Long Range Financial Forecast

Transcription

1 Long Range Financial

2 Rebecca Underhill Assistant City Manager/ Director of Finance 300 W Walker League City, TX Main: Direct: April 17, City Manager, Finance Committee, Mayor and Members of City Council City of League City, Texas This letter introduces the City s Long Range Financial for FY The purpose of the forecast is to provide long-term context for annual decisions that will be made with the FY 2018 Budget and FY Capital Improvement Plan. With this forecast, we hope to advise City Council of prevailing economic conditions, the effect of our economic and operating environments on revenues and expenses, and options available for allocating funds in accordance with City Council goals and priorities. Conditions and Considerations League City continues to experience growth that is similar or better than growth taking place in the Houston area at large. Accordingly, this forecast projects an increase in population and factors related thereto at approximately 3%. New home construction is the key indicator of growth in League City. Although strong, the growth the City experienced in new home construction in 2015 has slowed slightly in the first half of This forecast assumes a steady, conservative growth rate of 860 homes per year over the forecast period. As the City continues to grow, demand for basic services will also grow. This forecast projects that our population, currently estimated at 102,635 in FY 2017, will be 116,700 in FY While the City will face increasing demand for service as a result of continued growth, we have projected limited increase in operating costs. Staff will carefully identify the service and capital demands and plan for measured growth in programs as necessary. The Capital Improvement Program (CIP) is the driver of the debt and related debt service burden. While the growth of the community increases the demand for infrastructure, staff continues to review the CIP in an effort to maximize our efforts and focus available funding to provide the most immediate impact on the community. As established in FY 2017, continued funding for reinvestment in infrastructure is included as well.

3 Basis for FY 2018 Budget Based upon conservative assumptions, and very limited expenditure growth, the forecast anticipates revenues slightly under total expenditures in the General Fund for the forecast period. These expenditures include additional funding each year to address the City s ageing infrastructure. As we incorporate this cost into the General Fund projection, funding shortfalls will be supplemented with fund balance each year. This is obtainable based on the General fund beginning the forecast period with a projected excess of revenue over expenditures of $6.4 million until FY 2020 when the policy goal of 110 days of working capital is not met. The forecast does not include funding for additional staffing, expanding existing programs, or new programs. The Utility Fund, while reducing balance in recent years, does continue to maintain fund balance in excess of policy requirements until FY2021 of the forecast period. The cumulative effect of increased debt cost is forecasting deficits in the fund at this point. The revenue projections are based upon the performance of rate adjustments implemented November 2015 and no other rate adjustments during the period. Both FY2016 and FY2017 experienced higher than average rainfall which impacted revenues in those years. Staff is currently updating the rate models to assess the performance of the 2015 rates. The forecast includes the effect of inflation, growth and mandates and commitments on expenditures, as well as the impact of debt scheduled in the FY CIP. The forecast does not include additional staffing or the expansion of existing programs or new programs. We look forward to working with the Council to develop a sustainable financial plan for FY 2018 and into the future.

4 LONG RANGE FINANCIAL FORECAST FY FY 2022 TABLE OF CONTENTS Page Economic Outlook... 1 Revenue Summary... 5 Expenditure Overview General Fund Overview Debt Service Fund Utility Fund Overview... 29

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6 LONG RANGE FINANCIAL FORECAST ECONOMIC OUTLOOK Economic Overview League City, like the region, has been characterized by steady long-term growth. League City is considered a highly attractive location to families and businesses alike. In 2017, League City is continuing to see new construction of all types of property. Locally, the continued low oil prices and the accompanying impact on jobs in that sector have a slight impact on League City. The reconstruction on IH45 may impact retail sales in the IH45 corridor. This is a situation that we will continue to monitor as the project progresses through fiscal year The League City Economy League City s population grew from 45,400 in 2000 to 83,560 in 2010 according to the U.S Census, and is currently estimated at 102,635 as of January This rapid growth is illustrated by the rapid growth in single family housing units in the middle of the previous decade (see graph below). As a result of this residential growth, local retail stores had major additions in the Interstate 45/SH 646 corridor adding jobs to our workforce and attracted commerce to the City from travelers on Interstate 45. The areas on either side of the freeway immediately next to the I45/SH 646 intersection are continuing to develop with restaurants, offices and commercial development planned or underway, including a major expansion by UTMB of its facilities on the east side of I45. UTMB long-term plans include a total of 800,000 square feet of medical facilities by 2020 and an ultimate buildout of 3 million square feet of medical space on the 65-acre site. Also located on the UTMB League City campus, is a partnership with MD Anderson of 135,000-square foot medical center that began construction in late The Pinnacle Park project, a hundred acre mixed use development at I45 and Big League Dreams Parkway, includes Cabela s along with 110,000 square feet of additional retail development in the coming years. Also part of the Pinnacle Park development, Memorial Hermann began construction of a 47,000-square foot convenient care clinic in late

7 The number of new single family homes has been a major indicator of growth in League City that underscores the population increase. In January 2017, League City s population is estimated at 102,635, supported by two key indicators: single family housing starts and new water customers. League City s new home construction has followed the Houston regional trend closely as demonstrated in the graph on the previous page. In 2016, 881 new single family homes were permitted by the City. The growth in water customers seen below paralleled League City s growth in housing units and population over the last two years. As of January 2017, League City has 2.9% more water customers than it did a year ago. As of January, 2017 the City had 32,706 water customers, 927 more than January The chart below again represents the steady growth that we have experienced over the last 24 months. Major new developments in the entertainment district east of I45 along Walker, in the Pinnacle Park area, in the River Bend area at Clear Creek and I45, as well as on SH 96 east of SH 3 are expected to build out during the forecast period. While the combined effect on the taxable property rolls cannot be accurately gauged yet, the cumulative effect could be between 3% and as much as 10% of the current tax roll. This forecast assumes a conservative, 4.85% annual growth rate. 2

