are a number of community service budget items in the budget that they will go over later, some of the biggest ones are the Emerging Opportunities Program and Neighborhood Center Operations and the Neighborhood Resource Officers with the COPS grants and command position which is $150,000. Then there is about $800,000 in revenue growth available.
Other budget priorities include operating costs for Emerald Ash Borer, increase for Overture. Palms asks what they included last year. Schmiedicke says that last year was $1.6M, this is $1.75M. The total is $1.4M of other priorities they will go over later, which takes the available revenue to negative $620,000. The budget is then balanced with allocating the EAB costs to the Urban Forestry Special Charge which is an open question and using the direct appropriation to capital and switching funding support for some fleet vehicles to the capital budget and that leaves a positive balance within the levy limit of about $300,000.
General Fund Balance projections chart is explained. They strive to have 15% of the total budget in the general fund and that is a major part of how we keep our AAA bond rating. We fell a little bit below that amount in 2013 because of the application of fund balance in the 2014 budget and because of a major Mark to Market adjustment. We will recover some of the adjustment. The budget applies 1.36M in 2015, that is the remaining balance in the premium stabilization fund, that is a balance they ahve been spending down since 2012 that they received from the 3rd party insurance administrator that build up over many years for life and disability insurance and that has been paying the premium costs for the last few years, and in 2016 we will have exhausted that money.
Positions in the budget is a net increase of 35 positions. 13 are parks and streets for EAB and will be charged to the captial project. Another 10 in engineering will be charged to various utilities or capital projects. There is a portion of the positions that are general fund. The police department positions were talked about. There are some others in parks and streets, there are 6 in Community and Economic Development, a data projects coordinator for the equity report and there is reduction of 9 positions that were netted or eliminated. There is a summary of all the positions in the document.
There is a final summary slide he goes over that shows the high level summary.
Capital Improvement Plan
I lost this part of the post, he has some charts that show that most of the expenditures are in the first three years. He talks about the major projects including that they need to add TIF for Anchor bank, the biodigester, Fleet facility, metro and library facilities. Midtown, police evidence and storage, fire station 14 and renovations to station 6 and the radio system. The municipal building project, the public market, neighborhood centers and affordable housing initiative. There is the Emerald Ash Borer project. Monroe ST. and other major streets projects. Alot of the projects in the first three years are funded by the levy. That affects debt service in the next three years.
He shows the chart that shows the executive budget vs. the board of estimates budget amendments version.
Long Range Forecast
He has a long list of assumptions that are in the presentation, he says that because of the assumptions you have to immediately assume this is wrong. He goes through the slide on the background, the majority of the revenues come from property taxes that are limited by the levy limits that are impacted by net new construction. Debt service on all borrowing is not limited. Our net new construction has not exceeded 4% in the last 20 years, we have gone below 1%, we are recovered to 1.7% this year. Dramatic increases in that number will not happen. General obligation debt repaid with TIF or other than property taxes gives us some levy capacity but the rate of growth of the two impacts it. If the rate of growth in all of debt services is less than the rate of growth in general debt service then the debt services on operating side will effect what is available. Midtown will cost $1.1M and fire station 14 if fully staffed will cost $1.5M in operating funds. The city cost for those facilities could be phased in if we get federal grants but eventually we will have to pay for all of it on the levy.
He worked with the following assumptions: 2 – 4 % net new construction growth which is a 3 – 7% annual levy increase. We typically only issue 1.2 to 2/3 of the authorized debt and the rest is reauthorized. Debt service will grow from 37M (14% of expenditures) to $72M or 22% of expenditures by 2020. Room taxes will be 3 – 4 % which is less than now but we won’t be able to maintain the current growth. The new Convention and Visitor Bureau contract negotiations indicate their share of the room tax will increase from 20% of the room tax to 30% of the room tax by 2020 and most of the revenue growth will go to that and then the general fund will only grow about 1% annually. State aid will grow about 1% annually, other revenues will grow about 1.5% annually assuming no new revenue sources. Salaries for all employees would grow 3% in 2016 and 2% after that. OUr historical increase is about $1M a year with longevity and stipends. Health insurance is expected to increase 7.5%, 4% in the retirement system. There are no other new initiatives, only operating increase for MidTown and Firestation 14, not for any of the other new facilities. These are the assumptions.
The next slide shows that the revenues are far below the expenditures in each of the years. He goes through the various parts of the chart that you can read that just reiterate what he has already said.
Lisa Subeck asks about the police and fire numbers, do they include debt service or just the operating costs? It’s just the operating costs.
He shows one more chart showing the effect of the levy limit for all debt service vs all debt service. He says 2016 and 2018 have a little capacity but 2017 will need to be picked up in operating capacity. This is all determined by the rate that the projects get done and we issue the debt. Its hard to predict.
He goes over some basic calculations. Each $1M of GO borrowing is $130,000 in debt service for 10 years, or a .6% levy increase. Midtown will add $1.2M and the fire station will add $1.1M. That is about a half a percent on the budget. Each 1% of new construction adds $1.3M on the levy increase authority. Based on the assumptions laid out, other revenue will grow about 1.6M per year. Some of the major expenditures are Health Insurance and WRS which is about $3M a year, a 1% increase for employees is about $2M. The Health Insurance and WRS and employee increase is 3% net new construction. The budgets have been balanced with one time things like room tax, building permits, ambulance fee increases and last year the duty disability for police and fire had a $3.6M decrease.
Mark Clear asks about items being shifted from Operating to Capital budget specifically the EAB and fleet vehicles, he asks if there are concerns about those shifts or if they are in normal parameters of acceptable practice. Schmiedicke says that the EAB isn’t really a shift, that is a new project, not a shift. We are replacing an asset, it is a project with a defined span of time and we have had the practice of charging cost of positions that work on capital projects to the capital project if it has a relation to the project. Other examples are central library and major streets projects. EAB is something we haven’t seen since Dutch Elm 40 years ago and we are reacting with positions, equipment and acquisition of trees. There will be an issue we have to face when the project ends, we brought on a number of positions, we will add more over the next 3 or 4 years and when the project ends something has to be done with the positions and incumbents in those positions. They will have to be managed through attrition or folded into the budget or the positions will be gone.
Shiva Bidar asks if the police and fire costs are all personnel. Schmiedicke says that some are one time costs like police cars. She also asks for a number on what all the new positions cost. He says he will get that. He says there are 42 new positions offset by the loss of 7 positions.
Verveer asks if there are any adjustments or revisions since the budget was introduced, like new state transportation aid numbers? Schmiedicke says they were on target this year, that was the only outstanding item. They will get actuals on 3rd quarter room tax, but otherwise they have most of the numbers and don’t expect changes. Verveer says there is only the issue of the Urban Forestry Charge and how to address that.
(ok, all fixed, replaced the lost language!)
