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Home My WebLink AboutApril 3, 2006 Agenda AGENDA CITY OF DENTON CITY COUNCIL April 3, 2006 After determining that a quorum is present, the City Council of the City of Denton, Texas will convene in a Closed Session on Monday, April 3, 2006 at in the Council Work 11:00 a.m. Session Room at City Hall, 215 E. McKinney Street, Denton, Texas to consider specific items when these items are listed below under the Closed Meeting section of this agenda. The City Council reserves the right to adjourn into a Closed Meeting on any item on its Open Meeting agenda consistent with Chapter 551 of the TEXAS GOVERNMENT CODE, as amended, as set forth below. 1. Closed Meeting: A. Consultation with Attorney ? Under Texas Government Code Section 551.071. 1. Discuss legal strategies and alternatives regarding potential litigation concerning street failures in selected subdivisions. ANY FINAL ACTION, DECISION, OR VOTE ON A MATTER DELIBERATED IN A CLOSED MEETING WILL ONLY BE TAKEN IN AN OPEN MEETING THAT IS HELD IN COMPLIANCE WITH TEXAS GOVERNMENT CODE, CHAPTER 551, EXCEPT TO THE EXTENT SUCH FINAL ACTION, DECISION, OR VOTE IS TAKEN IN THE CLOSED MEETING IN ACCORDANCE WITH THE PROVISIONS OF §551.086 OF THE TEXAS GOVERNMENT CODE (THE ?PUBLIC POWER EXCEPTION?). THE CITY COUNCIL RESERVES THE RIGHT TO ADJOURN INTO A CLOSED MEETING OR EXECUTIVE SESSION AS AUTHORIZED BY TEX. GOV?T. CODE, §551.001, ET SEQ. (THE TEXAS OPEN MEETINGS ACT) ON ANY ITEM ON ITS OPEN MEETING AGENDA OR TO RECONVENE IN A CONTINUATION OF THE CLOSED MEETING ON THE CLOSED MEETING ITEMS NOTED ABOVE, IN ACCORDANCE WITH THE TEXAS OPEN MEETINGS ACT, INCLUDING, WITHOUT LIMITATION §551.071-551.086 OF THE TEXAS OPEN MEETINGS ACT. Following the completion of the Closed Session, the City Council will convene in a Special Called Work Session at which the following items will be considered: NOTE: A Work Session is used to explore matters of interest to one or more City Council Members or the City Manager for the purpose of giving staff direction into whether or not such matters should be placed on a future regular or special meeting of the Council for citizen input, City Council deliberation and formal City action. At a Work Session, the City Council generally receives informal and preliminary reports and information from City staff, officials, members of City committees, and the individual or organization proposing council action, if invited by City Council or City Manager to participate in the session. Participation by individuals and members of organizations invited to speak ceases when the Mayor announces the session is being closed to public input. Although Work Sessions are public , and citizens have a legal right to attend, they are not public , so citizens are not allowed to participate in the session unless invited to do so by the Mayor. Any citizen may supply to the City Council, prior to the beginning of the session, a written report regarding the citizen?s opinion on the matter being explored. Should the Council direct the matter be placed on a regular meeting agenda, the staff will generally prepare a final report defining the proposed action, which will be made available to all citizens prior to the regular meeting at which citizen input is sought. The purpose of this procedure is to allow citizens attending the regular meeting the opportunity to hear the views of their fellow citizens without having to attend two meetings. City of Denton City Council Agenda April 3, 2006 Page 2 1. Receive a report, hold a discussion, and give staff direction regarding the City?s Long- Range Financial Forecast. Following the completion of the Special Called Work Session, the City Council will convene in a Closed Meeting to consider specific items listed below under the Closed Meeting section of this agenda. The City Council reserves the right to adjourn into a Closed Meeting on any item on its Open Meeting agenda consistent with Chapter 551 of the TEXAS GOVERNMENT CODE, as amended, as set forth below. 1. Closed Meeting: [**Before the City Council (?Council?) may discuss, deliberate, vote, or take final action on this agenda item posted as an ?electric competitive matter? under the provisions of Texas Government Code Section 551.086(c) relating to ?Public Power Utility? items, the Mayor must first announce the time, and then the Council must then go into a Closed Meeting, and must make a good faith determination, by a majority vote of the members of the Council, that this agenda item that is an ?electrical competitive matter,? that satisfies the requirements of Texas Government Code Section 551.086(b)(3). A vote must be taken. The vote shall be taken during the Closed Meeting and shall be included in the certified agenda or the tape recording of the Closed Meeting.If the Council fails to determine by a majority vote of its members that this particular agenda item satisfies the requirements of Section 551.086(b)(3), then the Council may not discuss, deliberate or take any further action on that agenda item in its Closed Meeting.] A. Deliberations regarding certain Public Power Utilities: Competitive Matters ? Under Texas Government Code Section 551.086 1. Receive competitive public power and financial information regarding the operations and long range financial forecast of Denton Municipal Electric; and discuss, deliberate, consider, and provide staff with direction regarding such matters. C E R T I F I C A T E I certify that the above notice of meeting was posted on the bulletin board at the City Hall of the City of Denton, Texas, on the ________day of ___________________, 2006 at ________o'clock (a.m.) (p.m.) ____________________________________ CITY SECRETARY NOTE: THE CITY OF DENTON COUNCIL WORK SESSION ROOM IS ACCESSIBLE IN ACCORDANCE WITH THE AMERICANS WITH DISABILITIES ACT. THE CITY WILL PROVIDE SIGN LANGUAGE INTERPRETERS FOR THE HEARING IMPAIRED IF REQUESTED AT LEAST 48 HOURS IN ADVANCE OF THE SCHEDULED MEETING. PLEASE CALL THE CITY SECRETARY'S OFFICE AT 349- 8309 OR USE TELECOMMUNICATIONS DEVICES FOR THE DEAF (TDD) BY CALLING 1-800-RELAY-TX SO THAT A SIGN LANGUAGE INTERPRETER CAN BE SCHEDULED THROUGH THE CITY SECRETARY?S OFFICE. AGENDA INFORMATION SHEET April 3, 2006 AGENDA DATE: Finance DEPARTMENT: Jon Fortune ACM: SUBJECT Receive a report, hold a discussion, and give staff direction regarding the City?s Long-Range Financial Forecast. BACKGROUND On an annual basis the City Council receives an updated five-year financial forecast, discusses the associated assumptions and gives staff direction concerning future budgets development. Additional information related to