FIVE-YEAR FINANCIAL FORECAST

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City of Tulsa, Oklahoma FIVE-YEAR FINANCIAL FORECAST Fiscal Years 2012-2016 Dewey

1 City of Tulsa, Oklahoma FIVE-YEAR FINANCIAL FORECAST Fiscal Years Dewey Bartlett Mayor Presented by Department of Finance Michael P. Kier, CPFO Director November, 2010

2 Topics Executive Summary Economic Condition General Fund Enterprise Funds Capital Improvements Executive Summary

3 Executive Summary This report is prepared to provide policy makers the most current information necessary to make judgments about the major financial policy issues facing the City of Tulsa. Its intent is to: Provide the Mayor and City Council with information about potential financial changes Provide an updated financial base by which different financing options can be judged Provide elected officials information about the longterm impacts of current and anticipated financial policies Executive Summary

4 Economic Condition Though it is a slower than previously anticipated pace, the national economy continues to show signs of recovery. The CBO forecasts National Real GDP to grow by 2.6% in Unemployment is projected to peak at 10.2% in 2010, and decline slightly to 9.8% in The CBO then projects unemployment to show stronger declines in 2012, reaching 5% by As the national economy continues its current trend of improvement, local demand and eventual employment should soon follow in the Tulsa metro area. Unemployment currently sits at 7.5%, however it is expected to decline to 6.5% by 2013, and decline further after that. Recent growth in air and barge freight tonnage in the TMSA indicates a growing demand for Tulsa area goods. The Federal Reserve Bank of Kansas City reports that manufacturing activity in the 10 th District has shown positive gains in the most recent quarter, suggesting that employment and inventory may soon move into expansion territory again. Additionally, Moody s Analytics forecasts Wage & Salary employment to begin growing in Historically there has been a positive correlation between Wage & Salary employment and sales tax revenue, therefore as Wage & Salary employment increases, it may be possible to see gains in sales tax revenue. Executive Summary

5 General Fund Three General Fund scenarios have been developed considering national and local economic forecasts, as well as the City s current and future liabilities. The following three scenarios will be explained in detail: Scenario 1 FY11 Original Budget and 2% Revenue Growth in Future Years Scenario 2 FY11 Budget Adjusted to reflect higher revenue collections of $2.9 million and 2% revenue growth in future years Scenario 3 FY11 Budget adjusted upward by $5.2 million and revenue growth in FY12 would close remaining portion of the $18.5 million gap Executive Summary

6 Enterprise Funds Rates increases beginning in FY12 are assumed in the water, sewer, and stormwater funds. All enterprise funds assume personal service cost increases of 1% in FY11 and 4% between FY12 FY 15. Other Services and Materials & Supplies assume 2% increases beginning in FY11. Specific assumptions for each fund are summarized below. TARE No rate increases are assumed. It is projected that the reserve will be depleted in FY14. Water Rate increases of 7% annually from 2012 thru 2015 are assumed to finance needed equipment replacement, deferred maintenance and major capital improvements. Sanitary Sewer Annual rate increase of between 8% and 10% are assumed from 2012 thru 2015 to finance needed equipment replacement, deferred maintenance and major capital improvements. Stormwater Rate increases of 3% annually are assumed from 2012 to Some flood control system maintenance and large scale capital improvements will continue to receive funding from the City s third penny sales tax and general obligation bond programs. Executive Summary

7 Capital Improvements The city will continue the implementation of the 2006 Sales Tax and 2008 Street Improvement package. Enterprise supported revenue bonds will be utilized for water and sewer system improvements. It is assumed that the reauthorization of current capital programs will be offered to voters for approval, and funding will be appropriated in FY15. Executive Summary

8 Economic Condition The Tulsa Metropolitan Statistical Area (TMSA) comprises 25.2% of the state s population, and 29% of the state s economy (TMSA share equals $34.4 billion in 2008 constant dollars). As measured by employment, from 2005 to 2007, the TMSA had one of the fastest growing job markets in the nation. Due to a flattening of the national economy, TMSA demand growth began to slow in the area of manufacturing which then set in motion a contraction of employment through the end of 2008 and going into Fortunately, key TMSA characteristics of low rent, low energy costs, and low taxes kept the cost of doing business in the TMSA a strong 7% less than the national average. Additionally, the TMSA was less impacted by the home prices decline seen at the national level, and insulated by a domestic oil economy. Currently, the TMSA has seen an increase in demand for Tulsa goods, as indicated by month over month increases in barge and air freight tonnage; 43% and 1.7% respectively. As demand for Tulsa area goods increases, TMSA unemployment should continue its gradual downward trend which is currently 7.5%. Though it is a slower than desired pace, the national economy continues to show signs of recovery. If the national economy continues its current trend of improvement, local demand and eventually employment will soon follow in the Tulsa Metro area. Economic Condition

