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City of Kennewick Finances Citizen’s Academy October 20, 2015 ---PAGE BREAK--- Agenda • Budget Basics • Funding Challenges • Costs of Providing Services • Opportunities & Vulnerabilities ---PAGE BREAK--- Budget Structure & Process ---PAGE BREAK--- Budget Structure Fund Accounting: A system of accounting used by nonprofit organizations, particularly governments. Because there is no profit motive, accountability is measured instead of profitability. The main purpose is stewardship of financial resources received and expended in compliance with legal requirements. Funds are established to ensure accountability and expenditure for designated purposes. Revenues must be raised and expended in accordance with special regulations and restrictions. Budgets are adopted and recorded in the accounts of the related fund. ---PAGE BREAK--- Budget Structure Fund Types: – Special Revenue Funds: to account for legally restricted resources. – Capital Projects Funds: to account for financial resources to be used for acquisition or construction of capital facilities. – Debt Service Funds: to account for resources accumulated for the repayment of debt. – Enterprise Funds: to account for operations that are financed and operated in a manner similar to a private business. – Internal Service Funds: to account for financing of goods or services provided by one department to another within the government. – Trust & Agency Funds: to account for assets held by a government in a trustee capacity. – General Fund: to account for financial resources not required to be accounted for in another fund. – General Governmental Funds: General & Street Funds ---PAGE BREAK--- Budget Structure • General Governmental Funds Services: – Police – Fire Suppression – Planning & Economic Development – Engineering – Recreation – Facilities & Grounds – Street Maintenance – Support & Administration Functions (e.g. City Manager & Council, City Attorney, City Clerk, Finance & Customer Service, Purchasing, Information Systems, Human Resources) ---PAGE BREAK--- Budget Process • Biennial Budget – Cities must begin biennium in odd-numbered years. – Must be adopted prior to the beginning of the ensuing fiscal period after conducting a public hearing. – 4 Budget Adjustments, including a Mid-Biennium Review. • Budget Calendar – April: Revised projections for upcoming biennium prepared – May: Internal service budgets prepared – June: Budget instructions issued to Departments – July: Budget requests due from Departments – August: Personnel budgets completed – September: Draft preliminary budget to City Manager – October: City Manager decisions on recommended programs – November: Preliminary budget due (November 1) – November/December: Council workshops & budget hearing ---PAGE BREAK--- Kennewick Operating Indicators (2014) City Attorney Criminal Cases Filed & Prosecuted – 3,524 Police Calls for Service – 95,712 Traffic-Related Citations Issued – 9,048 Fire EMS Billable Transports – 4,809 Structure Fires Requiring Suppression – 84 Recreation Total Program Participants – 110,356 Public Works Street Lane Miles Maintained – 767 Traffic Signals Maintained – 64 City Facilities Maintained – 318,000 Sq. Ft. Park/Greenway Acres Maintained – 592 Water Treatment Plant, Gallons Produced – 4.01 billion (11M/day) Wastewater Treatment Plant, Gallons Treated – 1.96 billion (5.4M/day) Community Planning/Building Safety Building Permits Issued – 2,054 (resulting in 10,286 inspections) ---PAGE BREAK--- 2015/2016 Adjusted Budget By Fund Type (In Thousands) Total 2015/2016 Adjusted Budget = $276,775,836 $98,944 36% $18,808 7% $12,855 5% $51,573 18% $75,979 27% $13,742 5% $4,875 2% General Governmental Special Revenue Funds Debt Service Funds Capital Projects Funds Enterprise Funds Internal Service Funds Fiduciary Trust Funds ---PAGE BREAK--- Funding Challenges ---PAGE BREAK--- 2015/2016 Adjusted Budget By Revenue Category (In Thousands) Total 2015/2016 Adjusted Budget = $276,775,836 ---PAGE BREAK--- Composition of Tax Revenues 2015/2016 Total Tax Revenue = $97,882,565 ---PAGE BREAK--- Allocation of Tax Revenues (In Thousands) Debt Lodging Fire OPEB Revenue Source General Public Safety Crim Justice Subtotal Service CIP Tax Pension Trust Total Property Tax 23,220 $ ‐ $ ‐ $ 23,220 $ 815 $ 690 $ ‐ $ 192 $ ‐ $ 24,917 $ Sales Tax: 25,650 ‐ 3,785 29,435 ‐ 9,941 ‐ ‐ ‐ 39,376 Regular 15,820 ‐ ‐ 15,820 ‐ ‐ ‐ ‐ ‐ 15,820 Optional 6,953 ‐ ‐ 6,953 ‐ 8,867 ‐ ‐ ‐ 15,820 Criminal Justice 2,877 ‐ ‐ 2,877 ‐ ‐ ‐ ‐ 2,877 Criminal Justice ‐ Voted ‐ ‐ 3,785 3,785 ‐ ‐ ‐ ‐ 3,785 LRF (State & Local) ‐ ‐ ‐ ‐ ‐ 1,074 ‐ ‐ ‐ 1,074 Utility Taxes 18,634 5,232 ‐ 23,866 ‐ ‐ ‐ 2,214 26,080 Real Estate Excise Tax ‐ ‐ ‐ ‐ ‐ 3,292 ‐ ‐ ‐ 3,292 Gambling Tax 1,527 ‐ ‐ 1,527 ‐ ‐ ‐ ‐ 1,527 Admissions Tax 848 ‐ ‐ 848 ‐ ‐ ‐ ‐ 848 Leasehold Excise Tax 61 ‐ ‐ 61 ‐ ‐ ‐ ‐ 61 Hotel/Motel Tax ‐ ‐ ‐ ‐ ‐ 1,782 ‐ ‐ 1,782 Total Taxes: 69,940 $ 5,232 $ 3,785 $ 78,957 $ 815 $ 13,923 $ 1,782 $ 192 $ 2,214 $ 97,883 $ General Governmental ---PAGE BREAK--- Operating Fund Revenues (In Thousands) 2015/2016 Total Revenues = $98,870,592 ---PAGE BREAK--- $31 $36 $41 $46 $51 $56 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Millions Operating Funds Revenues & Expenditures 2003 ‐ 2014 Actual Revenues Actual Expenditures 2003‐2008 Revenue Trend Line 2003‐2008 Expenditure Trend Line Loss of ambulance charge ‐ Supreme Ct. decision. $3.9M Loss of liquor excise taxes due to state legislation. Reallocate CP property tax to General Fund & Fund Econ Dev with optional salex tax. Reallocated public safety vehicle replacement, capital IT & facility costs to CIP Fund. Reduced 22 Operating Fund positions from 2004‐2012 (30 citywide). Fully enterprised ambulance utility. Implemented 6.5% LEOFF 1 Utility Tax for LEOFF 1 medical costs; implemented Stormwater Utility; implemented policy changes for admissions tax, 2003B debt service and annual CIP Transfer (budget neutral). Proj. ---PAGE BREAK--- $45 $48 $51 $54 2013 2014 2015 2016 2017 2018 2019 2020 Millions Projected Operating Fund Revenues & Expenditures Revenues ‐ 1.8% growth Expenditures ‐ 2.3% growth $428K Shortfall $1.9M Shortfall Cummulative Shortfall 2013 ‐ 2020 = $7.8M $281K Shortfall $521K Shortfall $770K Shortfall $1M Shortfall $1.3M Shortfall $1.6M Shortfall ---PAGE BREAK--- Challenges with Primary Revenue Sources • Sales tax: – For every taxable dollar spent, city receives less than 1 cent of sales tax. – Very volatile revenue source tied to health of the economy and growth. – Eroding sales tax base due to remote (internet) sales. • Utility tax: – Dependent on utility rate increases and/or consumption increases for growth. – Erosion of telephone utility tax due to prominence of non-taxable data services and cell phones. • Property tax: – City receives only 19 cents of every dollar. – Limited by law to an annual increase of lesser of 1% or inflation. – Exception to 1% is new construction – dependent on economy and growth. • Intergovernmental Revenues (State & Federal) – As state and federal governments grapple with own budget issues, cuts have been made to funding cities rely on. – Voter initiatives have limited or completely eliminated certain revenue options. ---PAGE BREAK--- ---PAGE BREAK--- Remote (Internet) Sales • A University of Tennessee Study estimates that there was $23.2 Billion in lost sales & use tax in 2012 as a result of remote (internet) sales. • Losses in Washington State were estimated at $541M. • Local portion of WA sales tax collection was ~ 27%. – $541M x 27% = $146M. • Kennewick portion of local tax collections is ~ 0.674%. – Kennewick portion of loss estimated at $146M x 0.674% = $984K. Sources: University of Tennessee study on Sales Tax Revenue Losses from E-Commerce. Washington State Department of Revenue Annual Summary of Distributions of Sales/Use Tax ---PAGE BREAK--- ---PAGE BREAK--- Kennewick Property Tax Distribution Where does your property tax dollar go? 2015 Total Property Tax Levy – $11.73 ---PAGE BREAK--- Property Taxes Statutory Maximum Levy Rate is $3.10 for Kennewick ($3.60 less $.50 library district) without a vote of the people. Prior to November, 1997 the limit factor was 106%, meaning that the base property tax revenue could not increase by more than 6% per year. In November, 1997 Referendum 47 was voted in which limited annual base increases to Implicit Price Deflator (IPD). (unless there was “substantial need” & a super-majority vote of the Council) In November, 2001 I-747 was approved which limited increasing the base property tax revenue by the lower of IPD (implicit price deflator) or 1% per year. Revenue derived from New Construction & Annexations are above the limitation of Referendum 47 or