8 General Economic Outlook for FY 2018 and Beyond The economic outlook for the is based on good local and regional growth for the balance of 2017 and consistent growth thereafter. This assumption is applied to population, water customers and new home construction. The major new real estate developments mentioned in the previous sections are not a part of the forecast assumptions because of the uncertainty associated with the timing of construction schedules. BASELINE ECONOMIC ASSUMPTIONS FY 2018 FY 2019 FY 2020 Area/Indicator Metropolitan Area FY 2021 FY 2022 Employment Annual Growth Rate 1.6% 1.6% 1.6% 1.6% 1.6% Inflation Rate 1.6% 1.6% 1.6% 1.6% 1.6% Fuel Prices 2.0% 2.0% 2.0% 2.0% 2.0% Health Care Inflation 5.7% 5.7% 5.7% 5.7% 5.7% Investment Pool Earnings Rate 0.50% 0.75% 1.00% 1.25% 1.50% League City Population Growth Rate 2.8% 2.7% 2.6% 2.5% 2.5% City Water Customers Growth Rate 2.8% 2.7% 2.6% 2.5% 2.5% Population 105, , , , ,700 New Homes New Construction (in millions) $279.6 $287.1 $294.6 $302.1 $309.5 Tax Supported Bonds Interest Rate 4.00% 4.50% 5.00% 5.50% 5.50% Remainder of page left blank intentionally. 3

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10 LONG RANGE FINANCIAL FORECAST REVENUE SUMMARY Revenue Overview The City s major revenue sources include property taxes, water and wastewater revenue, and sales taxes. Each of these revenue sources are driven by the growth of the local economy and the City s population. This is also true of a number of the City s other revenue sources including fees and charges for service, franchise taxes, and licenses and permits. The revenue projections presented in the forecast use summary categories of City revenue. These projections are based on an analysis of at least 10 years of historical trends for each revenue category, as well as the effects of current economic conditions and projected economic activity. The chart below details the City s major revenues which are expected to grow as driven by the expected growth in the local economy and populations. MAJOR REVENUE PROJECTIONS ($THOUSANDS) Revenue Source FY 2017 FY 2018 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Estimate Base Property Tax $41,768 $41,768 $43,794 $45,918 $48,145 $50,480 $52,928 Water & Wastewater Revenue $33,792 $33,792 $34,721 $35,648 $36,575 $37,504 $38,431 Sales Tax $19,038 $19,228 $20,180 $21,189 $22,249 $24,251 $26,434 Electricity Franchise $3,293 $3,293 $3,384 $3,474 $3,564 $3,655 $3,745 Cable TV Franchise $1,371 $1,371 $1,408 $1,446 $1,484 $1,521 $1,559 Other Franchise Taxes $907 $907 $922 $936 $951 $965 $980 Charges for Service $7,090 $7,090 $7,271 $7,451 $7,631 $7,812 $7,992 Fines and Forfeits $1,920 $1,920 $1,973 $2,025 $2,078 $2,131 $2,184 Licenses and Permits $4,264 $4,264 $4,341 $4,418 $4,495 $4,572 $4,649 Total $113,443 $113,633 $117,994 $122,506 $127,171 $132,891 $138,900 Property Taxes Property taxes, the City s largest revenue source, are based on the tax rate adopted annually by City Council as applied to the certified property rolls prepared by the Galveston and Harris County appraisal districts (GCAD and HCAD, respectively). The rate is composed of two parts; the first to support general city operations through the General Fund and the second part to pay principal and interest on tax supported bonds through the Debt Service Fund. Revenue is deposited accordingly. PROPERTY TAX RATES, FY2010-FY2017 TOTAL LEVIED AT $100 PER TAXABLE VALUE FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 General Fund (M&O) $ $ $ $ $ $ $ $ Debt Service Fund (I&S) $ $ $ $ $ $ $ $ Total Tax Rate $ $ $ $ $ $ $ $ As shown in the graph on the following page, while total property tax revenue grew rapidly from , this important revenue source was relatively flat for five fiscal years, FY This is due to the combined effect of successive tax rate cuts in FY2011, FY2012 and FY2013, and increased homestead exemptions in FY2014, FY2015 and FY2016. Assuming a constant total tax rate of $0.57 per 5

11 $100 of taxable value, this forecast projects property tax revenue to grow by 4.85% each year from FY The estimates of new construction projected to be the revenue growth shown in the graph below are based on the number of new homes built each year and minimal amounts for new construction of multifamily and commercial properties. 6

12 A major goal of the City is to achieve diversification of its taxable properties through selective use of economic development incentives and supportive policies that encourage businesses to locate and/or remain in League City. Conservative long-term revenue estimates can remain the basis for projected financing of core services. Additional growth can be viewed as the funding source for enhanced services and capital improvement funding. Property taxes collected by the City are not used strictly for City operations or City issued debt service. The pie chart below illustrates that 4.7% of total property tax revenue goes to in-city Municipal Utility Districts (MUDs) and Tax Increment Reinvestment Zones (TIRZs) combined. This percentage of property tax revenue going to MUDs and TIRZs is projected to drop to approximately 2% in years 2020 through This reduction in share of property tax revenue going to MUD s and TIRZ s is largely due to the dissolution of a MUD in FY 2017 and two TIRZs in FY Water and Wastewater Revenue The City s second largest revenue source comes from monthly payments by the City s 32,792 water system customers. While the number of customers has grown at a steady pace during the last 10 years, the last two years have been relatively wet and inhibited revenue growth. Rainfall or the lack thereof and the impact this has on water consumption, particularly during hot, dry summer months makes this a volatile revenue source. The water revenue projection in this forecast: (1) is based on a normal or average climatic year in every year of the five year forecast, (2) assumes the total number of water customers will grow at the same 7