this item will be provided under separate cover. FISCAL INFORMATION The Long-Range Financial Forecast is used to develop future budgets. Respectfullysubmitted: JonFortune AssistantCityManager Finance Department * 21S E. McKinney -I< Denton, TX 76201 (940) 349-8288 " DFW Metro (972) 434-2259 * FlL< (940) 349-7206 MEMORANDUM DATE: March 31, 2006 TO: Honorable Mayor and Members of the City Council FROM: Jon Fortune, Assistant City Manager Jf SUBJECT: Draft 2006 - 2011 Financial Forecast . Council Members, attached you will find a draft of the 2006 through 2011 financial forecast. At first glance you will notice some changes in the format of the document from prior years. The most notable change is that we are providing you much more detailed information and analysis. This information is meant to be a starting point for your discussion on the City's financial future. It is not meant to communicate a final financial outlook as many decisions are yet to be made in the weeks ahead. The City Council is scheduled to review this material in a lunch meeting on Monday, April 3, and, if necessary, at the work session on Aprill!. Per City Council direction, the responsibilities of the City Council Audit Committee have been broadened to include review of City financial matters including the five-year forecast. As such, the five-year forecast was presented to the Audit Committee on March 30. Staff anticipates that by working through the Audit Committee we will be able to refine this report as directed and as new information is developed. In some areas, staff has more work yet to conduct in order to provide you the best and most thorough explanation for certain budgetary issues. Staff expects that this information will generate questions and the need for further analysis in which a response will be provided. As this process continues and more information is developed, staff will provide the information to the City Council. In reviewing the attached information, it will be important to note that many assumptions have been made. No effort has been made at this point to present a five-year forecast that is balanced. In order to develop a more concrete financial picture, staff anticipates working closely with the Audit Committee to develop specific policy recommendations, each of which will impact the forecast, to present to the City Council for consideration. . The five-year forecast is attached along with a list of the current revenue and expenditure assumptions. I have also attached detailed reports on specific components of the plan. These new reports have been developed to help identify specific issues that impact the City's "Dedicated to Quality Service" www.cityofdenton.com Draft 2006-20011 Financial Forecast March 31, 2006 Page 2 financial picture, such as ad valorem tax or debt service. Staff has provided a historical perspective or trend on each issue along with a description of the City's current practice and assumptions used in the forecast. Also included is a policy recommendation on which we will be seeking your direction. . The following issue reports are being provided at this time in a three ring binder. More reports are being developed and will be presented to you throughout the process at which time you can insert them into your binder for future reference. . Ad Valorem Tax (Operations and Maintenance Component) . Sales and Use Tax . Denton Municipal Electric Franchise Fees . Denton Municipal Utilities Rbturn on Investment . General Debt Service Fund . Salary Savings I look forward to visiting with the City Council on April 3 to discuss the current forecast including the issue reports listed abov~. Please let me know if you have any questions. Attachment cc: Howard Martin, City Manager . . . . - ., .. u e o lL ., e :l - '6 c Gl Q. ~ all .! c Gl ~ a= 'C c :l lL E Gl C Gl Cl o X ,.: 9 '" o o N .E o ~ ~ .E ro " ~ '" 0; -0 V o 0_ ~& "-0 i ro " t5 ~ c" u:::e: r..- . --------..--- -...-------1 I" t ..,. ..,. *" "" "" "" "" "" * * * *" *" ..,. *" *" "" "" * ~1 I~ U) 0 0 0 0 0 "" "" "" *" "" "" *" 0 "" 0 N1 ... '" CO ~ '" ~ .... '" 0 0 .... CO ... 0 0 0 0 0 .... '" '" '" 0 ~ 0 '" ~ '" '" '" '" '" 0 ...1 u .. .... CO '" ~ .... "! ": """: 0 0 CO 0 CO '" '" '" '" '" '" '" a> ": CO '" 0 ... ": c .. .,; c:i c:i N 9 '" '" ~ .... N oi o:i oi o:i N o:i o:i o:i o:i o:i ..: '" <ri N <ri '" .... cD -> N '" '" ~ ~ ~ '" ~ .... ~ '" '" .... i~ 0 , ... -'if;:t ...... . 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'Ol ! ;~l ,,'r.;j , c;- o '" ...: '" <0_ ~ I , :.R1 ;:1 NI i 1 i ......"#.1 ~I 01 ~ ~ "' "'- o N .. ~ '" N N o ... ex> ;f!. '" '": - 001/1. '" :.R 0 on "'0 ex> ~ 0 o 0 m N ai Gi. m 0 M 00 _ ... en .. ai ai .. N1/I. "' ... eno "' - on'" "'- wi MM N ... M _ ~ .. - N. .,; ai - W U-' Z 11l :s~ c( c Ill~ o 0 Z- ::0"0 IL :g 0:.2 OU a: '" 11.0 1L<l. c( OJ mE.J :::J~ca ~ ~ Q.l C (/)Q.l~Z ca:::"i)j ~Q)~~ "$:"'11. o 11l 0 ~~<9o:: -(9tlL ~t04. "'0 o.g.ce ce-<cC!) &4::>:~ c~O ooZ Z~W I- Z W :IE W It: :5 a" W C It: ~ we U- Z " :sg' c(a: III .. o c: Z = ~~ II)cc.....aomo .........................ao _ N .. 00 00 00 '" OJ ~ .a 'C c ., Co X W t o .c !!!- ~ > o - o ;f!. 11l '" 11l '" ex> ., c :::i I General Fund Long Range Financial Forecast . ASSUMPTIONS: Revenues: . No property tax rate increase except for CIP related $.02 of the potential $.04 tax increase for Debt Service in 2007-08. . No property tax appraisal or revenue caps. . No new property/sales tax contracts for Economic Development. . Property tax values @ 8% for years 2006-07 through 2008-09, and 6% for years 2009-10 and 20 I 0-11. This is net of existing Economic Development agreements. . Sales tax increase @ 2.5% for all 5 years. This is net of existing 380 agreements. . Franchise Fees - City of Denton Water & Wastewater utilities, & Solid Waste based on revenue. Atmos Energy & CoServ Gas at 5%, Telecommunications (i.e. Verizon, AT&T, etc...) at -5%, TXU and CoServ Electric at 2%, and Cable (i.e. Charter, Grande, etc...) at -8%. . . Electric franchise fee based on $.04 ECA. . No Franchise Fee or ROI payment from Drainage effective 2005-06 and no drainage fee payments from General Fund. . Return on Investment (ROI) based on utility revenue projections. . Increases for individual Fines, Fees, Licenses, Permits, and Misc. Revenues range from 2% to 5%. . Gas well revenues, net of fund balance requirement, are transferred from the General Fund (not Debt Service Fund due to statutory limitations) to a separate fund, except those associated with fees and inspections. Expenditures: . Merit Increases - 2006-07 through 2010-11 there is a pay-for-performance increase budgeted with a 3% average, along with civil service STEP increases. . No funding for Public Safety Meet & Confer. . . No funding for GASB 45 - post employment benefits other than pension. (Health insurance) 3/311062:36 PM Fund Balance: 2 · Position changes that are budgeted: I ACM position eliminated, 2 new positions in Fire effective 2005j06 (per City Council approval- I recruiter & I firefighter), I position transferred from Water Engineering to Streets effective . 