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City of Woodburn 2022-23 Adopted Budget 204 5-Year Forecast Woodburn City Council adopted the Five-Year Forecast on February 14, 2022. It is included here to add a long- term perspective to budget information. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 205 ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 206 Introduction City of Woodburn Background The City of Woodburn is a municipal corporation, which operates under a Council-Manager form of government. Policymaking and legislative authority are vested in the City Council, which consists of an elected Mayor (two-year term position) and six councilors (four-year term positions). The City Administrator is responsible for carrying out Council ordinances and policies, managing the daily operations, and appointing department heads. The City provides a full range of services, including but not limited to: police, water, wastewater, public works, library, parks, recreation, aquatics, municipal court, community planning and building inspections, and economic development. Woodburn, incorporated in 1889, is located in the Willamette Valley halfway between the larger urban areas of Portland and Salem. The City of Woodburn, with a population of 26,2502, is Oregon’s 23rd most populated city, and third most populated city in Marion County. The population of the region within a 30-mile drive of Woodburn is 2.1 million, according to the American Community Survey. The US Census data shows Woodburn per capita income was $20,720 (compared to $33,763 for the state), and the median income for a household was $50,093, or 20 percent less than the state median household income of $62,8183. Historically, the Woodburn economy centered around agricultural and forest products, with the City serving as the manufacturing and services hub for these two sectors. As nearby urban populations have grown, Woodburn has attracted a variety of new businesses ranging from advanced manufacturing, distribution and warehousing, agricultural and food processing, wood products manufacturing, regional retail and a wide range of service-providing businesses. Amazon is in the process of building a 3.8 million square foot fulfillment center in Woodburn that is the largest current construction project in the state. It is targeted to be complete in the summer of 2023. Woodburn is an attractive community with new single and multi-family housing subdivisions already in the development queue. Metro area transportation issues and affordable housing shortages are creating 2 Portland State University, Population Estimates and Reports, Certified Population Estimates, July 1, 2019 3 US Census Bureau Quick Facts, Woodburn, OR (figures shown in 2019 dollars) ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 207 population shifts into Woodburn. Marion County’s adopted population projections indicate Woodburn will grow to 37,216 by 2030. Purpose of the Forecast The intent of this forecast is to project the financial position of primary operating funds, based on current service levels and conservative assumptions. The forecast sets the stage for the annual budget process, aiding both the City Administrator and City Council in establishing policies and priorities to allocate resources appropriately. Forecasting is one of the most powerful tools the City has available to help make informed financial decisions that will ensure the City’s future vitality and economic stability. Forecast Methodology Economic forecasting is not an exact science; rather, it is dependent upon the best professional judgment of the forecaster. The City of Woodburn’s approach to forecasting is to apply a conservative philosophy that neither overstates revenues nor understates expenditures. To enhance the accuracy of projections, the City identifies factors that contribute to the changes in revenues and expenditures, such as development, inflation, interest rates and known future events that will affect operations. Forecasting of operating costs embraces the concept of status quo. This concept assumes that the current level of service will continue for the next five years with cost changes based on inflationary increases. This provides a baseline economic estimate from which reductions or increases in service levels can be determined. To the extent certain reductions or additions are anticipated, they are noted within the fund section of this report. Exceptions to the status quo assumptions are noted at the beginning of each fund. Capital improvement projects are prioritized according to master plans for Water, Sewer, Transportation, Storm Water, and Parks, but are scheduled based on available resources. To the extent possible, operations are funded first and remaining resources are allocated to fund capital improvement projects. This frequently means that improvements are delayed until the needed funding has been set aside. Improvements too expensive to be paid from net resources are assumed to be funded via bonded debt, although in practice, this is a rare occurrence. For these reasons, capital construction funds, and the related special revenue funds, are not included in this forecast. Utilizing general ledger reports, audited financial statements, water and sewer master plans/rate studies, and published City budgets, each of the funds listed below were examined to identify patterns in revenues, expenditures and cash balances that may indicate financial instability or threats to the sustainability of current operations. We look forward to feedback from the City Council and other interested parties on identified issues. Because the fund section provides detailed information, the executive summary will focus on the most significant issues facing the City. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 208 Executive Summary The forecast is based on the combined effort of City staff and predicts that most operating funds will have sufficient resources to meet expenses over the five-year period. A few of the fund graphs depict a declining undesignated balance of resources. While this may seem alarming, it is just an indicator. In reality, the City would not submit a proposed budget where costs exceed all available resources. The forecast allows the City to identify where problems might occur and provides the adequate time to take corrective action before the situation becomes a crisis. The goal in assembling this report is to reveal trends, highlight financial issues and provide suggestions and options. Economic and Demographic Assumptions Oregon and the City of Woodburn’s economic condition will be heavily influenced by population growth. Woodburn’s economy determines the ability to retain the local workforce as well as attract new job seekers. These factors will weigh heavily upon the City’s ability to continue to provide a high-level service to the public. Issues in the Coming Year COVID-19 restrictions in early 2020 resulted in layoffs of part-time employees in Aquatics, Recreation and Library, and reduced service in Transit. Forecast includes estimates for full staff costs pre-COVID. Continued focus on stabilizing finances across all funds in light of rising wages, increased retirement costs and medical insurance costs, and the need to grow the work force to sustain a growing community The Urban Growth Boundary (UGB) expansion has permitted opportunities for future development, which will increase future demands on safety/security, water, sewers, streets, building activities, and recreational opportunities. Supplying the demand is expected from an estimated 3,000 housing units (a mixture of both single-family and multi-family) over the next five years. Employment needs will be met by the development of the newly annexed industrial areas (expected to provide an estimated 1 million additional square feet during this time.) Expansion of the Economic Development program Citywide Issues Beyond One Year Public Employees Retirement System (PERS): The City participates in the Oregon PERS State and Local Government Rate Pool employee pension program. The City’s liability in PERS was $16,971,9474 as of June 30, 2021. This liability will be paid through a combination of interest earnings and rate increases. Annual interest earnings that meet or exceed 7.2 percent will reduce the liability and subsequent biennial PERS rates, while earnings below 7.2 percent will increase the liability and also increase 4 The $16,979,947 is the City of Woodburn’s net proportionate share of the Unfunded Actuarial Liability as of June 30, 2021. Oregon PERS’ independently audited financial statement can be found at http://www.oregon.gov/pers ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 209 subsequent biennial PERS rates. Currently the unfunded liability of $16.97 million has been amortized for repayment through 2035-36. Therefore, each biennium includes an increase due to normal cost increases for the current employees, plus an amortization payment for the unfunded liability. Rate relief is projected to begin in the 2036-37 biennium. In May 2017, Gov. Kate Brown appointed a PERS task force to identify potential funding sources to address the statewide $5 billion PERS liability. The findings resulted in the approval of Senate Bill (SB) 1566 establishing an Employer Incentive Fund (EIF), which provides up to 25.0 percent matching funds for qualifying employers who make an additional one-time lump sum payment to pay down their PERS unfunded actuarial liabilities (UAL). The PERS board is developing the program, inclusive of procedures to request matching funds, and develop a strategy to reduce the unfunded liability. The city participated in a PERS side account and in December 2019 paid PERS $2,823,043. With the state contribution, the total Side Account is $3,527,735. This reduced each of the City’s PERS contribution rates by 2.85 percent. Health Insurance Though the City has implemented a high-deductible medical plan and attempted to control health insurance costs, the growth rates on some policies have continued to increase. Due to the uncertainty in health care premiums, prescription rates, and the future stability of the Affordable Care Act, the first forecast year includes an average 5 percent growth assumption in each forecast year. Fund Summaries: General Fund Service demands in Police and Community Services Library, Aquatic Center, Recreation, and Parks) will increase as Woodburn’s populations grows. Meeting the service demands will require new/additional revenue or cuts to existing programs. Property tax revenue will assist in meeting the community needs, and the 3.0 percent annual growth allowed by law has been included in each of the forecast years. Anticipated property development will be included in the tax forecast as they are added on the county assessor tax rolls. Higher inflation factors have been taken into account in the salary and benefits categories to match the CPI increases in these areas. Water The operational fund is strengthening following a declining fund balance due to rising costs without corresponding rate increases since 2006. The fund ended each fiscal year in the positive due to the deferral of capital improvement projects. A rate study was presented in spring 2018 which resulted in City Council approving ten years of rate increases beginning July 2018; 10 percent increases in 2018 and ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 210 2019, followed