13 rate as new homes through FY 2022 (3%), (3) includes the impact of water and sewer rate adjustments effective November 1, 2015, and (4) no additional rate increases are included in the forecast at this time. As detailed in the graph below, the rate of growth in water customers is expected to slow as we get closer to FY

14 Sales Taxes The City sales tax, which provides the City s third largest revenue source, is 1.75% on taxable items. Of this amount, 0.25% goes to the City s 4B economic development corporation to promote and develop amateur athletics. The remaining 1.5% goes into the City s General Fund. The local sales tax cap is 2.0%, leaving 0.25% available for voter authorization in accordance with state law. Sales taxes can be extremely volatile even in stable economic times, making it especially difficult to project revenue from this large, important source. Even with the volatility of this revenue source, League City s sales tax increased 41% from $11.05 million in FY 2011 to $15.54 million in FY The forecast has been tempered in FY in anticipation of sales disruption in the IH45 corridor as construction begins on these expansion projects, with annual increases of 5%, returning to 9% in FY2021. Franchise & Other Taxes These revenue sources are accounted for as part of the General Fund and include electricity; natural gas, cable television, and telephone franchise taxes as well as mixed beverage taxes. Electricity franchise taxes, the largest of this group of revenues are estimated at $3.293 million in FY The forecast assumes an average of 2.6% growth as based on anticipated new construction in FY

15 Cable TV franchise taxes, the second largest of this group of revenues at $1.37 million estimated to be received in FY 2017 is also projected using anticipated new construction in FY Telephone franchise taxes are held constant through the forecast period because of the increasing reliance on cellular technology in lieu of land lines, and the assumption that this trend will be offset by the 10

16 City s growth. Natural Gas franchise taxes and mixed beverage taxes are projected at the general rate of growth projected for League City. Remaining Revenue Categories are projected in the forecast as follows: Licenses and Permits: Construction permit revenue comprises 49% of this category, and is tied to the dollar value of new construction projected for the forecast period. The remaining licenses and permits are projected to remain flat. Grant revenue and expenditures are held flat. Individual grants would be incorporated into budgeted operations as they are received. Charges for Service: General population growth rate. This category includes garbage fees, ambulance fees and park recreation fees. Fines and Forfeits: General population growth rate. Investment Earnings are expected to increase gradually beginning in FY 2018 by an additional 0.5% and ending at an additional 1.5% in FY Miscellaneous revenue is projected at FY 2017 levels except for increase as noted in the contract with Big League Dreams. Remainder of page left blank intentionally. 11

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18 LONG RANGE FINANCIAL FORECAST EXPENDITURE OVERVIEW Baseline Methodology Expenditures are forecasted for the City s three major funds: General, Utility and Debt Service. The baseline forecast presented herein includes expenditures already approved by and/or committed to by the City Council. Rising costs due to inflation, population growth and/or interest rates are also anticipated and included in this forecast through growth factors applied to each forecast category. EXPENDITURE CATEGORY EXPENDITURE GROWTH ASSUMPTIONS EXPLANATION FY 2018 FORECAST FY 2019 FORECAST FY 2020 FORECAST FY 2021 FORECAST FY 2022 FORECAST Personnel Services Salaries Based on 5 year trend analysis 5.00% 3.00% 3.00% 3.00% 3.00% Step Increases - Civil Service Based on 5 year trend analysis 1.00% 1.00% 1.00% 1.00% 1.00% Social Security FIxed by federal law (FICA) 7.65% 7.65% 7.65% 7.65% 7.65% Pension Contribution Rates Fixed by state law and local ordinance including phase-in rate 15.62% 15.69% 15.76% 15.82% 15.87% Health and Life Insurance Medical CPI 5.69% 5.69% 5.69% 5.69% 5.69% Supplies Energy Supplies Energy CPI 1.59% 1.59% 1.59% 1.59% 1.59% General Supplies Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Maintenance Supplies Influenced by Core CPI and Energy CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Small Capital Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Services Maintenance Services Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Vehicle Maintenance Core CPI 1.59% 1.59% 1.59% 1.59% 1.59% Office Services Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Other Services Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Professional Services Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Electric Reflects electricity contract price for 2017; then energy CPI 0.00% 0.00% 0.00% 0.00% 0.00% Water Utilities Population plus Energy Supplies 4.34% 4.26% 4.19% 4.13% 4.06% Refuse pickup services Population plus contract price increases in FY % 4.26% 4.19% 4.13% 4.06% Water Purchases Population plus core CPI 4.34% 4.26% 4.19% 4.13% 4.06% Capital Outlay Motor Pool Replacement Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Vehicles and Equipment Core CPI. 1.59% 1.59% 1.59% 1.59% 1.59% Transfers General Fund to Project Fund Cash fund & Reinvestment 14,000,000 14,000,000 15,000,000 16,000,000 17,000,000 TIRZ Increment TIRZ Assumptions 9.00% 8.00% % 5.00% 5.00% 13

