GENERAL FUND Revenues

Transcription

1 GENERAL FUND Revenues The General Fund is the general operating fund of the City and encompasses the major activities of the City excluding utilities. The activities of fire and police services, street and park maintenance, development services, court services, recreation services, legal and financial services, and general administration are all included in the General Fund. Over the past 10 years, the City has faired well with revenues rising faster than expenditures. The City has enjoyed a number of years of strong permit activity and this has produced strong sales tax revenues and additional property tax on new construction. Following are descriptions of the City's major revenue sources accompanied by historical graphs.

2 F-2 City of Mercer Island Budget

3 Revenue Summary There are four major revenues that comprise 83% of the General Fund budget. These four revenues are the property tax, sales tax, business and utility taxes, and license and permit fees. The importance of the permit category to the General Fund has increased over the past few years as building activity has increased and permit fees were increased in an effort to achieve a greater level of cost recovery on the work required. Below is a table of all the City's revenues, showing the 2005 actual receipts, the 2006 forecast and the 2007 and 2008 budgeted amounts. Following that is a graph depicting the percentage of each revenue source relative to the total amount budgeted Description Actual Forecast Budget Budget RESOURCES Budgeted: Beginning Fund Balance $ 0 $ 1,613,004 $ 0 $ 311,567 Property Tax 8,518,954 8,925,023 9,259,808 9,514,181 Sales Tax 2,651,387 2,611,000 2,661,000 2,711,000 Business & Utility Taxes 2,695,376 2,891,000 3,032,000 3,188,000 State Shared Revenues 495, , , ,239 Utility Overhead 693, , , ,400 EMS Revenues 462, , , ,976 Licenses and Permits 2,098,943 2,034,500 2,180,850 2,195,850 General Government 183, , , ,700 Recreation Programs 595, , , ,140 District Court Fines 230, , , ,000 Interest 273, , , ,000 Interfund Transfers In 0 700, Total Budgeted Resources $ 18,898,420 $ 22,390,808 $ 20,612,766 $ 21,489,053 Not Budgeted: Beginning Fund Balance (Reserved) 2,234, ,301 2,627,016 2,339,660 TOTAL RESOURCES $ 21,132,915 $ 22,800,109 $ 23,239,782 $ 23,828,713 City of Mercer Island Budget F-3

4 2007 General Fund Revenues District Court Fines 1.5% Recreation Programs 4.7% Interest 1.6% Property Tax 44.9% License and Permits 10.6% EMS Revenues 2.3% Utility Overhead 3.5% State Shared Revenues 2.4% Business & Utility Taxes 14.7% Sales Tax 12.9% 2008 General Fund Revenues District Court Fines 1% Recreation Interest Programs 2% 5% General Government 1% Licenses and Permits 10% EMS Revenues 2% Utility Overhead 3% State Shared Revenues 2% Beginning Fund Balance 1% Business & Utility Taxes 15% Property Tax 45% Sales Tax 13% F-4 City of Mercer Island Budget

5 Property Tax General Fund Property Tax plays an essential role in financing operations of the City of Mercer Island, accounting for about 45% of the General Fund budget in 2007 and In 2005, Mercer Island property owners paid a total of $8,519,000 in property taxes to support general City services. In 2006, they are scheduled to pay about $8,925,000. There are two types of property tax collected by the City, levied and voter approved. The levied portion may be used for any purpose that the City deems necessary. In Mercer Island as in most cities, the property tax levy supports the General Fund - the general operations of the City. Voter approved taxes are for specific purposes, such as the purchase of parks or fire trucks and may not be used for any purpose other than what the voters approved. For information about the voter approved taxes levied by the City, see Section C, Budget Summary, City Debt. Each November, as required by Washington State law, the City Council sets the property tax levy for the coming year. Up until November 1997, this levy was restricted to a maximum of 106 percent of the previous year's levy plus the full levy authority for new construction. However, in 1997, the Washington State Legislature passed Referendum 47 on to the voters of the state who in turn approved it by a 60% majority. This referendum set a limit on property tax increases of the lesser of 106% or the rate of inflation, whichever was less. In 2001, Initiative 747 passed in the State which further changed the property tax law. Initiative 747 limits the property tax levy to a maximum of 101% of the previous year s levy, or the rate of inflation, whichever is less. (Since the rate of inflation is normally above 1%, the effective limit for property tax will normally be 1%). The initiative also allows higher property tax increases if approved by the voters, a provision that was already in the statutes. Beginning in 1995, before the state law was changed, the Council decided to begin ramping down the property tax increases by.5% per year, with the goal of eventually matching the inflation rate. The Council reached that goal in Below is a table and chart of the property tax receipts since 1991, including the budgeted increases for 2007 and Year Amount Year Amount 1993 $4,701, $7,397, $5,083, $7,602, $5,344, $7,776, $5,824, $8,416, $6,065, $8,518, $6,500, $8,925, $6,849, $9,259, $7,158, $9,514,181 City of Mercer Island Budget F-5

