THE CITY OF SIDNEY Citizens Summary Financial Report For the Year Ended December 31, 2016

Transcription

1 THE CITY OF SIDNEY For the Year Ended December 31, 2016

2 ELECTED, APPOINTED and SENIOR OFFICIALS ELECTED OFFICIALS CITY COUNCIL MEMBERS Michael Barhorst, Mayor Martha Milligan, Vice-Mayor Janet Born Ed Hamaker Joe Ratermann Darryl Thurber Steve Wagner APPOINTMENTS BY COUNCIL CITY MANAGER Mark S. Cundiff LAW DIRECTOR Jeffrey Amick CITY CLERK Kari Egbert SENIOR DIRECTORS Finance Officer Ginger Adams Community Services Director Barbara Dulworth Police Chief William Balling Parks & Recreation Director Duane Gaier Assistant City Manager Gary Clough Fire Chief Bradley Jones

3 The For the Year Ended December 31, 2016 The bears a responsibility to be good stewards of the public s money and to account properly for those funds. It is our goal to meet, or exceed, nationally recognized standards of excellence in financial reporting. The City has received the Certificate of Achievement in Financial Reporting award from the national Government Finance Officers Association (GFOA) for eighteen consecutive years and the GFOA s Distinguished Budget Presentation award for eighteen consecutive years. In addition, the has received national recognition for being one of the leaders in implementing required new accounting standards. An independent accounting firm working in conjunction with the Auditor of State audits the City s financial statements annually. We are pleased to report that the City of Sidney s financial statements for the year ended December 31, 2016, received an unqualified audit opinion. (Often called a clean opinion, this is the best audit opinion that can be obtained.) The s Comprehensive Annual Financial Report (CAFR) is available on the City s website at The CAFR contains the City s audited financial statements, the audit opinion, and other financial information. The Citizens Annual Financial Report is a means of providing residents and businesses with user-friendly information to briefly summarize the financial activities of the City of Sidney. This report is un-audited. For the most part, the data was compiled from the financial information appearing in the City s CAFR. If you have any comments, suggestions, or requests for additional information, please submit them to the: Finance Officer 201 West Poplar Street Sidney, Ohio

4 2 In the City s financial reports, all activities are reported in one of two categories: 1) Governmental Activities, or 2) Business-Type Activities. GOVERNMENTAL ACTIVITIES Governmental Activities are those activities that generally are funded with tax dollars, such as police and fire services, public parks and community recreation, and construction and improvements of streets. How Governmental Activities Are Funded The s Governmental Activities are funded mainly with municipal income tax dollars. In 2016, the 1.75% City income tax funded about 67% of Governmental Activities. This includes the five-year 0.25% income tax levy. Grants and contributions, primarily consisting of state and federal grants and state-shared taxes, represented the second-largest source at 17%. INCOME TAXES: This is revenue from the City s 1.75% municipal income tax. The 1.5% permanent tax plus an additional 0.25% five-year tax levy beginning on January 1, The 0.25% levy is restricted to construction, reconstruction, resurfacing and maintenance of streets, alleys, bridges, curbs and gutters. PROPERTY TAXES: Income from the City s 3.2 mills tax on real property. CHARGES FOR SERVICES: This category includes fines, permit fees, and cemetery charges. EMS fees and Municipal Court fines and fees represent a large portion of this category. GRANTS AND CONTIBUTIONS: Revenue received from other governments, organizations, and individuals that are restricted in some manner. OTHER REVENUE: This amount includes investment income, gains or losses on the disposal of capital assets, and other miscellaneous revenue.

