FINANCE & ECONOMIC DEVELOPMENT COMMITTEE

Transcription

1 FINANCE & ECONOMIC DEVELOPMENT COMMITTEE MAY 6, :00 AM COUNCIL CHAMBERS FIRST QUARTER FINANCIAL UPDATE TROY WOO, FINANCE DIRECTOR (ATTACHMENT) 2. CITY BUSINESS LICENSE UPDATE TROY WOO, FINANCE DIRECTOR (VERBAL REPORT-NO ATTACHMENT) 3. CITY BANKING SERVICES TROY WOO, FINANCE DIRECTOR (VERBAL REPORT-NO ATTACHMENT)

2 FINANCE & ECONOMIC DEVELOPMENT COMMITTEE May 6, 2015 SUBJECT: 2015 First Quarter Financial Report RECOMMENDATION: Review First Quarter Financial Report STAFF CONTACT: Scott Spence, City Manager Troy Woo, Finance Director ORIGINATED BY: Troy Woo, Finance Department ATTACHMENTS: 1. Revenue/Expenditure Report for the Quarter Ending March 31, 2015 FISCAL NOTE: PRIOR REVIEW: None BACKGROUND: The 2015 first quarter financial report has been completed. The report focuses on the General Fund. The revenue and expenditure summaries are attached. GENERAL FUND EXPENDITURES As of March 31, 2015, total General Fund Expenditures were $7,642,866 or 19.5 percent of the adopted 2015 Budget. This is a total decrease of $4,526,172 or 37.2 percent compared to the first quarter 2014 total expenditure level. Expenditures at March 31, 2014 were 31.9 percent of the total 2014 General Fund Budget. During 2014, the annual transfers occurred during the first quarter, while the 2015 annual transfers have yet to occur. Approximately $3.5 million of utility taxes, $540,000 for fireflow services, and a one-time $1.0 million transfer for the Smart Corridors (traffic controller upgrade) project occurred during the first quarter After removing the impacts of transfers timing differences, the total first quarter 2015 expenditures increased $470,653 or 3.9 percent compared to the previous year. This level of increase was anticipated by the adopted 2015 Budget. Page 1 of 7

3 Although all first quarter expenditure categories show variances from the previous year, only the most significant variances are described below. First quarter transfers-out decreased $3,996,825. The decrease is a result of a timing difference between 2014 and These 2014 utility tax transfers amounted to $3,457,199. The 2014 first quarter transfers also included the $539,626 transfer to the Water Maintenance & Operations fund for fire protection services. A similar level of annual transfers is budgeted and will occur later in The Street fund s first quarter expenditures decreased $949,546 because of a onetime $1 million capital reserve transfer to the Arterial Street fund for the Smart Corridor project. The expenditure summary portion of the attached report details the expense activity by department and fund. GENERAL FUND REVENUES As of March 31, 2015, total General Fund Revenues were $7,736,462 or 19.8 percent of the adopted budget. Last year at this same time, revenues were 28.8 percent of budget. First quarter General Fund revenues decreased $3,250,276 compared to the previous year. The aforementioned annual transfers timing differences had a similar impact on revenues. Removing the impacts of the transfers, the General Fund revenue changes to a positive variance of $505,257 or 4.6 percent. This level of increase is consistent with the overall revenue budget projections. Through March 2015, $138,015 of property taxes has been collected. This is equal to 2.5 percent of the annual property tax budget. Low collection rates are expected during the first quarter. Property taxes are due twice per year on April 30 and October 31, so the majority of property taxes will be collected during those two months sales tax receipts totaled $2,282,071 at the end of March. This is $222,415 or 10.8 percent higher than last year. Please note that sales tax receipts from two of the three months collected will be accrued back to 2014 when the sales activity actually took place. The following table shows the year-to-date top 20 sales tax sources. Year-To-Date Last 12 This Year Last Year % Chg Months General Merchandise Stores $ 532,083 $ 525, $ 1,836,864 Food Services, Drinking Places 220, , ,079 Building Material and Garden 126, , ,944 Sporting Goods, Hobby, Books 161, , ,112 Page 2 of 7