19 The growth assumptions shown on the previous page are based on the core inflation rate from the consumer price index. Energy supplies are flat for FY 2017 based on the current decrease in gasoline prices with 1.59% core inflation rate for FY Health care inflation is assumed to be 5.69% annually based on a five year average increase in the City of League City s healthcare cost. Vehicle maintenance and motor pool replacement costs charged to the General and Utility Funds are based on estimated increases in Motor Pool Fund expenditures using core inflation. Based on information provided by TMRS, the City s total contribution rate may rise from the current 15.53% level to reach 15.87% in FY We expect updated information from TMRS in May Baseline expenditures are forecast over the five years through the following process: 1. Combine line items into forecast categories (shown on the previous page) summarizing similar line items into a single category; 2. Convert the FY 2017 Budget amount for each department and line item into summary amounts for the nineteen categories by department; 3. Adjust the FY 2017 Budget by category into the FY 2018 Base for the forecast by: a. Adjusting personnel budgets to reflect twelve months of cost for current budgeted positions, incumbents salaries and benefit levels; and b. Reducing budgets by the amount of one-time or non-recurring items included in this year s budget. 4. Identify individual programs for which expenditures and revenues will have to be budgeted in a future year as the result of a commitment by City Council and/or a State or federal mandate. 5. Apply inflation and growth assumptions as displayed in the chart on the previous page. The outcome of these projections and adjustments is discussed in each fund s narrative section of this. Beyond Baseline While the baseline forecast does not presume to predict or propose a course of action in staffing growth it does assume an increase in 2018 based on a staffing compensation study to be completed in FY 2017 along with annual pay raises years 2019 through 2022 based on merit. No new programs or expanded service levels are included, which in this rapidly growing City, is unrealistic. Employee Salaries On January 1, 2013 a performance pay program was implemented using a funding pool equal to 2 or 3 percent as determined by City Council on an annual basis. This practice continued this current year, with a 2% merit increase on January 1, In order to project funding necessary to implement potential recommendations for a staffing compensation study to be completed in FY 2017, a 5% increase is included in 2018 along with annual 3% pay raises years 2019 through CAPITAL PROJECTS FUNDING Cash Funding The base forecast projects annual general fund capital improvement funding of $2 million. The general fund forecast is then amended to project the impact of additional cash funding for asset reinvestment needs annually as follows: $ 12 million FY

20 $ 12 million FY2019 $ 13 million FY2020 $ 14 million FY2021 $ 15 million FY2022 $ 66 million For utility projects, the forecast is based on $3 million of funding each year, consistent with FY Debt Funding The CIP is funded through various sources including operating revenue, grants, restricted revenue sources, developer contributions, and lastly through debt. Currently, based upon the FY Capital Improvement Plan (CIP), $ million will be borrowed to fund the program. This number is refined annually as projected change and other sources of funding are located. However, the largest funding need is the water utility. Providing water supply to a fast growing city is an expensive proposition. The current plan includes $102.2 million in new debt with the major projects being the SH3 line ($43.8 million budget with $35.3 million debt). Other transmission lines, including providing increased availability in the west side of town, are also driving the projected debt. The result of these projected borrowing will drive total debt outstanding to near $354 million. This forecast will help identify how the City can proceed and fund this program. PROJECTED OUTSTANDING DEBT BY FISCAL YEAR 15

21 Debt Service Costs Based on the FY Capital Improvement Plan (CIP), debt requirements for tax supported projects of $23.15 million over the five year period are used in determining the forecast. Debt requirements are projected for revenue supported projects of $31.47 million over the five year period. PROJECTED DEBT SERVICE COST BY FISCAL YEAR Remainder of page left blank intentionally. 16

22 LONG RANGE FINANCIAL FORECAST GENERAL FUND OVERVIEW Baseline The chart below summarizes the General Fund using Baseline Assumptions, including (1) adjustments to the FY 2017 Budget to arrive at a Base for the forecast shown below as FY 2018 Base, (2) no new staff but a 5% compensation increase along with civil service step increases, (3) the anticipated effect of inflation on costs, and (4) increased funding for capital reinvestment projects each year of the forecast. This forecast does not include additional staffing or new programs. The General Fund begins the forecast period with a projected excess of revenue over expenditures of $6.4 million in FY FORECAST SUMMARY GENERAL FUND PROJECTIONS INCLUSIVE OF ENHANCED CIP FUNDING ($THOUSANDS) FY 2017 Budget FY 2018 Base FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Beginning Balance $ 28,449 $ 24,753 $ 24,753 $ 22,853 $ 19,978 $ 19,650 $ 19,832 Revenue $ 71,007 $ 73,274 $ 77,122 $ 77,927 $ 81,423 $ 84,774 $ 89,211 Expenditures $ 60,927 $ 60,206 $ 62,612 $ 64,388 $ 66,245 $ 68,073 $ 70,052 Revenue Over/(Under) $ Expenditures 10,080 $ 13,068 $ 14,509 $ 13,539 $ 15,178 $ 16,701 $ 19,159 Subtotal $ 38,529 $ 37,821 $ 39,263 $ 36,391 $ 35,156 $ 36,351 $ 38,991 Transfer to Tax Increment $ 2,016 $ 2,016 $ 2,410 $ 2,413 $ 506 $ 519 $ 546 Transfer to CIP-Cash Fd Project $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 Transfer to CIP-Reinvestment $ 9,110 $ 9,110 $ 12,000 $ 12,000 $ 13,000 $ 14,000 $ 15,000 Transfer to South Shore MUD #2 $ 650 $ - $ - $ - $ - $ - $ - Revenue Over/(Under) $ Expenditures (3,696) $ (58) $ (1,901) $ (2,874) $ (328) $ 182 $ 1,613 Ending Balance $ 24,753 $ 24,695 $ 22,853 $ 19,978 $ 19,650 $ 19,832 $ 21,445 Policy Goal Days of $ Working Capital 18,362 $ 18,144 $ 18,869 $ 19,405 $ 19,964 $ 20,515 $ 21,112 Over 110 Days $ 6,391 $ 6,551 $ 3,984 $ 573 $ (314) $ (683) $ 333 Days Working Capital Over (2) (4) 2 This projection reflects that each year, the funding gap would be supplemented with fund balance as reflected in the chart above. In years FY , the policy goal of 110 days of working capital is not met based on the forecast assumptions. With economic development a leading priority of the City Council and review of revenue generating alternatives through the revenue study initiative, additional funding resources coupled with judicious spending choices may be fill this funding gap over time. Remainder of page left blank intentionally. 17

