The City of Sidney Citizens' Summary Financial Report For the Year Ended December 31, 2013

Transcription

1 THE CITY OF SIDNEY For the Year Ended December 31, 2013

2 For the Year Ended December 31, 2013 The City of Sidney bears a responsibility to be good stewards of the public's money and to properly account 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 fourteen consecutive years and the GFOA's Distinguished Budget Presentation award for fourteen consecutive years. In addition, the City of Sidney 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, 2012, received an unqualified audit opinion. (Often called a "clean opinion", this is the best audit opinion that can be obtained.) The City of Sidney'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. Many interested citizens want less detailed financial information, without rows and rows of numbers and accounting jargon. For them, we have prepared the following report that is intended to summarize the financial activities of the City of Sidney. This report is unaudited. 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

3 In the City's financial reports, all activities are reported in one of two categories: 1) Governmental Activities, or 2) Business-Type Activities. 2 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 City of Sidney's Governmental Activities are funded mainly with municipal income tax dollars. In 2013, the 1.50% City income tax funded about 61% of Governmental Activities. Grants and contributions, primarily consisting of state and federal grants and state-shared taxes, represented the second-largest source at 20%. Governmental Activities Where the Money Comes From Grants & contributions 20% Charges for -Y services 9% Property taxes 4% other 6% Income taxes 61% Table 1: Governmental Activities- Revenue for Years Ended December 31, Income taxes $ 9,996,527 $ 12,120,834 $ 12,833,355 $ 13,508,264 Property taxes 1,451,435 1,478,089 1,180,084 1,064,514 Charges for services 1,826,508 2, 035,348 1,804,099 2,014,471 Grants & contributions 4,743,017 3,81 9,177 5,688,784 3,008,215 Other revenue 1,201,502 1,226,662 1,330,125 1,078,446 Total $ 19,218,989 $ 20,680,110 $ 22,836,447 $ 20,673, $ 14,161,506 1,016,383 2,01 1,376 4,670,910 1,376,296 $ 23,236,471 In the above chart and Table 1, revenues are classified as follows: );> Income taxes: This is revenue from the City's 1.5% municipal income tax. Twenty percent (20%) of these collections are used for capital projects with the remaining 80% being used for governmental operations. )..>- 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 contributions: This category includes grant funds from Ohio Department of Transportation, Ohio Public Works Commission, the CHIP low-

4 };> Public safety and judicial: 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. );> Community development I community 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. 4 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 their net profits. Another source of direct collections is when individual taxpayers complete their annual Sidney tax return and pay additional tax owed. 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. The last national recession resulted in the loss of nearly 20% of the City's tax base from 2007 to Since 2009, the City's income tax collections have steadily returned to near 2007-levels. In 2010, the City's income tax collections were $1.2 million, or 10.7%, over 2009 with the growth due entirely to taxes collected based on the taxable net profits of the City's businesses. In 2011, growth of 6.4% over 2010 was realized. For the year ended December 31, 2012, growth of 4.0% over 2011 was recorded. For the year ended December 31, 2013 annual growth in the City's income tax base slowed to 3.3%. Beginning in 2011 unemployment rates began to drop and withholding receipts increased ending the year 3.7%, or approximately $344,000, over For 2013, taxes withheld from employees rose 5.1% or approximately $508,000 over 20121evels. Taxes withheld by employers on behalf of their employees generally makes up about 75-80% of our total income tax collections Over Percent 2012 Change Direct Collections $2,890,873 $3,318,428 $3,446,126 $ 3,382,790 ($ 63,336) - 1.8% With holdings ~ 9,201,021 ~ 9,545,047 ~ 9,933,400 ~10,441,873 ~ 508, % Total ~:12.091, 894 ~12,863, ~Z5 ~:13, 3Z9, 526 ~13,824, 663 ~ ~~5,:13Z /Q Source: City of Sidney Tax Department, cash basis

