2018 Budget Policy Workshop July 11, 2017
2018 Budget Policy Workshop
July 11, 2017
1
Overview
Fund Balance policy – minor clarification
Utility Rates
Tier 3 Debt allocation plan
Limited Resources
Council Priorities and Initiatives ?
2
Fund Balance Policy Minor Simplification
•
Current Language :
•
Proposed Language :
•
• •
Budgeted General Fund Ending Cash Balance will be at least 8%, but no more than 15% of recurring operating expenditures. Funds in excess of 15% are transferred into the Budget Stability Reserves Fund for Tier 3 capital projects or pay off outstanding liabilities. Budgeted General Fund Ending Cash Balance will be at least 8%, but no more than 15% of operating revenues. Funds in excess of 15% are transferred into the Budget Stability Reserves Fund for Tier 3 capital projects or pay off outstanding liabilities. Issue: Revenues is more clear and conservative. No need to calculate by identifying and subtracting non-recurring transfers (like Tier 3 capital).
3
Utility Rates • •
• • • • •
2017 marks the last of the four year catchup increment applied to catchup water rates. Each year 2014-2017 included an additional 4% for water only, on top of the inflation indicated by the Engineering News Record Construction Cost index (CCI). In the 2017 Budget, the capital plan for Storm Drainage had the largest amount of capital projects needed through 2027, and a much small ratio of funding than either Water or Sewer. A significant portion of the needs is due to increased costs of Federal regulation.
The desire has been to gradually move utilities to full funding – without the need to apply drastic rate increases. Recommended Strategy:
Continue to index the utility rates based on the CCI so that funding already achieved will keep up with construction costs. Apply a 4% catch up increment to storm drainage for four years 2018-2021 on top of the indexed rate. Plan for a rate study update in 2020 to assess the need for future increases.
4
Tier 3 Debt Allocation Plan •
The Budget Stability Policy limits budgets for ongoing core operating programs (Tier 1) and operating capital (Tier 2) to funding provided by our core revenues.
•
Tier 3 funds are those excess of funds needed for Tier 1 and 2.
•
Policy splits Tier 3 funds evenly between
• •
• • •
Increasing General Fund Cash Reserves until the maximum target is reached Paying off debt Capital Projects
The 2017 Budget has already reserved an amount to pay off the Lumberman’s property note in 2018 There are three strong possibilities for use of additional Tier 3 debt payoff funds in the 2018 budget.
5
Tier 3 Debt Allocation Plan •
• •
•
Van Lierop note – our last interfund loan.
• • •
Balance at year end 2017 will be about $940,000. Interest rate is 7%.
•
$378,500 is due in 2018, $668,750 is due in 2019
•
It would also reduce interest earned by the Fire Relief and Pension fund
Primary source of funds is the Parks Capital Improvement Fund. Partial or full repayment would free funds to be used for Parks Projects
2015 LOCAL – Energy Project loan
• • •
Balance at year end 2017 will be about $710,000. Interest rate is 2.41%.
•
$109,000 is due annually 2018 - 2025
Primary source of funds is the Facility Maintenance Fund through operating rates. Full repayment could reduce General Fund costs by about $80,000 per year.
2014 Milwaukee Bridge
• • •
Balance at year end 2018 will be $1,000,000 or less. Interest rate is 0%.
•
$250,000 is due annually 2019 – 2022
Primary source of funds is the motor vehicle fuel taxes collected in the street fund and pledged for repayment of this loan. Full or partial repayment would free funds for Street projects.
Council preference for application ? 6
Limited Resources: Revenues
7
Limited Resources Expenditures By Object
8
Operating Expenditures By Department $67.9M
This chart excludes debt, capital and internal services to focus on operations 9
Operating Expenditures By Department $67.9M 2017 Adopted Budget 35.0
31.4
30.0 25.0 17.7
20.0 15.0 10.0 5.0
6.2 2.7 0.4
0.2
0.6
2.0
0.9
0.3
1.0
2.6
1.8
0.0
This chart excludes debt, capital and internal services to focus on operations 10
Underutilized Revenues
More or better services to our citizens requires funding sources These revenues have additional capacity
• Property Tax - approximately $3.2 million • Utility Tax - approximately $5 million @ 6%
11
Council Priorities & Initiatives
What other things would Council like us to address in developing the 2018 budget ?
