TSCC Budget Review

Transcription

1 City of Portland Location: TSCC Budget Review The City of Portland serves an area of square miles with an estimated population of 568,380. Boundaries extend into Clackamas and Washington Counties. District Background: A full-time, salaried Council comprised of the mayor and four commissioners govern the City. All are elected at large to four year terms on a non-partisan ballot. The City of Portland was incorporated by the territory of Oregon eight years prior to the year Oregon was granted statehood. In 1903, the state granted a new charter to the City. Since 1913, Portland has operated under a modified commission form of government. The City makes up slightly more than 80% of the population and the assessed valuation in Multnomah County and over onequarter of the property taxes imposed. The Mayor is the formal representative of the City, and is responsible for assigning bureaus to commissioners. The administrative service of the City is divided into the following operational areas: Public Safety; Parks, Recreation and Culture; Public Utilities; Community Development; Transportation and Parking; and, Legislative, Administration and Support Services. A member of the Council serves as the head of each bureau and department. The City has two semi-autonomous commissions: the Fire and Police Disability and Retirement Plan (FPD&R), and the Portland Development Commission (PDC). The FPD&R s primary purpose is to provide disability, death, and retirement benefits to firefighters and sworn police officers. It was established in 1948, and currently covers 3,463 members (1,597 active and 1,866 inactive). The board is composed of the Mayor or the Mayor s designee, one representative of the Fire Bureau, one representative of the Police Bureau and two citizen members. The City is obligated to levy a tax, limited to $2.80 per thousand assessed valuation, sufficient to provide amounts necessary to fund annual requirements, as estimated by the board. The City is further required to cover fund shortfalls if revenue from the levy is inadequate. The second commission, PDC, is the City s urban renewal and redevelopment agency established under ORS Chapter 457 in 1958 by the voters. The Commission consists of five members appointed by the Mayor, subject to approval of the Council. In November 2008, the voters passed a five-year Children s Investment Local Option Levy. The first year of the levy was and the last year is In November 2010 voters approved a $72.4 million General Obligation Bond Measure for fire apparatus and emergency response infrastructure. General Information: City of Portland Assessed Value in Billions $ $ $ Real Market Value (M-5) in Billions $ $ $ Property Tax Rate Extended: Operations $ $ $ Fire Police Disability & Retirement $ $ $ Parks Local Option $ 0 $ 0 $ 0 Children s Investment Local Option $ 0 $ $ Debt Service $ $ $ Total Property Tax Rate $ $ $ Measure 5 Loss $-9,074,578 $-13,430,112 $-16,758,433 Number of Employees (FTE s) 6, , , ,783.59

2 Approved Budget Page 2 Overview: City of Portland Actual Actual Budget Budget Total Budget All Funds 3,080,174,945 3,273,000,207 3,639,485,279 3,594,485,603 Percent of Change from Prior Year -11.9% 6.3% 11.2% -1.2% Total Beginning Fund Balance All Funds 836,240, ,377, ,355, ,880,664 Percent of Change from Prior Year 14.6% -21.4% -3.2% 18.2% The City of Portland s budget is the largest of any local municipal corporation in the State of Oregon. This budget is showing a decrease from $3,639.5 million to $3,594.5 million in , an overall decrease of $45 million, or 1.2%. Offsetting factors affecting the total budget are: decreases in Debt Proceeds as the City borrows less for water and sewer infrastructure improvements (-$45.4 million) and revenue from Federal sources (-$96.3 million), made up by a large increase in Beginning Fund balance ( million) and increases Licenses, Permits and Fines (+11.4million) and miscellaneous sources (+$26.9 million). Miscellaneous revenue is inflated in due the repayment of an interfund loan of $21.9 million. Enterprise revenues from water and sewer operations are also increasing due to higher rates, up $22.6 million. On the spending side, every service area is showing a smaller budget for compared with except Public Safety and Transportation. While the budget for Community Development is showing a slight decrease in the budget, there is a substantial increase of $65.0 million in the budget compared to the budget for This is attributable almost exclusively to the transfer of all housing related activities from the Portland Development Commission s budget to the City s budget in the fiscal years. Expenditures in the new Tax Increment Financing Reimbursement Fund where most housing projects funded with urban renewal dollars are budgeted have gone from $845,176 in to $52,156,480 in The largest decrease in service area expenditures is in the Federal Grants Fund due to the expiration of ARRA stimulus legislation. Expenditures from this source decrease by $92.5 million or 52.2% from the current year. There is also a large drop in expenditures in the in Public Utilities area as spending on capital projects, especially the East Side Big Pipe (sewer overflow) project winds down. Combined expenditures for the Legislative service area and the Administration and Support service area are also decreasing, from $383.9 million to $369.6 million, a reduction of 3.7%. Most funds that comprise this service area, such as facilities, city fleet and printing and distribution are budgeted to spend less in than in the current year. The City routinely projects the costs of current appropriation level or CAL over a five year period. If revenues are not sufficient to meet these costs in future years, programs have to be cut even though there may be enough money to fund those programs for the upcoming year. This results in a surplus of revenue over costs for the current year or one time only funds that are available. Expenses can be removed from CAL and still be funded by the one-time only money available. As of the April forecast, the City was projecting on-going spending exceeding resources in by $1.5 million. However, with that reduction in CAL and the allocation of $10 million for ongoing programs over the next four years, the out years were in balance. These