9 US Real GDP ($ in billions) (in 2005 dollars) $18,000 $16,000 $14,000 $13,804 $14,480 $15,103 $15,556 $15,960 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ *Bureau of Economic Analysis ( ) *Congressional Budget Office ( ) Economic Condition

10 US Real Personal Income ($ in billions) (in 2005 dollars) $17,000 $15,000 $13,848 $14,762 $15,574 $16,229 $16,910 $13,000 $11,000 $9,000 $7,000 $5, *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

11 US Unemployment Rate 12.0% 10.0% 8.0% 8.4% 6.7% 6.0% 5.4% 5.1% 5.0% 4.0% 2.0% 0.0% *Congressional Budget Office Economic Condition

12 US Consumer Price Index* (percentage change) *consumer price index for all urban consumers 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% *Bureau of Labor Statistics ( ) *Congressional Budget Office ( ) Economic Condition

13 TMSA Population (in thousands) *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

14 TMSA GMP ($ in billions) $40.0 $35.0 $33.3 $33.9 $34.4 $35.4 $36.3 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $ *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

15 TMSA Unemployment Rate (percentage) *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

16 TMSA Wage & Salary Employment (in thousands) *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

17 TMSA Real Personal Income ($ in thousands) $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $38,510 $40,359 $43,693 $42,175 $45,266 $ *Moody s Analytics 2015 and 2016 determined through linear regression trend Economic Condition

18 General Fund Considerations Funding Needs 35 JAG Funded Officers will begin transition to the General Fund in FY12 18 COPS Funded Officers will begin transition to the General Fund in FY13 23 COPS Funded Officers will begin transition to the General Fund in FY14 $2 million more for MTTA to maintain current service levels Eliminate furloughs Pension benefits liabilities Post Employment benefits liabilities Replace one-time FY11 revenues SPI s for IAFF members in FY12 Health insurance premiums increase $18.5 Million

19 General Fund Expenditure Assumptions Stable fuel costs No SPI s Cost increases will not exceed inflation Expenditures are not constrained by the Charter created reserve In FY13, $1.0 million increase in OTC debt service is accommodated and assumes no additional lease revenue Stable count for all employee groups

20 Revenues FY10 Actuals General Fund Projections Scenario 1 FY11 Adopted Budget as Base 2% growth begins in FY12 Reduced enterprise transfer rates 0.167% increase in use tax per the 2008 Street Improvement Program

21 General Fund Scenario One (in Thousands) Percent of $18.5 Million Which Can Be Funded Forecast Forecast Forecast Forecast Forecast % 28% 40% 56% 79% $265,000 $255,000 Revenue Expenditures $245,000 $235,000 $225,

22 Revenues FY10 Actuals General Fund Projections Scenario 2 Modest Revenue Growth FY11 revenue will be $2.9 million more than the Original Budget 2% growth in FYs 12 through FY16 Reduced enterprise transfer rates 0.167% increase in use tax per the 2008 Street Improvement Program

23 General Fund Scenario Two (in Thousands) Percent of $18.5 Million Which Can Be Funded Forecast Forecast Forecast Forecast Forecast % 44% 57% 73% 97% $265,000 $255,000 Revenue Expenditures $245,000 $235,000 $225,

24 Revenues FY10 Actuals General Fund Projections Scenario 3 How To Balance FY11 revenue will be $5.2 million more than Original Budget 10% sales tax growth in FY12 1% growth in FYs 13 through FY16 Reduced enterprise transfer rates 0.167% increase in use tax per 2008 Street Improvement Program

25 General Fund Scenario Three (in Thousands) Percent of $18.5 Million Which Can Be Funded Forecast Forecast Forecast Forecast Forecast Funded at 100% 100% 110% 116% 126% 142% $275,000 $265,000 Revenue Expenditures $255,000 $245,000 $235,000 $225,

26 1. Short Term Capital Additional Considerations Under existing capital programs, there will not be any third penny sales tax money for short term capital in FYs 13 and 14. Fund balance is being deliberately increased to provide money for critical equipment replacement needs in those years. Based on the amended FY 11 adopted budget, the short term capital fund will have a $9.5 million fund balance at the end of that year. An additional $2.5 million savings is targeted for FY 12. The goal is to have over $12 million available for addressing the most critical equipment needs in FY s 13 and KPMG Survey The impact of implementing the KPMG recommendations has not been fully determined and is therefore not included in this year's five year forecast. KPMG recommendations could positively affect future financial conditions and will be incorporated into future annual updates. 3. EMSA One Time Cost and Enterprise Fund transfer to General Fund Future policy decisions could impact the annual EMSA and Enterprise transfer rates. 4. Outside Legal Counsel A firm estimate for outside legal counsel related to potential extraordinary litigation has not been determined nor included in this year s five year forecast. 5. Increases in existing fees and service charges and implementation of new fees and charges are not included in the General Fund revenue projections. General Fund