5 income housing program, other Community Development Block Grant income, and other grants. Also included are contributions of infrastructure by private developers (e.g., a private developer constructs streets in a newly developed area). ~ Other revenue: This amount includes investment income, gains or losses on the disposal of capital assets, and other miscellaneous revenue. How Your Tax Dollars Are Used 3 Governmental Activities Where Your Tax Dollars Go Streets Other ~ 2 % 16% P~~&4 Polke 9% ~ 38% Judicial~ 5% City of Sidney taxes provide funds to enable the City to provide basic governmental services. About 73%, or 73 cents of every tax dollar, goes to support public safety (e.g. police, fire and judicial). Street maintenance (2%) and parks and recreation (9%) are other significant uses of tax dollars. 30% Table 2: Uses of Income Tax and Property Tax Revenue in 2013 Taxes: Income tax revenue Property tax revenue Total income tax & property tax revenue $14,161,506 1,016,383 $15 177,889 Income taxes and property taxes were spent on: Police Fire Judicial Streets Parks and recreation Community development I community environment Other Total Uses of income taxes and property taxes $ 5,817,741 4,568, , ,469 1,425, , $ In the chart and Table 2 on the previous page, expenditures for Governmental Activities are broken down into these areas:

6 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 $60 per month to the City. This is calculated as: Property Tax Median value of a single-family owner-occupied home within the City of Sidney (a) To determine assessed value, multiply by 35% Assessed value To determine property tax liability, multiply assessed value by effective property tax rate~b) Less: 12.5% rollback Total estimated property tax City of Sidney's portion (c) Paid to City of Sidney Income Tax $ 104,300 The City of Sidney income tax rate is 1.5%. City income taxes are paid to the City where you work. However, if the income tax rate where you work is less than 1.5%, the difference is paid to Sidney. 35% $36, % $1,783 (223) $1, % LZ5 Median family income (a) To determine earnings tax liability, multiply annual income by 1.5% Paid to City of Sidney $51, % tu.6 Total Tax paid to the City of Sidney Property tax $ 75 Income tax 776 Total annual tax $ 851 Roughly $71 per month (a} Source: U.S. Census Bureau (Amer;can Commun;ty Survey ) {b) Source: Shelby County Aud;tor (c) AllocaUon of property tax pa;d ;s: s;dney C;ty Schools (;nclud;ng Jo;nt VocaUonal School) Other tax;ng d;stdcts c;ty of s;dney 80.3% 14.9% 4.8% % Take the monthly amount of roughly $71 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 City of Sidney receive excellent value for their tax dollars. The following list is a sampling of the governmental services provided for about $71 per month:./ Police protection./ Fire protection./ Emergency medical services - covers your insurance co-payments and the total cost for uninsured residents

7 ./ Maintenance, improvements, and upkeep on 110 miles of streets and 18 miles of alleys./ Enjoyment of the extensive city parks system, including 223-acre Tawawa Park, 16 neighborhood parks covering 456 acres, 45 park shelters, 14 tennis courts, 13 baseball fields, 15 basketball courts, 12 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 yard waste collection./ 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. Based on 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. To fund multi-million dollar capital and operating upgrades required by Environmental Protection Agency (EPA) mandates, significant utility rate increases were implemented in Fortunately, Sidney's utility rates were so low compared with area communities that even after these increases the City's rates compare reasonably with area communities. Based on the City of Oakwood's 2013 survey of 63 area communities, Sidney's combined water and sewer was 46th lowest, coming in at 8% above survey average, 19% more than neighboring City of Troy and 6% less than neighboring City of Piqua. 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. 6

8 7 General Fund Most governmental activities (e.g., police, fire, parks) are accounted for in the General Fund. General Fund Revenues & Expenditures* {*lnterfund transfers out are not included) $18,000,000 $14,000,000 $10,000, I~ Revenue (income) Expenditures I General Fund revenue (income) increased by 7.4% in 2013 over 2012, this is a direct result of income tax collections in 2013 which increased 10.9% over General Fund expenditures decreased by 2.1% in 2013 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. By the end of 2013, the cash reserves are at $4.2 million. These reserves, along with budgetary restraint, have enabled the City to continue to provide high quality essential services during strained economic times. General Fund Cash Reserves ~ $6,000, : "' ~ $4,000, = ~ 4i $2,000, :ll >- $ General Fund Days Cash on Hand ""0 t:: ~ 150 -r------~ ,..., ,-10:-:8:: ~ 100 t73~==!:========~7;3 :g u ~ 0+--~---r--.---r---, 10 c I-+-Actual - Minimum Target (73 days) I It is the City of Sidney'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 and expenditures declined, the City has improved its days cash on hand to 108 days at the end of 2013, above the 73 day minimum.

