TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Update on Current Year Budget and Preliminary Financial Forecast
DATE: January 24, 2000
The following report projects revenues and costs for major funds for the next five years. Based on information now available, we believe a tax rate increase will be necessary in 2000-2001 to continue current services.
Although our projections are based on current services and positions, we must point out that Department Heads may recommend service changes in the budget proposals that they now are preparing. In addition, our projections do not include potential costs related to the possible annexation of the Southern Village area, or potential additional personnel costs over normal compensation adjustments that may be recommended from the current position and classification study being conducted by consultants.
The Council begins the budget process each year by reviewing the Town’s long-range financial forecast as the starting point for budget discussions.
This memo provides an update on the current year budget and includes a revised five-year financial forecast for the Town’s major operating funds. The preliminary forecast reflects changes based on recent revenue receipts and revised estimated revenues for 1999-2000.
The major focus of the update is on the General and Transportation Funds. In addition, we include brief discussions of Landfill, Parking and Housing funds.
Below is a summary of key points of the update, followed by a discussion of the revised forecast for each fund based on the most recent information. The attached tables provide detailed revenue and expenditure projections.
This preliminary forecast expresses the difference between revenues and expenditures as potential tax rate equivalents, with 1 cent of the tax rate on the estimated tax base equal to about $300,000 in 2000-2001. Balancing the budget can be achieved by cost reductions, service changes, other revenue adjustments, a tax rate adjustment, or a combination of adjustments. The final budget will reflect the Council’s decisions on these issues.
·
1999-2000 General Fund
Based on the receipt of major General Fund revenues for the first six months of this year, we believe total revenues for the year will be only slightly higher than originally estimated, with no significant variations in any major revenue source.
·
2000-2001 General Fund
The attached updated five-year financial forecast for the General Fund indicates the difference between revenues and expenditures for 2000-2001 is a tax rate equivalent of 5.0 cents to fund current services and programs and estimated additional costs. The additional costs include debt service on new bonds to be issued in February, and new operating costs related to bond projects.
·
2000-2001 Transportation Fund
Our revised forecast for the Transportation Fund indicates that a continuation of the current level of federal and State assistance estimated for the Transit system would enable us to continue current Transportation services and programs with no increase in the Transportation tax rate and fares.
·
2000-2001 Landfill Fund
For the Landfill Fund for 2000-2001, there are no significant changes to our earlier projection of the need for an increase in Landfill tipping fees of about $1 per ton to continue current operations and recycling programs.
·
2000-2001 Parking Fund
For the Town’s
Parking Enterprise Fund, parking revenues are expected to be adequate to cover
operating expenses and debt service costs for 2000-2001. However maintenance
and improvement costs for the parking deck may require consideration of an
increase in parking fees in future years.
·
Other Funds
Based on current information available for the Town’s public housing programs, we are not aware of any specific proposals that would reduce federal operating subsidies or maintenance funding for these programs.
GENERAL FUND
Update on Current Year Budget
Based on the receipt of major General Fund revenues for the first six months of this year, we believe total revenues for the year will exceed budget estimates by about $60,000 reflecting the following increases and reductions in previous revenue estimates:
· Estimated property tax revenue about $127,000 more than budgeted based on a 98.5% collection rate versus the 98% original estimate.
· Estimated sales tax revenue about $50,000 higher than budgeted due to a larger increase in final sales tax collections last year. We continue to estimate a 5% increase this year.
Other General fund revenues including service charges, grants, licenses, permits and transfers are expected to be equal to budget estimates for this year.
In summary, overall General Fund revenues for this year, based on receipts to date, are estimated to be about $60,000 more than original budget estimates. These estimates are conservative and preliminary at this point in the budget process. We will keep the Council informed of any significant changes in revenue estimates.
Update on Five-Year Financial Forecast (2000-2001 through 2004 -2005)
Attached is an updated five-year forecast for the General Fund based on the assumptions footnoted for both revenues and expenditures. These projections are preliminary at this point in the budget process and subject to change based on final revenues and costs in the current year.
The attached revised forecast (based on assumptions discussed below) indicates the difference between revenues and expenditures for 2000-2001 is a tax rate equivalent of 5.0 cents to fund current services and programs and estimated additional costs as discussed below.
Revenues for 2000-2001
Our revised General Fund forecast indicates no significant changes in revenues for any major sources. We have adjusted estimates to reflect the lower receipts from franchise tax and Powell Bill funds as discussed above.
For most other major revenues, there are no significant changes from our previous estimates.
Assumptions on Basic Costs and Estimated Additions for 2000-2001
Our revised forecast includes the cost of current services and programs with basic assumptions as follows and estimated additional costs as noted.
|
Costs |
Tax Rate Equivalent |
Item/Description |
|
$450,000 |
1.5 |
Additional debt service on new bonds to be issued in February (see discussion below) |
|
|
|
|
|
$300,000 |
1.0 |
Additional funding needed to provide for the full year (12 month) cost of compensation adjustments funded for only 8 months in the current year |
|
|
|
|
|
$175,000 |
.6 |
Additional funding of $145,000 for the full year cost of six firefighter positions funded for six months of the current year, and an additional $30,000 for the full year cost of three positions funded in the current year for 9 months (Stormwater Engineer, Computer System Analyst, and Building Inspector) |
|
|
|
|
|
$600,000 |
2.0 |
Continuing the compensation plan with a 4% to 5% adjustment a to remain competitive in the tight labor market of the current economy |
|
|
|
|
|
$200,000 |
.8 |
Allowance for 3% increase in continuing operating costs |
|
|
|
|
|
$100,000 |
.3 |
Increased funding needed to continue implementation of the vehicle replacement program approved by the Council in prior years. |
|
|
|
|
|
$64,000 |
.2 |
Additional funding for staffing the new fire station in the Southern Village area and in order to be ready for the annexation of this area effective July 1, 200l. |
|
|
|
|
|
$25,000 |
.1 |
Additional General Fund costs for the projected increase in Landfill charges in 2000-2001 |
We note that the assumptions on expenditures in our forecast do not include potential costs related to a possible annexation of the Southern Village area next year. We will be doing additional analysis of this issue over the next few months.
In addition to annexation issues, the financial forecast also does not include potential additional personnel costs related to the position and classification study currently being conducted by consultants as authorized by the Council. We will be reporting on the potential costs related to the consultant’s recommendation in March as the budget process continues.
Additional Debt Service Costs
Our revised forecast includes estimated new debt service cost of about $450,000 next year on the second phase sale of General Obligations bonds scheduled for February 2000. Issuance of these bonds is necessary to continue capital projects approved by referendum in 1996, and in accord with the Council’s approved implementation schedule for these projects.
The increase of $450,000 for new debt service is a tax rate equivalent of 1.5 cents for 2000-2001.
The detailed projections for both revenues and expenditures are included in the attached tables. The General Fund projections are preliminary at this point and subject to change as the budget process continues.
A major issue for the Transportation Fund each year is the level of federal operating and capital grants and State operating assistance for the current year. The final level of funding for the current year is still uncertain at this point and is subject to change. Based on our best estimates to date, we expect to receive about $650,000 in federal assistance, $550,000 in normal State assistance and additional State assistance of $515,000 from a special State appropriation in the current year. It appears now that this appropriation will not be available in future years.
With these assumptions, the revised financial forecast for 2000-2001 indicates that adequate funds should be available to continue current Transportation services and programs with no adjustment in the current Transportation tax rate and fares.
These projections are also preliminary at this point in the budget process and subject to change based on final federal and State funding assistance for the Transit system.
Ownership and operation of the Orange Regional Landfill and enterpise fund is scheduled to be transferred to Orange County effective March 20, 2000. Currently, we continue to administer the fund and provide a financial forecast. Assuming the Landfill continues to operate in a similar manner as in past years, our financial forecast indicates the need for a tipping fee increase of $1 per ton in 2000-2001 to continue current operations and recycling programs. The additional cost of the projected $1 per ton increase to the Town’s General Fund is noted in our projections.
Our review of parking revenues and parking activity for the Town’s off-street parking lots this year indicates that parking revenues will be adequate to cover parking expenses and debt service cost in the current year and in future years. We are now incurring maintenance costs for the parking deck that can be addressed in the short run by using available fund balance in the Parking Fund. Over the longer term, we believe we may need to consider an increase in parking fees to ensure adequate funding for maintenance costs in future years. We will keep the Council informed of any significant changes that would affect the parking facilities.
Based on information available to date, we are not aware of any specific proposals that would reduce current federal operating subsidies, rental income or maintenance funding for the Town’s public housing programs.
Our revised financial forecast focuses on the General and Transportation Funds. The forecast indicates differences between estimated revenues and expenditures expressed as tax rate equivalents.
Potential Tax Rate Equivalents of Needed Revenue
|
|
2000-2001 |
2001-2002 |
2002-2003 |
2003-2004 |
2004-2005 |
|
General Fund Current Services & Programs and Additions* |
5.0 |
1.8 |
2.8 |
1.5 |
1.4 |
|
Transportation Fund |
- |
.4 |
.3 |
.3 |
.3 |
|
Potential total increase per year |
5.0 |
2.2 |
3.1 |
1.8 |
1.7 |
*See section above