4 Specialty Trade Contractors 115,050 93, ,980 Construction of Buildings 126,516 80, ,161 Miscellaneous Store Retailers 107, , ,678 Motor Vehicle and Parts Dealer 67,968 60, ,198 Telecommunications 76,010 64, ,853 Wholesale Trade, Durable Goods 70,063 56, ,672 Electronics and Appliances 79,956 73, ,998 Food and Beverage Stores 60,900 60, ,961 Repair and Maintenance 55,876 50, ,812 Clothing and Accessories 75,534 55, ,224 Administrative and Support Svc 35,235 31, ,818 Nonstore Retailers 43,984 37, ,146 Professional, Scientific, Tech 38,542 22, ,884 Furniture and Home Furnishings 29,774 31, ,716 Rental and Leasing Services 24,504 26, ,223 Health and Personal Care Store 26,239 23, ,816 $ 2,074,074 $ 1,878,477 $ 7,649,139 The top 20 sources provide 89.8 percent of all sales tax. The largest sales tax category, General Merchandise Stores, is experiencing a 1.2 percent increase compared to The categories related to housing are reporting positive results, which is consistent with the strong single-family residential building permit activity. Sales tax is the General Fund s largest source of revenue, so sales tax collections will continue to be closely monitored. The General Fund business & occupation (B&O) tax first quarter revenues total $585,364 or 31.2 percent of budget estimate. B&O taxes decreased $22,368 or 3.7 percent. This is more likely a timing issue rather than an actual decrease to collections. B&O tax collections have the same basis as sales tax, so B&O taxes are likely to be following the same trend curve. Utility tax collections for the first quarter were $80,030 lower than the previous year. Electricity and natural gas utility taxes experienced the most significant declines. Lower heating consumption during the mild winter is the main contributor to the declines. Utility tax from electricity and natural gas declined $102,913 compared to the previous year. Telephone Utility Tax was $4,381 lower than the previous year. It is assumed that households are eliminating land line phones due to broader use of cellular phones, which reduces overall consumption. The decline to telephone utility tax is slower than past years, so it appears the trend is stabilizing. Utility tax collections from water, sewer, and stormwater increased 4.7 percent, which is consistent with adopted rate increases. Non-business license (includes building, mechanical, plumbing, and electrical permits fees) revenues have been collected at 34.5 percent of the budget estimate. All permit categories, with the exception of gun permits, are experiencing increases. Page 3 of 7

5 There have been 53 single-family residential permits issued as of March 31. This was slightly lower than the 55 single-family residential permits issued during the first quarter of It was projected that 250 permits will be issued by year-end. Based on the first quarter issuances and historical activity, permits are on pace to exceed the projection. Building permit activity is an indicator of future property, sales, and utility tax growth. First quarter transfers-in decreased $3,723,085. The decrease is a result of timing differences between the two years. The transfers were made earlier in 2014 than will be during The following table illustrates the budgeted 2015 General Fund transfers in. Transfer Receiving Fund Amount Rainier Vista Operations from Parks and Open Space Fund Currrent Expense $ 386,147 Museum Operations from Lodging Tax Fund Currrent Expense 48,500 Regional Athletic Complex (RAC) from Parks and Open Space Fund RAC Operations 255,676 RAC Operations and Promotion from Lodging Tax Fund RAC Operations 157,000 Utility Tax Transfer Street Fund 2,218,612 Utility Tax Transfer Capital Equip. 661,204 $ 3,727,139 UTILITY FUNDS First quarter 2015 operating expenditures for the utilities were within projections. After removing the effect of the earlier timing of the capital transfers in 2014, the Water Utility Maintenance and Operations Fund expenditures were $36,056 or 2.1 percent lower in There is not any single line item explanation for the variance in water operations. Wastewater Utility Maintenance and Operations Fund expenditures were $138,189 or 6.0 percent higher in The primary reason for the increase is higher transfers for LOTT revenue collection. The Stormwater Maintenance and Operations Fund expenditures were $16,837 or 3.7 percent higher than the previous year. Similar to water, there is not any single line item explanation for the variance in stormwater operations. Operating revenues for the utilities are meeting projections and consistent with approved rate increases. Total water revenues were $471,802 lower than the first quarter of The 2014 water revenues included the earlier $539,626 transfer in from the Current Expense Fund for fire protection services. Through March 2015, water sales were $55,450 or 3.6 percent higher than the 2014 water sales. Wastewater revenues were $162,549 higher than the previous year. Wastewater sales were $58,897 higher than 2014 and LOTT sales were $89,298 higher than This is consistent with the respective rate increases. Stormwater revenues were $91,963 higher than 2014 and $81,374 of the increase is due to increased Stormwater sales. This is consistent with the adopted Stormwater rate increase. Page 4 of 7

