Myrtle Beach.pm
Budgeting in Myrtle Beach
1
Michael Shelton
KATE PHILIPS/CITY OF MYRTLE BEACH INSET PHOTO MYRTLE BEACH AREA CHAMBER OF COMERENCE
Planning and Performance Budgeting with a Customer Orientation
WINTER 1998
M 2
any innovations in the field of performance monitoring have occurred in recent years, in public and private sectors alike. Frequently, they have been spurred by financial distress. They are often discussed in the context of articles on downsizing, right-sizing, re-engineering, or privatizing, which seem to be popular options in circumstances of financial distress. Myrtle Beach has been fortunate that it was the community's financial prosperity that provided the impetus for improving performance monitoring systems. In contrast to the sleepy little seaside resort many of us remember from our childhood, today this community is the heart of the second fastest growing metropolitan area in the United States, according to American Demographics magazine. The city's estimated 1996 population of 30,852 is more than double its 1980 census population. Retail sales reported inside the city have increased from more than $500 million in 1986 to nearly $1.25 billion in 1996. This article discusses the city's adaptations—its use of financial planning to facilitate achievement of service goals and community planning processes to tie service goals to community preferences.
Unless It's Broken, Why Fix It? The adage that “for every hundred people who can endure poverty, there is only one who can handle prosperity” has applications for communities experiencing rapid growth. With rapid growth comes the same kinds of challenges— balancing resources against needs—that comes with economic stagnation or decline. But in prosperous times, the temptation to take the quick and easy way, i.e., “to spend it while you've got it,” is great. A good argument can be made that it is best to prepare for hard times during good times. Objectivity comes more easily when there is less urgency to the decision process. Furthermore, it would be naive for any community to believe that periods of slow growth or decline will not follow periods of rapid growth sooner or later. This community has seen its share of boom and bust cycles. To understand that, one need only look at the city's building permit statistics over any period of ten years or more. Since 1980, for example, annual permits issued have risen from THE SOUTH CAROLINA POLICY FORUM
The adage that “for
every hundred
people who can
endure poverty,
there is only one
who can handle
prosperity” has
applications for
communities
experiencing rapid
growth.
$25 million to $116 million, and have fallen and risen again—as low as $22 million and as high as $109 million. In the face of current trends, those of us in local government have found ourselves asking many hard questions. How can we expand our service delivery systems to accommodate such rapid growth without setting ourselves up for a fall when the current cycle begins to level out? How can we be certain that we are providing expanded services at reasonable costs? How can we know that we are maintaining the high standards of service to which our residents are accustomed, and not allowing service quality to suffer as we attempt to respond to growing demands? Can we better afford to expand in areas of high demand if we cut some services that perhaps are no longer essential to the community? And how do we know we are providing the public services that meet our citizens' needs?
Establishing a Goal Like other cities, Myrtle Beach continually seeks to improve the quality of its services. In 1993, the city began setting the stage for long-range planning and the integration of its plans with the annual budget. At the budget retreat for that year, council members, the city manager, and senior staff members spent two and one-half days considering a number of new perspectives on city operations. In addition to some concrete and immediate goals, the participants at this retreat resolved (1) that they wanted a more customer-oriented government, (2) that they wanted a more adaptable organization, and (3) that they wanted to improve public education about what they were doing. They put together a mission statement for city government and several long-term goals. Among the most ambitious goals set at that retreat was the one that stimulated most of the activity described here: “Develop a strategy for adapting city facilities, service delivery systems, and revenue structures to accommodate rapid growth.” During that first session, significant groundwork was laid for the process that was to come. Many of the long-term goals yielded objectives which would require greater involvement of council and staff members in community activities, cooperative projects with schools and private businesses and with other governments.