3 Approved Budget Page 3 reductions at the time of the April forecast created $17.4 million in one-time only funds that are available in By any measure, the City of Portland s budget would be considered huge. However, a number of factors inflate the City s budget. A large number of funds and organizational units results in a large number of interfund transfers totaling $593.3 million in These interfund transfers are double counted in the budget. The City also budgets for internal materials and services which are expenditures made on behalf of other bureaus or offices (showing up as service reimbursements on the resource side of the fund providing the service). These amounted to $189.7 million in this budget. Deducting these requirements from the total budget reduces the actual requirements for city functions to $2,811,497,064. This compares to the net budget of $2,514,531,466, an increase of $35.4 million or 1.3%. In addition, the City issues urban renewal backed debt, records the urban renewal property tax receipts and makes the debt service payments for PDC. This adds another $264.8 million to the City s budget for Revenues: Total revenues, excluding transfers, service reimbursements and beginning fund balances, are decreasing 3.7%, budgeted at $2,059,616,400 in versus $2,139,725,414 in However, if debt proceeds, which can fluctuate wildly from year to year, are excluded revenue decreases even more, 2.3% to $1,483,097,499. Debt proceeds budgeted in are $576.5 million compared to $621.9 million in The largest source of revenue is property taxes, budgeted at $433.8 million for all levies, up $3.2 million over the current year. This is only 0.7% more than what is expected to be received in the current fiscal year. Utility charges for water and sewer customers are the next highest source of revenue, budgeted at $387.3 million, up 6.2%. Average sewer rates are increasing 5.5% and water rates are scheduled to increase 12.9%. Demand for water has actually declined due to the recession as well as conservation efforts. Most business related revenue sources are increasing slightly, including Transient Lodging Taxes (+ 2.8%), licenses, permits and fines (+ 13.3%), public utility licenses (+ 0.2%), and system Development Charges (+ 10.6%). Service Charges and Fees are decreasing by 1.6% primarily due to lower parking fees in the Transportation Operating Fund. Revenue from the sale of assets is increasing by $1,845,700 while interest earnings are decreasing by $3,898,166. Since investment earnings have fallen more than 63%, from $30.0 million to just $10.9 million in Revenue from federal, state and local governments, in total, is decreasing by 24.7% or $94.7 million, due to a sharp drop from Federal sources (- $96.3 million) with the expiration of the American Recovery and Reinvestment Act (ARRA) Federal stimulus legislation. Revenue from State sources is also declining. On the other hand, Local Sources are increasing by $3.5 million, primarily in the Transportation Fund (+ $9.7 million) from contributions from other agencies for the extension of the Portland Streetcar to the east side and in the Special Projects Debt Service Fund (+ $6.6 million). As noted above, proceeds from issuing debt decreased substantially in this budget, from $622.0 million to $576.5 million. A significant reason for the decrease is the City sold the first issue of General Obligation Bonds in the amount of $45.8 million for fire apparatus and

4 Approved Budget Page 4 emergency response infrastructure measure in and no new debt is scheduled to be issued in The various sewer system funds will borrow $62.4 million less next year as the Combined Sewer Overflow (Big Pipe) Project nears completion. The City has budgeted to issue $161.3 million in bonds for various projects in the Water Bureau, which is $81 million more than the current year. Over $21.2 million in bonds will also be issued for Local Improvement Districts (LID), $10.7 million less than the current year. Also contributing to lower borrowing in is debt proceeds backed by future urban renewal property taxes, budgeted to decline 6.5%, from $120.2 million to $112.3 million. Other Bureaus, including Transportation, FPD&R and facilities are also issuing less debt in Revenues, All Funds Debt Proceeds $576,518, % Interest $10,895, % Other $43,632, % Property Taxes $433,775, % Other Taxes $26,687, % Local $132,028, % Licenses, Permits & Fines $97,453, % State $51,319, % Federal $104,989, % Utilities $387,305, % Service Charges & Fees $138,129, % Utility Licenses $56,880, % Property Tax Revenues: In total, property taxes are up only 0.7% or $3,197,415 for The City receives current year property taxes from its permanent tax rate limit (up 3.2% to $193.1 million), the Fire and Police Disability and Retirement System levy (down 3.5% to $103.8 million), the Children s Investment Local Option levy (down 12.1% to $11.8 million), payment of general obligation bonds debt service (up 28.2% to $10.5 million) and urban renewal tax increment financing and urban renewal special levies (down 0.4% to $1,049 million). In addition, each levy receives prior year taxes and the Parks Local Option Levy, which expired after the fiscal year is budgeted to receive $32,142 in prior year taxes. With real market values declining and less new construction, assessed value growth will be less and losses from Measure 5 compression will increase. Property taxes budgeted to be received are actually declining for the Children s Investment Levy. The Children s levy is a rate based levy at $ per $1,000 of assessed value so more taxes should be collected as the assessed value within the City increases. However local option levies are compressed first under the $10 per $1,000 of real market value limit set by Measure 5 and as real market values continue to decline and assessed values increase, more compression occurs. This affects local option levies more than other levies. Hypothetically, if all properties inside the City of Portland had assessed value equal to real market value the current year taxes for the Children s levy would drop to zero.