6 PROPERTY TAX REVENUE ,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Sales Tax Sales Tax revenue until 2000 was made up of two components - regular sales tax and "sales tax equalization". Combined, these revenues accounted for about 16% of the 1999 General Fund budget. In 1999, however, an initiative changed the law and the City no longer receives sales tax equalization (see further discussion below). Sales tax receipts are estimated to be 13% of the budgeted 2007 resources. Sales and Use Tax. Cities and towns are authorized under 1970 state law to levy a sales and use tax of one-half cent per dollar. In 1982, the State authorized an additional half-cent sales and use tax for cities and towns. Mercer Island levies the full amount allowed. Sales Tax Equalization. The law that provided for "Sales Tax Equalization" went into effect in The purpose of sales tax equalization was to provide a means for guaranteeing a minimum amount of sales tax to each city and town in Washington. That allowed cities with little commercial activity to receive through a combination of the sales tax it "earns" and equalization, at least 70 percent of the statewide average per capita sales tax. The amount of sales tax equalization each city received was computed on their prior year's sales tax receipts. In 1999, however, Initiative 695 was passed by the voters which eliminated the Motor Vehicle Excise Tax, which was the source of funds for the distribution of sales tax equalization dollars. The effect of the initiative was to bring our total sales tax receipts back to the same level that they had been in This change resulted in a loss of about $1,000,000 in revenue per year. As one can see from the chart on the next page, the City s sales tax, even with equalization, was very uneven and fairly unpredictable. Because of the uncertainty of equalization and the economy during the mid-1990 s, the City has historically used a very conservative figure for predicting sales tax during each biennial budget. This conservative approach helped the City weather the demise of the sales tax equalization revenue. For the the City has moved away from a purely conservative approach to budgeting sales tax receipts at a level consistent with known economic factors. Most of the growth in sales tax revenue can F-6 City of Mercer Island Budget

7 be attributed to the construction sector, which is up 6.8 percent in 2006, as evidenced by the redevelopment of the central business district. Construction-related sales tax continues to make up about one-half of the City s total sales tax receipts. How long this spike in construction-related sales tax will continue is difficult to forecast. There are a number of other properties in the central business district that are ripe for redevelopment as well. If current construction trends continue, this sales tax spike could be extended through 2009 or Year Sales Tax Equalization Total Year Sales Tax Equalization Total 1991 $1,570,090 $458,133 $2,028, $2,540,000 $158,178 $2,698, $1,400,938 $536,465 $1,937, $4,376,496 0 $4,376, $1,350,470 $797,437 $2,147, $3,137,059 0 $1,980, $1,254,845 $965,135 $2,219, $2,691,622 0 $2,691, $1,352,936 $1,107,887 $2,467, $2,100,000 0 $2,345, $1,321,582 $868,634 $2,190, $2,651,387 0 $2,651, $1,513,946 $966,245 $2,480, $2,611,000 0 $2,611, $1,570,792 $896,194 $2,466, $2,661,000 0 $2,661, $1,845,161 $968,395 $2,813, $2,711,000 0 $2,711,000 Sales Tax and Equalization Receipts 1991 to ,000,000 5,000,000 4,000,000 4,500,000 4,000,000 3,000,000 3,500,000 3,000,000 2,000,000 2,500,000 2,000,000 1,000,000 1,500,000 1,000, , Equalization Equalization Utilities and B & O Taxes The City charges a tax on the gross receipts of the public and private utilities doing business on Mercer Island. Cities are limited by state law to charging no more than 6% on electric power, gas and telephone utilities. Puget Sound Energy, Washington Natural Gas, US West (Quest), AT & T and a variety of small long distance carriers each pay the city at the 6% rate. Two other major utilities, Eastside Disposal and AT&T Broadband Cable are subject to a 7% tax rate. All non-utility businesses engaged in for profit City of Mercer Island Budget F-7