These have since resulted in police “walk-talks” in schools and more extensive fire prevention education programs throughout the community. Others stimulated the creation of new opportunities for the public to learn about and become involved in local government. They were the impetus for Kids' City—a program whereby staff members teach on local government topics in area schools, and students playing the roles of community leaders construct a small-scale city over a weekend each January. Staff returned from the 1993 retreat and began trying to weave the themes of customer-oriented government, adaptability, and improved public education into a strategic approach to budgeting. The resulting system relies on strategic financial and operational planning, performance monitoring, and the integration of these items into the annual budget.
Financial planning
establishes a
context within
which the
Strategic Financial Planning Participants recognized that if long-term planning were to serve as a blueprint for the development of community assets rather than simply to raise false expectations, the city must plot a financial course to cover the same time horizon as the operational plans. Financial planning establishes a context within which the community can evaluate the affordability of its plans for services and facilities as it is putting those plans together. It allows the community to create realistic expectations for the implementation of its vision, to develop financing options, or to reprioritize its line of services to enable it to take on new challenges. A good public education program requires systematic performance monitoring in order to provide reliable information for public consumption. The area of financial planning is one of the easiest areas of local government in which to develop a pilot performance measurement program. This is true because financial ratios are common tools of credit analysis, and credit rating agencies keep massive data on these ratios to establish benchmarks for communities of various sizes. These benchmark measures are published annually by Standard & Poor's and Moody's. At the time of the 1993 retreat, staff had already begun some developmental work in this area. Their efforts began with a view toward
community can
evaluate the
affordability of its
plans for services
and facilities as it
is putting those
plans together.
enabling the city to use a managed approach to debt issuance in order to expand its capital improvements program (CIP). At that time, the city's general capital improvement program, through which all non-enterprise capital improvements are acquired, had dedicated sources totaling about $500,000 per year. Myrtle Beach has a permanent resident population of around 30,000, but its service population now averages upwards of 100,000. Peak day population for the Grand Strand, of which the city of Myrtle Beach is the heart, is estimated at nearly 900,000. Council members and other participants realized that if they were to address the needs of such a community, they would have to fund the capital improvements program more aggressively. Taking on manageable levels of debt was one ready option. The city had made sparing use of debt for general capital improvements prior to that point, so it had considerable debt margin available. City leaders recognized the importance of developing comprehensive policies and financial plans in order to sustain investment grade credit ratings. By putting these into place before issuing major amounts of debt, they could show evidence of a well-reasoned and properly managed debt strategy, preserving the city's financial reputation and keeping the cost of capital low. What had begun strictly as a debt management plan quickly grew into a strategic financial plan as staff proceeded to work on the goal of adapting revenue structures to accommodate rapid growth. In performing its objectives for the 1994-95 fiscal year, Myrtle Beach's Budget and Evaluation Office conducted a thorough review of the economic environment and general business and political climate, along with a critical examination of existing financial policies. The results were used to formulate a strategic financial plan complete with a revised set of financial policies which staff and council believed to be more appropriate given the current environment. These policies all derived from the central thought that the city's financial planning and management activities should serve to maintain the financial strength needed in order to offer continuous high-quality services and to progress in reasonable fashion toward the vision of the city's comprehensive plan (which is to be adopted
3
WINTER 1998
FIGURE 1
Strategic Financial Plan Summary Mission Maintain the financial resiliency necessary to provide continuing high-quality municipal services and to make reasonable and consistent progress toward the vision established in the city's comprehensive plan.