2006-07. Five police positions in 2009-10, and Fire Medic Unit positions in . 2010-11. . No funding for existing progression plans. . City's health insuranl cost increase @ 3% for years 1-5. I · TMRS - increase @ 7% for year 2006-07 and 6% for 2007-08. For years 2008- 2011 we are projected to be at the maximum rate. . Gas, oil & diesel incJase @ 7% for 2006-07 and 2007-08 and @ 4% for the remaining years. . Electric increase @IO% for 2006-07 and 5% for remaining years. . Water/Wastewater inLease @ 2% for all five years. I . Solid Waste increase @ 3% for all five years. I · Natural gas increase @ 7% for 2006-07 and 2007-08 and @ 4% for the remaining years. I . · Expenditures include O&M and positions associated with the 2004-2009 CIP. (GO & CO) . Scheduled vehicle replacements only. . 2006-07 includes the Lcond year cost of Compensation & Class Study - $100,000. (First yearbost, $100,000 was included in the 2005-06 budget and is included in the total dperations line item.) . Increase fund balance by)l,% annually until it is 15%. . 3/31/062:36 PM 313112006 2:32 PM REVENUE . "'''il''''~_V_""",''''~''''''''''''O'w,,,",,-'''''~'''''_'~&__' W:';;-;~*~~1S'j,'E.."","i'i,,"'W',r-jP'k'?7z'~w;~n'?~'W!j~~;'~~~5w.-;:. , ,"~<';:i{;'^'i'ili:~"~,'(~;"I~"";:::;'j:e<~b:" ," .", .. ;1m~:YA:E€>REM;~i\:X"(~PER:A:TI€>NS~XN':p?~.:PE~' ,y",.<.,~. ,~",.....,::..;_",.-.",....)~." ~'-.'-' ,-'- "i''''''~-':'''''''':''''''''\:'::{'''/: '-'. "-"'-'.. "., ....,,- ,.' -,0,.,' -. -, - .::'-"".--- .. .:" "-"'-'~:i"""',".'''-'---<'''''''''''' ''''.'''' "'<";"""''-::--';:''~:'.,'!'\':'F:F<,,'j}Z!'.3L'';-; DESCRIPTION The largest revenue source in the General Fund is the ad valorem tax. Denton's ad valorem tax rate is comprised of two components. The first is the operations and maintenance component that is used to calculate revenue for the City's General Fund operations. The second component is the debt portion that is used to calculate revenue to pay the City's general debt service obligations. The two components are accounted for separately. HISTORICAL TREND ANALYSIS The estimated amount for FY 2005-06 is $20,559,837. This amount represents an increase of 15.78 percent ($3,244,049) over the prior fiscal year's actual amount of$17,315,788. . Ad Valorem Tax Trends 35,000,000 30,000,000 25,000,000 f! co 20,000,000 '5 15,000,000 a 10,000,000 5,000,000 0 2001-02 2002-03 2003-04 2004-05 2005-06 Year The State of Texas limits the ad valorem tax rate to $2.50 per $100 valuation. Denton's current tax rate of $.60815 per $100 valuation falls well below this limit. FY 2004-05 incorporated a $.05 cent increase in the tax rate for additional public safety funding and FY 2005-06 included a $.01 cent increase in the tax rate for previously approved capital improvement program projects (Aquatics Fund) as approved in the 2000 bond referendum. Historical 2001-02 2002-03 2003-04 2004-05 2005-06 Tax Rate Distribution General Fund $0.31948 $0.33816 $0.34928 $0.39928 $0.42928 General Debt Service Fund 0.22867 0.20999 0.19887 0.19887 0.17887 $0.54815 $0.54815 $0.54815 $0.59815 $0.60815 General Fund Tax Rate Ratio 58% 62% 64% 67% 71% Debt Service Tax Rate Ratio 42% 38% 36% 33% 29% . 1 3131/2006 2:32 PM Ad Valorem Tax Roll . I Historical Analysis I I %Diff %Diff %Difl' %Diff Certified Roll Cert.Roll CY Prelim CY Cert. Preliminary Certified I vs Prelim Final CWTC:Jlt Yr vsPY vsPY Year Roll Roll Roll Roll VB Prior Yr Certified Final 2005 $5,104,939,244 $ 4,789,376,811 -6,18% N/A 9.47% 16,69% 8,23% 2004 4,695,193,361 4,374,943,831 -6.82% $ 4,425,042,245 8.23% 16,15% 6.38% 2003 4,329,028,561 4,042,202,871 -6.63% 4,112,454,803 9.15% 16.89% 7,62% 2002 3,955,002,177 3,703,412,515 -6.36% 3,755,868,549 9,98% 17.45% 7,63% 2001 3,627,048,363 3,367,292,025 -7.16% 3,440,778,953 10.06% 18.55% 8,31% 2000 3,215,612,879 3,059,636,733 -4,85% 3,108,959,206 15.45% 21.34% 13.17% 1999 2,745,318,419 2,650,120,494 -3,47% 2,703,463,965 12.86% 16.91% 7,89% 1998 2,456,861,503 2,348,198,898 -4.42% 2,456,294,327 2,81% 7.56% 0,92% 1997 2,296,178,202 2,284,127,366 -0.52% 2,326,880,444 7.98% 8.55% 5.26% 1996 2,103,702,352 2,115,313,994 0.55% 2,169,892,097 4.73% 4,16% 3,30% REVENUE FORECAST The certified ad valorem tax roll for flY 2005-06 is $4,789,376,811. This amount represents . an increase of 8.23 percent ($364,334,566) over the prior fiscal year's final tax roll amount of $4,425,042,245. Over a six-year peiiod the average growth for ad valorem taxes has been 8.56 percent. Therefore, the forecasJ assumes an eight percent growth in property taxes through 2008-09 and a six percent grokh for 2009-10 and forward. I I Future Ad Valorem Tax Collection 35,000,000 I 30,000,000 I I!! 25,000,000 .!! 20,000,000 '0 15,000,000 a 10,000,000 5,000,000 0 I 2006-07 2007 -D8 2008-09 2009-10 2010-11 I Year FY 2007-08 assumes a $.02 cent tax late increase for the general debt service component. This represents the first tax rate incr~ase incorporated in the 2005 bond referendum. The referendum included up to a $.04 ceJt tax rate increase for capital improvement program projects. The forecast does not incl~de an increase for the general fund operations and maintenance component of the tax ratb. . 2 3131/20062:32 PM Tax Rate Distribution 2006-07 2007 -08 2008-09 2009-10 2010-11 . Forecast General Fund $0.42928 $0.42928 $0.42928 $0.42928 $0.42928 General Debt Service Fund 0.17887 0.19887 0.19887 0.19887 0.19887 $0.60815 $0.62815 $0.62815 $0.62815 $0.62815 General Fund Tax Rate Ratio 71% 68% 68% 68% 68% Debt Service Fund Tax Rate Ratio 29% 32% 32% 32% 32% ISSUES Currently, property appraisals on homesteads and apartments can increase by as much as 10 percent each year. There is no cap on businesses. Over the past several years, proposed legislation has been introduced to lower or set a cap on homestead, commercial and apartment property. Changes to the current cap amount would have a significant impact on the City's property tax revenue. It is estimated that a reduction to a five percent cap rate would reduce the City's tax levy by over $600,000. Cumulatively over a five-year period this would result in a loss of over $11 million dollars and $50 million over a 10-year period. The current forecast assumes no legislative changes to the cap on