8 activities on Mercer Island are subject to the City s 0.10% business and occupation tax on their gross receipts less a $150,000 annual exemption. The total utility and B & O taxes make up about 16% of the revenues in Although cities can charge a utility tax on water and sewer utilities, the City of Mercer has not charged such a tax since As can be seen from the chart below, the revenue from the utilities taxes has been growing at a rate averaging about 7% from 1991 to 2002, but with large variability from year to year. Six of the years had increases of 4% or less. Because Mercer Island has had a low housing growth rate, the growth in revenues from the utilities is dependent on rate increases by the utilities and on weather conditions that affect the use of gas and electric heat. Year Amount Year Amount 1991 $1,198, $1,967, $1,214, $2,337, $1,311, $2,409, $1,365, $2,266, $1,440, $2,325, $1,621, $2,695, $1,663, $2,891, $1,687, $3,032, $1,898, $3,188,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Shared Revenues Business And Utility Taxes This revenue category consists of both State shared revenues and revenues from the County and the Federal Government. It comprises about 2% of the total budgeted revenue in After some additional receipts from the State in 2001 and 2002, which have now been discontinued because of the State s fiscal problems, this category has been relatively flat. Below is a brief description of each of the components. Liquor Excise Tax and Liquor Profits - Liquor sales are taxed at the rate of 15% on the sales price for individuals and 11.4% for Class H licenses. Cities and towns split 28% of the total collected based on population. Additionally, 32% of the gallonage tax imposed on sales of wine (75 cents per gallon) is allocated to cities and towns. The profits of the Liquor Control Board F-8 City of Mercer Island Budget

9 are divided among the state, counties and cities (after deducting a fixed amount for alcoholism research). The cities split 40% based on population. In 1994, the city received $9.68 per capita from this source. In 2006 we will receive $6.54 per capita. This decrease has occurred as more cities have incorporated, thereby reducing the amount received by each city. Marine Patrol Revenue Revenue for marine patrol services provided by Mercer Island is included in this category and comes from two sources. First, the City receives revenue from the four cities that contract with Mercer Island for marine patrol services. Second, Mercer Island receives a portion of the vessel registration fee revenue, because it provides marine patrol services. The tax is received by the State of Washington and passed on to the City through King County. Federal Grants When major storms occur and the area is declared a federal disaster site, the City sometimes receives reimbursement for some of the damage. These storms and the reimbursement is variable and impossible to predict. The federal government is becoming more and more restrictive on the activities for which a City can request reimbursement. A 16 year history of state shared revenues received by the City is provided in the table and graph that follow. In 1992 and 1993, the City received revenue from the State to implement the Growth Management Act, which increased the total revenue for two years. In 1993, the City also received $185,513 from the federal government due to a winter storm. In 2000, due to Initiative 695, the City lost $223,191 of Motor Vehicle excise tax that had been programmed in the budget. At the same time the City received $186,558 from new money granted by the State. Because there is so much variability in each of these sources, each individual component of shared revenues is reviewed and then forecast individually. Shared revenues have dropped about 25% from the level they were a decade ago. 16 year history - Shared Revenues Year Amount Year Amount 1991 $768, $568, $795, $844, $997, $785, $764, $461, $718, $468, $652, $495, $676, $494, $710, $487, $665, $529,239 City of Mercer Island Budget F-9

10 Shared Revenue 1991 to ,200,000 1,000, , , , , Licenses, Permits, and Zoning Fees The last of the Cities four largest revenue categories is licenses, permits, and zoning fees. This revenue category consists of all fees related to development, cable franchises, and business licenses. Both single family residential and commercial development continue to be very strong, taxing the resources of DSG staff. Prominent examples of commercial developments that have contributed significant developmentrelated revenues in 2005 and 2006 include Island Market Square, The Mercer, and the Sound Transit Park and Ride. The City is expecting permit and cable franchise fees to continue to be strong in 2007 and 2008 and business license fees to experience a mild increase in total revenues received. 18 Year History Permit Revenues Year Amount Year Amount 1989 $555, $1,068, $543, $1,183, $379, $1,382, $339, $1,193, $324, $1,263, $450, $1,420, $464, $2,098, $552, $2,034, $650, $2,180, $694, $2,199,850 F-10 City of Mercer Island Budget

11 Permit and License Fees 1991 to ,500,000 2,000,000 1,500,000 1,000, , Water and Sewer (Utility) Overhead 1991 to 2008 Another large revenue category is the water and sewer overhead charges. Various General Fund departments perform a variety of administrative services for the city's water and sewer utilities, including accounting, data processing, personnel and legal services. These charges for services are revenue to the General Fund and expenses of the utilities. The charges are based on percentages listed in the Budget Policies section and are approved by the City Council. These charges generally increased from 1987 to 1992, reflecting the upward trend of the General Fund. In , however, the charges dropped because the City changed the way it charged engineering services to utility capital projects. Rather than include engineering services as an overhead charge to the Water and Sewer Utilities, they are charged directly to the capital projects of each utility. During the period from 1995 until the present the charges have remained relatively flat, as the various administrative department budgets have remained relatively flat. The interfund charges follow the formulas listed in the Budget Policy on Interfund Administrative Charges, in section D of the budget. Water & Sewer Overhead to ,400,000 1,200,000 1,000, , , , , City of Mercer Island Budget F-11