4
Goals 1. Use a balanced mix of revenues which will ensure reasonable stability for operation at continuous service levels through economic cycles, but will provide the economic sensitivity suitable for responding to increased service demand in a rapid-growth environment. Strategies: • Match funding sources with types of expenditure so that the demand for money is consistent with the characteristics of the matching funding sources. In general, debt service funds require more stable revenue sources; capital improvement funds can accumulate more volatile revenues for future expenditure; operating funds require a balanced mix of supporting sources. • Utilize user charges for services that are “price excludable” in order to encourage economic efficiency and reduce the ad valorem tax burden. Devise charges in ways that observe principles of equity and encourage economic efficiency, and that can be administered at reasonable costs. 2. Maintain operating expenditures within the city's ability to raise revenues while keeping tax and rate structures competitive. Strategies: • Balance recurring expenditures/expenses with recurring revenues. Use non-recurring revenues to contribute to reserves or to purchase capital equipment. • Isolate volatile components of the revenue base and devise ways of directing them out of the operating budget and into capital reserves. • Maintain benchmark data on tax and fee rates of comparable municipal organizations and competitive private service providers. 3. Ensure continuity of service without the use of interim borrowing. Strategies: • Maintain fund balances adequate to meet working capital needs (at least 20% of annual expenditures in each governmental fund, 2:1 current ratios in enterprise funds). • Establish reasonable amounts for contingency accounts in the annual budget process. • Control exposure to risk and volatility in capital equipment replacement requirements through the Equipment Replacement Plan. 4. Maintain adequate capital financing sources and low costs of borrowing. Strategies: • Seek new pay-as-you-go sources of capital. • Maintain moderate credit ratios and carefully schedule new debt offerings so as to optimize use of credit and minimize impacts upon the ad valorem tax rate. • Position the city to be able to take advantage of debt refunding or restructuring opportunities which would offer present value savings of 3.0% or more or would free up debt capacity in future years when it may be needed for significant capital projects.
by March 1999). They thus recognize that the financial management structure exists in order to provide the resources necessary to deliver customer services. A summary of the plan appears in Figure 1.
Monitoring Progress Under the Strategic Financial Plan The strategic financial plan is viewed as a set of long-term goals and broad strategies for maintaining and improving financial resiliency. As with any plan, its success depends upon how it is put into action. Action is facilitated by breaking the long-term goals into quantifiable policy guides and milestones which can be used in the THE SOUTH CAROLINA POLICY FORUM
short run to advance the interests of the plan. Each year's budget includes a heavily annotated five-year pro forma statement of revenues, expenditures/expenses and changes in fund equity for each fund. This allows the reader to see the financial effects of new programs, not only upon current appropriations, but upon the city's funding capability for the coming years. It shows the effects of absorbing the operating expenses of capital projects scheduled in the city's CIP over the coming five years. Given reasonable assumptions about inflation rates, interest earnings, and other economic factors, it allows for sensitivity analysis to facilitate choices about the timing of new programs, new debt issues, and
FIGURE 2
Changes in General Fund Revenue Mix Under the Strategic Financial Plan Fines & Forfeits 5%
Use of Property 4%
Fines & Forfeits 5% Intergovernmental 4%
Intergovernmental 13%
Other Licenses 8%
Other Licenses 8%
Use of Property 3% Property Tax 25%
5
Property Tax 38%
Services & Charges 26%
Services & Charges 12%
Business Licenses 29%
Business Licenses 20%
proposed policy changes. In short, it allows for current decisions to be made with some recognition of their impacts, both positive and negative, in coming years. Progress on financial plan goals is measured continuously by means of benchmark comparisons with credit industry standards and specific policy targets developed by staff and council. The annual budget reports on these comparisons and demonstrates expected performance regarding key financial ratios over the five-year planning period. Illustrations taken from the 1997-98 budget follow.
The strategic
financial plan is
viewed as a set of
long-term goals and
Financial Plan Goal 1: Revenue Mix A comparison of the 1997-98 General Fund revenue mix with that of 1993-94 illustrates the effects of following the financial plan strategies for Goal 1. The mix of revenues going into the city's major operating fund has grown more responsive to inflation and to expanding service demand. Business license revenues, a function of gross receipts from business conducted within the corporate limit, make up 29% of the current revenue mix—an increase from 20% in 1994. Service charges have increased from 12% to 26%, primarily as a result of shifting from property taxes to user fees as the source of support for solid waste management. Property taxes, a rela-
broad strategies for
maintaining and
improving financial
resiliency.
tively stable but stagnant source, accounted for 38% of the General Fund revenue mix in 1993-94. Following implementation of the strategic financial plan, the city relies upon property taxes for only 25% of its governmental operating revenues. A larger share of the property tax levy has been shifted to the debt service fund, where stability in the revenue base is a greater asset. See Figure 2.