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24 GENERAL FUND FORECAST FUND BALANCE, REVENUE, AND EXPENDITURES FY 2018 FY 2022 ($THOUSANDS) FY 2017 Budget FY 2018 Base FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Beginning Balance $ 28,449 $ 24,753 $ 24,753 $ 22,853 $ 19,978 $ 19,650 $ 19,832 Revenue Property Tax $ 29,127 $ 30,400 $ 32,835 $ 32,172 $ 34,155 $ 35,014 $ 36,805 Sales Tax $ 19,038 $ 19,228 $ 20,180 $ 21,189 $ 22,249 $ 24,251 $ 26,434 Franchise and Other Taxes $ 4,954 $ 5,756 $ 5,904 $ 6,051 $ 6,199 $ 6,347 $ 6,494 Licenses and Permits $ 4,264 $ 4,264 $ 4,341 $ 4,418 $ 4,495 $ 4,572 $ 4,649 Charges for Services $ 7,090 $ 7,090 $ 7,271 $ 7,451 $ 7,631 $ 7,812 $ 7,992 Fines and Forfeitures $ 1,920 $ 1,920 $ 1,973 $ 2,025 $ 2,078 $ 2,131 $ 2,184 Investment Earnings $ 110 $ 110 $ 111 $ 111 $ 112 $ 114 $ 116 Miscellaneous/Grants $ 1,182 $ 1,184 $ 1,185 $ 1,186 $ 1,182 $ 1,211 $ 1,216 Interfund Transfers $ 3,322 $ 3,322 $ 3,322 $ 3,322 $ 3,322 $ 3,322 $ 3,322 Total Revenue $ 71,007 $ 73,274 $ 77,122 $ 77,927 $ 81,423 $ 84,774 $ 89,211 Available Funds $ 99,457 $ 98,027 $ 101,875 $ 100,780 $ 101,401 $ 104,424 $ 109,043 Expenditures by Directorate Public Safety $ 26,011 $ 26,028 $ 27,168 $ 27,960 $ 28,781 $ 29,628 $ 30,504 Public Works $ 14,757 $ 14,738 $ 15,185 $ 15,627 $ 16,082 $ 16,549 $ 17,030 Parks and Cultural Services $ 5,088 $ 5,174 $ 5,455 $ 5,610 $ 5,770 $ 5,936 $ 6,106 Finance $ 3,109 $ 3,051 $ 3,210 $ 3,304 $ 3,401 $ 3,501 $ 3,605 Planning and Research $ 2,797 $ 2,770 $ 2,901 $ 2,992 $ 3,085 $ 3,182 $ 3,282 Administration $ 6,024 $ 5,679 $ 5,884 $ 6,023 $ 6,166 $ 6,314 $ 6,465 Non-Departmental $ 3,142 $ 2,767 $ 2,809 $ 2,872 $ 2,960 $ 2,962 $ 3,060 Total Expenditures $ 60,927 $ 60,206 $ 62,612 $ 64,388 $ 66,245 $ 68,073 $ 70,052 Revenue Over/(Under) $ Expenditures 10,080 $ 13,068 $ 14,509 $ 13,539 $ 15,178 $ 16,701 $ 19,159 Subtotal $ 38,529 $ 37,821 $ 39,263 $ 36,391 $ 35,156 $ 36,351 $ 38,991 Transfer to Tax Increment $ 2,016 $ 2,016 $ 2,410 $ 2,413 $ 506 $ 519 $ 546 Transfer to CIP-Cash Fd Project $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 $ 2,000 Transfer to CIP-Reinvestment $ 9,110 $ 9,110 $ 12,000 $ 12,000 $ 13,000 $ 14,000 $ 15,000 Transfer to South Shore MUD #2 $ 650 $ - $ - $ - $ - $ - $ - Ending Balance $ 24,753 $ 24,695 $ 22,853 $ 19,978 $ 19,650 $ 19,832 $ 21,445 Policy Goal Days of $ 18,362 $ 18,144 $ 18,869 $ 19,405 $ 19,964 $ 20,515 $ 21,112 Working Capital Excess/(Shortage) of $ 6,391 $ 6,551 $ 3,984 $ 573 $ (314) $ (683) $ 333 Working Capital Excess/(Shortage) of (2) (4) 2 Working Capital in Days Note: The includes the effect of inflation, growth and mandates and commitments on expenditures, along with increased funding for CIP reinvestment projects but does not include additional staffing, new or expanded programs. Remainder of page left blank intentionally. 19