homestead, commercial and apartment property. . The City of Denton established a tax abatement policy to encourage the development of new and expanding industries, corporate office headquarters, and distribution centers. The first tax abatement application was approved in 1998 to United Copper. Since then applications have been approved to Paccar, Flowers Baking Co., and Granite Properties. The City has also approved tax rebate agreements to Sally Beauty and Fastenal, Co. For FY 2005-06, the amount abated/rebated is $107,958 or .4 percent of the total ad valorem tax collections. See Attachment A for complete details. Infrastructure improvements required for these agreements are not included in this analysis. . The City of Denton receives various revenues from gas wells located within the incorporated limits of the City and on City-owned property. These revenues originate from: royalty interests, lease bonuses, surface use agreements, ad valorem taxes, sales and use taxes, fire inspections, platting services, road damage assessments, and watershed protection permits and inspections. The v'olatility of these revenues also limits their usefulness for on-going City operations but makes them suitable for one-time projects. Revenues originating from platting and fire inspection activities are recorded in the City's General Fund as payment for those specific services. Revenues from road damage assessments are recorded in the City's General Aid-in-Construction Fund and used to repair streets damaged by gas well operators. Revenues from watershed protection permits and inspections are recorded in the City's Wastewater Fund as payment for those specific services. Revenues from gas wells on the City's Municipal Airport (i.e., royalties, lease bonuses and surface use payments) are recorded in the City's Airport Gas Well Fund. This fund was created for one-time needs. Gas well revenues from ad valorem taxes, sales and use taxes, and non-airport gas well royalties, lease bonuses and surface use payments are recorded in the City's Non-Airport Gas Well Fund. This fund was created to fund one-time projects specifically identified by the City Council. 3 3131120062:32 PM A 2003 amendment to the Texas Constitution provides that a city may freeze the homestead taxes of persons over the age of 651 a~d the disabled. This amendment is similar to the current mandatory freeze on school district taxes. The City Council may elect to enact the freeze; however, an election must be talled by the City Council if it receives a petition signed . by five percent of the registered v'oters in the city. Once enacted, the tax freeze is permanent. During tax year 2004, I the property demographics reflected 3,399 over-65 parcels and 624 disabled parcels. The average home value of citizens that qualified for the tax freeze was $121,381 and the avedge tax bill was $546. If the freeze is enacted, a person over 65 or disabled who currently pJys $546 in city property taxes would never pay more than that dollar amount during the ~erson's lifetime, or during the lifetime of a surviving spouse. It is anticipated that an annukl increase in the tax rate would be needed in order to yield the same amount of projected ti.x levy. Based on an analysis conducted in 2005, it is estimated that enactment of the hon\.estead freeze of persons over the age of 65 and the disabled would reduce the City's tax l.ivy by over $200,000 during the first year. Cumulatively over a five-year period this would resillt in a loss of over $1.9 million and $7.7 million over a 10-year period. The current forecast does not included the enactment of the homestead freeze of persons over the age of 65 abd the disabled. CURRENT PRACTICES Ad valorem tax revenue is budgeted at 100 percent collection of the certified tax roll. This has proven to be a good budgeting tdol due to the supplemental tax rolls that are added to the tax base each month. For tax yea\: 2004 ad valorem collections were $26,016,239. This , amount represents a decrease of .59 percent ($152,488) from the certified tax roll of $26,168,727. However, over a six-tear period the average annual tax collections were $19,460,210. This amount representS an average increase of .12 percent ($8,512) over the average certified tax roll. . The governing body of a taxing unit that collects its own taxes may elect to adopt a split payment of taxes. This allows a person who pays one-half of the current taxes amount before December 1 to pay the remaibing one-half of the taxes without penalty or interest before July 1 of the following year. I The City of Denton originally approved the split payment option in 1966, with amendments in 1989. The Property Tax Code allows for exemptions or reductions to the taxable value of properties. Taxpayers must submit an application to the Denton Central Appraisal District for consideration. The Chief Appr~ser determines the validity of each application for exemption filed and notifies the taxing unit of his determination. The City of Denton currently offers the following exem~tions: Homestead (10 percent or $5,000), Over-65 ($25,000), Disability ($10,000) and Vetbran Disability ($5,000 to $12,000). The Property Tax Code also allows f1 the installment payment of certain homestead taxes. A disabled or over 65 years of age individual that has qualified for such exemption with the Chief Appraiser pays at least one-fokth of the current tax imposed on the property by January 31", owns and occupies it aJ a residence homestead, and provides notice to the taxing unit that they will pay the rembg taxes in installments. That person may pay the remaining taxes without penalty or in\erest in three remaining equal installments. The first installment must be paid before Aprill ", the second installment before June 1" and the third and final installment before August 1"~ If the individual fails to make a payment before the . applicable date, the unpaid amount is delinquent and incurs a penalty of six percent. 4 . 3131120062:32 PM Property taxes, both real and personal, that remain delinquent on July 1 of the year they become delinquent, are imposed an additional penalty of 20 percent on the amount of delinquent taxes, penalty and interest due. The 79th Legislative Session recently added a new statute, Section 33.11 of the Texas Property Tax Code, allowing taxing units to impose an additional attorney fee collection penalty against delinquent personal property taxes earlier than the current July 1 date. The additional penalty can be imposed on the later of the date the taxes become subject to the attorney's contract (July 1) or 60 days after (April 1) the date the taxes become delinquent (February 1). In addition, the amount of the penalty may not exceed the amount specified in the contract with the collecting attorney. The City Council approved a resolution on March 7, 2005 that will allow the City to implement the provisions of Section 33.11, Texas Property Code and collect an additional early collection cost penalty for delinquent personal property taxes. POLICY RECOMMENDA TrONS It is recommended to follow the current five-year forecast. This plan provides for the following assumptions: . 