Financial Plan Goal 2: Maintain a Balanced Budget With Competitive Tax and Rate Structures Where national medians are not available or are not appropriate figures for comparison, the city uses a benchmark comparison group of ten southeastern cities which were chosen for similarities in the size and scope of their operations and because they are some of Myrtle Beach's main competitors in the labor force. See Figures 3 and 4. Cities of similar size in terms of resident population were not chosen because they typically were much smaller as organizations and offered a more narrow range of services. Instead, benchmark cities were chosen for similarities in size of budget, in organizational size and complexity, and in diversity of lines of service offered. The comparison group includes Charleston, Columbia, Greenville, and Rock Hill, SC; Asheville, WINTER 1998
High Point, and Wilmington, NC; Daytona Beach and Sarasota, FL; and Ocean City, Maryland. Each year, Myrtle Beach reports how its tax and utility rates compare with these cities. Similar data are kept for comparing business license rates and solid waste rates with those of private and governmental competitors in the area.
6
Financial Plan Goal 3: Ensure Continuity of Service Without Use of Interim Borrowing The city employs a working capital strategy designed to maintain fund balances adequate to meet working capital needs without interim borrowing. Avoiding the use of tax and revenue anticipation notes saves the cost of interest on the notes, and the cash held in “inventory” for a portion of the year is invested to produce revenue equivalent to almost 5.0% of the general fund tax levy. Fund balance as a percentage of operating expenditures is one common indicator of the ability to finance current operations without resorting to interim borrowing. Requisite levels of fund balance in governmental funds, and of the ratio of current assets to current liabilities in enterprise funds, are determined by studying the cash flow patterns of the various funds. Staff estimates the “inventory” of cash which is needed in order to finance services without interruption through the year. In certain funds, cash inflows and outflows may be well-synchronized and large fund balances may not be needed in order to provide uninterrupted service without interim borrowing. In other cases, as with the city's General Fund, outflows are more or less consistent from month to month while major revenues, such as property taxes and license fees, come in primarily during January, February, and May. Where cash flows are asynchronous, larger “inventories” of fund balance are needed at the beginning of the year in order to avoid falling into a negative cash position just before the big tax check arrives. See Figure 5. For the General Fund, city policy provides for the maintenance of fund balance levels at 20.0% of operating expenditures for the management of cash flow without interim borrowing and for a ready source of financing in the event of emergencies. Financial plans are formulated so as to THE SOUTH CAROLINA POLICY FORUM
FIGURE 3
Comparison of Taxes and Fees with Benchmark Sample Cities City Taxes
Overlapping Governments
Myrtle Beach, SC Greenville, SC Wilmington, NC Daytona Beach, FL Rock Hill, SC Asheville, NC High Point, NC Charleston, SC Columbia, SC Sarasota, FL Ocean City, MD $0
$500 $1000 $1500 $2000 $2500 $3000
FIGURE 4
Comparison of Taxes and Fees with Benchmark Sample Cities Water
Wastewater Greenville, SC Columbia, SC High Point, NC
Myrtle Beach, SC Rock Hill, SC Wilmington, NC Daytona Beach, FL Charleston, SC Sarasota, FL Asheville, NC $0
$10 $20 $30 $40 $50 $60 $70 $80
FIGURE 5
Ratio of Fund Balance to Operating Expenditures, General Fund 30%
25%
20%
15%
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
FIGURE6
Direct Net Debt Service as a Percentage of Operating Expenditures 20%
15%
10%
5%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Direct Net Debt Service as a Percentage of Operating Expenditures is a measure of the extent to which a jurisdiction's budget is comprised of fixed annual expenditures. It reflects the flexibility, or the lack of it, that a government retains in budgeting for its operations. Industry standards favor keeping annual debt service expenditures below 20.0%. The city's objective is
1
Michael Shelton
KATE PHILIPS/CITY OF MYRTLE BEACH INSET PHOTO MYRTLE BEACH AREA CHAMBER OF COMERENCE
Planning and Performance Budgeting with a Customer Orientation
WINTER 1998
M 2
any innovations in the field of performance monitoring have occurred in recent years, in public and private sectors alike. Frequently, they have been spurred by financial distress. They are often discussed in the context of articles on downsizing, right-sizing, re-engineering, or privatizing, which seem to be popular options in circumstances of financial distress. Myrtle Beach has been fortunate that it was the community's financial prosperity that provided the impetus for improving performance monitoring systems. In contrast to the sleepy little seaside resort many of us remember from our childhood, today this community is the heart of the second fastest growing metropolitan area in the United States, according to American Demographics magazine. The city's estimated 1996 population of 30,852 is more than double its 1980 census population. Retail sales reported inside the city have increased from more than $500 million in 1986 to nearly $1.25 billion in 1996. This article discusses the city's adaptations—its use of financial planning to facilitate achievement of service goals and community planning processes to tie service goals to community preferences.
Unless It's Broken, Why Fix It? The adage that “for every hundred people who can endure poverty, there is only one who can handle prosperity” has applications for communities experiencing rapid growth. With rapid growth comes the same kinds of challenges— balancing resources against needs—that comes with economic stagnation or decline. But in prosperous times, the temptation to take the quick and easy way, i.e., “to spend it while you've got it,” is great. A good argument can be made that it is best to prepare for hard times during good times. Objectivity comes more easily when there is less urgency to the decision process. Furthermore, it would be naive for any community to believe that periods of slow growth or decline will not follow periods of rapid growth sooner or later. This community has seen its share of boom and bust cycles. To understand that, one need only look at the city's building permit statistics over any period of ten years or more. Since 1980, for example, annual permits issued have risen from THE SOUTH CAROLINA POLICY FORUM
The adage that “for
every hundred
people who can
endure poverty,
there is only one
who can handle
prosperity” has
applications for
communities
experiencing rapid
growth.
$25 million to $116 million, and have fallen and risen again—as low as $22 million and as high as $109 million. In the face of current trends, those of us in local government have found ourselves asking many hard questions. How can we expand our service delivery systems to accommodate such rapid growth without setting ourselves up for a fall when the current cycle begins to level out? How can we be certain that we are providing expanded services at reasonable costs? How can we know that we are maintaining the high standards of service to which our residents are accustomed, and not allowing service quality to suffer as we attempt to respond to growing demands? Can we better afford to expand in areas of high demand if we cut some services that perhaps are no longer essential to the community? And how do we know we are providing the public services that meet our citizens' needs?
Establishing a Goal Like other cities, Myrtle Beach continually seeks to improve the quality of its services. In 1993, the city began setting the stage for long-range planning and the integration of its plans with the annual budget. At the budget retreat for that year, council members, the city manager, and senior staff members spent two and one-half days considering a number of new perspectives on city operations. In addition to some concrete and immediate goals, the participants at this retreat resolved (1) that they wanted a more customer-oriented government, (2) that they wanted a more adaptable organization, and (3) that they wanted to improve public education about what they were doing. They put together a mission statement for city government and several long-term goals. Among the most ambitious goals set at that retreat was the one that stimulated most of the activity described here: “Develop a strategy for adapting city facilities, service delivery systems, and revenue structures to accommodate rapid growth.” During that first session, significant groundwork was laid for the process that was to come. Many of the long-term goals yielded objectives which would require greater involvement of council and staff members in community activities, cooperative projects with schools and private businesses and with other governments.
These have since resulted in police “walk-talks” in schools and more extensive fire prevention education programs throughout the community. Others stimulated the creation of new opportunities for the public to learn about and become involved in local government. They were the impetus for Kids' City—a program whereby staff members teach on local government topics in area schools, and students playing the roles of community leaders construct a small-scale city over a weekend each January. Staff returned from the 1993 retreat and began trying to weave the themes of customer-oriented government, adaptability, and improved public education into a strategic approach to budgeting. The resulting system relies on strategic financial and operational planning, performance monitoring, and the integration of these items into the annual budget.
Financial planning
establishes a
context within
which the
Strategic Financial Planning Participants recognized that if long-term planning were to serve as a blueprint for the development of community assets rather than simply to raise false expectations, the city must plot a financial course to cover the same time horizon as the operational plans. Financial planning establishes a context within which the community can evaluate the affordability of its plans for services and facilities as it is putting those plans together. It allows the community to create realistic expectations for the implementation of its vision, to develop financing options, or to reprioritize its line of services to enable it to take on new challenges. A good public education program requires systematic performance monitoring in order to provide reliable information for public consumption. The area of financial planning is one of the easiest areas of local government in which to develop a pilot performance measurement program. This is true because financial ratios are common tools of credit analysis, and credit rating agencies keep massive data on these ratios to establish benchmarks for communities of various sizes. These benchmark measures are published annually by Standard & Poor's and Moody's. At the time of the 1993 retreat, staff had already begun some developmental work in this area. Their efforts began with a view toward
community can
evaluate the
affordability of its
plans for services
and facilities as it
is putting those
plans together.
enabling the city to use a managed approach to debt issuance in order to expand its capital improvements program (CIP). At that time, the city's general capital improvement program, through which all non-enterprise capital improvements are acquired, had dedicated sources totaling about $500,000 per year. Myrtle Beach has a permanent resident population of around 30,000, but its service population now averages upwards of 100,000. Peak day population for the Grand Strand, of which the city of Myrtle Beach is the heart, is estimated at nearly 900,000. Council members and other participants realized that if they were to address the needs of such a community, they would have to fund the capital improvements program more aggressively. Taking on manageable levels of debt was one ready option. The city had made sparing use of debt for general capital improvements prior to that point, so it had considerable debt margin available. City leaders recognized the importance of developing comprehensive policies and financial plans in order to sustain investment grade credit ratings. By putting these into place before issuing major amounts of debt, they could show evidence of a well-reasoned and properly managed debt strategy, preserving the city's financial reputation and keeping the cost of capital low. What had begun strictly as a debt management plan quickly grew into a strategic financial plan as staff proceeded to work on the goal of adapting revenue structures to accommodate rapid growth. In performing its objectives for the 1994-95 fiscal year, Myrtle Beach's Budget and Evaluation Office conducted a thorough review of the economic environment and general business and political climate, along with a critical examination of existing financial policies. The results were used to formulate a strategic financial plan complete with a revised set of financial policies which staff and council believed to be more appropriate given the current environment. These policies all derived from the central thought that the city's financial planning and management activities should serve to maintain the financial strength needed in order to offer continuous high-quality services and to progress in reasonable fashion toward the vision of the city's comprehensive plan (which is to be adopted
3
WINTER 1998
FIGURE 1
Strategic Financial Plan Summary Mission Maintain the financial resiliency necessary to provide continuing high-quality municipal services and to make reasonable and consistent progress toward the vision established in the city's comprehensive plan.
4
Goals 1. Use a balanced mix of revenues which will ensure reasonable stability for operation at continuous service levels through economic cycles, but will provide the economic sensitivity suitable for responding to increased service demand in a rapid-growth environment. Strategies: • Match funding sources with types of expenditure so that the demand for money is consistent with the characteristics of the matching funding sources. In general, debt service funds require more stable revenue sources; capital improvement funds can accumulate more volatile revenues for future expenditure; operating funds require a balanced mix of supporting sources. • Utilize user charges for services that are “price excludable” in order to encourage economic efficiency and reduce the ad valorem tax burden. Devise charges in ways that observe principles of equity and encourage economic efficiency, and that can be administered at reasonable costs. 2. Maintain operating expenditures within the city's ability to raise revenues while keeping tax and rate structures competitive. Strategies: • Balance recurring expenditures/expenses with recurring revenues. Use non-recurring revenues to contribute to reserves or to purchase capital equipment. • Isolate volatile components of the revenue base and devise ways of directing them out of the operating budget and into capital reserves. • Maintain benchmark data on tax and fee rates of comparable municipal organizations and competitive private service providers. 3. Ensure continuity of service without the use of interim borrowing. Strategies: • Maintain fund balances adequate to meet working capital needs (at least 20% of annual expenditures in each governmental fund, 2:1 current ratios in enterprise funds). • Establish reasonable amounts for contingency accounts in the annual budget process. • Control exposure to risk and volatility in capital equipment replacement requirements through the Equipment Replacement Plan. 4. Maintain adequate capital financing sources and low costs of borrowing. Strategies: • Seek new pay-as-you-go sources of capital. • Maintain moderate credit ratios and carefully schedule new debt offerings so as to optimize use of credit and minimize impacts upon the ad valorem tax rate. • Position the city to be able to take advantage of debt refunding or restructuring opportunities which would offer present value savings of 3.0% or more or would free up debt capacity in future years when it may be needed for significant capital projects.
by March 1999). They thus recognize that the financial management structure exists in order to provide the resources necessary to deliver customer services. A summary of the plan appears in Figure 1.
Monitoring Progress Under the Strategic Financial Plan The strategic financial plan is viewed as a set of long-term goals and broad strategies for maintaining and improving financial resiliency. As with any plan, its success depends upon how it is put into action. Action is facilitated by breaking the long-term goals into quantifiable policy guides and milestones which can be used in the THE SOUTH CAROLINA POLICY FORUM
short run to advance the interests of the plan. Each year's budget includes a heavily annotated five-year pro forma statement of revenues, expenditures/expenses and changes in fund equity for each fund. This allows the reader to see the financial effects of new programs, not only upon current appropriations, but upon the city's funding capability for the coming years. It shows the effects of absorbing the operating expenses of capital projects scheduled in the city's CIP over the coming five years. Given reasonable assumptions about inflation rates, interest earnings, and other economic factors, it allows for sensitivity analysis to facilitate choices about the timing of new programs, new debt issues, and
FIGURE 2
Changes in General Fund Revenue Mix Under the Strategic Financial Plan Fines & Forfeits 5%
Use of Property 4%
Fines & Forfeits 5% Intergovernmental 4%
Intergovernmental 13%
Other Licenses 8%
Other Licenses 8%
Use of Property 3% Property Tax 25%
5
Property Tax 38%
Services & Charges 26%
Services & Charges 12%
Business Licenses 29%
Business Licenses 20%
proposed policy changes. In short, it allows for current decisions to be made with some recognition of their impacts, both positive and negative, in coming years. Progress on financial plan goals is measured continuously by means of benchmark comparisons with credit industry standards and specific policy targets developed by staff and council. The annual budget reports on these comparisons and demonstrates expected performance regarding key financial ratios over the five-year planning period. Illustrations taken from the 1997-98 budget follow.
The strategic
financial plan is
viewed as a set of
long-term goals and
Financial Plan Goal 1: Revenue Mix A comparison of the 1997-98 General Fund revenue mix with that of 1993-94 illustrates the effects of following the financial plan strategies for Goal 1. The mix of revenues going into the city's major operating fund has grown more responsive to inflation and to expanding service demand. Business license revenues, a function of gross receipts from business conducted within the corporate limit, make up 29% of the current revenue mix—an increase from 20% in 1994. Service charges have increased from 12% to 26%, primarily as a result of shifting from property taxes to user fees as the source of support for solid waste management. Property taxes, a rela-
broad strategies for
maintaining and
improving financial
resiliency.
tively stable but stagnant source, accounted for 38% of the General Fund revenue mix in 1993-94. Following implementation of the strategic financial plan, the city relies upon property taxes for only 25% of its governmental operating revenues. A larger share of the property tax levy has been shifted to the debt service fund, where stability in the revenue base is a greater asset. See Figure 2.
Financial Plan Goal 2: Maintain a Balanced Budget With Competitive Tax and Rate Structures Where national medians are not available or are not appropriate figures for comparison, the city uses a benchmark comparison group of ten southeastern cities which were chosen for similarities in the size and scope of their operations and because they are some of Myrtle Beach's main competitors in the labor force. See Figures 3 and 4. Cities of similar size in terms of resident population were not chosen because they typically were much smaller as organizations and offered a more narrow range of services. Instead, benchmark cities were chosen for similarities in size of budget, in organizational size and complexity, and in diversity of lines of service offered. The comparison group includes Charleston, Columbia, Greenville, and Rock Hill, SC; Asheville, WINTER 1998
High Point, and Wilmington, NC; Daytona Beach and Sarasota, FL; and Ocean City, Maryland. Each year, Myrtle Beach reports how its tax and utility rates compare with these cities. Similar data are kept for comparing business license rates and solid waste rates with those of private and governmental competitors in the area.
6
Financial Plan Goal 3: Ensure Continuity of Service Without Use of Interim Borrowing The city employs a working capital strategy designed to maintain fund balances adequate to meet working capital needs without interim borrowing. Avoiding the use of tax and revenue anticipation notes saves the cost of interest on the notes, and the cash held in “inventory” for a portion of the year is invested to produce revenue equivalent to almost 5.0% of the general fund tax levy. Fund balance as a percentage of operating expenditures is one common indicator of the ability to finance current operations without resorting to interim borrowing. Requisite levels of fund balance in governmental funds, and of the ratio of current assets to current liabilities in enterprise funds, are determined by studying the cash flow patterns of the various funds. Staff estimates the “inventory” of cash which is needed in order to finance services without interruption through the year. In certain funds, cash inflows and outflows may be well-synchronized and large fund balances may not be needed in order to provide uninterrupted service without interim borrowing. In other cases, as with the city's General Fund, outflows are more or less consistent from month to month while major revenues, such as property taxes and license fees, come in primarily during January, February, and May. Where cash flows are asynchronous, larger “inventories” of fund balance are needed at the beginning of the year in order to avoid falling into a negative cash position just before the big tax check arrives. See Figure 5. For the General Fund, city policy provides for the maintenance of fund balance levels at 20.0% of operating expenditures for the management of cash flow without interim borrowing and for a ready source of financing in the event of emergencies. Financial plans are formulated so as to THE SOUTH CAROLINA POLICY FORUM
FIGURE 3
Comparison of Taxes and Fees with Benchmark Sample Cities City Taxes
Overlapping Governments
Myrtle Beach, SC Greenville, SC Wilmington, NC Daytona Beach, FL Rock Hill, SC Asheville, NC High Point, NC Charleston, SC Columbia, SC Sarasota, FL Ocean City, MD $0
$500 $1000 $1500 $2000 $2500 $3000
FIGURE 4
Comparison of Taxes and Fees with Benchmark Sample Cities Water
Wastewater Greenville, SC Columbia, SC High Point, NC
Myrtle Beach, SC Rock Hill, SC Wilmington, NC Daytona Beach, FL Charleston, SC Sarasota, FL Asheville, NC $0
$10 $20 $30 $40 $50 $60 $70 $80
FIGURE 5
Ratio of Fund Balance to Operating Expenditures, General Fund 30%
25%
20%
15%
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
FIGURE6
Direct Net Debt Service as a Percentage of Operating Expenditures 20%
15%
10%
5%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Direct Net Debt Service as a Percentage of Operating Expenditures is a measure of the extent to which a jurisdiction's budget is comprised of fixed annual expenditures. It reflects the flexibility, or the lack of it, that a government retains in budgeting for its operations. Industry standards favor keeping annual debt service expenditures below 20.0%. The city's objective is