9 8 BUSINESS-TYPE ACTIVITIES Business-type activities are generally those activities that are expected to be self-supporting 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 Fund Cash Expenditures Wages & benefits 37% Contractual & materials 33% Capital outlay 19% Debt service 11% The data in these charts is taken from the City of Sidney budgetary (cash-basis) financial statements and the classifications used are: , );> Wages and benefits. These are the wages, benefits, and Sewer Fund Cash Expenditures payroll taxes associated with personnel assigned to these functions. Wages & ;;.. Contractual and materials. benefits Contractual materials These are other non-personnelrelated operating expenses. 16% Capital outlay. This category is for expenditures to purchase or construct assets with a useful Debt service 18% life of at least two years. Examples are replacement of old water and sewer lines, large equipment items, improvements at the water plant, wastewater plant, or pump stations. );> 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. Further information on the City's long-term debt is provided later in this report. 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.

10 9 In this Water graph, cash balances are shown excluding the cash reserve for the future water source project. The decline in cash on hand during both 2009 and 2010 reflect the negative effect from reduced business consumption, another effect of the national recession on the local economy. Generally, the upward movement in 2011 through 2013 reflects the accumulation of cash for other capital projects. "C c IV ::r: c 0.s:; "' IV () tl) ~ c Water Fund Days Cash on Hand (excludes Water Source Reserve Fund) R:>".> ~<:> ~ ~ ~1), <~ r65 ~ ~ ~ ~ I -Actual - Minimum Target I., c 400 ra :I: c c flj 200 ra 0 flj 100 >- ra 73 c Sewer fund Days Cash on Hand (excludes SewerOEPA Compliance Fund) !-Actual - Minimum Target I Note in this Sewer graph 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. Water and sewer rates Water & Sewer Rates Water and sewer operations are totally financed by user charges. Water and Sewer rates are reviewed annually and adjusted as needed. SIDNEY Troy Average Piqua I Water ~Sewer I

11 The above chart, taken from the City of Oakwood's 2013 area survey of 63 communities, shows that the City of Sidney's combined water and sewer rates are about 19% above Troy's, 8% above the area average, and yet 6% below Piqua's water and sewer rates. 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. 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, 2013, the pooled investments consisted of the following: 10 U.S. agencies and governmentsponsored corporations * Fair Value $ Weighted Average Maturityl.ln years) 0.27 %of Total Pool % Portfolio weighted average maturity** Roughly 3 months DEBT INFORMATION * These include issuers such as Federal Farm Credit, Federal Home Loan Bank, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation. ** The weighted average maturity was calculated using estimated 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" and upgraded the City's bond rating to AA in 2009 and reaffirmed that rating in 2010, 2011 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.

12 11 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, 2013 is as follows: Amount Year of Outstanding Source of Purpose Maturity 12/31/13 Interest Rate repayment Municipal Court Property renovation 2018 $ 910,000 avg 2.0% taxes (Monumental Bldg.) Police & Fire Property prior pension 2022 $290,000 avg 2.2% taxes costs Police facility Property 2024 $4,845,000 avg 4.32% construction taxes Total $6,045,000 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, 2013 is as follows: Amount Year of Outstanding Principal & interest Sources of Purpose Maturity 12/31/13 payments in 2013 repayment Sewer system improvements 2022 $4,570,000 $ 576,931 Sewer revenues Water meter & $216,710 system 2029 $3,504,562 (principal only; 0% Water revenues improvements interest) Sewer system improvements 2037 $4,775,000 $ 304,581 Sewer revenues New water source property 2040 $ 2,447,000 $ 128,896 Water revenues New water source testing Total 2040 $670,000 $15,966,562 $43,1 50 Water revenues