5 3 Governmental Activities Revenue for Years Ended December 31, Income taxes $ 13,508,264 $ 14,161,506 $ 15,394,876 $ 17,882,075 $ 18,724,943 Property taxes 1,064,514 1,016,383 1,028,049 1,026,383 1,014,356 Charges for services 2,014,471 2,011,376 2,029,699 2,144,975 2,153,484 Grants & contributions 3,008,215 4,670,910 2,825,741 3,013,303 4,650,175 Other revenue 1,078,446 1,376,296 1,208,667 1,028,362 1,210,645 Total $ 20,673,910 $ 23,236,471 $ 22,487,032 $ 25,095,098 $ 27,753,603 Source: CAFR, full accrual basis Income Tax Collections The municipal income tax is the key funding source for essential City services. The two primary sources of income tax collections are (1) direct collections and (2) withholdings. Direct collections are received when businesses pay income taxes based on their net profits. Another source of direct collections is when individual taxpayers complete their annual Sidney tax return and pay additional tax owed. This portion typically comprises 20-25% of our total income tax collections. For the most part, individuals pay their Sidney income tax when their employer withholds the tax from their paycheck. Employers then remit these Sidney income taxes withheld to the City. Taxes withheld by employers on behalf of their employees generally makes up about 75-80% of our total income tax collections. The last national recession resulted in the loss of nearly 20% of the City s tax base from 2007 to It took until 2013 to return to a 2007 level of income tax collections. For 2016, taxes for the 1.5% permanent tax withholdings from employees rose 8.1% to $11.8 million or approximately $885,000 over 2015 collections. This increase is primarily due to new semi-monthly withholding payments by large employers. Meanwhile, direct collections on the permanent 1.5% tax increased 10.4%, or nearly $461,000 to end 2016 at about $4.9 million, shifting the proportion from 20-25% of total collections to nearly 29% of taxes. This is important because direct collections are a most volatile source of income, subject to significant swings from year to year. Increasing our dependence on this source is troublesome Over 2015 Percent Change Direct Collections $ 3,382,790 $ 4,443,562 $ 4,446,903 $ 4,907,534 $ 460, % Withholdings $10,441,873 $10,511,217 $ 10,926,406 $ 11,811,709 $ 885, % Total $13,824,663 $14,954,779 $15,373,309 $16,719,243 $ 1,345, % Source: Tax Department, 1.5% permanent tax - cash basis

6 4 For 2015 & 2016 the additional 0.25% five-year income tax levy received $2,250,803 and $2,776,060, respectively, in total collections. These dollars are restricted for street capital projects and are recorded separately from the permanent 1.5% income tax. How Your Tax Dollars Are Used taxes provide funds to enable the City to provide basic governmental services. About 63%, or 63 cents of every tax dollar, goes to support public safety services (police, fire and judicial). Street maintenance (16%) and parks and recreation (7%) are other significant uses of tax dollars. Parks & Rec. 7% Judicial 5% Governmental Activities Where Your Tax Dollars Go Comm Dev/En v 5% Fire 26% Other 9% Streets 16% Police 32% POLICE, FIRE and JUDICIAL: Providing public safety services including police, fire, emergency medical services, City prosecutor s office, and Municipal Court. PARKS AND RECREATION: Maintenance of the City park system, public right-of-ways, urban tree program, and community recreation programs. STREETS: Maintenance and repair of the City s streets, alleys & curbs. COMMUNITY DEVELOPMENT/ ENVIRONMENT: Planning and zoning, engineering, building inspection, and code enforcement. OTHER: General and administrative activities, interest on long-term debt issued for governmental purposes, street lighting, net costs of administering the Shelby Public Transit System, etc. Uses of Income Tax and Property Tax Revenue in 2016 Taxes: Income tax revenue 1.75% $ 18,724,943 Property tax revenue 1,014,356 Total income tax & property tax revenue $ 19,739,299 Income taxes and property taxes were spent on: Police $ 6,303,535 Fire 5,172,273 Judicial 1,013,156 Streets 3,183,680 Parks and recreation 1,401,516 Community development / community environment 979,744 Other 1,685,394 Total uses of income taxes and property taxes $ 19,739,299 Source: CAFR, full accrual basis

7 5 What is the Value of Your Tax Dollar? Through a combination of property tax and income tax, the average family residing in Sidney pays approximately $100 per month to the City. This is calculated as: Property Tax Median value of a single-family owner-occupied home within Shelby County (b) $ 105,600 To determine assessed value, multiply by 35% 35% Income Tax The income tax rate is 1.75%. City income taxes are paid to the City where you work. However, if the income tax rate where you work is less than 1.75%, the difference is paid to Sidney. Assessed value $ 36,960 Median family income (a) $ 64,300 To determine property tax liability, multiply assessed value by effective property tax rate (c) 4.97% To determine earnings tax liability, multiply annual income by 1.75% 1.75% $ 1,837 Paid to $ 1,125 Less: 12.5% rollback (230) Total estimated property tax $1,607 s portion (d) 5.0% Paid to $ 80 Total Tax paid to the Property tax $ 80 Income tax 1,125 Total annual tax $ 1,205 Roughly $100 per month (a) Source: HUD (Housing Urban Development housing data 2017, median income data 2017) (b) Source: United States Census (American Community Survey ( )) (c) Source: Shelby County Auditor (d) Allocation of property tax paid is: Sidney City Schools (including Joint Vocational School) 79.8% Other taxing districts 15.2% 5.0% %