1) Anticipated eight percent growth in property taxes through 2008-09 and a six percent growth for 2009-10 and forward. 2) Ad valorem taxes are budgeted at 100 percent of the July 25'" Certified Taxable Value. 3) No tax rate increase to the operations and maintenance component of the tax rate. 4) No legislative changes to the tax cap on property homestead appraisals. 5) No tax-freeze for persons over the age of 65 and the disabled. 6) No additional tax abatements or rebates. Additionally, this assumes that tax rebates are funded from the Operating and Maintenance Component of the tax rate only. 7) No changes to the current exemption levels. 8) The of Ad valorem tax revenue from gas wells will be transferred from O&M to the Non-Airport Gas Well Fund, net of fund balance requirements. The projected amount for FY 2006-07 is $227,167. This amount will be "trued-up" as actual collections are recognized. 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" m ~ . ;; ; ~~ .. 0 , . . <D . ~ . g 0 . . . .. " ~ il " ~ ~ " ;; ." ~1! u ~ . , " ~ 0 ~ e ~ ~ " . . 0 . . .--- - . . 313112006 I :49 PM REVRNUE-- ---- DESCRIPTION Tax imposed on all retail sales, leases and rentals of most goods, as well as taxable services. A sales tax is imposed on the sale of tangible personal property or taxable services as determined by Texas tax law, unless a specific exemption applies. A use tax is imposed on tangible personal property purchased with a resale certificate or exemption certificate, or from an out-of-state retailer but then consumed/used by the purchaser. The tax rate for the sales tax and use tax is the same. The total overlapping sales tax rate in the City of Denton is 8.25 percent. The following is a breakdown of the sales tax rate: 1. State of Texas - 6.25 percent 2. Denton County Transportation Authority - 0.5 percent 3. City of Denton - 1.5 percent a. Regular Rate (1 percent) b. Property Tax Relief (0.5 percent) The City's regular rate, for general purposes, was effective as of April 4, 1968. The property tax relief rate was effective as of October 1, 1994. mSTORICAL TREND ANALYSIS The estimated amouot for FY 2005-06 is $19,398,878. This amouot represents an increase of 2.1 percent ($400,820) over the prior fiscal year's actual amouot of $18,998,058. From the period beginning with FY 2001-02 to FY 2004-05, the city' has experienced an average annual growth of 6.2 percent. This growth rate is net of economic development agreements. Sales Tax Collection History 25,000,000 20,000,000 l!! 15,000,000 .!!! '0 10,000,000 c 5,000,000 0 2001-02 2002-03 2003-04 2004-05 2005-06 Year s. I 3/3la006 1 :49 PM -.--- - ISSUES Over the last couple of years, four rebate agreements have been granted but only two, Denton Crossing and Triad Hospital, have been inillitted (see Attachment A). In FY 2004- 05, these agreements represented $411,005, or 2.1 percent of the City's gross sales tax collections. For FY 2005-06, these agreements are estimated to be $770,000, or 3.8 percent of the City's projected gross sales tax collections. As of January 31, 2006, the City's net sales tax revenues are 8.7 percent over the prior fiscal year and 6.5 percent over the current fiscal year's budget (see Attachment B). Although this is a positive trend, a review of the last four fiscal years reflects that sales tax collections tend to decrease in the last two quarters of the fiscal year compared to budget. This trend is attributable to the volatility of this revenue source and the unreliability of forecasting this revenue with only six months of collections. .. On January 24, 2006, the City of Fort Worth approved a 32-year economic development agreement with Acme Brick Company. The significance of this agreement is that Acme has designated the City of Fort Worth as their "place of business of the retailer," which will allow them to route all orders through th.eir Fort Worth Corporate Headquarters. By doing this, with certain conditions, Acme may be eligible for a 100 percent sales tax rebate of sales tax revenues attributable to the City of Fort Worth's one-percent general sales tax rate. Designating their Corporate Headquarters as their "place of business of the retailer," will result in a decrease in sales tax revenue to other municipalities. In the City of Denton, the decrease has been estimated to be $300,000 per fiscal year. Future Sales Tax Collection Estimates 22.500.000 22.000.000 - 21,500,000 . I!! 21,000,000 .!! 20,500,000 '0 0 20,000,000 - 19,500,000 19,000,000 18,500,000 2006-07 2007-08 2008-09 2009-10 2010-11 Year CURRENT PRACTICES . During the development of the FY 2005-06 budget, the adopted approach to forecasting sales and use tax revenue was restructured to a more conservative approach. At that time, sales and use tax revenue was projected to grow, net of rebate igreements, by 2.5 percent over the estimate for FY 2004-05. 2 --.- -- -- . . . 313112006 1 :49 PM The current projection does not include an)' new rebate agt:eements nor does. it include a reduction due to Acme Brick. This City of Fort Worth's agreement with Acme Brick has been referred to the City of Denton's Legal Department for a legal opinion as to its validity. The current projection does include the transfer of sales tax revenue attributable to gas well- related activity in the City into a separate fund. Per the City Council's .!iirection, staff transferred $85,074 to the City's Non-Airport Gas Well Fund. This amount reflects sales tax collections from October 1, 2001 to December 31, 2005. The City's Non-Airport Gas Well Fund was created to fund one-time projects and to eliminate the funding of on-going City operations with these one-time revenues. . POLICY RECOMMENDA nONS The assumptions include: 1. FY 2005-06 estimate equal to budget; 2. No reduction due to loss of Acme Brick Company; 3. Reclass of gas well related collections to the Non-Airport Gas Well Fund; 4. A 2.5 percent growth rate, which is net of current sales tax rebate agreements; and 5. No new 380 Agreements. I. 3 -. . . ATTACHMENT A CITY OF DENTON --- - _.