5 Approved Budget Page 5 Current year taxes to support the Fire and Police Disability and Retirement (FPD&R) system are lower, declining from $107.5 million in to $103.8 million in This levy is a dollar based levy, meaning that if estimated expenditures are down or resources other than current year property taxes are up, the amount of current year property taxes needed to balance the budget is less. That is the case in where the beginning fund balance is estimated to be $8.2 million higher than the current year. The property tax levy, adjusted upward to account for Measure 5 compression loss and amounts not to be collected, will decrease from $118,526,184 to $114,264,711. Taxes for payment of General Obligation Bonds principal and interest are up by $2.3 million or 27.1% due to new bonds issued for the fire apparatus and emergency response infrastructure bond measure passed by voters in November Urban renewal taxes, both current and prior year, are estimated to only increase 0.2% to $107.3 million. Urban renewal are derived from the growth in excess value, the assessed value over the frozen base value, established when each urban renewal area (URA) was formed. As increases in assessed value slow due to less new construction, taxes divided for urban renewal also slows. Of the 11 URAs, seven are estimated to bring in less current year property taxes in than in Legislation from the 2009 Legislative Session, HB 3056, requires urban renewal agencies to limit tax increment financing revenues when the excess value exceeds a certain percentage of the maximum debt the plan area is allowed to issue. One PDC plan area will exceed the threshold established by the new law. The River District Urban Renewal Area (URA) will be limited to collecting tax increment financing taxes off of $1,592,116,769 in excess value. Any growth in value beyond that amount will be unused and all taxing jurisdictions that levy in the River District URA, including the City, will receive additional taxes from permanent tax rate limits and other rate based levies. The City will allocate these additional property taxes to housing programs and economic development efforts Property Taxes Urban Renewal, $107,292, % GO Debt $10,572, % Permanent Rate $198,009, % FPD&R $105,700, % Local Option Levies $12,199, %

6 Approved Budget Page 6 Expenditures: City of Portland Actual Actual Budget Budget Personal Services 540,910, ,949, ,877, ,563,477 Materials & Services 748,747, ,596, ,053, ,656,641 Capital Outlay 186,005, ,326, ,420, ,733,220 Personal Services: For third year in a row staffing is down in this budget, decreasing by FTE to 5, This includes full-time, part-time and limited term positions. Since a total of 276 FTE have been eliminated. The biggest reduction in FTE is found in the Water Bureau as the bureau reacts to customers purchasing less water and attempts to control cost to keep rates from increasing even more than they are. For , fewer FTE are budgeted, from to Also decreasing substantially is the Portland Housing Bureau. This is a relatively new bureau, created from former employees of the Portland Development Commission. The bureau is developing a strategic plan and is right sizing the operations in the process. Other areas seeing a reduction in staff are: Environmental Services ( FTE), Police (-7.67), Parks and Recreation (-6.63), Bureau of Environmental Services (-6.5, and the City Attorney ( Bureaus budgeted for increased staffing include Development Services (+11.83), Management & Finance (+9.65), Transportation (+11.45), and Fire & Rescue (-4.50). Despite the reduction in staff, Personal Service expenditures are increasing 4.1% to $598.6 million in Most employees will receive a 1.2% cost of living (COLA) increases. The City s PERS employer rates for Tier 1/Tier2, OPSRP and OPSRP Police and Fire are increasing effective July 1, 2011, from 4.30%, 5.04% and 7.75% to 9.30%, 7.69% and 10.40%, respectively. Materials and Services: Materials and services are down 8.0% compared to , decreasing by $73.4 million. Most bureaus and offices were asked to submit budgets cutting program expenditures by 2% without impacting services. Materials & Services is often the first part of the budget where cost savings are made. The City budgets two categories of Materials & Services: External and Internal. External M&S is the typical expenditures for supplies, materials, professional services and utilities. Internal M&S accounts for services provided by one office or bureau on behalf of another office or bureau. These expenditures are thus counted twice in the budget. Internal Materials & Services amount to $189.7 million while External Materials & Services total $649.0 million in the Approved budget. In addition to the typical expenditures such as supplies and contract services, the City s budget for External Materials & Services includes the transfer of debt proceeds backed by urban renewal property taxes to PDC, transfer of transient lodging taxes to Metro and other pass thru payments. Nearly all of the expenditures for the Children s Investment Local Option Levy are paid out as external M&S. Transfer of urban renewal backed debt proceeds to PDC are budgeted as external M&S and are reduced in this budget from $118.0 million to $111.7 million.