8 6 Take the monthly amount of roughly $100 and compare it to your other typical monthly expenses for phone, cable, internet, utility bills as well as the cost of gasoline. We believe that the citizens of the receive excellent value for their tax dollars. The following list is a sampling of the governmental services provided for about $100 per month: Police protection Fire protection Emergency medical services covers your insurance co-payments and the total cost for uninsured residents Maintenance, improvements, and upkeep on 111 miles of streets and 19 miles of alleys Enjoyment of the extensive city parks system, including 226-acre Tawawa Park, 16 neighborhood parks covering 456 acres, 43 park shelters, 14 tennis courts, 15 baseball fields, 16 basketball courts, 14 soccer fields, 2 pee wee football fields, 22 modular play structures and 16.2 miles of bikeway Municipal Swimming Pool tax dollars pay for about 40-50% of the pool s operating costs & 100% of capital improvements Recreation programs for all ages youth through senior citizens Maintenance of the Senior Center building, which is utilized by over 1,000 of our senior adults Building inspection & zoning and code enforcement Snow & ice control on city streets Partial funding of Shelby Public Transit, which primarily serves the area s elderly and disabled population. Partial funding of Graceland Cemetery Sidney residents enjoy a low cost of public services as compared to neighboring communities. A 2013 City of Troy survey that rated certain Quality of Life Costs in Southwest Ohio communities, Sidney ranked the lowest cost out of 31 area cities. Quality of Life Costs ranked in this survey included such expenses as household property & income taxes; refuse, storm water and license plate fees; and water and sewer costs. Tipp City conducted a similar study in 2009 and Sidney ranked the lowest cost city when compared to 27 area cities. Most recently, in 2015, the City of Piqua conducted a Municipal Cost Comparison, adding electric charges as one of the variables. Sidney ranked as the 29th lowest cost of the 31 cities Piqua surveyed.

9 7 General Fund Most governmental activities (e.g., police, fire, parks) are accounted for in the General Fund. General Fund revenue (income) increased by 7.6% in 2016 over 2015, this is because income tax collections in 2016 which increased 9.7% over This is a result of the one-time increase for the timing of semimonthly withholding payments. General Fund expenditures increased by 2.6% in 2016 over General Fund Cash Reserves It is crucial that the General Fund have sufficient cash fund balance reserves to guard against unforeseen emergencies and to provide a cushion in difficult financial times. At the end of 2016, the cash reserves are at $7.4 million. It is the s financial policy to maintain General Fund cash reserves in an amount at least equal to about 73 days cash needs. As income tax collections improved, the City has improved its day s cash on hand to 168 days at the end of 2016, above the 73 day minimum. In early 2017, City staff was notified a large taxpayer was changing their tax consolidation method resulting in an annual loss of income tax revenue of approximately $1.1 million. These reserves, along with budgetary restraint, will enable the City to continue to provide high quality essential services in spite of reduced revenue.

10 8 BUSINESS-TYPE ACTIVITIES Business-type activities are generally those activities that are expected to be selfsupporting from user fees and charges. For example, the expenses of the Water Fund and the Sewer Fund are covered entirely by water and sewer user charges. No tax dollars support water or sewer operations. Water and Sewer Expenditures The data in the water & sewer chart below is taken from the budgetary (cash-basis) financial statements and the classifications used are: WAGES & BENEFITS: These are the wages, benefits, and payroll taxes associated with personnel assigned to these functions. Contractual & materials 32% Water Fund Cash Expenditures Capital outlay 34% CONTRACTUAL & MATERIALS: These are other non-personnelrelated operating expenses. CAPITAL OUTLAY: This category is for expenditures to purchase or construct assets with a useful life of at least two years. DEBT SERVICE: These are the principal and interest payments to pay off long-term debt that was obtained in previous years as a means of financing major capital projects. Water and Sewer Rates Quarterly bill (3000 cf) $350 $300 $250 $200 $150 $100 $50 $0 Water & Sewer Rates SIDNEY Troy Average Piqua Water Sewer Wages & benefits 26% Debt service 19% Sewer Fund Cash Expenditures Wages & benefits 31% Capital outlay 19% Debt service 8% Contractual & materials 31% Water and sewer operations are totally financed by user charges. Water and Sewer rates are reviewed annually and adjusted as needed. Based on the City of Oakwood s 2017 area survey of 63 communities, the s combined water and sewer rates are about 24% above Troy s, 18% above the area average, and 16% less than Piqua s water and