12 All Other Revenues All the remaining revenue categories comprise about 11% of the total budgeted resources in 2007 and 10% of the 2008 budgeted resources. Following is a brief description of the remaining categories. Interfund Transfers In - This category includes amounts transferred in from other funds such as the Contingency Fund. For example, in 2006 there was a transfer of $700,000 from the Contingency Fund into the General Fund for LEOFF I long term care reserve. Emergency Medical Service Levy - Beginning in 1990, the city began receiving a portion of the 25 cents that was voted on by the citizens for 911 emergency service. At that time, the city reduced the EMS fee that it charged citizens, so that Mercer Islander taxpayers would pay roughly the same as they did before the new law. In 1996, when the City decided to add 4 new firefighters because of the high volume of aid calls, the fee was increased to help pay for that service. Recreation Programs - This category includes the fees that are charged for recreation programs offered by the city as well as fees charged at the Community Center. The fee structure now in place brings in about 45% of the cost of those programs. See the Budget Policy for Park and Recreation Financing in section D. Interest - The money of the City is pooled for investment purposes. After several years of low interest rates, investment returns began to pick up in 2005 and hit 5.0% in June See the Budget Policy for Investment Earnings in section D. Cash Carryover, beginning Fund Balance Not included in the remaining revenues is the cash carryover that the City may have from year to year. Cash carryovers are transferred out to other funds, typically capital funds after year end. The City has enjoyed excellent cash carryovers the past few years due to the good economy in the Northwest. The disposition of any cash carryover is decided by Council during the year-end financial report. F-12 City of Mercer Island Budget

13 GENERAL FUND Expenditures The General Fund is the general operating fund of the City and encompasses the major activities of the City excluding utilities. The activities of fire and police services, street and park maintenance, development services, court services, recreation services, legal and financial services, and general administration are all included in the General Fund. In this section the expenditures are shown by major functional category.

14 F-14 City of Mercer Island Budget

15 Expenditure Summary Below is a table of General Fund expenditures by category from 2005 through 2008 followed by two pie charts depicting the percentage of each expenditure category relative to total budgeted expenditures in 2007 and Description Actual Forecast Budget Budget USES Budgeted Salaries $ 9,508,517 $ 10,259,018 $ 10,997,320 $ 11,551,500 Benefits 2,485,621 2,619,783 3,377,206 3,675,934 Supplies 597, , , ,426 Contractual Services 1,530,122 1,736,145 1,661,044 1,662,560 Equipment Rental 769, , , ,029 Utilities & Insurance 757, , , ,764 Other Services and Charges 491, , , ,508 Intergovernmental 408, , , ,286 Interfund Transfers 2,561,383 2,021, , ,000 Total Budgeted Expenditures $ 19,110,610 $ 20,173,093 $ 20,588,555 $ 21,489,007 Not Budgeted Ending Fund Balance 2,022,305 2,627,016 2,651,227 2,339,706 TOTAL USES $ 21,132,915 $ 22,800,109 $ 23,239,782 $ 23,828, General Fund Expenditures Interfund Transfers 3.8% Intergovernmental 2.8% Salaries 53.4% Other Services and Charges 3.3% Utilities & Insurance 4.6% Equipment Rental 4.4% Supplies 3.2% Benefits 16.4% Contractual Services 8.1% City of Mercer Island Budget F-15

16 2008 General Fund Expenditures Interfund Transfers 3.7% Intergovernmental 2.8% Salaries 53.8% Other Services and Charges 3.2% Utilities & Insurance 4.6% Equipment Rental Supplies 4.2% 3.0% Contractual Services 7.7% Benefits 17.1% Salaries and Benefits The largest expenditure categories by far for the City are salaries and benefits, with those two categories comprising about 70% of the 2007 budget. Salary costs are driven by cost of living increases and step increases bargained by the City s unions, which cover about 65% of the employees. Included in the salary category are permanent full-time and part-time employees, contract employees, summer labor, and casual labor used by the Maintenance Department and Parks Department. General Fund salaries and benefits are estimated to be a total of $14.4 million in 2007 and $15.2 million in Together, salaries and benefits are up 12% over 2006 projected costs. This increase is largely due to new positions (ongoing and contracted), an average citywide cost of living increase of 4% (due to CPI-W ranging from 3.5% to 5.0%), state retirement rate increases, LEOFF 1 retiree medical cost increases and employee healthcare premium increases. For a more detailed explanation of categories of employees, see the Budget Summary (Section C) and the Long Term Compensation Policy in Section D. Salary and Benefit Costs 1995 to ,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Benefits Salaries F-16 City of Mercer Island Budget