7 Approved Budget Page 7 Capital Outlay: Capital Outlay is decreasing 25.6% to $306.7 million in The Water Bureau estimates it will expend $98.8 million on various projects during the upcoming year. Environmental Services is close behind at $86.5 million. Together public utilities account for over 60% of all capital outlay spending in this budget. The Bureau of Transportation will spend the next highest amount for capital outlay at $76.3 million. Parks and Recreation, has budgeted to spend $24.3 million and the Office of Management and Finance is planning on spending $20.3 million for city-wide projects in , including $14.1 million combined on projects within the larger Public Safety Systems Revitalization Project, $3.1 million of fire facility GO bond measure projects, $5.3 million on a new emergency coordination center (ECC) and $4.6 million on updating vehicles and equipment in the city s fleet Expenditures, All Funds Debt Service $416,119, % Legislative & Executive $17,648, % Public Safety $412,572, % Administrative & Support Services $325,072, % Parks, Recreation & Culture $101,900, % Transportation & Parking $165,610, % Community Development Services $297,761, % Public Utilities $423,386, % Operations: Operations of the City are structured around seven service areas: public safety, parks, recreation and culture, public utilities, community development, transportation and parking, elected officials, and city support services. All bureaus, offices and departments are organized under one of these seven areas for budgeting purposes. For purposes of this report, elected officials and city support services have been combined. Also, all expenditures in the Grants Fund are rolled into city support services even though amounts are spent on behalf of other areas. This is due to not being able to break out the expenditures to other areas across all four years of the budget. The budgeted amounts include operations as well as planned capital improvements. The amounts do not include debt service payments, interfund transfers or general operating contingencies. The narratives below are pulled from descriptions for each service area in the Proposed Budget document and therefore could have changed slightly in the budget as approved by the City s Budget Committee that are displayed elsewhere in this review.

8 Approved Budget Page 8 Public Safety Change Budget 400,488, ,572,584 12,083,829 Positions (FTE) 2,163 2,159-4 This service area includes the Bureau of Emergency Communication (911), Bureau of Fire, Rescue, and Emergency Services, Bureau of Police, FPD&R and the Office of Emergency Management. Both the Bureaus of Fire and Police are struggling to hire and train enough new firefighters and police officers to replace an ever increasing number of retirements. And this is projected to be more of a problem in July 2011 when pension calculations will use 27 prior pay periods as opposed to the typical 26. As many as 50 firefighters could retire that month. The union contract with the Portland Police Association (PPA) calls for salary increases of 2% in addition to COLA increases as well as premium pay for shift work and passing annual health and fitness test. The cost of these incentives in will be $1,689,425 for the 2% salary increase and $446,313 for the annual fitness tests. The 2010 Fire Apparatus and Public Safety Infrastructure GO Bond measure will provide capital funding to reduce the backlog of fire apparatus replacement, update the emergency radio system, construct a new Fire Station No. 21 near the Willamette River and pay a portion of the costs to construct a new Emergency Coordination Center (ECC). A total of $13,159,083 from bond proceeds is budgeted to be spent on these projects in This includes four new rescue units for Fire & Rescue. The challenge will be to find ongoing funds to man the new units. The Police Bureau does not have its own training facility and therefore must rent space across the region, subject to availability. The City has identified 16 acres of city owned property at Portland International Raceway (PIR). Preliminary estimates peg the cost at $15 million. In this budget, $250,000 has been set aside for a feasibility and cost study to develop the site into a multi-purpose training facility including driving area and shooting range. The Fire and Police Disability and Retirement (FPD&R) system is primarily a pay-as-yougo system, with the property tax levy adjusted annually depending on the number of retirees, spouses or disabled receiving benefits. An error in the method of calculating retirement benefits (resulting in higher benefits) was discovered in The IRS has recently ruled that, short of having voters retroactively amending the charter, the City must recover the amounts over paid in order to maintain the system s tax exempt status. A plan has been developed and will be implemented in Police officers and firefighters hired after 2006 are not included in the FPD&R system but rather are members of Oregon s PERS system along with all other city employees. Parks, Recreation and Culture Change Budget 105,963, ,900,683-4,063,021 Positions (FTE) The Bureau of Parks and Recreation is the only organization structured under this service area. The Bureau is responsible for city parks, natural areas, golf courses and sports, raceway, arts, and spectator facilities. The Parks Bureau is challenged with maintaining the large number of existing parks as well as developing new parks to serve an increasing population. This has become even more difficult with the expiration of the Park Local Option Levy in , although $4.2 million remains in that fund. Fees were increased in