13 12 On behalf of the owners of the Northbrook Mobile Home Park (NMHP), the City received ARRA funding for their new water distribution system improvements. Grant funding is in the amount of $252,000. The remaining $314,160 is a zero-percent, twenty year loan. 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. 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. Principal & Amount interest Year of Outstanding payments in Source of Purpose Maturity 12/31/ repayment Property owner's Sewer system 2025 $590,000 $62,025 payment in lieu of improvements property taxes Water & sewer Property owner's system 2030 $215,000 $ 18,425 payment in lieu of improvements property taxes Total $ 805,000 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 City-wide assessed property valuation. Under this limitation, the City may issue net debt up to $19,539,296, calculated as follows: Assessed value of real and tangible personal property $ 355,259,920 X 5.5% Unvoted debt limit: 5.5% of assessed value $ ,296 By comparison, the City of Sidney has only $6,045,000 of debt outstanding to which this limitation applies; therefore, the City has used 31% of its $19,539,296 legal debt capacity.

14 The City of Sidney 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 City-wide assessed valuation is nearly $10.7 million. With current outstanding debt of approximately $6.0 million, the City has current capacity for additional tax-supported debt of nearly $4.7 million. However, the City has no plans at this time for such additional tax-supported debt. A summary of debt outstanding at December 31, 2013 and 2012 is as follows: 13 December 31 I 2013 December 31 I 2012 Governmental activities Business-type activities $ 6,882,189 $ 7,417, Total Major Initiatives For the Year and the Future: $ 23, $ ,256 While income tax collections in 2013 surpassed 2007 levels for the first time since the recession, the City of Sidney must continue to manage the loss of other revenue sources. Most notably state-shared revenues consisting of Local Government Fund (LGF) distributions, tangible personal property tax reimbursement and estate taxes totaled $1.7 million in In 2011, state legislators balanced Ohio's budget by reducing and/or eliminating those local revenue sources. For Sidney, remaining LGF distributions were about $438,000 for 2013 and beyond barring future State budget reductions. Given the uncertainty of future income tax levels and local government distributions, staffing reductions remain in place. Staffing is at 209 full-time equivalents (FTEs) down from 243 FTE's in Reductions were accomplished through attrition of full-time positions, reductions in seasonal labor, layoffs of some part-time personnel, and an abolishment of four positions, following the reorganization of the Engineering Division. Three positions were added to the Sewer Fund in Those positions are funded by the addition of a new fee charged to every Sidney sewer customer. A significant sewer flow rate increase of 20% was implemented in 2014 to raise the funds to pay for sewer system changes required by the Ohio EPA. The current agreement with Ohio EPA requires certain operating and capital improvements, estimated to cost about $33 million, to be in place by January Staff continues negotiations with the Ohio EPA to delay and/or reduce the necessary expenditures. To the extent, the timing and the actual costs are lower, future rate and fee reductions would be made. A significant water flow rate increase of 29% was implemented in 2014 to proceed with the final design and construction of the new water source, as well as the purchase of water protection area for the new water source. To date, the

15 City has invested over $700,000 in testing and initial water source design and issued bonds totaling $2.54 million dedicated to water source property acquisition. With the reconstruction of Wapakoneta Avenue from 1-75 to Russell Road completed in 2013, efforts have shifted in 2014 to making various traffic safety improvements to State Route 47 from Stolle Avenue to Vandemark Road. This multi-year project will continue in 2015 with various driveway and traffic signal upgrades on State Route 47 from Vandemark to Walnut Avenue. In 2014, preliminary work begins on the reconstruction of Port Jefferson Road and the replacement of the Michigan Street bridge over the CSX railroad, both slated for completion in The majority of these capital projects are grant-funded to leverage local income tax dollars and complete more infrastructure improvements. The relocation and extension of a runway at the Sidney Municipal Airport was begun in 2013 and completed in early 2014 at a cost of over $2 million. The improvements were designed to increase the air traffic flow to and from Sidney and were largely paid for with federal grants. Standard & Poor's acknowledged the City's "strong financial management policies" and upgraded the City's bond rating to AA in Standard & Poor's reaffirmed that rating in 2010, 2011 and City staff and Council are committed to making the financial adjustments necessary to maintain the strong financial position of the City. 14 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