17 Supplies General Fund The supplies category includes most office, operating and maintenance items that employees need to fulfill their job responsibilities. Common examples include paper, printer and copier toner, cleaning supplies, fuel and oil, sand, gravel and fertilizer. As a percentage of total budgeted expenditures this category has consistently hovered around 3.1%. This trend continues in the budget. Utilities The utilities category includes all the major utility costs water, sewer, storm water, electricity and gas. Also included is the cost of dumping waste (e.g. from excavations and cleaning of ditches). For the biennium, the following utility rate increases are expected: 10% for water, 12% for sewer, 3% for Stormwater, 15% for electricity and 11% for gas. Given these significant rate increases, the City continues to promote conservation efforts by all departments. Insurance The City now buys all liability and property insurance through the Washington Cities Insurance Authority (WCIA). The Insurance Authority is mostly self insured for liability purposes and has been building a cash reserve from the member cities over the past 10 years to help keep premium costs down and to provide a higher amount of liability coverage. Because insurance costs in the market place have been inexpensive during the past 4 years, the Authority has been buying insurance for large claims over $4,000,000, which provides a safety net for the pool. Liability claims and defense costs for the pool as a whole have risen considerably in past years. Rates are based on a combination of number of worker hours and the City s previous five-years of liability losses. The rates are determined for WCIA by an actuary our rates will remain at approximately the same levels for the next biennium. In 1993, the City switched its property insurance to WCIA, thereby reducing property insurance costs by 50%. We are expecting property insurance rates to remain at approximately the same levels for the next biennium. Supplies, Utilities and Insurance Costs 1995 to ,000,000 1,500,000 1,000, ,000 Insurance Utilities Supplies Contractual Services This category includes all the individuals and firms with which the city contracts for services. Included are such things as consultants, landscaping services, janitorial, and outside legal services. Also included are the many class instructors used by the Parks and Recreation department. In 1997, this category took a jump as the City began to contract out work for the Storm Water Utility. In 1999 and 2000, work related to the high activity in the Development Services Group drove costs higher. City of Mercer Island Budget F-17

18 Contractual Services 1995 to ,000,000 1,500,000 1,000, , Equipment Rental This category includes "rental and replacement charges" from the Equipment Rental Fund to the departments to operate and replace the City's fleet of vehicles and also from the Computer Equipment Fund to the departments for operating, maintaining and replacing the City s computer equipment. Replacement cost, useful life, salvage value and department needs are assessed biennially for the City s fleet of vehicles and inventory of computers. See the Equipment Replacement Policy in Section D for more detailed information. Equipment Rental 1995 to ,000, , , , , Other Services and Charges This category consists of a variety of miscellaneous payments, including advertising, printing, travel, communications, postage, subscriptions, tuition and registrations, election costs, copying and miscellaneous charges. Intergovernmental This category includes charges for services from other governmental agencies. Examples include mandatory contributions to the King County Alcoholism program and Puget Sound Clean Air Agency and voluntary payments to support the Association of Washington Cities, Suburban Cities Association, F-18 City of Mercer Island Budget

19 and domestic violence agencies and youth programs. Expenditures in this category have typically been quite modest with small increases from year to year. Interfund Transfers Interfund charges consist of two types of transfers: (1) transfers to funds for annual ongoing purposes, or (2) transfers to capital funds for large capital projects. Transfers for annual ongoing purposes come from the general revenues of the City. Transfers that are meant for Capital Funds have typically come from cash surpluses from the preceding year, when either revenues have been greater than expected or expenditures have been less that expected (or both). These year-end surplus transfers are often finalized by the Council when the year-end financial status report is presented by staff in March. An annual transfer of $250,000 is budgeted from the General Fund to the Computer and Technology Fund. This transfer is dedicated to supporting the ongoing needs of the City for technology projects and for the purchase of larger pieces of equipment that are outside the scope of departmental budgets. The remaining annual operating transfer of $465,000 is budgeted from the General Fund to the Youth and Family Services (YFS) Fund in support of ongoing operations. For more detail see the YFS Financing Policy in Section D. City of Mercer Island Budget F-19

20 F-20 City of Mercer Island Budget