9 Approved Budget Page to help narrow the gap between keeping up with existing maintenance and programs and revenue. While the total budget is decreasing, all of the decrease can be attributed to the Spectator Facilities Operating Fund (- $10.0 million). The operating budget for Parks and Recreation in the General Fund is actually increasing by $1,435,632 and the Parks Capital Construction and Maintenance Fund is essentially flat ($22.4 million in versus $22.2 million for ). In , $500,000 will be earmarked for expansion of parks east of the I-205 freeway. This is part of the E-205 initiative to reach out to outside agencies and the Portland Parks Foundation to ensure equity across the City in access to parks. As part of the Mayor s goal of assisting at-risk youth, $300,000 is budgeted for teen programs (for the second year) and $30,000 is budgeted for a summer lunch program. Capital projects budgeted in total just under $30.0 million and include: Metro bond natural areas and parks, $6.5 million; River District Neighborhood Parks, $4.0 million; and, Heron Lakes Golf Course Clubhouse, $4.7 million. Public Utilities Change Budget 489,387, ,386,647-66,000,432 Positions (FTE) 1,189 1, This service area includes the Bureau of Environmental Services and the Water Bureau. Of the total budget for Public Utilities, $185.3 million or 43.8% is for capital improvements. The $66.0 million decrease in expenditures over is due almost exclusively to $117.0 million less in spending on capital improvements projects within the Bureau of Environmental Services as work nears completion on the Combined Sewer Overflow (Big Pipe) Project. Total spending (personal services, materials & services and capital outlay) in the Bureau decreases by $130.2 million. Meanwhile, in the Water Bureau, total spending increases $61.5 million, including a $64.7 million increase in capital outlay spending. The Water Bureau has experienced a decline in the amount of water used due to the recession, fewer new hookups and water conservation efforts. Large scale capital projects are typically paid for by issuing revenue bonds with the principal and interest payments backed by future system revenues. As such, debt service within the two bureaus is increasing but is not shown in the operating budgets noted above. Total debt service in comes to $188.4 million, an increase of $3,716,837 over the current year. Debt service payments will undoubtedly increase over the next several years. The City is beginning to address the Environmental Protection Agency s (EPA) new Long Term 2 Enhanced Surface Water Treatment Rule (LT2) that require the City to build a new water treatment facility and make changes to open reservoirs. While the City is planning to request a variance to the water treatment rules, the EPA has informed the City that a variance for continuing to use open reservoirs will not be considered. Complicating matters is the fact that work would have to begin on the treatment plant before a decision on the variance is known in order to meet the EPA s regulatory timeframe. Work has already begun on building an enclosed 50 million gallon reservoir at Powell Butte, an increase in the storage capacity at Kelly Butte to 25 million gallons and a new, 15 million underground reservoirs to replace the open reservoirs now in use, with $43.3 million budgeted in Total cost is estimated at $217.1 million over a five year period. Work will begin on the $100 million treatment plant in , with $19.5 million earmarked. The City hopes its

10 Approved Budget Page 10 request for a variance will be approved but at the same time they recognize that some improvements will have to be made even if a variance is granted. The average effective in-city retail water rate increase for will be 12.9% and the comparable rate for sewer and stormwater will be 5.5%. It has been projected that rates may increase as much as 80-85% over the next five years due to the expensive capital projects required to meet EPA s LT2 rules. Also in the service area, included within the Water Bureau, is the Hydroelectric Power Division. The City owns a hydro power plant that is managed by Portland General Electric. The operating budget for is $695,954, including 2.15 FTE. Community Development Services Change Budget 187,682, ,091,131-1,591,772 Positions (FTE) Included here are the Bureau of Development Services (land use and building inspection programs), the newly created Portland Housing Bureau, the Bureau of Planning and Sustainability, the Office of Neighborhood Involvement, Cable Communications & Franchise Management, the City s General Fund allocation to the Portland Development Commission, and urban renewal debt service funds. The economic downturn has seriously affected the Bureau of Development Services which relies on fees and charges. Since 2009 staffing in the Bureau of Development Services was cut in half to match revenues. However, workload was not reduced a corresponding amount so this budget adds back 12 FTE. The bureau is also looking at implementing an online plan review and permitting system. In its first full year of operation, the new Housing Bureau is implementing its strategic plan which indicated it had more staffing than it needed. Ten positions are eliminated in the budget. Resources from the Federal programs are decreasing from $99.0 million to $66.5 million. Both Community Development Block Grant (CDBG) and HOME grant programs are declining. Also, urban renewal tax increment financing revenues dedicated to housing programs, formerly spent directly by the Portland Development Commission, are decreasing by $3.8 million. The 30% set-aside, a policy adopted by the City Council that requires most urban renewal areas to spend 30% of tax increment financing revenue on housing programs will continue. However, the original policy directive was for five years which expires this year. The Bureau of Planning and Sustainability is working on an update to the City s Comprehensive Plan as required by state land use planning laws. The project was started in 2007 and is to be completed in As such, FTE of the Bureau s FTE are limited term positions. Transportation and Parking Change Budget 154,690, ,610,793 10,920,424 Positions (FTE) This service area is comprised of the Office of Transportation (PDOT), funded by state gas taxes, parking fees and grants. The Bureau has been cutting its budget in recent years, as revenue (gas taxes, parking revenue and parking citations) have not kept pace with the backlog of maintenance projects. However, in again in ARRA grants provided a substantial boost in spending for capital projects. In , resources from Intergovernmental sources decline $47.6 million or 28.5%. The budget includes $22.6 million for extension of the Portland Streetcar to east of the Willamette River, including $2.5 million budgeted to purchase new streetcars. In addition, $20.9 million is