11 9 sewer rates. To fund multi-million dollar sewer capital and operating upgrades required by Environmental Protection Agency (EPA) mandates and the new water source, significant utility rate increases have been implemented since Since many area communities are likely to experience the same regulatory burden and mandated cost outlays in upcoming years, it is anticipated that once those cities raise their rates to comply, Sidney s rates will once again rank lower compared to peer communities. Water & Sewer cash balances The Water Fund and Sewer Fund must maintain sufficient cash balances to address operational and capital needs. Each utility s minimum target is 73 days of cash on hand. In the Water & Sewer graphs on the next page, cash balances are shown excluding the cash reserve for the new water source project and Sewer OEPA Compliance projects. Generally, amounts above the minimum in years 2012 through 2016 reflect the accumulation of cash for other capital projects. Note cash balances have fluctuated both upward and downward considerably. Generally, the upward movement reflects the accumulation of cash for capital projects and the downward movement is the subsequent expenditure of cash for those projects. INVESTMENT PORTFOLIO The City maintains a cash deposit and investment pool for substantially all of its funds. The City must follow the requirements of the Ohio Revised Code, the City s charter and the City s investment policy in managing its investments. These requirements include permitted investments, the maturity of the investments, and the composition of the portfolio.

12 10 The first priority of the City s investment plan is to preserve the safety of the investment principal. Secondary priorities are liquidity (i.e, ensuring that cash is available when needed to pay bills), and return on investments. Consistent with the primary objective of preservation of investment principal, the City s investment policy limits City investments to only relatively safe investment securities. At December 31, 2016, the pooled investments consisted of U.S. agencies and government-sponsored corporations with a fair value of $25,914,796. These include issuers such as Federal Farm Credit, Federal Home Loan Bank, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and Star Ohio. The weighted average maturity was roughly five months calculated using estimated maturity dates as of December 31, DEBT INFORMATION The City occasionally pays for major capital projects with long-term debt financing. Bonds are considered either self-supported or tax-supported. A well-known bond rating agency, Standard & Poor, acknowledged the City s strong financial management policies, upgraded the City s bond rating to AA in 2009, and reaffirmed that rating in 2010, 2011, 2013 and Considering recent economic times, this is a considerable achievement. Achieving and maintaining a good bond rating is key to obtaining debt at the lowest possible interest rate, which saves the City money on interest costs. Tax-supported Debt Tax-supported debt means that repayment is guaranteed by the City s ability to levy property tax. Tax-supported debt outstanding as of December 31, 2016 is as follows: Purpose Municipal Court renovation (Monumental Building) Police & Fire prior pension costs Police facility construction Year of Maturity Amount Outstanding 12/31/16 Interest Rate 2018 $ 365,000 avg 2.0% 2022 $200,000 avg 2.2% 2024 $3,635,000 avg 2.52% Source of repayment Property taxes Property taxes Property taxes Total $4,200,000