--- ECONOMIC DEVELOPMENT AGREEMENTS SALES TAX REBATES Company Denton Crossing Triad Hospital (Presbyterian) Teasley Partners Unicorn Lake 3/31/20061:51 PM Agreement Term 15 Years 5 Years 15 Years 15 Years Agreement Years FY 2004-05 to FY 2019c2020 FY 2003-04 to FY 2007-2008 FY 2004-05 to FY 2019-2020 FY 2004-05 to FY 2019-2020 Incentive 0.5% 1.0% 0.5% 0.5% Page 4 -.-- << >- z w ~ << . 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This is consistent with the treatment of other utilities that serve customers located within the city limits of Denton. DME's franchise fee is calculated as four (4) percent of the sum of its rate revenues and its miscellaneous revenues. HISTORICAL TREND ANALYSIS The amount of DME franchise fee payment to the general fund was $4,838,568 for FY 2004-05. The FY 2005-06 general fund budget included a DME franchise fee payment of $4,745,179, which was based on DME's revenue forecast. In February, DME estimated that its franchise fee payments would be over $6 million. As of March 27, 2006, it appears that the figure will be somewhat less than $6 million due to recent trends in the price of natural gas. ISSUES There are two issues related to DME's franchise fee payment to the City's General Fund. The first issue is the method used to calculate DME's franchise fee payment. As stated above, the franchise fee from DME to the General Fund is calculated as four (4) percent of the sum of DME's rate revenues and miscellaneous revenues. DME's rate revenues include both the base rate revenues and Energy Cost Adjustment (ECA) rate revenues. The ECA represents the variable cost of energy purchased by DME and delivered to its customers. Although various factors impact DME's ECA rate, one factor is the cost of natural gas. In today's market, the cost of natural gas has become very volatile. Consequently, this has impacted the stability of franchise fee revenues to the General Fund and this is the second issue under consideration. CURRENT PRACTICE In light of the City's current practice for calculating DME's franchise fee payment to the City's General Fund, Attachment A has been provided to illustrate other methodologies. The attachment includes a franchise fee based on an ECA rate of $0.06 and $0.04, and based on TXU Electric's current rate per KwH ($0.002829). Also, the attachment provides the current year's estimated franchise fee, which is based on the current method of calculation. 3/31120062:38 PM POLICY RECOMMENDATIONS . On 3/30/06, the Audit Committee recommended that City staff bring back to them a thorough analysis of this issue as it pertains to DME's rate stabilization fund. Once the analysis by City staff and review by the Audit Committee have been completed, a recommendation will be presented to the entire City Council. . . 2 co ;; co "':;; OCO'" 000 ON'" <ll"- "''''''' '" ~ '" "'0'" .... '" 0 "'.... ~ "''''~ '" ...'" "''''... ~ '" '" "'", ~ " "":L6r-: ~ ~.n ""':oN' ~ ..f M "- .. 0 <ll "I . - "''''0 '" ~ '" "'''I.... ... M '" ~ " <ON'" <ON'" CO....M q '" ..." <D 0 <ll McDa) riLOai MM"': ~ N ~ 0 '" 0 .,,,,. '" "''''''' "''''''' ~ ~ 0 >- ~ ~ u.l>. C; ;;; ....<DM .... <OM ...."'0 0- M M "'0'" "'... '" "'...'" '" '" 0 0 " "''''.... '" ~ '" '" '" .... .... '" '" ~ r-:......- al ,...:.....: ..; "':,....-Ili .,; M M a, <ll - "'...'" 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U. a:: .!l $ 0 0> '" <ll " "I c: c: "' c: '" <0 ... c:::> 0 .. .. :c <ll <ll 0 <ll 0 "X d a:: a:: <ll "' "I E 0 S 0 Sf- " " E '" 0 ::> ::> c: "" 0 1;; "' CII , 0 X X '" 1;; <ll 0 <ll <ll Q) Q) <ll Q) ci l- f- It Q) <ll > Q) > Q) > Q) > Q) Q) .<!l .so u. .so u. .so u. Q) .so u. u. Q) Q) c: Q) " Q) " ,s Q) 1ii c: c: Q) " " U c: <ll "' . 0 "' 0 "' 0 "' c: c: c: .<!l 0 "' :c 0:: c: :c c: :c c: :c e Q) Q) 5: c: :c " " U S " u S " " S ~ ~ " " c: ::> c: c: c: ~ ~ ~ 0 c: S '" ~ " ctl " l!! " .. a; " l!! It 0 0 It 0 C C C 0 It a:: f- a:: u. f- a:: f- m a:: u. f- . . . REVENUE . ,IDE-Nffll!>NJWOOiN,I@FP DESCRIPTION Fees imposed on the City's municipally owned utilities as a return on the net investment (ROI) in the utility system. This fee mirrors the private sector's practice of returning benefits (profit) to an investor relative to the cost of their initial investment. The ROI is comparable to return on common stock equity, return on equity and return on sales. In the City of Denton, the investors in the municipally owned utilities are the citizens. The City's municipally owned utilities include Denton Municipal Electric, Denton Municipal Water and Denton Municipal Wastewater. HISTORICAL TREND ANALYSIS The estimated amount from all utilities for FY 2005.06 is $4,587,527. This amount represents an increase of 2.4 percent ($107,783) over the prior fiscal year's actual amount of $4,479,744. . Fee Collection History 4,800,000 4,600,000 E 4,400,000 ~ 4,200,000 'a 4,000,000 c 3,800,000 3,600,000 3,400,000 ----- 2001-02 2002-03 2003-04 2004-05 2005-06 Year ISSUES ROI payments are computed as follows and in accordance with Section 12.03 of the City' Charter: "the 'Net Investment' figure used in these computations shall be taken from the independent audit of the utility systems for the last fiscal period. The city shall be entitled to receive annually on the net investment from excess revenues, if any, not more than six percent of the net investment." Attachment A has been provided showing the last few years of history of this fee by Utility. . I In FY 2004-05, the City Council directed City staff to no longer charge ROI, and Franchise Fees, on the City's Drainage system. In return, the General Fund was exempted from paying the City's drainage fee. . The projected revenue to the General Fund assumes a continual increase over the next five years. These projections are based on projected revenues from all utilities and represent a 4.5 percent average annual increase. Projected Revenues 6,000,000 5,500,000 E ~ 5,000,000 c --- 4,500,000 4,000,000 2006-07 2007-08 2008-09 2009-10 2010-11 Year CURRENT PRACTICES Prior to 1997, ROI payments were calculated as six (6) percent of the fixed assets of each utility. In 1997, the ROI payment calculation for each utility was changed to three and a half (3.5) percent of gross revenues. The purpose of this change, while maintaining revenue neutrality for the General Fund, was to equally distribute the burden of this fee among all three utilities. As illustrated in Attachment A, the City's Water Utility held about fifty-one (51) percent of the utility system's net fixed assets in FY 2004-05. The Electric Utility held about twenty-four (24) percent and the Wastewater Utility held about twenty-five (25) percent. However, in FY 2004-05, the Electric Utility generated seventy-one (71) percent of the utility system's gross revenues while Water generated seventeen (17) percent and Wastewater generated twelve (12) percent. . Denton Municipal Electric: In 2001, the City Manager directed the Finance Department to cap Denton Municipal Electric's Energy Cost Adjustment (ECA) revenue at two cents for purposes of this calculation. The purpose of this directive was to alleviate the City's electric customers from paying higher electric rates, which are driven by the cost of natural gas prices. Below is the projected revenue from DME's ROI payment to the General Fund: . 