I-747. ---PAGE BREAK--- Property Taxes $2.00 $2.25 $2.50 $2.75 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Millions Assessed Value & Levy Rate Assessed Value Levy Rate (Per $1,000 of AV) Overall increase of 130% in AV from 2001‐2015 ---PAGE BREAK--- Property Taxes 6,358 6,692 7,039 7,416 7,764 8,313 8,798 9,582 9,992 10,153 10,492 10,710 11,054 11,412 11,716 6,358 6,422 6,489 6,559 6,633 6,711 6,794 6,882 6,978 7,078 7,180 7,285 7,392 7,503 7,617 6,000 6,500 7,000 7,500 8,000 8,500 9,000 9,500 10,000 10,500 11,000 11,500 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Thousands Property Tax Levy History Growth ---PAGE BREAK--- $600 $800 $1,000 $1,200 2009 2010 2011 2012 2013 2014 2015 Thousands State‐Shared Liquor Revenues 2009‐2015 Projected Revenue before I‐1183 and State Legislation Actual Revenue Proj. Estimated loss of $606K from 2012‐2015. I‐1183 passes Nov. '11 & takes effect June '12. Iniative guarantees 2011 liquor profit levels plus $10M for public safety. No guarantee of liquor excise taxes. Cities receive portion of $30.5M in one‐time proceeds from auction of state‐owned stores. In 2012, State Legislature permanently reduces liquor excise tax distributions to cities by $10M & eliminates revenue sharing from July '12 ‐ June '13. In 2013, State Legislature again reduces liquor excise tax distributions to cities by 50% from July '13‐ June '15. ---PAGE BREAK--- ---PAGE BREAK--- Costs of Providing Services ---PAGE BREAK--- 2015/2016 Budget By Category - Kennewick (All City Funds) ---PAGE BREAK--- 2015/2016 Budget By Category (Operating Funds) ---PAGE BREAK--- 2015/2016 Budget By Department (Operating Funds) ---PAGE BREAK--- Labor Information The City of Kennewick currently has 367 authorized full-time equivalent positions (FTE’s), of which 257 are paid from the Operating Funds. The City’s labor forces is represented by the following labor unions: Firefighters – 79 FTE’s Police – 81 FTE’s Police Management – 15 FTE’s Police Support Specialists – 11 FTE’s Operating Engineers – 66 FTE’s Non-Contract (Unaffiliated) – 115 FTE’s State law dictates that issues related to wages, hours and working conditions must be negotiated. Three of the City’s unions are subject to binding arbitration. ---PAGE BREAK--- Labor Information (Continued) ---PAGE BREAK--- ---PAGE BREAK--- Budget Vulnerabilities & Opportunities ---PAGE BREAK--- Opportunities • Voter-Approved Public Safety Sales Tax • Collaboration in Providing City Services: – Tri-City Metro Drug Task Force – Tri-City Regional SWAT team – Regional jail and district court services – Golf Course Management – Regional dispatch • Southridge Local Revitalization Financing (LRF) program • Southridge Urban Growth Area Expansion • Budgeting by Priorities Model ---PAGE BREAK--- Vulnerabilities • Budget Model: – Utilizing growth revenues to pay for existing service levels rather than needs resulting from growth (e.g. property tax). • State Budget: – Significant budget deficits addressed in recent biennial budgets & new mandates for basic education. • Reductions in state shared revenues (liquor excise taxes). • Elimination of Public Works Trust Fund Loan program. • Additional unfunded mandates. • Local & National Economy: – Impacts of national economic events on local consumerism. – Hanford employment & uncertainty regarding future federal budgets. • Future Initiatives ---PAGE BREAK--- Responsible Government Quality of Life Economic Development Infrastructure and Growth Community Safety Priority Areas ---PAGE BREAK--- I want to be safe where I live, work and play. Fire & Emergency Medical Services Code Enforcement Police Services Building Safety Safe Drinking Water ---PAGE BREAK--- I want a City government that is responsive, responsible and fiscally accountable. Responsible Government Risk Management Sound Financial Management Excellence in Service Community Outreach & Engagement ---PAGE BREAK--- Parks & Facilities Community Planning Livable Community Recreational Opportunities I want to enjoy access to a variety of amenities and opportunities in a safe environment. ---PAGE BREAK--- Tourism Economic Vitality Economic Growth I want a diverse and vibrant economy in Kennewick. ---PAGE BREAK--- Infrastructure Planning Environmental Services Safe Streets I want a well-maintained City whose infrastructure keeps pace with growth. ---PAGE BREAK--- Questions?