25 GENERAL FUND FORECAST EXPENDITURES BY DEPARTMENT FY ($THOUSANDS) FY 2017 Budget FY 2018 Base FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Public Safety Police $ 18,640,402 $ 18,907,484 $ 19,762,511 $ 20,377,916 $ 21,015,876 $ 21,675,911 $ 22,358,839 Animal Control $ 812,179 $ 841,330 $ 873,663 $ 897,173 $ 921,483 $ 946,575 $ 972,477 Fire $ 2,491,090 $ 2,188,886 $ 2,253,413 $ 2,294,774 $ 2,336,998 $ 2,380,075 $ 2,424,022 Fire Marshal $ 673,560 $ 651,497 $ 681,859 $ 702,715 $ 724,288 $ 746,560 $ 769,554 EMS $ 3,198,049 $ 3,242,622 $ 3,391,771 $ 3,476,554 $ 3,564,219 $ 3,654,662 $ 3,747,983 Emergency Management $ 195,637 $ 195,868 $ 205,049 $ 211,341 $ 217,849 $ 224,568 $ 231,506 Subtotal - Public Safety $ 26,010,917 $ 26,027,687 $ 27,168,267 $ 27,960,474 $ 28,780,714 $ 29,628,351 $ 30,504,382 Public Works Public Works Administration $ 458,457 $ 576,280 $ 605,114 $ 624,187 $ 643,898 $ 664,223 $ 685,181 Engineering $ 1,802,079 $ 1,829,674 $ 1,881,075 $ 1,938,875 $ 1,998,661 $ 2,060,369 $ 2,124,068 Streets and Stormw ater $ 6,390,119 $ 6,215,745 $ 6,388,229 $ 6,523,526 $ 6,662,942 $ 6,806,429 $ 6,954,128 Traffic and Transportation Facilities Maintenance $ 1,331,772 $ 1,341,567 $ 1,366,808 $ 1,385,996 $ 1,405,769 $ 1,426,115 $ 1,447,053 Solid Waste Department $ 4,774,380 $ 4,774,380 $ 4,943,870 $ 5,154,479 $ 5,370,452 $ 5,592,252 $ 5,819,297 Subtotal - Public Works $ 14,756,807 $ 14,737,646 $ 15,185,097 $ 15,627,064 $ 16,081,722 $ 16,549,388 $ 17,029,728 Parks and Cultural Services Helen Hall Library $ 1,939,484 $ 1,986,727 $ 2,116,772 $ 2,179,450 $ 2,244,235 $ 2,311,069 $ 2,380,021 Civic Center Operations $ 499,970 $ 504,810 $ 525,982 $ 539,505 $ 553,461 $ 567,842 $ 582,665 Parks Operations $ 1,915,028 $ 1,943,460 $ 2,021,873 $ 2,079,504 $ 2,139,103 $ 2,200,635 $ 2,264,170 Parks Recreation $ 733,613 $ 738,994 $ 790,322 $ 811,533 $ 833,416 $ 855,956 $ 879,175 Subtotal - Parks and Cultural Services $ 5,088,095 $ 5,173,991 $ 5,454,949 $ 5,609,993 $ 5,770,215 $ 5,935,502 $ 6,106,031 Planning and Research Planning $ 1,118,965 $ 1,060,972 $ 1,112,861 $ 1,147,996 $ 1,184,338 $ 1,221,847 $ 1,260,563 Building $ 1,104,021 $ 1,146,999 $ 1,201,125 $ 1,238,731 $ 1,277,675 $ 1,317,927 $ 1,359,533 Neighborhood Services $ 573,677 $ 562,454 $ 587,184 $ 604,887 $ 623,216 $ 642,163 $ 661,750 Subtotal - Planning & Research $ 2,796,663 $ 2,770,425 $ 2,901,170 $ 2,991,614 $ 3,085,229 $ 3,181,937 $ 3,281,846 Finance Accounting & Financial Planning $ 2,103,656 $ 2,017,371 $ 2,104,115 $ 2,163,724 $ 2,225,274 $ 2,288,716 $ 2,354,116 Municipal Court $ 657,204 $ 680,190 $ 736,147 $ 759,251 $ 783,179 $ 807,907 $ 833,464 Purchasing $ 347,888 $ 353,211 $ 369,732 $ 381,053 $ 392,756 $ 404,828 $ 417,283 Subtotal - Finance $ 3,108,748 $ 3,050,772 $ 3,209,994 $ 3,304,027 $ 3,401,208 $ 3,501,452 $ 3,604,863 Remainder of page left blank intentionally. 20

26 GENERAL FUND FORECAST EXPENDITURES BY DEPARTMENT FY ($THOUSANDS) FY 2017 Budge t FY 2018 Base FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Administration City Council $ 159,770 $ 159,770 $ 176,660 $ 180,496 $ 184,429 $ 188,455 $ 192,574 City Manager $ 452,073 $ 429,676 $ 450,546 $ 464,574 $ 479,075 $ 494,032 $ 509,459 City Secretary $ 383,303 $ 389,050 $ 405,338 $ 416,943 $ 428,932 $ 441,297 $ 454,049 City Attorney $ 584,037 $ 592,359 $ 610,334 $ 626,482 $ 643,114 $ 660,215 $ 677,799 City Auditor $ 112,785 $ 113,440 $ 114,037 $ 114,543 $ 115,073 $ 115,621 $ 116,188 Information Technology $ 2,624,122 $ 2,385,473 $ 2,454,577 $ 2,502,158 $ 2,551,036 $ 2,601,185 $ 2,652,645 Communications Office $ 468,545 $ 475,021 $ 492,743 $ 505,634 $ 518,921 $ 532,593 $ 546,661 Human Resources $ 899,488 $ 791,735 $ 823,513 $ 846,368 $ 869,953 $ 894,250 $ 919,281 Economic Development $ 340,224 $ 342,820 $ 356,171 $ 365,870 $ 375,875 $ 386,179 $ 396,791 Subtotal - Administration $ 6,024,347 $ 5,679,344 $ 5,883,920 $ 6,023,068 $ 6,166,409 $ 6,313,825 $ 6,465,447 Non-Departmental $ 3,141,611 $ 2,766,611 $ 2,808,882 $ 2,872,030 $ 2,959,706 $ 2,962,173 $ 3,059,759 Transfers $ 13,776,060 $ 13,126,060 $ 13,520,000 $ 13,523,000 $ 11,616,000 $ 11,629,000 $ 11,656,000 Total General Fund $ 74,703,248 $ 73,332,536 $ 76,132,279 $ 77,911,270 $ 77,861,204 $ 79,701,627 $ 81,708,056 Note: The includes the effect of inflation, growth and mandates and commitments on expenditures, along with increased funding for CIP reinvestment projects but does not include additional staffing, new or expanded programs. Remainder of page left blank intentionally. 21