2 . Projected Revenues 3,800,000 3,600,000 ~ 3,400,000 ;3 3,200,000 3,000,000 2,800,000 --------- 2006-07 2007-08 2006-09 2009-10 2010-11 Year Denton Municipal Water: The City's Water Utility holds the largest share of the utility system's fixed assets, However, it also has a disproportionate ratio of revenues to fixed assets, which the other two utilities do not, Below is the projected revenue from Water's ROI payment to the General Fund: Projected Revenues . 1,200,000 1,000,000 ~ 800,000 .!l! 600,000 "0 c 400,000 200,000 o 2006-07 2007-08 2008-09 2009-1 0 2010-11 Year Denton Municipal Wastewater: Below is the projected revenue from Wastewater's ROI payment to the General Fund: . 3 Projected Revenues . I!? .!l! '0 c 1,000,000 950,000 900,000 850,000 800,000 750,000 700,000 2006-07 2007-08 2008-09 Year 2009-10 2010-11 POLICY RECOMMENDATIONS The following assumptions are included in the long-range forecast: 1. ROI for all utilities on a 3.5 percent of gross revenues basis 2. Capping DME's ECA rate revenue at $0.02. . . 4 <( f- Z W ~ <( c w E c 0; > o <!J " 0; c W 0. <!J '" oU ;13 ~~o....,. @o..~g .f'='g5~ 0.... _~~m ~E E 0 t;U ~~ c c o c 5 0:; '" ~ :5 . 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N" -= '" '" '" on ..,. 0_ .,. lIla2 ~ ctl QJ o U '" e-o:2 a.~"O EE~ ..:.::: .;:: u: ~E 00" :s:uz March 23, 2006 2:31 PM REVENUE . t,1!,t:t0\:'~'?~':1i:;~~~~J/fij~~:;Xn>,i~c'~1&Z:,':rtJf~;Yr;::St.Y""F<~Y:lj:\'_f"_)'.f.:..t:\~A,i -, - 'j - sl''jj,.n!:.;.\ -,Y. l <1 -~ '""v_ k 1.'1.<- -- $/,\ ,31;.", ~~,-"~,,.~\l; ;J -4 M:J."fi"" 'fGENE~~:DEBT~-'SERV1CE' FUND-" ':', ';~:;~;~;-:s~:~;';}~~~~~:~:i2.~:il-;?~fi;Y:7:;{~~1fj~'0(;.:?}--:1~~~~~~~~~~~1;~~+~':{t~~~~_~;-~~~~~~~';t~~- DESCRIPTION The General Debt Service Fund is used for the accumulation of resources for payment of tax supported debt principal and interest that the taxing unit anticipates to incur, From the collectible portion of the Ad Valorem Tax Levy, an allocation of revenue funds is divided for general fund operations and maintenance and the general debt service fund, Additional resources include interest income and internal transfers. Bond proceeds resulting from the issuance of debt are accounted for separately to facilitate arbitrage tracking and reporting, as well as, project management. HISTORICAL TREND ANALYSIS The estimated revenue amount for FY 2005-06 is $8,566,758 from property tax collections, This amount represents a decrease of 1.54 percent ($133,693) from the prior fiscal year's actual amount of $8,700,451. This change in collections is due to the $,02 shift in tax rate from the Debt Service component to the Operating and Maintenance component for expenses related to current Capital Improvement projects. . Debt Service Fund History 16,000,000 . 14,000,000 12,000,000 I!! 10,000,000 ~ 8,000,000 '0 6,000,000 c 4,000,000 2,000,000 0 2001-02 2002-03 2003-04 2004-05 2005-06 Year The State of Texas limits the ad valorem tax rate to $2.50 per $100 valuation, Denton's current tax rate of $,60815 per $100 valuation falls well below this limit. Denton's bonds currently have the following ratings: Moody's (Aa3) and Standard & Poor's (AA-) Tax Rate Distribution 2001-02 2002-03 2003-04 2004-05 2005-06 General Fund $0.31948 $0.33816 $0.34928 $0.39928 $0.42928 General Debt Service Fund 0.22867 0.20999 0.19887 0.19887 0.17887 $0.54815 $0.54815 $0.54815 $0.59815 $0.60815 General Fund Tax Rate Ratio 58% 62% 64% 67% 71% . Debt Service Tax Rate Ratio 42% 38% 36% 33% 29% I March 23, 2006 2:31 PM REVENUE FORECAST . The forecast assumes an eight percent growth in property taxes tluough 2008-09 and a six percent growth for 2009-10 and forward. Additionally, fiscal year 2007-08 assumes a $.02 cent tax rate increase, This represents the first tax rate increase incorporated in the 2005 bond referendum. The referendum included up to a $,04 cent tax rate increase for Capital Improvement Program projects. Future Trends 16,000,000 14,000,000 I!! 12,000,000 10,000,000 ~ 8,000,000 "0 6,000,000 c 4,000,000 2,000,000 0 2006-07 2007-08 2008-09 2009-10 2010-11 Year Tax Rate Distribution 2006-07 ~!200JJd8~ 2008-09 2009-10 2010-11 General Fund $0.42928 928 $0.42928 $0.42928 $0.42928 . . General Debt Service Fund 0.1788 0.19887 0.19887 0.19887 $0.60815i~$OT628)t5' $0.62815 $0.62815 $0.62815 General Fund Tax Rate Ratio 71% 68% 68% 68% 68% Debt Service Tax Rate Ratio 29% 32% 32% 32% 32% ISSUES The debt service fund is the primary revenue source for the Capital Improvement Program for such projects as streets, parks, airport, and other general government projects. The 2005 bond referendum provided the basis for the 2005-10 Capital Improvement Program and represents the City's five-year phln for infrastructure development. A review of the Capital Improvement Program is needed each year to reflect changing priorities and unforeseen needs, The program provides a framework for identifying capital requirements, planning the impact of capital projects to operating budgets, and scheduling and coordinating related projects. The 2005-10 Capital Improvement Program is summarized below. . 2 March 23, 2006 2:31 PM . Mise Paving Fire Station #7 7 Multi Modal Station 8 Runway Extension Crematorium 10 City Hall East Renovation II HV AC Replacement Program 12 Public Safety Training Facility 13 Roof Replacement Program 14 Public Safety Radio Upgrade 15 Replace Fire Engine 16 Airport Western Development 17 Replace Fire Quint 18 Flooring Replacement Program 19 Motor Pool o Solid Waste 1 Total Certificates of Obligation 1,500,00 1,550,000 -1!'';;v $7,050,OOO'0;r..r:*",;.~.~~9~.9 . ~'''~~:''1!~ . -Lu~qy~J<A7..-"'0j 2,500,000 500,000 550,000 8,200,000 500,000 250,000 2,500,000 500,000 500,000 800,000 400,000 1,500,000 1,300,000 1,500,000 1,486,500 876,500 641,500 $14,186,500 $5,176,500 $5,141,500 . 