11 Approved Budget Page 11 budgeted to rebuild Moody Parkway in the South Waterfront Neighborhood. Total spending on capital projects is budgeted at $102.8 million. Legislative, Administrative and Support Services (excludes Grants Fund) Change Budget 383,926, ,636,087-14,290,125 Positions (FTE) 1,531 1, This service area includes the offices of the Mayor and Commissioners, the City Auditor and the City s internal support departments such as the City Attorney, Office of Government Relations, Office of Human Relations, Human Resources, Business Operations, Financial Services (including the Treasury Division), Internal Business Services (city fleet, facilities, printing & distribution, procurement and risk management), Revenue Bureau, Technology Services, and the Office of Management and Finance (OMF) which manages the City s investment and debt portfolios. The City s Chief Administrative Officer also acts as the director of OMF. OMF also manages large-scale, capital intensive projects for other Bureaus, such as: $14.1 million the Public Safety Systems Revitalization Plan (to upgrade police and fire emergency communications technology); $3.4 million for upgrades to fire stations from general obligation bond proceeds; $5.3 million for the new Emergency Coordination Center; and, $4.6 million for replacement vehicles, mostly transportation equipment and police cars. With the new financial software, expenditures are being made directory from the Federal Grants Funds rather than being transferred out to specific operating or capital funds. This results in all of these expenditures being rolled up into this service area in TSCC s spreadsheet, thereby somewhat skewing the numbers. Expenditures from the Grants Fund are not included in the numbers presented above. The decrease in the budget can be attributed to a large decrease in urban renewal backed debt proceeds and the subsequent transfer of those funds to PDC (-$6.3 million), lower costs in the City Fleet Fund (-$6.7 million), and insurance claims estimated to be reduced by $2.9 million. Included in this service area is special appropriations, budgeted in the General Fund. These appropriations, often from one-time only funds available, are budgeted at $9,646,001 in This amount provides funding for three ongoing programs, including $500,000 for scholarships to Portland Community College for at-risk youth, $525,000 for the new Office of Equity and $600,000 for the Crisis Assessment Center. Another 22 programs are supported with one-time only funds, including $300,000 for the development of sports fields at area high schools, $152,000 for additional Portland Loos (public toilets), $150,000 each for the Creative Arts Network (supporting arts education for youth) and Janus Youth Program (to eliminate human trafficking) and $117,000 for the Fostering Success Initiative to improve the lives and educational futures of children in foster care. General Fund: City of Portland Actual Actual Budget Budget General Fund Budget 534,907, ,037, ,221, ,707,085 Percent of Change from Prior Year -3.7% -2.4% -61.2% 6.7% General Fund Beginning Balance 75,205,021 69,120,652 26,828,654 39,382,981 Percent of Change from Prior Year -7.9% -8.1% -61.2% 46.8%

12 Approved Budget Page 12 Total revenue (resources less beginning fund balance, interfund transfers and service reimbursements) is budgeted at $383,585,052 in This is a 3.5% or just under $13 million more than revenues. The primary sources of revenue in the General Fund are property taxes, business licenses fees, utility franchise fees and service charges. General Fund Revenues shown in the chart below exclude transfers and beginning fund balance. Economy driven related revenues are, for the most part, increasing in after declining from highs recoded in Business licenses fees, the second largest source of General Fund revenue, are expected to increase 16.5% in the coming year as are Transient lodging taxes (+5.0%). Public Utility Licenses or franchise fees for use of City right of ways are budgeted essentially flat between and the upcoming fiscal year. Service charges, primarily for Parks & Recreation facilities, are budgeted to decline by $1.2 million or 6.6% Current year property taxes from the City s permanent tax rate limit are estimated to bring in $193.1 million, 3.1% more than This is somewhat higher than TSCC s staff estimate of property tax growth. Prior year taxes are budgeted to bring in another $4.1 million. s n ilio M $ General Fund Beginning Balance with General Reserve GF Beginning Fund Balance General Reserve Fund The General Fund Beginning Balance is up by $12.6 million or 46.8% for The increase can be attributable to careful spending the last two years. At the same time, the General Reserve Fund s beginning fund balance is declining, from $49.2 million in to $47.0 million in this budget. The City has a policy, established in , to maintain a reserve equal to 10% of general fund revenues net of short-term borrowing (5% for emergency expenses and 5% for a rainy day fund in the event revenue do not come in as budgeted). The combined ending fund balance and general operating contingency in the Reserve Fund comes to $49,335,438, or 12.9% of General Fund revenue General Fund Revenues Lodging Taxes $15,248, % Licenses & Permits $124,667, % Service Charges & Fees $17,219, % Property Taxes $198,009, % Other $4,096, % Inter- Governmental $24,343, %

13 Approved Budget Page 13 The General Fund is where the City budgets the majority of its discretionary spending. This includes the budgets for the Police Bureau, Fire and Rescue, Parks and Recreation, Office of Neighborhood Involvement, Planning and Sustainability and the newly created Bureau of Housing. The General Fund is also where the Mayor, Commissioner s offices and County Auditor are budgeted, as well as other administrative services such as the Office of Management and Finance General Fund Expenditures Parks, Recreation & Culture $60,774, % Community Development $36,104, % Debt Sercice $6,035, % Admin & Support Services $66,565, % Legislative & Executive $17,648, % Police $164,938, % Fire & Emergency Management $21.6% Total expenditures (requirements less ending fund balance, contingency and transfers) are increasing by $16.9 million in this budget, up 3.9% from expenditures. Expenditures for most offices and bureaus are being increased. Public safety bureaus do very well in this budget with the Bureau of Police up 5.1% while Emergency Management is increasing 5.0%. However, Fire, Rescue and Emergency Services is budgeted at slightly less next year, down 0.4%. The budget for the Commissioner of Public Affairs (Commissioner Dan Saltzman) is reduced substantially, due primarily to the transfer of responsibility for oversight of the Police Bureau from Commissioner Saltzman to Mayor Adams. The allocation of General Fund dollars to the Portland Development Commission was set out as a separate expenditure line item in the budget and that expenditure in increasing 42% as the City concentrates on job creation strategies. The Police Bureau s budget is the largest within the General Fund, comprising 37.2% of all bureau expenditures and Fire & Rescue s share is 21.5%. Combined with Emergency Management, public safety expenditures account for 58.3% of General Fund expenditures. By virtue of its extension into practically every area of the city and its management of several large, city-wide projects the Office of Management & Finance s (OMF) budget is 9.7% of expenditures. OMF oversees a number of city wide projects, both bureau specific and funded by the Council out of special appropriations that do not fit into a particular bureau or service area and include both on-going programs as well as one time only funding.

14 Approved Budget Page 14 Transfers, Contingencies, Unappropriated: Transfers in are in balance. Transfers in are slightly out of balance by $75. Implementation of new financial software was supposed to reduce the number of transfers, which double count the amount in the total budget. While transfers in are decreasing, from $676.4 million in to $593.3 million in this budget, transfers remain at high levels. Much of this can be attributed to transfers between sewer and water operating, debt service and construction funds, accounting for $453.4 million of total transfers in General Operating Contingencies are reasonable, although there are a large number of construction and reserve funds where the amount budgeted for contingency approaches 100% of expenditures. The total of all contingencies is $624.0 million, 25.8% more than the current year. Like transfers, sewer and water funds budget the most for contingencies. In the various funds that make up the Public Utilities service area a total of $339.0 million in contingencies have been budgeted in The General Fund has budgeted $15,794,548 in contingency for next year. Other large amounts of contingency include: Parks Local Option Levy, $3,197,449; Spectator Facilities Operating, $5,626,813; LID Construction, $3,966,193; Parking Facilities, $6,686,668; Transportation Operating, $10,117,809; City Fleet Operating, $18,984,315; Enterprise Business Solutions Services, $4,113,937; Facilities Services Operating, $31,699,341; Health Insurance Operating, $17,488,533; Insurance & Claims Operating, $21,029,275, and; Technology Services, $27,714,838. The unappropriated ending fund balance is showing a marked increase, from $149.2 million to $217.1 million. Most of the ending fund balance is from debt service funds (as more bonds require reserves as part of the bond covenants) and construction funds. A total of $94.9 million is budgeted in the various debt service funds, especially for water and sewer revenue bonds, compared to $97.7 million in those same funds in Another $83.6 million is budgeted in the Water Construction Fund, up from $46.0 million in the current budget. The City has budgeted to issue $148.6 million in Water Revenue Bonds in but not all of that will be spent in that fiscal year. Most operating funds, including the General Fund and the General Reserve Fund do not budget any ending fund balance. All of the reserves are budgeted as general operating contingency. There is nothing in Local Budget Law that prohibits this practice although more discipline is needed to ensure not all of that is spent. Otherwise, there would not be cash flow funds available to start the following fiscal year. Debt History: The City of Portland issues a considerable amount of debt for a variety of purposes and routinely refinances existing debt to secure better interest rates. In addition to debt issued for its own purposes, the City issues all of the debt backed by urban renewal property taxes that is used by PDC. The chart below compares the outstanding debt as June 30 of each year. The estimates for June 30, 2011 were calculated by taking the June 30, 2010 outstanding debt and deducting the amount of principal payments budgeted in This excludes any additional, unscheduled principal payments and any new debt and/or refinancing that may have occurred during the year. A total of $416.1 million is budgeted for debt service. City of Portland est. GO Bonds 61,400,000 69,955,000 60,480,000 52,695,000 Limited Tax GO / Full Faith & Credit 274,683, ,962, ,892, ,598,642 Revenue Bonds 1,891,023,000 1,644,979,000 1,645,291,359 1,573,846,359