12
End of Presentation
13
July 11, 2017
1
Overview
Fund Balance policy – minor clarification
Utility Rates
Tier 3 Debt allocation plan
Limited Resources
Council Priorities and Initiatives ?
2
Fund Balance Policy Minor Simplification
•
Current Language :
•
Proposed Language :
•
• •
Budgeted General Fund Ending Cash Balance will be at least 8%, but no more than 15% of recurring operating expenditures. Funds in excess of 15% are transferred into the Budget Stability Reserves Fund for Tier 3 capital projects or pay off outstanding liabilities. Budgeted General Fund Ending Cash Balance will be at least 8%, but no more than 15% of operating revenues. Funds in excess of 15% are transferred into the Budget Stability Reserves Fund for Tier 3 capital projects or pay off outstanding liabilities. Issue: Revenues is more clear and conservative. No need to calculate by identifying and subtracting non-recurring transfers (like Tier 3 capital).
3
Utility Rates • •
• • • • •
2017 marks the last of the four year catchup increment applied to catchup water rates. Each year 2014-2017 included an additional 4% for water only, on top of the inflation indicated by the Engineering News Record Construction Cost index (CCI). In the 2017 Budget, the capital plan for Storm Drainage had the largest amount of capital projects needed through 2027, and a much small ratio of funding than either Water or Sewer. A significant portion of the needs is due to increased costs of Federal regulation.
The desire has been to gradually move utilities to full funding – without the need to apply drastic rate increases. Recommended Strategy:
Continue to index the utility rates based on the CCI so that funding already achieved will keep up with construction costs. Apply a 4% catch up increment to storm drainage for four years 2018-2021 on top of the indexed rate. Plan for a rate study update in 2020 to assess the need for future increases.
4
Tier 3 Debt Allocation Plan •
The Budget Stability Policy limits budgets for ongoing core operating programs (Tier 1) and operating capital (Tier 2) to funding provided by our core revenues.
•
Tier 3 funds are those excess of funds needed for Tier 1 and 2.
•
Policy splits Tier 3 funds evenly between
• •
• • •
Increasing General Fund Cash Reserves until the maximum target is reached Paying off debt Capital Projects
The 2017 Budget has already reserved an amount to pay off the Lumberman’s property note in 2018 There are three strong possibilities for use of additional Tier 3 debt payoff funds in the 2018 budget.
5
Tier 3 Debt Allocation Plan •
• •
•
Van Lierop note – our last interfund loan.
• • •
Balance at year end 2017 will be about $940,000. Interest rate is 7%.
•
$378,500 is due in 2018, $668,750 is due in 2019
•
It would also reduce interest earned by the Fire Relief and Pension fund
Primary source of funds is the Parks Capital Improvement Fund. Partial or full repayment would free funds to be used for Parks Projects
2015 LOCAL – Energy Project loan
• • •
Balance at year end 2017 will be about $710,000. Interest rate is 2.41%.
•
$109,000 is due annually 2018 - 2025
Primary source of funds is the Facility Maintenance Fund through operating rates. Full repayment could reduce General Fund costs by about $80,000 per year.
2014 Milwaukee Bridge
• • •
Balance at year end 2018 will be $1,000,000 or less. Interest rate is 0%.
•
$250,000 is due annually 2019 – 2022
Primary source of funds is the motor vehicle fuel taxes collected in the street fund and pledged for repayment of this loan. Full or partial repayment would free funds for Street projects.
Council preference for application ? 6
Limited Resources: Revenues
7
Limited Resources Expenditures By Object
8
Operating Expenditures By Department $67.9M
This chart excludes debt, capital and internal services to focus on operations 9
Operating Expenditures By Department $67.9M 2017 Adopted Budget 35.0
31.4
30.0 25.0 17.7
20.0 15.0 10.0 5.0
6.2 2.7 0.4
0.2
0.6
2.0
0.9
0.3
1.0
2.6
1.8
0.0
This chart excludes debt, capital and internal services to focus on operations 10
Underutilized Revenues
More or better services to our citizens requires funding sources These revenues have additional capacity
• Property Tax - approximately $3.2 million • Utility Tax - approximately $5 million @ 6%
11
Council Priorities & Initiatives
What other things would Council like us to address in developing the 2018 budget ?
12
End of Presentation
13