22 TOTAL $12,050,000 $20,790,000 $25,586,500 $15,076,500 $11,141,500 $84,644,500 CURRENT PRACTICES General Obligation bonds will be used only to fund capital assets of the general government, are not to be used to fund operating needs of the City and are backed by the full faith and credit of the City, as well as the ad valorem tax authority of the City. General Obligation bonds must be authorized by a vote of the citizens of the City of Denton. Certificate of Obligation bonds will be used to finance miscellaneous projects as determined by the City Council. Staff is in the process of revising the City's debt policy to more accurately reflect current debt issuance practices. Certificate of obligation bonds may be backed by the ad valorem tax authority of the City and by a specific revenue stream. Obligations are timed for issuance and delivery of proceeds as close as possible to the time that contracts are expected to be awarded so that the proceeds are spent in the most efficient manner. Additionally, the term of the debt is matched up to the life of the projects financed. High priority is assigned to the replacement of capital improvements when they have deteriorated to the point that they are hazardous, incur high maintenance costs, negatively affect property values, or no longer serve their intended purposes. . 3 March 23, 2006 2:31 PM Refunding and restructuring will be considered whenever an analysis indicates the potential for present value savings of approximately 3.5 percent for the debt service being refunded or if the transaction is beneficial to the City in another way. . Investment strategies for debt service funds have as the ptimary objective the assurance of investment safety and liquidity adequate to cover the debt service obligation on the required payment date. Securities purchased do not have a stated final maturity date which exceeds the debt service payment date. A dollar weighted average maturity of 550 days or less is maintained and calculated by using the stated final maturity date of each security. POLICY RECOMMENDATIONS It is recommended to follow the current debt service plan. This plan provides for the following assumptions: 1) Follow the current debt issuance plan as recommended by the 2005 Oversight Committee and amended to include funding in FY 2005-06 for Fire Station #7 ($1,000,000) and the Crematorium ($90,000). 2) It is recommended to adopt a $.02 cent tax rate increase in FY 2007-08. This would represent the first tax rate increase incorporated in the 2005 bond referendum. The referendum included up to a $.04 cent tax rate increase for Capital Improvement Program projects. 3) Anticipated eight percent growth in property taxes through 2008-09 and a six percent growth for 2009-10 and forward. 4) Ad valorem taxes are budgeted at 100 percent of the July 25" Certified Taxable . Value. 5) No legislative changes to the tax cap on property homestead appraisals. 6) No tax-freeze for persons over the age of 65 and the disabled. 7) No additional tax abatements or rebates. Additionally, this assumes tax rebates are funded through the Operating and Maintenance component of the tax rate. 8) No changes to the current exemption levels. 9) No ad valorem tax revenue for gas wells will be transferred from Debt Service due to statutory limitations. The ad valorem tax revenue from gas wells will be transferred from O&M to the Non-Airport Gas Well Fund for one-time projects, net of fund balance requirements. . 4 . . . '" '5 ~ ~ o N . ~ . Q. ~ ~ o N ~ '" o N '" ::! o N ~ o N :;! o N :;! .. o o N CIt~V; ~~~ 00.0 NUlL " '" , . :! ,; B 0'- f ~~& .., q :u = g~~ ~~tf " ~ . " "- ~ o o N . " '" N ~ CO .. W ~ :b ~.g ~ ~~~ " ~ ~~~ _ "," ~9:: " ~ o "- -ci c , "- 15 . o <0 o o N ;,' 0. ~ ~ ;.; ~ o o N '" N '" >0 '" '" U W 0: 00 z"- =>0: "-", >OW m> ~~ ~ . ~ E o "- . . u E o "- .. o '" '" 1II cQ~ "::R. ~ :- ~ g o <0 "- . . u E o "- 1;; . e o "- 1;; ~ E o "- . . u E o "- ... ~ ~- "# ..... I- g ~- to .. '" o N -' :! . 0; .. ;!; .., ~. - ..,' .. o .., '" 0; ~ ~ " .. 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''<'0-,?Tr:z::r::>'; "::\?~J'!':;:+<;":::TX:<:FG/'-:'{;'":='"'_::' ,-=- The General Fund currently budgets an amount annually in salary savings. This is done in order to eaprure the dollars that will not be expensed due to vacancies. Historically the amount that has been budgeted is between $230,000 and $250,000 and it is not budgeted by department. HISTORICAL TREND ANALYSIS Salary savings is budgeted annually and is usually budgeted to be between $230,000 and S250,OOO. Over the last couple of years we have exceeded this amount in salary savings. This \vould be due to an increase in job turnover. " "C ~ .. "' ~ o :; B "' "C " -5 ~ ~ ,s "' ~ "0 o 3,000 2,700 2,400 2,100 1,800 1,500 1,200 900 600 300 ISSUES Salary Savings (300) Year I-+- Savings I Departments that have a high turnover rate arc the departments that generate the most salary savings. These departments would like to use their salary savings but with the current practice they are not able to because it is a budgeted savings. Historically salary savings has also been used as a budget tool and has provided the flexibility to balance the budget once we have received our fInal certifIed tax role amount. If salary savings was no longer a budgeted savings and departments were allowed to use their savings it would be important to make sure that these savings were used only for one-time expenditures because it is a one- time source of funds. The down side to this practice would be that typically the departments with the most salary savings arc also the departments with the larger budgets. The smaller 3/JI/2006J:16I'M departments typically do not have the salary savings and don't have much flexibility in their budgets to handle one, time expenditures. It has also been a practice for departments to try to use their salary savings for reclassifications, which is not a onc-Wne use of funds. . CURRENT PIV\CTICES The current practice is to budget an amount for salary savings and to not let departments use any salary savings that they might have in their department without approval from their Assistant City Manager or the budget offIce. POLICY RECOIVIMENDATIONS I t would be staffs recommendation to no longer budget an amount for salary savings, but to put some procedures in place to ensure that departments use the savings for one-time uses and to makc sure that they arc necessary cxpenditures. . . 2 . . . Budget Yr 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 . 2004-05 2005-06 Salary Savings History Budget 24,333,112 26,620,174 28,621,294 28,813,307 32,627,185 36,431,007 42,355,223 45,891,920 47,413,843 51,558,739 48,998,560 Actuals 24,102,006 26,312,755 28,337,079 28,444,151 32,741,421 36,480,786 41,727,772 44,805,040 46,682,706 48,889,204 Savings 231,106 307,419 284,215 369,156 (114,236) (49,779) 627,451 1,086,880 731,137 2,669,535 . 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