27 TARE (Tulsa Authority for Recovery of Energy) No rate increases are assumed. It is projected that the reserve will be depleted in FY14. Enterprise Funds

28 Enterprise Funds TARE ($in millions) Revenue Expenditures % 2% 0% Rate Increases 0% 0% 0% 0% 0% *Public Works Rate Model *FY11 Based on Adopted Budget

29 Water Rate increases of 7% annually from 2012 thru 2015 to finance: Needed equipment repairs Deferred maintenance Major capital improvements Enterprise Funds

30 Enterprise Funds Water ($in millions) Revenue Expenditures $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $ % 5% 0% Rate Increase 7% 7% 7% 7% 7% *Public Works Rate Model *FY11 Based on Adopted Budget

31 Sanitary Sewer Rate increases of between 8% and 10% annually to finance: Needed equipment replacement Deferred maintenance Major capital improvements related to Consent Orders and avoidance of future orders Enterprise Funds

32 Enterprise Funds Sanitary Sewer ($in millions) Revenue Expenditures $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $ % 6% 0% Rate Increases 10% 10% 8% 8% 8% *Public Works Rate Model *FY11 Based on Adopted Budget

33 Stormwater Rate increases of 3% annually from 2012 thru Some flood control system maintenance and large scale capital improvements will continue to receive funding from the City s third penny sales tax and general obligation bond programs. Enterprise Funds

34 Enterprise Funds Stormwater ($in millions) Revenue Expenditures % 2% 0% Rate Increases 3% 3% 3% 0% 0% *Public Works Rate Model *FY11 Based on Adopted Budget

35 Capital Improvements The City will continue the implementation of the 2006 Sales Tax and 2008 Street Improvement package. Enterprise supported revenue bonds will be utilized for water and sanitary sewer system improvements. It is assumed that the reauthorization of current capital programs will be offered to voters for approval, and funding will be appropriated in FY15. Short term capital Available funds for short term capital in FY13 and FY14 will be made available by savings in previous fiscal years. Capital Improvements

36 City of Tulsa Fiscal Years Capital Improvements Schedule Summary FY 11 Through FY 15 - Adopted by City Council June 2011 (In $ Thousands) Program FY11 FY12 FY13 FY14 FY15 Total Public Safety Police $0 $0 $0 $0 $2,250 $2,250 Fire $0 $0 $0 $0 $4,520 $4,520 Information Technology $0 $0 $0 $0 $525 $525 $0 $0 $0 $0 $7,295 $7,295 Cultural Dev. and Recreation Parks $0 $0 $0 $0 $0 $0 Gilcrease Museum $0 $0 $0 $0 $825 $825 TCC and PAC Department $0 $0 $0 $0 $1,210 $1,210 River Parks $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $2,035 $2,035 Public Works and Dev. Streets $0 $0 $0 $0 $130,050 $130,050 Water $24,600 $26,700 $34,250 $23,200 $31,000 $139,750 Sewer $59,015 $36,772 $27,910 $38,340 $28,250 $190,287 Flood Control $3,000 $2,000 $2,000 $2,000 $2,000 $11,000 Facilities Maintenance $0 $0 $0 $0 $2,000 $2,000 $86,615 $65,472 $64,160 $63,540 $193,300 $473,087 Social and Economic Dev. EDAREM $0 $0 $0 $0 $0 $0 Planning $0 $0 $0 $0 $0 $0 Working In Neighborhoods (WIN) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Transportation Airports $20,958 $98,896 $16,393 $15,048 $21,458 $172,753 Tulsa Transit $0 $0 $0 $0 $167 $167 $20,958 $98,896 $16,393 $15,048 $21,625 $172,920 Admin. and Support Equipment Management $0 $0 $0 $0 $1,800 $1,800 Short-Term Capital $0 $0 $0 $0 $13,643 $13,643 $0 $0 $0 $0 $15,443 $15,443 TOTAL $107,573 $164,368 $80,553 $78,588 $239,698 $670,780 *These allocations are based on the assumption that a new sales tax and general obligation bond program will be authorized by the voters. Capital Improvements

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