13 11 Self-supported Debt Self-supporting debt means that there is a primary source of repayment other than taxes. To achieve the lowest interest rates possible, nearly all of the City s bonds are general obligation (G.O.) bonds. G.O. bonds are guaranteed by the City s ability to levy property tax. However, for self-supported debt, there is another source, such as water or sewer revenues, that is considered the primary source of repayment and the property tax is only a secondary back-up repayment source. Self-supporting debt backed by sewer or water revenues outstanding as of December 31, 2016 is as follows: Purpose Sewer system improvements Water meter & system improvements Sewer system improvements New water source property Year of Maturity Amount Outstanding 12/31/16 Interest Rate 2022 $3,135,000 avg 2.2% 2029 $2,847,456 0% 2037 $4,345,000 avg 3.9% 2040 $ 2,312,000 avg 3.2% New water source testing 2040 $625,000 avg 4.01% Water source construction Sewer plant improvements 2047 $18,589,634 (a) 3.30% 2038 $9,035,790 (b) 2.18% Water lime sludge lagoon 2048 $502,474 (c) 2.20% Total $41,392,354 Sources of repayment Sewer revenues Water revenues Sewer revenues Water revenues Water revenues Water revenues Water revenues Water revenues (a) Authorized total construction loan is $22,148,558 plus accrued interest. This is the amount drawn on the loan at 12/31/16. Principal and interest payments begin in (b) Authorized total construction loan is $9,000,000 plus accrued interest. This is the amount drawn on the loan at 12/31/16. Principal and interest payments begin in (c) Authorized total construction loan is $5,328,869 plus accrued interest. This is the amount drawn on the loan at 12/31/16. Principal and interest payments begin in On behalf of the owners of the Northbrook Mobile Home Park (NMHP), in 2009, the City received ARRA funding for their new water distribution system improvements. Grant funding is for $252,000. The remaining $314,160 is a zero-percent, twenty-year loan.

14 12 The loan is backed solely by the revenue generated by water charges and does not pledge the general resources or the general credit of the City. In accordance with an agreement between the City and the owners of NMHP, the owners are responsible for the debt payments, which began in As collateral, the City is holding a first mortgage for $200,000 and a personal guaranty for $100,000. The balance outstanding as of December 31, 2016 is $204,204. Tax Incremental Financing (TIF)-supported debt A TIF arrangement is an economic development incentive that allows a government to construct a public improvement that directly benefits private property. The private property owner then makes payments in lieu of property taxes to pay for the cost of the improvements. TIF-supported debt outstanding as of December 31, 2016 is as follows: Purpose Sewer system improvements Year of Maturity Amount Outstanding 12/31/16 Principal & interest payments in $460,000 $ 64,300 Water & sewer system improvements 2030 $ 185,000 $ 17,775 Total $ 645,000 Source of repayment Property owner s payment in lieu of property taxes Property owner s payment in lieu of property taxes Debt Limitations State law limits the amount of tax-supported debt that the City may issue. The most restrictive of these limitations requires that the City must get voter approval to issue net debt in an amount greater than 5.5% of the citywide assessed property valuation. Under this limitation, the City may issue net debt up to $19,838,944, calculated as follows: Assessed value of real and tangible personal property $ 360,708,070 X 5.5% Unvoted debt limit: 5.5% of assessed value $ 19,838,944 By comparison, the has only $4,200,000 of debt outstanding to which this limitation applies; therefore, the City has used approximately 21% of its $19,838,944 legal debt capacity. The takes a conservative approach to debt. Therefore, the City of Sidney s debt policy provides debt limitations more restrictive than the limitations imposed by state law. It is the City s policy that tax-supported debt may not exceed 3.0% of assessed valuation. Three percent (3.0%) of citywide assessed valuation is