6 CONCLUSION AND FORECAST Significant deficits affected the development of the last three adopted annual budgets ( ). The adopted budgets for these years included significant reductions to traditionally funded programs. Recognizing that the long-term projections predict similar annual deficits, the City Council and staff began the process of developing the City s first Six-Year Strategic Financial Plan. The purpose of the plan is to provide a long-term outlook and perspective on the City s future financial condition. The plan should be a tool that provides information to make short-term budget decisions and the forward insight of the long-term impacts of current policy decisions. The plan will provide a financial model that allows for real time adjustments for flexibility and recognizes that budgets are dynamic documents. The plan is expected to provide guidance for budget actions and policy directives that will address the anticipated deficits. The City Council is expected to provide its final direction for the development of the Six-Year Strategic Financial Plan at its 2015 Annual Retreat. At this early stage of the 2015 budget year, both revenues and expenditures as a whole are occurring as projected. The sales tax collections are exceeding expectations, but the increase does not justify any change of course from the adopted budget or long-range projections. Revenues will be reviewed carefully for significant departures from projections that may warrant City Council action. The first quarter revenue results support the long-range expectation that the 2016 Budget will be challenging. Although some revenues are experiencing higher than expected collection rates, the increases are not enough to offset the expected expenditure growth. Similar to recent budgets, it is expected that the 2016 Budget will be significantly impacted by labor costs. At the same time, the budget is expected to be impacted by the final phase of gambling tax reductions, increasing RAC operations subsidies, end of reserve funding for the street overlay program, and State Budget impacts relating to the McCleary funding mandate. Each of the City s three labor contracts expires on December 31, 2015, so the City s 2016 commitments are unknown. The current contracts include maintenance of benefits and the cost of living adjustments (COLA) equal to 90 percent of the mid-year Seattle/Tacoma/Bremerton CPI-W with a minimum COLA of 2.0 percent and a maximum of 5.0 percent. The medical benefit increases have been lower than projected due to the Association of Washington Cities (AWC) Benefit Trust change to self-insurance on January 1, This change resulted in a 0.0 percent rate increase for 2014 and lowered the long-term rate increase outlook to 7.0 percent. The outlook has improved from the previous 10.0 percent annual increase projections. Despite the unknown provisions of the next labor contracts, it is still expected the cost of labor will continue to be the City s largest expenditure challenge. Labor is the City s most important asset, but also its most expensive to maintain. The most significant long-term impact of the Affordable Care Act is the 40 percent excise tax (Cadillac Tax) on health insurance benefits that exceed a certain threshold. The Page 5 of 7

7 threshold is $10,200 for individuals and $27,500 for families. The excise tax will be imposed beginning in The excise tax would be levied on the amounts in excess of the thresholds. The AWC Benefit Trust estimates the HealthFirst insurance will be subject to the excise tax in As a result, the AWC Benefit Trust Board voted to eliminate the HealthFirst effective January 1, More than 50 percent of the City s employees are covered by this plan, so this is expected to be a major topic of negotiations. On March 13, 2015, the City Council adopted Ordinance No. 1430, which over a three-year period incrementally lowers the gambling tax on card games to 7.5 percent. While the gambling tax reduction is a good compromise to preserve this important tax resource, it did create a revenue reduction that will need to be addressed in Compared to the adopted 2015 Budget, the 2016 gambling tax on card rooms will be reduced by an estimated $37,500. The total projected gambling tax three year reduction is $112,500. In June 2010, the City Council authorized an agreement for the transfer Thurston County s share of the ownership of the Regional Athletic Complex (RAC) to the City. The original 1998 memorandum of understanding provided joint ownership at least through March The settlement amount was $1,825,000, which $200,000 was dedicated for property acquisition within the Woodland Creek corridor for park and/or water right mitigation. The remaining $1,625,000 was to be used for RAC operations and capital replacement. The settlement provided operation and maintenance funding for the years 2009 through 2015 and a capital replacement fund or future operation and maintenance funding of approximately $715,000. During 2014, the Parks Commission reviewed a long-range financial plan prepared by City staff. The RAC long range plan makes a number of recommendations including establishing a reserve fund for the repayment of bonds, revenue enhancements, continuing to use utility taxes to subsidize maintenance and operations, continue to seek lodging tax funds for special events, submit grant applications, and establishing capital replacement funds. The RAC long-term financial plan should be considered during the 2016 Budget development process is final year that the Street Overlay Program is funded through City Council committed reserves. The overlay program will be suspended in 2016 unless new revenues, reduction of other programs, or one-time reserves are reprioritized. Both the State House of Representatives and Senate have released their operating budgets. Highlights of the Washington cities impacts of the House budget proposal include the following: Maintains all current state revenue sharing levels (liquor revenue and criminal justice) Public Works Trust Fund revenues are not diverted, but the City of Lacey does not have any projects on the current loan list Provides $6 million in marijuana tax revenues to cities and counties Page 6 of 7

8 Highlights of the impacts of the Senate budget proposal include the following: Reduces city and county liquor tax shared revenue by $25 million or slightly more than 50.0 percent (projected Lacey reduction is $203,183) $200 million from the Public Works Trust Fund is swept to the operating budget Provides $6 million in marijuana tax revenues to cities and counties Budget negotiations between leadership of the House and Senate are expected to extend beyond the scheduled Legislature adjournment on April 26. It is projected that the City s revenue will grow, but it will not be robust. The General Fund s single largest source of revenue, sales tax, experienced double-digit growth during the first month of the year. However, a significant portion of the increase was generated from construction, which could be one-time in nature. Utility taxes are expected to grow due to rate increases and some population growth, but the increases are not expected to be significant. Property taxes may be increased 1.0 percent plus the amount related to new construction. In 2016, the 1.0 percent revenue limit increase will be $57,074 and new construction. Based on the number of building permits issued so far in 2015, the new construction credit could be larger than projected. Despite positive activity so far in 2015 and a potentially more positive outlook for 2016 revenue expectations, the initial General Fund 2016 Budget will be facing another deficit. The 2016 Budget will be year 2 of the draft 6-Year Strategic Financial Plan. Based on the City Council discussions that have taken place so far, year 2 action plan items are not expected to include severe revenue enhancements or draconian expenditure reductions. However, it is expected that the budget will include difficult decisions. Page 7 of 7

9 City of Lacey Revenue/Expenditure Report Selected Operating Funds March 31, 2015 $35 $30 $25 $20 Millions $15 $10 $5 Revenues Expenditures Budget $ REVENUES General Fund Current Expense Fund 32,655, Amended Actual Budget Percent Budget Revenue Balance Received $ $ 6,963,311 $ 25,692, % Criminal Justice Fund 730, , , % Community Center Fund 530,943 37, , % Regional Athletic Complex Fund 1,055, , , % City Street Fund 2,888, ,663 2,694, % Capital Improvement Fund 1,288, ,961 1,080, % Total General Fund $ 39,148,585 $ 7,736,462 $ 31,412, % Enterprise Funds Water Utility Maintenance & Operations $ 9,839,257 $ 1,739,734 $ 8,099, % Wastewater Utility Maintenance & Operations 13,769,434 3,446,042 10,323, % Stormwater Utility - Maintenance & Operations 2,636, ,354 1,952, % Reclaimed Water Utility Maintenance & Operations %

10 City of Lacey Revenue/Expenditure Report Selected Operating Funds March 31, 2015 EXPENDITURES General Fund Current Expense Fund Amended Actual Budget Percent Budget Expenditures Balance Expended Council $ 272,390 $ 94,574 $ 177, % Contract Services 2,407, ,009 2,049, % City Manager 519, , , % Public Affairs/Human Resources 1,209, , , % Finance 828, , , % City Attorney 583,649 95, , % Common Facilities 1,652, ,022 1,054, % Police 9,001,830 2,282,416 6,719, % PW-Support Services 84,229 19,331 64, % PW-Engineering 2,829, ,573 2,153, % PW-Parks Maintenance 2,541, ,670 2,085, % PW-Facilities Maintenance 451,257 86, , % Community Development 2,186, ,182 1,682, % PW-Water Resources 1,300, , , % Parks & Recreation 2,360, ,974 1,919, % Transfers Out 4,425,785-4,425, % Total Current Expense Fund $ 32,655,581 $ 6,483,781 $ 26,171, % Criminal Justice Fund $ 730,215 $ 161,342 $ 568, % Community Center Fund 530, , , % Regional Athletic Complex Fund 1,055, , , % City Street Fund 2,888, ,083 2,282, % Capital Improvement Fund 1,288,073 58,500 1,229, % Total General Fund $ 39,148,585 $ 7,642,866 $ 31,505, % Enterprise Funds Water Utility Maintenance & Operations $ 9,839,257 $ 1,707,718 $ 8,131, % Wastewater Utility Maintenance & Operations 13,769,434 2,450,051 11,319, % Stormwater Utility Maintenance & Operations 2,636, ,357 2,160, % Reclaimed Water Utility Maintenance & Operations %