by annual increases of 4 percent each July in the remaining years 3-10. Fund balance reductions are anticipated over the next few years as capital projects are completed ahead of growth needs. Fund balance should improve as rate increases are implemented and new development is completed. Transit Each year the Transit Fund struggles to meet its operational needs, and most years is able to maintain a fund balance due to an annual subsidy from the General Fund. In FY 2020-21, the annual GF subsidy was increased to $150,000. Transit is aggressively seeking grants to fund operations and maintain and/or increase current levels of service. Revenue from the statewide transit tax of 0.1 percent, implemented in July 2018 and charged to all employees through payroll, is helping increase the annual revenues. Wastewater The Sewer Fund reflects the utility rate revenue and operational costs. Major expansion at the Wastewater Treatment Plant (WWTP) originally planned in 2011-12 has been on hold awaiting a decision from DEQ regarding the water quality limits for temperature. With that lawsuit finally resolved, work can begin on the project to update the Wastewater Facilities Plan and Rate Study, which will inform necessary facilities upgrades and the financial resources required to complete them. Streets The City has allowed the fund balance to grow in preparation for priority capital projects. Currently, the West Hayes Street improvement is the top capital improvement project. HB 2017 Keep Oregon Moving was implemented in 2018 and includes a 4-cent gas tax increase. An implementation dashboard has been set up for HB2017 on the ODOT website. The current Keep Oregon Moving report of revenue and expenditures is available on ODOT’s website. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 211 General Fund Variances from Status Quo Assumptions None Key Assumptions Property tax revenue increase of 4.5 percent in FY 2022-23, 12 percent in FY 2023-24, 15 percent in FY 2024-25,and 3.5 percent FY 2025-26 through FY 2026-27 PERS rate is 20.5 percent as of July 1, 2021, will increase to 22.5 percent two years later in FY 2023- 24, and increase to 24.5 percent in FY 2025-26 General Fund Right-of-Way charge on Water and Sewer of 5 percent continues on total revenues Addition of new Right-of-Way charges for small franchise utilities Operating Position Property taxes account for nearly two-thirds (68 percent) of the annual revenues in the General Fund. Property taxes will increase as new developments occur within city limits, but it takes several years to see the income increase. The forecast assumes an increase of 4.5 percent in FY 2022-23 from the housing permit activity in the last two fiscal years. An increase of 12 percent in FY 2023-24 and 15 percent in FY ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 212 2024-25 from the completion of the Amazon facility followed by a more conservative 3.5 percent growth in the remaining fiscal years as the construction of new housing units flattens out. Franchise fees, the second largest revenue in this fund, are based on the gross revenues collected in Woodburn for utilities that use the City’s right-of-way. Charges for Goods and Services is the third largest type of revenue at 4.4 percent. Forecast revenues are projected to increase at a modest 1.0 percent rate beyond year one of the forecast period. Potential Impacts and Issues There are potential future demands that could increase costs in this fund and will require close monitoring. These include: Police Staffing: As the community grows, there will be an increased demand for police services. Parks & Recreation: As demand grows for use of City parks, additional burden is placed on the City’s General Fund to provide enhanced services. Additional staff hours are required for cleanup and maintenance of these parks. These potential cost increases are not included in the forecasts. Engineering & Planning: Engineering & Planning division expenditures will be significantly impacted by new development within the Urban Growth Boundary expansion, and by the city as a whole. The City will closely monitor the actual revenues against the forecast and will take corrective action if necessary. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 213 Building Inspection Fund Variances from Status Quo Assumptions Permit revenues continue to increase due to large residential and commercial developments The FY 2021-22 spike is impacted by the new Amazon project Increased building activity prompted the creation of a full-time plans examiner position using two unfilled part-time plans examiner positions for FY 2021-22 Operating Position The Building Inspection team provides services to ensure safe building design and construction through the enforcement of building codes and standards. Revenues are based on permits issued for new development and redevelopment that historically ebbs and flows. Future revenues are based on estimates of when specific projects might begin. Potential Impacts and Issues The Building Fund, of course, will be significantly impacted by the Urban Growth Boundary expansion. Delays in developers submitting plans or starting construction will impact the bottom line. The City will closely monitor the actual revenues against the forecast and will take corrective action if necessary. Approximately 50 percent of the Woodburn School District 2015 voter approved bond measure allows for significant construction work to all the school buildings for repairs, additions and two new schools. The school bond will impact the department workload and revenue over the next five years. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 214 Transit Fund Variances from Status Quo Assumptions COVID-19 restrictions reduced routes times, reduced fare revenues and reduced part-time staff starting in late FY 2019-20 and continuing in FY 2020-21. Forecast considers full staff estimates. FY 2022-23 revenue and expenditure spikes reflect the purchase of six new vehicles Operating Position Transit provides Dial-a-Ride services for disabled citizens and fixed route bus operations and is funded by a contribution of $150,000 from the General Fund with the balance from grant revenue and fares. Capital Projects — From Operating Revenues Replacement of buses and vans is done as needed and historically has occurred when grant funding is available. The spike in FY 2022-23 includes the purchase of six new vehicles, funded with grant revenue and one-time funding from Amazon for a new commuter route. Pandemic-related manufacturing and shipping delays resulted in a delay of planned vehicle purchase in FY 2021-22. Potential Impacts and Issues Should a large, unanticipated curtailment of state and/or federal grant revenue occur, this program could potentially be drastically curtailed or discontinued, as replacement funding is not anticipated to be available from the General Fund. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 215 Street Fund Variances from Status Quo Assumptions None Operating Position State gas taxes are the largest source of revenue followed by privilege taxes paid by PGE and NW Natural. Revenue is allowed to accumulate over time in order to fund major street improvements. As the improvements are underway the expense budget spikes and the fund balance decreases. While the forecast shows fund balance decreasing to zero, in reality the capital projects will be staggered or delayed in a manner that preserves the fund balance. Capital Projects — From Operating Revenues The current major capital projects shown in the forecast period are West Hayes Street from Settlemier to Cascade and South Woodland Extension. Potential Impacts and Issues Due to the increase in the gas tax/registration/other fees, and the shifting of shared revenues (to cover street lighting expenses) to this fund, the financial outlook remains relatively stable. Privilege taxes are dependent on population growth and can be impacted by weather patterns. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 216 Water Fund Variances from Status Quo Assumptions Spring 2018 water rate study resulted in City Council approved increases over the next 10 years; annual increases of 4 percent each July from 2020 to 2028. FY 2018-19 the water bond was refinanced FY 2024-25 expenditure peak reflects the Country Club Road water line transmission replacement Operating Position Water revenues are primarily driven by consumption. The funds costs are a mix of fixed expenses for the systems and infrastructure required to provide water, plus variable operating expenses. Potential Impacts and Issues As personnel, material and services costs continue to increase, levels of service will become difficult to maintain. Additionally, unknown capacity improvements predicated by the UGB expansion will impact future capital needs. Capital Projects — From Operating Revenues The Water Construction Fund 466 still carries a balance to cover most of the proposed projects for FY 2022-23. However, after that balance is spent the Water Fund will budget transfers for future water construction. While the forecast shows fund balance decreasing to zero, in reality the capital projects will be staggered or delayed in a manner that preserves the fund balance. Major projects include a new well and raw water piping at the Parr Road Treatment Plant and painting the elevated storage tank. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 217 Sewer Fund Variances from Status Quo Assumptions Bond defeasance was paid in early FY 2020-21 of $13.5 million Sewer rate increases of 5 percent in January 2021 and 2022 Operating Position Potential Impacts and Issues In January 2012, the final design plan for required wastewater treatment plant upgrades were submitted to DEQ based on their previously approved evaluation report. In August 2013, EPA provided notice to DEQ disapproving of Oregon Water Quality Standards, including Natural Conditions Criteria for Temperature, and Statewide Narrative Natural Conditions Criteria, in general. The Pudding River TMDL for temperature, established in 2008 using natural criteria, could no longer be used for permitting. Recently, the legal challenges to TMDL standards have been resolved, which will allow DEQ to establish a water quality standard for the Pudding River and the development of the City’s updated National Pollutant Discharge Elimination System (NPDES) permit. To initiate this process, the City is undertaking an update to the Wastewater Facilities Master Plan & Rate Study, which will inform necessary upgrades to the treatment plant and collection systems, as well as the financial resources required to accomplish them. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 218 Remaining Funds Capital Construction Funds Capital Construction Funds are not included in this forecast because their activity is limited by funds available. A more robust capital construction plan and reporting mechanisms were implemented for development during the FY 2020-21 budget cycle. Remaining Funds The remaining 13 funds have dedicated revenue sources, are for a specific purpose, or have nominal activity. These funds have not been included as part of the Five-Year Forecast. Urban Renewal Forecast is shown below ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 219 Urban Renewal Fund Variances from Status Quo Assumptions Business grants were given out during COVID-restricted times Peak in FY 2018-19 was the First Street Improvement project costs and a loan for the improvement which will paid through FY 2028-29 The building of two apartment complexes in the Urban Growth Area is expected to increase property tax revenue beginning in FY 2022-23 and, therefore, increase the Urban Renewal Fund’s revenue Operating Position Potential Impacts and Issues Future projects may be impacted by funding although, many grants are available and the staff has been successful in acquiring grants. Capital Projects — From Operating Revenues Major projects include the completion of the Bungalow Theater and Museum, Historic Locomotive Shelter and the Public Arts and Mural program. With the increased operating revenues from the assessed valuations of new apartment complexes, new capital projects will be identified in the coming years to utilize the additional funds. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 220 Major Assumptions – Revenues The assumptions for this forecast are based on historical trends and expected growth. Most revenues will be improved as the City’s boundary grows, but there will be pressure on staffing levels or other expenses that may generate offsetting expenses in the short run. Revenue Assumptions Property Taxes — General Fund The Marion County Assessor determines the taxable assessed value of each property. In Oregon, there is no correlation between real market value and assessed value. Generally, assessed values grow by 3 percent per year as allowed by the state constitution, but has been impacted by compression. Reduced property tax revenue due to compression reached a peak during the recession and has steadily improved in the last three years. The City’s tax rate is permanently set at $6.0534 per $1,000 of assessed value, and is subject to limitation under Ballot Measures 5 and 50. Franchise Fees — General Fund These fees are assessments on the utility companies’ gross receipts for using the City’s right-of-way. Rates vary by type of utility ranging from 3 percent to 8 percent. Franchise fees are assessed on telecommunication, cable television, natural gas, electric utilities, ambulance and garbage. These revenues are expected to grow at a rate of 1 percent for the forecast period. A new Right-of-Way franchise fee was implemented in December 2020 for small utilities using the City’s right-of-way. Charges for Goods & Services — Utility User Charges Water: The forecast assumes a 4 percent rate increase in each of the forecast years as adopted by City Council through 2028. Sewer: The forecast includes 5 percent rate increases effective January 2021 and January 2022 as adopted by City Council. Gas Taxes The State Gas Tax is estimated with a growth rate of 5 percent per year. Building, Planning and Engineering Permits Permit revenues are based on identification of specific developments with assumptions based on which fiscal year the development is likely to begin. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 221 Major Assumptions – Expenditures Personnel Services Wages: Due to higher inflation in calendar year 2021, the potential for a higher COLA has been accounted for in the first year (FY 2022-23) of the five year forecast. Subsequent years have been forecast at the normal 3 percent increase. This is a conservative estimate, which takes into account bargaining agreements and merit increases. Bargaining Group FY 2021-22 FY 2022-23 Woodburn Police Association – Officers (WPA) – contract end 6/2022 2.5% N/A Woodburn Police Association – Community Service Officers (WPA) 2.5% N/A American Federation of State, County, and Municipal Employees (AFSCME) – contract ends 6/2022 3% N/A Insurance: A growth rate of 5 percent is used for insurance costs in each of the forecast years. PERS: Rate assumptions for all categories were reduced due to the PERS side account. General Fund PERS assumptions tend to be higher than other funds due to higher PERS rates for Police service employees. Material and Services Impacts of inflation are assumed to steadily increase over the five years at 3 percent. Management has been aggressive in managing costs in this category to help offset growth in personnel services costs and has been successful in holding spending well under budgeted amounts. However, inflation, workers’ compensation and other liability insurance rates may cause this category to exceed the management targets as years pass. Capital Equipment The Public Works Fund maintains a replacement reserve for capital equipment replacement, which is funded via transfers from the Water, Streets and Sewer funds. The General Fund replaces equipment on an as-needed basis or emergency basis, with emphasis on whether funding is available. Debt Service Estimates are based on amortization schedules for outstanding debt issues. ---PAGE BREAK--- City of Woodburn 2022-23 Adopted Budget 222 Glossary Capital Projects New construction and major repairs to the City’s fixed assets Operating Position Recurring revenues and recurring expenditures Potential Impacts Refers to issues and challenges that are in addition to the status quo. The intent is to inform the reader of economic matters that might occur during the forecast period. Recurring Expenditures The expense portion of status quo, predictable and on-going costs Recurring Revenues The resource portion of status quo, predictable and ongoing revenues Revenues Includes both recurring revenues and transfers in Status Quo The current level of services Transfers In Internal charges by General Fund for services provided to other funds Urban Growth Boundary (UGB) A regional boundary around the City’s perimeter used by local governments as a guide to zoning and land use decisions to control urban expansion onto farm and forestlands