15 13 approximately $10.8 million. With current outstanding debt of $4.2 million, the City has current capacity for additional tax-supported debt of about $6.6 million. However, the City has no plans at this time for such additional tax-supported debt. A summary of debt outstanding at December 31, 2015 and 2016 is as follows: December 31, 2015 December 31, 2016 Governmental activities $ 5,530,000 $ 4,845,000 Business-type activities 15,263,487 41,392,354 Total $ 20,793,487 $ 46,237,354 Major Initiatives For the Year and the Future: The year 2016 marks the second year collecting an additional 0.25% income tax dedicated to constructing, reconstructing, resurfacing and maintaining Sidney s streets, alleys, bridges, curbs and gutters. Collections totaled nearly $2.2 million in 2015 and nearly $2.9 million in Over the five-year levy, this tax should generate at least $17.5 million. Over $3.0 million was spent through 2016 with another $3.5 million budgeted for 2017 road and bridge projects. Income tax collections in 2016 of the City s permanent 1.5% income tax surpassed prior year taxes by $1.3 million. Of this increase $660,000 is a onetime increase as a result of a state legislated change in the remittance of taxes withheld from employees. This increase helped fill the void created when State legislators reduced Local Government Fund distributions by 50%, eliminated estate taxes and withdrew tangible personal property reimbursement, cutting Sidney funding by $1.3 million annually. In 2016, the total of all other sources of General Fund revenue was $5.4 million, a decline of $1.5 million when compared to pre-recession revenue. State-generated shared gasoline tax receipts declined from about $833,000 in 2007 to about $734,000 for Likewise, motor vehicle license tax receipts declined from $496,000 in 2007 to almost $218,000 collected for 2016 largely due to declining fees paid by over-the-road carriers. While not General Fund revenue sources, losses of Street Repair & Maintenance Fund revenue translates into higher income tax subsidies paid by the General Fund to support Street Repair & Maintenance Fund operations. Service levels should continue to improve with the return of seasonal staffing to pre-recession levels, reinstatement of two Firefighters to work during peak demand periods, and adding a Water Treatment Plant Operator in Plans for 2017 include the adding back of two Police Officers to work peak demand split shifts, an Equipment Operator to assist with Graceland Cemetery and parks projects, and targeted seasonal positions to ease Municipal Court workload, paint water hydrants and provide for increased Shelby Public Transit ridership.

16 Budget reductions made during the last national recession negatively affected service levels in the ability to be responsive to customers needs, in the maintenance of assets and infrastructure, etc. Use of the additional 0.25% income tax to repair and reconstruct city streets will go a long way toward improving the City s infrastructure. Given the elimination of, or reduction in, state-shared local revenues and an uncertain economic outlook, many more previous staffing reductions remain. Staffing is at 216 full-time equivalents (FTEs) in 2016 down from 243 FTE s in To provide funding for water system capital improvements, water flow rates were increased 29% in 2014 and 15% in Water utility rates returned to moderate, inflationary 3% increase for Rate increases are anticipated to be 3% for 2017 and then remain at 4% annually from 2018 through The most extensive of the projects has been the acquisition and construction of a new water source. To finance this project, the City is receiving an Ohio Water Development Authority (OWDA) loan of up to $22.1 million to be repaid at 3.3% interest over a 30-year period beginning in July, Loan proceeds will be used to pay for the construction of the water source project, while cash reserves will be used to purchase the remaining property. Phase I of the wastewater treatment plant and sewer collection system improvements begun in 2015, is being financed with loan proceeds from the Water Pollution Control Loan Fund (WPCLF). A loan of up to $9 million is to be repaid over a 20-year period beginning in 2018 bearing an interest rate of 2.18%. Phase II of the construction project, slated for 2017, will be paid for with a combination of cash reserves and issuing long-term debt estimated at approximately $5.2 million. City staff has applied for loan assistance from the WPCLF for this final phase of the project. Additional street resurfacing and reconstruction continues with approximately $3.0 million spent in 2016 a total of approximately $4.0 million budgeted for For 2017, paying for this comes from the following sources: o Capital Improvement Fund about $250,000 from permanent 1.5% income tax o Capital Improvement Fund about $100,000 from $5 additional license fee o County Auto License Fund about $100,000 from City s share of county auto license fees o Municipal Earned Income Tax for Street Capital Fund -- $3,500,000 from additional 0.25% earned income tax approved by voters in 2014 The reconstruction of Port Jefferson Road from Russell Road to Wells Drive was completed in 2016 at a cost of about $2.0 million. Grant funding reduced the City s Capital Improvement Fund share to approximately $365,000. Replacement of water lines costed the City after grant funding about $20,000 and sanitary sewer and laterals was completed at a cost of almost $300,000 paid for from the Sewer Improvement Fund. 14

17 The City s lime lagoon, constructed in 1978, has exceeded its designed life span of 16 years. Construction of the service lime lagoon was completed in 2016 at a cost of about $548,000. Starting late 2016, the sludge in the primary lagoon was being removed and repairs began on lagoon at a projected cost of $6.1 million. The City received approximately $5.3 million of loan proceeds from OWDA for this project. This debt is expected to be repaid over a 30-year period and bear an interest rate of 2.2%. 15 FINAL COMMENTS We hope that the information in this report has been useful to you. Please direct your comments or requests for additional information to the Finance Department at