27 CITY OF LEAGUE CITY Thi s page i nt ent i onal l yl ef tbl ank 22

28 LONG RANGE FINANCIAL FORECAST DEBT SERVICE FUND Overview The Debt Service Fund is used to budget property tax revenue and pay for property-tax supported debt obligations of the City. Assumptions The assumptions used in the Debt Service Fund (shown in the chart below) include: Growth in net taxable property value of 4.85% for all five years based on the FY2017 increase over FY2016. A gradual increase in borrowing rates from their current, historically low level based upon FY 2017 CIP; Bond sales per the current (FY ) Capital Improvement Program with the sale occurring summer of each year with level principal payments beginning the following fiscal year: $ million FY2017 $ million FY2018 $ million FY2019 $ million FY2020 $ million FY2021 $ million Tax rate dedicated to debt service is adjusted annually to meet current year requirements and maintain appropriate balance. GENERAL DEBT SERVICE FUND FORECAST ASSUMPTIONS FY 2018 FY 2022 FY2018 FY2019 FY2020 FY2021 FY2022 Taxable Value ($millions) $7,683.1 $8,055.7 $8,446.4 $8,856.1 $9,285.6 Debt Service Tax Rate $0.147 $0.175 $0.170 $0.179 $0.178 Over 65 Tax Freeze Pct Loss 0.212% 0.214% 0.216% 0.218% 0.220% Property Tax Growth 4.85% 4.85% 4.85% 4.85% 4.85% TIRZ Increment Growth 9.0% 8.0% -75.0% 5.0% 5.0% Investment Pool Earnings Rate 0.5% 1.0% 1.5% 2.0% 2.0% Future Bond Issue ($000's) $26,285 $13,899 $19,671 $8,720 Overall Interest Rate 4.00% 4.50% 5.00% 5.50% 5.50% Interest Rate Diff with FY17 Rates 0.50% 1.00% 1.50% 2.00% 2.00% Population 105, , , , ,700 Projected Debt at FY end $80,286 $74,225 $68,107 $62,092 $56,383 Debt Per Capita $761 $685 $613 $545 $483 Debt per Taxable Value 1.00% 0.88% 0.77% 0.67% 0.58% 23

29 Tax Rate: Based upon the current projects projected in the FY CIP, and the other assumptions utilized in this forecast, the property tax rate dedicated to debt service is lower than the current rate for FY2018; however, without higher than projected growth, and without reduction in debt issues, will be required to increase each year starting in FY2019. The effect of this approach on the debt service portion of the tax rate is: FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 Debt Service Tax Rate $ $ $ $ $ $ General Fund Tax Rate $ $ $ $ $ $ Total Tax Rate $ 0.57 $ 0.57 $ 0.57 $ 0.57 $ 0.57 $ 0.57 DEBT SERVICE FUND FORECAST SUMMARY, FY2018 FY2022 ($000 S) ASSUMES $73.51 MILLION TOTAL BONDS OVER PERIOD FY2018 FY2019 FY2020 FY2021 FY2022 REVENUE Property Taxes $11,327 $14,138 $14,400 $15,897 $16,574 Interest Income $8 $8 $9 $9 $10 TOTAL REVENUE $11,335 $14,146 $14,409 $15,906 $16,584 EXPENSE Transfers MUD Property Tax Rebates $739 $739 $739 $739 $739 TIRZ Property Tax Increment $838 $1,069 $215 $238 $248 Subtotal MUD's/TIRZ's $1,577 $1,808 $954 $977 $987 Current Debt Service Interest $3,177 $2,967 $2,719 $2,460 $2,206 Principal $5,814 $5,871 $5,768 $5,462 $5,657 Paying Agent Fees $5 $5 $5 $5 $5 Subtotal Current Debt Service $8,996 $8,843 $8,492 $7,927 $7,868 Subtotal Current Expense $10,573 $10,651 $9,446 $8,904 $8,855 Projected Future Bonds Debt Service Interest $284 $1,803 $2,551 $3,599 $3,937 Principal $247 $1,561 $2,256 $3,240 $3,676 Subtotal Future Bonds Debt Service $531 $3,364 $4,807 $6,839 $7,613 Subtotal Future Debt Service $531 $3,364 $4,807 $6,839 $7,613 TOTAL EXPENSE $11,104 $14,015 $14,253 $15,743 $16,468 Revenue Over/(Under) Expense $231 $131 $156 $163 $116 Beginning Fund Balance $4,925 $5,156 $5,287 $5,443 $5,606 Ending Fund Balance $5,156 $5,287 $5,443 $5,606 $5,722 24