15 Approved Budget Page 15 Improvement Bonds 52,060,000 44,260,000 63,105,000 59,600,000 PERS Bonds 293,523, ,533, ,178, ,373,346 Urban Renewal Tax Increment Bonds 308,330, ,445, ,405, ,265,000 Loans 5,912,848 20,034,963 19,336,360 18,347,035 Conduit 34,415,000 28,840,000 27,525,000 27,525,000 Total Debt Outstanding 2,921,348,082 2,705,969,547 2,724,213,664 2,589,250,382 Highlights of the Budget to be published in TSCC Annual Report: The total budget decreased $45.0 million or 1.2%. The General Fund increased by 6.7%, from $468,221,615 to $499,707,085. The Budget decreases the number of positions (FTE) by 12 to 5,784. The budget includes $525,000 to create, after Council approval, a new Office of Equity, which will be merged with the Office of Human Relations. Capital Outlay spending is decreasing 25.6% to $306.7million. Major spending in this category includes sewer system ($86.5 million), water ($98.8 million), parks ($24.3 million) and Transportation ($76.3 million). Specific projects are: $26.5 million to complete the Combined Sewer Overflow (Big Pipe) Project; $62.8 million to comply with EPS s LT2 safe drinking water rule; $22.6 million for the extension of the Portland Streetcar to the eastside; $14.1 million for the Public Safety Systems Revitalization Project; $4 million for a River District URA park; and $5.3 million for a new Emergency Coordination Center (ECC). Average effective rates for sewer and water will increase 5.5% and 12.9% respectively. Local Budget Law Compliance: The budget is in substantial compliance with local budget law. The June 30, 2010 audit noted four funds where expenditures exceeded appropriation levels. In addition, several instances were noted where Interfund Loans were made between funds that had not been approved by City Council in violation of ORS There were also two funds that ended the fiscal year with negative ending fund balance. City staff explained that the Interfund loans and the negative ending fund balances were both the result of attempts to cure cash flow problems in the Grants Fund and the HOME Grants Fund. Expenditures are now being made directly from these two funds and staff responsible for tracking and accounting for grant expenditures were not entirely familiar with Local Budget Law. Financial Planning staff have taken steps to train grants staff and to take a more active role in accounting for the expenditure of grant funds. Certification Letter Recommendations and Objections: The budget was filed timely on May 26, The Commission hereby certifies by a majority vote of the Commission that is has two recommendations to make with respect to the budget, which will require written responses, as follows: Recommendation - Expenditures Exceeding Appropriation Authority General Fund Office of Neighborhood Involvement $ 534,612

16 Approved Budget Page 16 Property Management Fund - Program Expenses $ 231,862 Business License Surcharge Fund Transfers Out $ 2,843 Housing Investment Fund - Transfers Out $ 293,356 Local Budget Law does not allow the expenditure of monies beyond the legal authority. All funds need to be closely monitored throughout the year to ensure appropriations are in place prior to expending monies. Recommendation Inter-Fund Loans not Approved and/or Not Budgeted for Repayment and Subsequent Deficit Ending Fund Balance The City changed the method of expending Federal grant receipts so that expenditures are made directly from the Grants Fund rather than being transferred to the respective Bureaus. Due to the timing of receiving grants, often only after the expenditures are made, end of the year cash flow issues required numerous Inter-Fund Loans. Grant staff were unfamiliar with provisions of Oregon s Local Budget Law that require any such loan to be approved by the governing body and any loan not repaid in the fiscal year in which it was made to be budgeted for repayment. As a result, the Audit notes several instances where Interfund Loans were not approved by the Council and the repayment was not budgeted in the subsequent year. In addition, the loans were insufficient to cover expenses resulting in a large negative ending fund balance in the Grants Fund and a smaller negative ending fund balance in the HOME Grant Fund as of June 30, Financial Planning staff have worked with staff overseeing grants to ensure this does not happen again. Care need to be taken that all Interfund Loans are approved before they are made and that if repayment is not made in the same fiscal year, then the repayment must be included as an expense in the subsequent year s budget.

17 Approved Budget Page 1 Questions: General 1. The City Auditor recently suggested that the City is spending money on social service programs that, according to Resolution A agreed to by the City and Multnomah County in 1978, is more the responsibility of the County than the City. Given the County s long term financial struggles, that is perhaps understandable. Have there been any discussions with county leaders to revisit the division of responsibilities under Resolution A? 2. The City has expressed a concern that creating a County Library District with its own permanent property tax rate limit would cost the City more than $6 million in reduced property tax collections due to the way Measure 5 compression works. While the County has not yet made a decision on how to proceed concerning funding the library, does the City have an official position on this issue? 3. The budget sets aside $525,000 to be available if the Council, later this year, approves the Office of Equity. If that happens, it is intended that the Office of Human Relations and its budget of $617,937 will be merged into the new office. What do you hope to accomplish with the Office of Equity that isn t being done now under the current organizational structure and budget? 4. Decisions were made last week concerning the Convention Center Urban Renewal Plan Area (URA) and the Interstate Corridor URA. When might a decision on creating a new Innovation District URA surrounding Portland State University be brought up for discussion? 5. Vacant land in Northwest Portland, specifically the Conway site, were left out of the proposed new URA, even though it could be argued that this area is more blighted than the area around PSU. What plans does the City have to assist in the redevelopment of this long underused area of Portland? Parks & Recreation 6. The budget includes $500,000 for parks in east Portland, part of the East of Interstate 205 initiative to address the lack of access to parks in that part of the city. What do you hope to accomplish with this money and do you have specific sites in mind to develop into parks?