30 DEBT SERVICE FUND FORECAST ELEMENTS DESCRIPTION Debt Service Fund Expense Debt Service Fund expense is largely but not totally comprised of principal and interest payments on taxsupported debt issued by the City. In FY2017, 83% of current expense is debt service payments for cityissued and city-assumed bonds. The remainder, or 17%, goes to pay MUD property tax rebates and the debt portion of TIRZ property tax increments. As existing MUD rebate agreements expire and TIRZ obligations end, City-issued debt service payments will become a larger percentage of the total cash payment by the Debt Service Fund. Note: The above chart is for current debt payments only through the 2016A Refunding issue. This chart does not include the issue anticipated in FY2017 or future debt projected in the FY CIP. Municipal Utility Districts The City currently provides property tax rebates to two utility districts by agreement. The rebate is provided by contract to be paid until the individual MUD s debt is discharged. These rebates are paid through the Debt Service Fund because they are required by the rebate agreements to be used strictly for the retirement of MUD debt. The rebate payments made by the City are in addition to the tax collection received by the MUD because each MUD has its own property tax levy. Also, the City rebates are limited to the lesser of 35 to 40 percent of the taxes collected or the actual debt service payment for the specific year in question. FY2017 is the final year for MUD #13 (Brittany Bay) payments, which only leaves MUD #6 (The Landing) for the forecast period as shown in the graph on the next page. 25

31 Tax Increment Reinvestment Zones The City currently has three Tax Increment Reinvestment Zones (TIRZ s). Each of these zones was established by the City to encourage development and building the taxable value of which could be used to generate incremental growth in property tax revenues. These incremental revenues were then used to finance the construction of infrastructure streets, sewers, water lines, and amenities inside the boundaries of the respective TIRZ. This is accomplished by using the annual property tax increment (1) to reimburse developers for completed construction and/or (2) to pay for bonds issued to reimburse the developer. When a TIRZ ends, the TIRZ increment then becomes a part of the City s property tax revenue stream. TIRZ development agreements typically provide for developers to be reimbursed using simple interest at a rate higher than the rate paid by the City on its own bond issues. In order to achieve interest savings, the City has issued debt backed by future TIRZ increments, which bonds are being retired now through TIRZ funds. Remainder of page left blank intentionally. 26

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33 CITY OF LEAGUE CITY Thi s page i nt ent i onal l yl ef tbl ank 28

34 LONG RANGE FINANCIAL FORECAST UTILITY FUND OVERVIEW Baseline The chart below summarizes the Utility Fund using baseline assumptions, including (1) adjustments to the FY 2017 Budget to arrive at a base for the forecast as FY 2018 Base, (2) the impact of debt scheduled in the FY Capital Improvement Plan, (3) the anticipated effect of inflation on costs, (4) continued cash funding for capital projects at $3 million per year, and (5) no adjustments to utility rates over the term of the forecast. FORECAST SUMMARY UTILITY FUND PROJECTIONS ($THOUSANDS) FY2017 Budget FY2018 Base FY2018 FY2019 FY2020 FY2021 FY2022 Beginning Balance $9,115 $9,583 $9,583 $10,115 $9,665 $7,048 $1,043 Revenue Current Revenue $35,242 $35,242 $36,211 $37,177 $38,144 $39,112 $40,078 Subtotal Revenues $35,242 $35,242 $36,211 $37,177 $38,144 $39,112 $40,078 Expenditures Operating Expenditures $15,160 $15,412 $15,818 $16,132 $16,456 $16,789 $17,131 Current Debt Service $13,302 $12,658 $12,658 $12,533 $12,493 $12,324 $12,083 Future Debt Service $0 $0 $891 $2,650 $5,499 $9,692 $12,737 Transfer to General Fund $3,312 $3,312 $3,312 $3,312 $3,312 $3,312 $3,312 Transfer to CIP $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 Subtotal Expenditures $34,774 $34,382 $35,679 $37,627 $40,760 $45,117 $48,263 Revenue Over/(Under) Expenditures $468 $859 $532 ($450) ($2,617) ($6,005) ($8,185) Ending Balance $9,583 $10,442 $10,115 $9,665 $7,048 $1,043 ($7,142) Utility Fund Reserves 90 Days of Operating Expenditures as Working Capital $3,738 $3,800 $3,900 $3,978 $4,058 $4,140 $4,224 Excess Working Capital $5,845 $6,642 $6,215 $5,687 $2,990 ($3,097) ($11,366) Days Working Capital Over 90 Days (67) (242) Based on the assumptions outlined, the fund begins operating at an annual deficit in FY 2019 and would have expended all fund balance by FY This condition is driven by the capital demands as defined in the FY CIP. Water and Wastewater Capital Improvement Plan The FY Capital Improvement Plan included projects identified in the Water and Wastewater Master Plans, including projects to address water supply. The largest single project is budgeted at $43 million to replace the 42 water supply line on SH 3 with a 60 line which will add approximately 20 million gallons per day (MGD) capacity to the 17.5 MGD the City is currently receiving through the existing line. This project began preliminary design in FY The FY CIP included $122.4 million in new debt, of which $8.34 million is expected in FY The anticipated issuance of the FY 2017 debt is the summer of 2017, with the first payment due in FY Based on the CIP, remaining debt is projected as follows: Existing CIP Bond Sale Schedule FY 2017 $ million FY 2018 $ million 29

35 FY 2019 $ million FY 2020 $ million FY 2021 $ million Total $ million Using level principal payments for each sale, the resulting debt structure is depicted in the chart below. Going Forward Decisions will need to be made regarding funding of the long-term capital needs of this system. Options that will be presented to City Council include both developer and customer participation. The Water and Wastewater Master Plans are scheduled to be updated in the current fiscal year. This will provide a basis for an updated capital recovery fee structure. This analysis is expected to result in significant potential increases in revenue that could be dedicated to projects that increase system capacity. The long range water/wastewater revenue study which was performed in 2015 anticipated additional revenue would be required in future years to fund the capital demands of a growing system. This study is currently being updated and will assist staff in developing options for City Council consideration. Future debt needs can be reduced based upon these decisions. Remainder of page left blank intentionally. 30

36 CITYOFLEAGUECITY,300WESTWALKER,LEAGUECITY,TEXAS77573 PHONE: