Section 5
Section 2
SECTION 2 MESSAGE FROM THE COMMISSIONER OF FINANCE AND REVENUE Wilbur M. Berry Jr.
October 31, 2003 Citizens and Other Users of this Budget Information: In an effort to make information previously found only in the city’s budget book available to all our citizens, we are making it available over the Internet. The city’s budget book and this Internet presentation will be exactly the same. OBJECTIVES We hope that our presentation of FY 2004’s operating and capital budget will achieve the following four objectives: To define policy, as promulgated by the City Council. To serve as an operating guide for management staff to aid in the control of financial resources, while complying with the State’s requirements for cities and with general accepted accounting principles for government. To present the city’s financial plan for FY 2004, illustrating appropriations and the projected revenues from which the appropriations are funded. To serve as a communications document for the citizens of Clarksville who wish to understand how the City operates and the methods used to finance those operations. GOVERNMENTAL STRUCTURE OF CITY OF CLARKSVILLE The City was organized under Chapter 292 of the 1957 Private Acts of the General Assembly of the State of Tennessee. The City operates under a Mayor-Council form of government. The Mayor is elected at-large and serves a four-year term. The City council is composed of twelve representative citizens who are elected from wards to serve four-year terms. The major administrative and fund divisions of the City include: General Government (public safety, roads, buildings and grounds, recreation, and general), the Department of Electricity, the Gas, Water and Sewer Departments, the Clarksville Parking Authority, and the Clarksville Transit System. The City and its Component Units are separate entities for which the City is financially accountable. The City and its Component Units provide a full range of services including, but not limited to the construction and maintenance of highways streets and infrastructure; fire and police protection; public transportation; community services; electric. gas, water and wastewater utilities; sanitation services; recreation and cultural events. The City employs approximately 950 full time employees and approximately 356 part-time employees.
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Section 2 ISSUES FACING THE CITY IN FY 2004 The city faced several issues that had to be considered in the preparation of the FY 2004 budget. Some of the issues have implications beyond FY 2004. This budget document focuses primarily on the operations of the general government. The same issues that apply to the general government will also generally apply to the proprietary funds. Both the general government and the proprietary funds provide a service to essentially the same group of people. These people pay for the services they receive from the proprietary funds in their utility rates or user fees (transit). These people pay for the services they receive from the general government (fire and police protections, streets and highways, and recreational activities) in their taxes they pay, fines they pay, and/or in some instances user fees. These issues confronting the City in FY 2004 are: o
Economy. The national, state, and local economies impact the city’s revenue sources. As you will see in Section 4, about 75% of the revenues of the general government are sensitive to the economy. With the state’s current tax structure, this has both short-term and long-term implications. During good economic times the revenues will expand at a faster rate, in particular the revenues most affected are the sales taxes (both state and local), business taxes, and the property tax base. The ability of the city to expand and hopefully not contract its level of services is therefore dependent upon the economy. The city tries to avoid expanding and contracting its level of services with the economy. The city’s general government (general fund) budget is revenue driven. The maximum total expenditures and financing uses (transfers out) are limited to the total estimated revenues and financing sources (transfers in) the city can reasonably expect to receive. The proprietary funds are similar to the general fund. The proprietary funds establish their budget operations within the revenues they reasonably expect to receive, but unlike the general government, their budgets are flexible in that it expands and contracts with their sales.
o
State of Tennessee’s ongoing financial difficulties. The state has a funding imbalance. Depending upon who is speaking, it is either a funding problem or an expenditure problem. In any case, after years of consideration and debate on whether to take all or a portion of the state shared revenues, in FY 2004 the state made the decision to withhold revenues that in prior fiscal years the city would have received. This resulted in a loss of approximately $645,000 in state shared revenues. We believe that these revenues will not be restored in a future fiscal year. The State of Tennessee’s financial health is tied to the economy. This is not unlike the city’s problem. Tennessee’s financial health is dependent primarily on the sales tax. This economic dependency has two major problems: 1) We now live in an age of on-line purchases over the internet, these sales may or may not have the state and local sales taxes collected on them; and 2) Tennessee is surrounded by states with a lesser sales tax, with three of the top five cities on the borders of the state (Chattanooga, Memphis, and Clarksville). In FY 2004 the state indicated a willingness to balance their budget at the expense of local governments. Funds were taken that will probably not be restored in future years. A precedent was established that makes future reductions more probable. It is very possible that this was the beginning of the erosion of state share revenues the cities across the state receives.
o
Employee compensation. The city continues to implement the pay plan established in 1998. FY 2004 was a year in which there was to be a review of all salaries, comparing the salaries to the prevailing wage and salary market. Generally in those years in which this type of reevaluation occurs, there is a significant increase in salaries. FY 2004 was no exception. Those employees’ benefits that are a percentage of salaries and wages increased with the salaries and wages. These benefits are social security, payments to the Tennessee Consolidated Retirement System (TCRS), and the employees’ disability insurance. This wage and salary review and subsequent pay adjustment will carry forward to fiscal years beyond FY 2004. The TCRS is scheduled to issue adjustments in the rates for pension payments made to the TCRS by its participants such as the City of Clarksville. Our current
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Section 2 TCRS rate is 10.88%. It is very probable that this rate will increase for the Fiscal Years 2005 and 2006 because of several factors one of which will be the level of annual salary increases. Health and Dental Insurances increases substantially and FY 2004 was no exception. Additional information about significant changes may be found in Sections 5 and 6. o
Population. The city continues to grow at a rapid pace, the estimates for the city’s population is between 106,000 and 108,000. Population increases bring with it demands for services. Not only are there pressures just to maintain the current levels of services, but to provide new and better services.
o
Fort Campbell. Fort Campbell is the home of the 101st Airborne Division. This division was deployed to Iraq and remains deployed there. We hope their safe return is at the earliest possible date. This deployment once again demonstrated the dependence of the nation on the 101st and the other tenant units at Fort Campbell in the overall defense of the United States. We also believe that this dependence insures the continued operation of the military post when future discussions occur about base closings. The deployment could have an adverse impact on the city if dependents should decide to leave the area, however at this time we do not believe this has happened, nor do we believe it will happen in FY 2004.
o
Implementation of changes in accounting principles as issued by the Governmental Accounting Standards Board, present a problem in that movement is further away from the cash or near cash thinking generally associated with the budgets. Movement of the GASB from flow of funds to results of operations will continue to increase the complexity of the budget’s preparation. The governmental funds are prepared on the basis consistent with the financial reporting at the fund level, the modified accrual basis. We believe that this method more closely matches up with the budget process where emphasis is on the flow of funds. FINANCIAL MANAGEMENT
The Commissioner of Finance and Revenue has charge of the fiscal affairs of the City except as those that may be delegated by the Council. He/she reports directly to the Mayor. The Commissioner is the department head of the Department of Finance and Revenue. The Department of Finance and Revenue is responsible for the accounting and financial management systems of general government of the City. The Commissioner has custody of all reports, papers, and vouchers relating to the fiscal affairs of the City and the records he/she maintains shall show the financial operation and condition of the property, assets, claims, and liabilities of the City. The non-governmental funds of the City maintain their own accounting and financial systems and have chief financial officers for the oversight of their respective funds. FISCAL YEAR The City operates on a fiscal year, which commences July 1 and ends June 30. ACCOUNTING SYSTEM AND FINANCIAL REPORTING The City's general government’s accounting system is maintained by the Department of Finance and Revenue. Each of the independent boards and commissions maintain separate accounting systems. The City maintains a financial reporting system that provides timely and accurate reports on the City's financial position and the results of its operation. The City follows generally accepted accounting principles accepted in the United States of America. Accounting records for general governmental operations are maintained on a modified accrual basis. Under this system, revenues are recorded when susceptible to accrual, that is, both measurable and available. Expenditures will be paid from expendable available financial resources. Budgetary control is maintained in each of the appropriate funds by a formal appropriation system. The City retains an independent certified public accounting firm to provide annual audits of all City funds. BUDGETING AND APPROPRIATION PROCEDURES The City's financial plans are embodied in the annual capital and operating budgets. These budgets reflect the projection of all receipts from and disbursements to all sources, and present the level of government services and the method of distributing costs to the various segments of the community
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Section 2 through the collection of taxes and fees. The City is required by its Charter to adopt annual budgets for those operating funds that are under the direct control of City Council. This includes the general fund, special revenue funds, debt service funds, and the capital projects fund, some internal service funds, certain enterprise funds, and certain capital project's funds. Article V, Section 2, Annual budget provides that on or before a date to be fixed by the city council, there shall be submitted to the council a proposed budget for the next fiscal year. Said budget shall be prepared under the direction of the mayor and by the commissioner of finance and revenue and those members of the council as may be appointed. Article V, Section 3, Action by council on budget states .The city council shall adopt an appropriations ordinance based on the approved budget. Appropriations need not be in more detail than a lump sum for each department and agency. The council shall not adopt any appropriations ordinance in excess of the available funds, except to provide for an actual emergency threatening the health, property or lives of the inhabitants of the city, providing council unanimously agrees there is such an emergency, and provided further that the council shall be empowered to borrow such funds as may be necessary to meet such emergencies notwithstanding the provisions of Article I, Section 5(a)(16), as amended. If an appropriations ordinance is not adopted before the beginning of the new fiscal year, the appropriations ordinance for the fiscal year ending on June 30, shall become the appropriations ordinance for the new fiscal year beginning on the following July 1, until such time as an appropriations ordinance for the new fiscal year can be adopted. The council shall adopt an appropriations ordinance by affirmative vote of a majority of the council on two (2) separate readings of the appropriations ordinance. The proposed budget includes anticipated expenditures by department and sources of financing expenditures." Public hearings are conducted to allow taxpayers an opportunity to comment on the proposed budgets before they become law. The Mayor is authorized to transfer budgeted amounts within departments’ operations of the governmental funds. All other transfers or supplemental appropriations or amendments to the budgets must be enacted by City Council. Other management is not authorized to make such change. Appropriations lapse at each fiscal year end. Actual expenditures and operating transfers out cannot legally exceed budget appropriations at the individual fund level. Budgetary control, however, is maintained at the departmental level for the general fund. The City prepares its budget on a basis of accounting consistent with Generally Accepted Accounting Principles ("GAAP"). The actual results of operations are presented in the combined financial statement of revenues, expenditures and changes in fund balance-budget and actual on the budgetary basis to provide a meaningful comparison of actual results with the budget because all funds are not budgeted. Currently the City does not encumber, however those commitments that would normally be an encumbrance or a commitment related to an unperformed contract for goods or services are provided for in the subsequent years budget during the amendment process of current fiscal year and the adoption process for the subsequent fiscal year. The City is considering encumbering in future years, however the current system works in the annual allocation of the City's resources. CASH MANAGEMENT SYSTEM The City's general government 's and Parking Authority's Cash Management System is maintained in the Department of Finance and Revenue. The City's proprietary funds' (Electric Department; Gas, Water, and Sewer Departments; and Trans t System) Cash Management Systems are maintained internally within each department. The objective of ach System is to maximize both the cash available for investments and the earnings from such investment. Statutes authorize the City to invest in obligations of the United States Treasury, its agencies and instrumentalities, commercial paper, banker's acceptances and the State Treasurer's investment Pool. The City's banking relationship, for all funds, is designed to capture the gains possible through external float management and utilizes techniques such as master disbursement accounts and lock-box services.
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Section 2 BUDGET SUMMARY Fees charged to the consumers of the funds’ services and products fund the budgets of the proprietary funds. For the Electric Department, the Gas Department, and Water and Sewer Department this will be the utilities’ ratepayers. For the Transit System it the funding is from riders and also from federal, state, and local subsidies. For the Parking Authority the funding of comes from users of on and off-street parking. In all cases the payer receives a tangible service at the point of receiving the service. Taxes, licenses, permits, fines, grants, and user fees fund the general government. The return on what is paid to the general government is not as evident or is frequently not perceived as being a fair exchange, this contributes to the attention given the general government.
Fund General Fund Drug Fund Community Development Debt Service Fund Gas and Water Department Electric Department Transit System Parking Authority Internal Service Fund Totals
Chart 2 - 1 All Funds Operating Budget Fund Approving Operations Budget - FY 2004 Type Authority Revenues Expenditures Surplus/Deficit Governmental Council 51,646,482 51,371,990 274,492 Governmental Council 86,800 86,800 Governmental Governmental
Council Council
1,648,500 7,083,515
1,648,500 6,900,032
183,483
Proprietary
Council
59,832,960
56,782,481
3,050,479
Proprietary Proprietary
Board Council Council / Board Council / Board
77,498,694 2,793,406
76,947,289 2,793,406
551,405 -
359,000
359,000
2,480,000 203,429,357
2,480,000 199,369,498
Proprietary Proprietary
4,059,859
All the above funds of the city have budgeted at least break even on their respective budgets. Each of the funds should have sufficient fund balance or retained earnings that will enable them to provide a consistent level of services throughout the fiscal year. For additional information see the following sections: o
General fund starting with Section 3 and continuing through Section 9
o
Gas and Water, Section 11
o
Electric Department, Section 12
o
Parking Authority, Section 13
o
Transit System, Section 14
o
Internal Service Fund, Section 15
o
Special Revenue Funds, Section 16
o
Debt Service Fund, Section 17 GENERAL GOVERNMENT
The budget is summarized in Chart 2-2. The total budgeted expenditures are $51,371,989. The $51,371,989 total budget is allocated as illustrated by Chart 2-3. Because the city is a service provider, it is not surprising that our greatest investment during the fiscal year is in our human resources, our personnel. The city’s personnel provide necessary services that cannot be replaced by automation or equipment. As might be expected that public safety consumes 46% of the city’s
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Section 2 total budget. Police, Fire, Streets, and Financing Use (transfers out to other funds of the city) account for 75% of the city’s total budget. When changing the view from a program perspective to type of expenditure or financing use perspective, salaries and benefits account for 62% of the total budget. Chart 2-4 provides actual dollar amounts budgeted for major expenditures illustrated by percentages in Chart 2-3. Chart 2 - 2 Summary Budget FY 2004 Operating Revenues 47,674,753 Financing Sources (Transfers In) 3,971,729 Total Available 51,646,482 Less: Departments (39,785,482) Other Expenditures (594,296) Miscellaneous Agencies (2,955,787) Transfers Out (8,036,425) Total Expenditures and Uses (51,371,990) Estimated Surplus 274,492 Beginning Fund Balance 13,739,845 Ending Fund Balance 14,014,337
Chart 2-3 FY 2004 Budget $51,371,989 Transit System 2% Other Expenditures and Miscellaneous Agencies 7%
Debt Service 13%
Misc. Financing Uses 1% Salaries 46%
Capital Outlay 1% Operating Expenditures 15% Employees Benefits 15%
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Section 2
Chart 2-4 Summary of Expenditures and Financing Uses FY 2004 Salaries Employees Benefits Operating Expenditures Capital Outlay Other Expenditures and Miscellaneous Agencies Transit System Debt Service Misc. Financing Uses Total Expenditures and Uses
24,115,980 7,720,329 7,684,049 265,123 3,550,083 866,846 6,505,402 664,177 51,371,989
NOTE: Actual budget is $51,371,990, however there is a rounding difference of $1.00 In FY 2004, the revenues and financing sources of funding to pay for the above budgeted expenditures total $51,646,482. Obviously the estimated revenues and financing sources (transfers in from other funds of the city) exceed the $51,371,989. There should be a surplus of approximately $274,492 if the actual operations are reasonably close to the budgeted amounts (see Chart 2-2). The Charts 2-5 and 2-6 disclose the primary sources of funding.
Chart 2 - 5 FY 2004 Estimated Revenues - $51,646,482
Grants-Federal 1.2%
Grants-Other 0.0% Interest 0.4% Miscellaneous 0.5%
Fees for Services 3.0%
Fines and Forfeitures 1.0%
Transfer in From Other Funds 7.7%
Permits and Licenses 3.3% Grants-State 0.1% Local Taxes 62.6%
State Shared Revenues 20.4%
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Section 2
Chart 2 – 6 Summary of Revenues For Fiscal Years FY 2002, FY 2003, and FY 2004
Description Local Taxes State Shared Revenues Grants-State Permits and Licenses Fees for Services Fines and Forfeitures Grants-Federal Grants-Other Interest Miscellaneous Transfer in From Other Funds Total Operating Revenues and Other Financing Sources
FY 2002 Actual 30,903,639 11,093,253 34,058 1,760,830 1,359,581 626,429 655,097 277,997 544,569 3,362,501
2003 Amended 31,545,350 10,976,900 23,790 1,712,200 1,302,110 513,100 490,210 2,900 187,500 137,555 3,577,330
FY 2004 Proposed 32,350,601 10,524,113 28,504 1,708,700 1,536,910 503,600 597,160 187,500 237,665 3,971,729
50,617,954
50,468,945
51,646,482
GENERAL BUDGETING PROCESS FOR FY 2004 For FY 2004, all programs and departments of the city are essentially line item based, however the city will continue to work toward measuring performance. The city continued to participate with the Municipal Technical Advisor Service (MTAS) in FY 2003 in MTAS’s program to measure and compare performance in the public safety sector (fire and police). All participants in this program are Tennessee cities. The City concluded a compliance audit that addressed compliance and internal control issues. We will address those issues raised by the compliance and internal control audit that need to be addressed. The budget preparation in FY 2004 began with departments submitting request for what they believed their departments needed to function at current or improved levels. FY 2004’s expenditures were estimated for each program. Revenues were estimated during the same period that the departments were estimating their expenditures. The departments and miscellaneous agencies submitted their budgets. Due to the situation at the state level, the departments were then told to reduce their initial FY 2004 requests, with each department’s goal being 5% less than FY 2003’s budget levels. Many departments that are labor intensive had difficulty making the requested reductions. General guidelines were that were given, stated that no employees’ positions would be eliminated as part of the budget reductions. Other than restrictions on eliminating positions, departments were allowed total discretion as to where to make their reduction. If the department proposed reductions that involved public safety or services that the citizens accustomed to receiving were part of the department’s proposed reductions, the departments were then directed to find other cost reduction options elsewhere. Throughout the spring there was indecision at the local level because of the indecision at the state level. As the spring progressed, it became apparent that the state’s financial situation would result in reduced levels state shared revenues to the city. Capital requests within the departments budgets were in FY 2004 are very limited. There were no new capital projects proposed to the city council in FY 2004. Operating expenditures were scaled back to extremely low levels.
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Section 2 IMPACT OF THE STATE OF TENNESSEE’S ACTIONS IN FY 2004 Unfortunately the State of Tennessee chose to balance its budget at the expense of the cities and counties. For a brief period of time it appeared that the city would loose about 9% of all its state shared revenues. The final loss in state shared revenues was about $645,000. The following estimates by the University of Tennessee’s Municipal Technical Advisory Service for state shared revenues in FY 2004 are as follows: 1) State sales tax (cut 7.5 percent) $56.49 2) State beer tax (cut nine percent) $0.45 3) Special petroleum products tax (no cut) $2.26 4) Gross receipts tax (TVA in lieu of taxes – no cut) $7.08 a. Total General Fund revenue $66.28 5) Gasoline and motor fuel taxes (no cut) $27.13 6) TOTAL PER CAPITA (General and state street aid funds) $93.41 7) The Hall Income Tax. The omnibus bill cuts amounts going back to cities by 33 percent beginning in FY 2004. The statewide projected increase is four percent, but individual city amounts will fluctuate. A few cities will not be cut the entire 33 percent due. 8) The corporate excise tax. The statewide projected increase is one percent. This tax is based on bank profits and is distributed based on situs in lieu of intangible personal property taxes. Cities must levy a property tax in order to receive revenue from this tax. 9) The mixed drink tax. The statewide projected increase is 5.07 percent. The distribution back to cities was cut nine percent in the omnibus bill. 10) Public safety salary supplements, which will be funded at reduced rates from FY 2003. The supplements were cut by nine percent in the appropriations bill. Upon completion of certain training requirements, police officers and fire personnel are eligible for bonus salary supplements of $546 and $409.50 respectively. BALANCED BUDGET The city’s revenues and other financing sources (transfers in) will exceed the city’s expenditures and financing uses. The city should finish out the year with a fund balance of $14 million, which is 27% of the revenues and financing sources and 27% of the expenditures and financing uses. There are no new capital projects planned for FY 2004. Capital projects were reviewed and a decision was made not to undertake any project that would require the issue of debt or result in reductions of the fund balance. There was no new request submitted to the city council to authorize additional debt in FY 2004. Funding of the debt service should be in excess of actual requirements. From a conservative perspective, the interest rate on the variable rate loans was estimated at 3%, however we believe the debt will be closer to 1% to 1.5% during the fiscal year. We anticipate transferring the total amount of the appropriated debt to the debt service fund. What is not required for the payment of debt service (the payment of principal and interest) will be accumulated in the debt service fund for possible early retirement of principal. We have completed a refunding of the 1993 general obligation bonds. The refunding will result in excess of $130,000 in reduced debt service over the next five years. In FY 2004 we will retire the 1992 general refunding bonds, debt service on this debt was in excess of $500, 000 in FY 2004. FY 2004’s budget continues the implementation of the 1998 pay plan as found within the municipal code and the implementation of the city’s longevity plan. Across the board adjustments were made to all steps in all pay grades in grades 1 through 6. A grade 7 was added the additional grade is 3.5% above grade 6. The salary differential between grades in grades 1 through 6 is 4%. The cost of the adjustments to the city’s salaries and
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Section 2 Many of the employees benefits (the employer’s social security, payments to the Tennessee Consolidated Retirement System, and the disability insurances are percentages of the employees’ salaries, therefore as the salaries increased these payments increased. Overtime rates will increase with the increase in the rates of pay. Insurances increased significantly. The city estimates that health insurance will increase by 15% and dental insurance will increase by 10%. The operation of the Municipal Garage as an internal service fund was discontinued. The administration believed that the interest of the city as a whole will be better served if the garage operations are within the framework of the general fund and the manager of the garage is held responsible for the maintenance of the city’s fleet of vehicles. There were very few new employees’ positions authorized in FY 2004. The Police Department received a Department of Justice COPS grant. As a result of the grant the city council approved twelve police officer positions to be hired in FY 2004. Capital outlay is down from prior years levels. For additional information see Section 5. FIVE-YEAR CAPITAL IMPROVEMENT PLAN The city’s five years capital improvement plan may be found in Section 10. The capital improvement plan represents those projects that the city will evaluate and consider for inclusion in a future operating or capital projects budget. Inclusion of the project in the capital improvement plan does not necessarily guarantee inclusion of the project or expenditure of funds in a future budget. It does however start the review and evaluation phase of the project’s value to the city and/or the proposed expenditure’s merits. The city is aware that as the capital improvements are completed and come on line there will be increased maintenance and operating cost associated with the project’s economic life. Generally for equipment, streets, or buildings, the maintenance should generally be relatively low during the first few years of the economic life. We believe that there will be very little financial impact during the early years of an asset’s economic life. As the economic life of an asset progresses the oversight department will make the appropriate adjustments in their maintenance line items of their budget. A significant number of projects are street related. As part required by GASB 34 implementation, the Street Department will be developing minimum levels of maintenance, their goal is to maintain streets at minimum predetermined standards. In lieu of depreciating the streets, the city has adopted the modified method. The non-technical definition of this approach is that the city has determined certain minimum standards that the streets of Clarksville must be in. The city will fund the Streets Department at levels necessary to insure they are maintained at this minimum standard, therefore in theory, there will not be any decline in the useful life of the asset below the minimum standard.
DEBT Outstanding debt at June 30, 2003 by issue is Chart 2 – 7
Original Amount of Debt Issue Debt Issue Series 1976 FmHA Loan Industrial Park Series 1992 General Refunding Series 1993
Debt Outstanding at June 30, 2003 Due at June 30, 2003 Variable Fixed Total Rate Rate Debt Debt Debt Due
Inception to 30-Jun-03 Principal Paid
Balance to Be Drawn on TMBF Loans (4)
800,000
440,000
440,000
360,000
-
4,475,000 5,185,000
515,000 2,530,000
515,000 2,530,000
3,960,000 2,655,000
-
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Section 2
Chart 2 – 7
Original Amount of Debt Issue Debt Issue General Obligation Series 1994 TMBF Loan Series 1996 TMBF Loan Series 1997 TMBF Loan Series 1999 TMBF Loan Series 2001 TMBF (1) Loan Series 2001 TMBF Loan Series 2001 Interfund Loan Series 2002 Taxable General Obligation Total Due at June 30, 2003 Self-Supporting Debt for Which City is Contingently Liable In The Event of NonPayment Series 1990 TMBF Loan Parking Authority Series 2002 General Improvement Revenue and Tax Bonds (E-911 Emergency Communication District Total SelfSupporting Debt(2) Total All G. O. Debt (includes debt for which city is contingently liable)
Debt Outstanding at June 30, 2003 Due at June 30, 2003 Variable Fixed Total Rate Rate Debt Debt Debt Due
Inception to 30-Jun-03 Principal Paid
Balance to Be Drawn on TMBF Loans (4)
4,000,000
2,052,100
2,052,100
1,947,900
-
4,976,000
946,700
946,700
4,029,300
-
16,457,000
12,837,000
12,837,000
3,620,000
-
18,025,000
15,337,470
15,337,470
1,886,000
801,530
13,795,000
6,653,397
6,653,397
4,010,000
3,131,603
4,976,000
3,618,352
3,618,352
148,000
1,209,648
137,157
137,157
715,245
-
852,402 6,750,000
-
6,630,000
6,630,000
120,000
80,291,402
41,445,019
10,252,157
51,697,175
23,451,445
5,142,781
1,969,544
1,068,246
1,068,246
901,298
-
4,950,000
4,950,000
150,000
-
1,068,246
4,950,000
6,018,246
1,051,298
-
42,513,265
15,202,157
57,715,421
24,502,743
5,142,781
5,100,000
The outstanding general obligation debt at June 30, 2003 was $51,697,175, which does not include self-supporting debt. Self-supporting debt is that debt that another fund or entity has promised to pay the debt service from its funds. The general government will issue debt with the pledge of the city’s underlying tax support (the pledge of the full faith and credit of the city). The city does to get a lower interest rate for the entities pledging to get a lower interest rate. Two such pledges for the payment of debt service are from the Parking Authority and the E-911 Emergency Communication District. The
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Section 2 debt of the parking authority at June 30, 2003 was $1,068,246. Debt for which the E-911 Emergency Communication District has promised to repay was $4,950,000. Interest is not calculated in the outstanding debt at June 30, only the principal. The reason for this is interest is not considered due until the due date. See Section 8 for additional information. The city does not have any debt limitations within its city code or within the Tennessee Code Annotated. Common business sense prevails in the absence of the debt limitations. Before debt can be issued, the debt issue must be recommended to the city council and the city council must approve the debt. No new debt issues will occur in FY 2004 except for a refunding of the 1993 general obligation bonds to take advantage of lower interest rates. No new debt for new money will occur in FY 2004 and FY 2005 is doubtful. In the issuance of debt the following management policies guide: 1) Debt will not be issued to fund operating expenditures. Operating expenditures are those costs that can be expected to occur on a reoccurring basis and are for the normal operations of the city. These expenditures are typically non-capital acquisition costs, however some capital outlay is included in the operating budget of the departments. These capital costs are included in the operating budgets of the departments because they can be reasonably expected to be reoccurring in some amount each fiscal year. Operating expenditures may include costs of planning that may or may not result in some future capital project or capital acquisition. 2) The debt is not issued for planning alone; there must be an asset that will be realized from the issue of debt. Obviously, feasibility studies, impact studies, architectural and engineering studies and plans are part of the cost of a project, however unless we are ready to proceed with construction, we pay for these from the funds of the general government. If the project has a high probability of proceeding, the City Council will pass a resolution expressing its intent to reimburse itself if the city issues bonds at some future date. 3) The users of or those persons receiving benefits from the asset should pay for high cost capital assets having an economic life of five years or longer. It would not be prudent or financially feasible to pay for these types of assets from current fiscal year’s operating revenues. While it is desirable to have a mix of debt financing and pay as you go financing, capital assets with a substantially long economic life should be paid for with debt proceeds over the economic life by the citizens benefiting from the asset. 4) The assets acquired with debt proceeds must have an economic life at least equal and generally in excess of the term of the bonds. 5) At least 50% of the debt being considered will be retired within 10 years of issue. Debt service schedules will provide for relatively equal annual debt service. 6) The city is not subject to any state or other law, which limits the amount of net bonded debt, that a city may have outstanding. The City’s full faith and credit is pledged for the repayment of all general obligation debt and the city is contingently liable for repayment of revenue bond debt. WHAT IS AHEAD IN FY 2005 AND BEYOND We believe it is possible that the state will again have financial problems in FY 2005 or soon thereafter. The legislature has shown a willingness to take a portion of the state shared revenues, we believe it is possible that they will do this again if the legislature’s choices are take additional state shared revenues or pass a state income tax. In FY 2004 they retained approximately $645,000 that had been previously distributed to the city. The city’s options when this situation occurs are quite limited. Our options are: (1) cut expenditures, (2) raise property taxes, or (3) a combination of (1) and (2). The $645,000 that the state retained was equal to approximately five cents of the property tax rate. Salaries and benefits will continue to increase. Under the current system, employees receive a one step pay increase each fiscal year until they reach the last step, now step 7. Employees on step 7
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Section 2 may receive periodic pay adjustments to their salaries upon the recommendation of the city’s salary consultant. Benefits that are a percent of salaries such as the employer’s share of social security, payments to the Tennessee Consolidated Retirement System (TCRS), payments for employees’ disability insurance will increase as pays increase. Overtime pay will also follow salaries in this upward trend. The cost of health insurance will continue to increase as will dental insurance. In FY 2005 the city’s contribution to the Tennessee Consolidated Retirement System will change. The rate is subject to change every two years after the completion of the actuarial study by the State. We believe it is highly probable that the 10.88% rate will increase. We believe the increase will be due to the following factors: (1) the TCRS suffered declines in the equities market like many other investors, (2) adjustments to the pay scales like the one performed in FY 2004 will ultimately lead to higher pension payments, therefore the current cost to pay for these future payments will increase, and (3) as the number of employees increases, the payments to the TCRS will increase. In FY 2004 the city used a 3% interest rate in its calculation of the interest estimates for FY 2004 that will be paid on the Tennessee Municipal Bond Fund Loans (TMBF) (variable rate loans). At June 30, 2003, the variable interest rate was approximately 1.4%. We realize that we a near historic lows in interest rates and that in future years the rates will increase, however in the absence of additional debt, the principal should be lower at that time and partially offset the interest rate increase. Interest rates for the variable rate loans have typically been in 3.5% to 4.5% since we have 1988 when we first started using the TMBF loan program. Growth in population has a cost. Demand for services will increase. Demand for additional services will occur. The city is a service provider. The service we provide is generally labor intensive. To expand services or to maintain current levels of services, e.g. a certain number of police officers per 1,000 of the city’s population, the city’s workforce will need to expand. Increases in the number of employees will increase not only the salaries and other pays (overtime and longevity), but increases will occur in social security, TCRS payments, and disability insurances. Other fixed rate employees’ benefits such as health and dental insurance payments will in increase. Inflation will continue to be a factor. The cost of doing business will go up from fiscal year to fiscal year because of inflation. Inflation has been very low, however as economic cycles change, we realize that the inflation rate could increase. In some future fiscal year if the federal deficits continue, there is the potential for inflation to increase at a higher rate than we are currently experiencing. The deficit will also pressure interest rates upward. Stability of Fort Campbell is fairly certain, we do not believe it will be subject to either closing or downsizing. Fort Campbell and the 101st Airborne Division are important components in the national defense. We do not believe Fort Campbell is in danger of down sizing because of this importance. Fort Campbell is unique in that it is probably the largest employer in two states, Tennessee and Kentucky. Fort Campbell should benefit from the support of representatives and senators from two states. Deployments, both the magnitude and the duration of the deployments, present uncertainty not only to the active duty personnel assigned to the post and their families but present uncertainty to the community as w whole. The deployment to Iraq has not adversely affected the economy to the extent past deployments have. Police fleet of vehicles that was purchased in the October 1998 to February 1999 period, should have an economic life expectancy of 6 to 8 years. We believe the expected life will be closer to 8 years. The fleet will probably need to be replaced in approximately FY 2007. The city may choose to try a phased in replacement beginning in FY 2006 to FY 2008. COPS grants that were awarded for the twelve officers and other Department of Justice grants, have a limited life. These grants generally pay a limited percentage over an initial start up period. In the case of COPS grants, this initial period is three years after which the city is paying 100% of the salaries and benefits. This goes to the increases in the costs of a service organization such as the city in the providing of services. Growth in revenues and other financing sources should be at a rate of 5% per year. We are using revenues and other financing sources as our measurement due to the changes that the Governmental Accounting Standards Board has caused to occur in the classification of revenues.
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Section 2 HOW TO USE THIS BOOK? We recommend the following for the user of this book. 1) Read the Mayor’s letter. As the administrative elective head of the government he sets the direction of the city within the framework or the parameters established by the council through their legislative acts. 2) Read Section 3 the “Budget in the Brief”. This section presents an abbreviated and concise view of the city’s general government. For many readers the level of detail in the Section 3 may be sufficient. 3) If after reading Section 3, the reader needs more information, Sections 4 through 9 addresses the budgets and operations of the governmental funds (generally tax supported funds such as the general fund). 4) Section 10 provides information about the five-year capital improvement program. 5) Section 11 through 14 contains the proprietary funds’ budgets (Gas and Water Department, Electric Department, Transit System, and Parking Authority). 6) Section 15 provides information about the internal service fund. 7) Section 16 is the Special Revenue Funds summary. We did not devote a lot of space to these governmental funds because their transactions are basically very few in numbers and dollar amounts or they are in and out types of transactions. 8) Section 17 presents the Debt Service Fund. This section is very abbreviated because there are not that many transactions during the fiscal year. Funds are generally transferred into the Debt Service Fund on the day the debt service is due and is transferred out immediately. 9) Section 18 presents the legal basis for the budgets as found within the Tennessee Code Annotated and the Official Municipal Code of the City of Clarksville. 10) Section 19 is a glossary of frequently used terms and it might be advantageous for the reader to review the glossary before reading sections 4 through 14. 11) Sections 20 through 25 present miscellaneous data that may help the reader unfamiliar with the city’s organizational structure, and policies. These sections should help the reader understand the city a whole better. We hope you find the budget document useful and invite your comments. It is our hope that our objective of providing a useful document will be achieved. Sincerely, Wilbur M. Berry Jr. Commissioner of Finance and Revenue City of Clarksville
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SECTION 2 MESSAGE FROM THE COMMISSIONER OF FINANCE AND REVENUE Wilbur M. Berry Jr.
October 31, 2003 Citizens and Other Users of this Budget Information: In an effort to make information previously found only in the city’s budget book available to all our citizens, we are making it available over the Internet. The city’s budget book and this Internet presentation will be exactly the same. OBJECTIVES We hope that our presentation of FY 2004’s operating and capital budget will achieve the following four objectives: To define policy, as promulgated by the City Council. To serve as an operating guide for management staff to aid in the control of financial resources, while complying with the State’s requirements for cities and with general accepted accounting principles for government. To present the city’s financial plan for FY 2004, illustrating appropriations and the projected revenues from which the appropriations are funded. To serve as a communications document for the citizens of Clarksville who wish to understand how the City operates and the methods used to finance those operations. GOVERNMENTAL STRUCTURE OF CITY OF CLARKSVILLE The City was organized under Chapter 292 of the 1957 Private Acts of the General Assembly of the State of Tennessee. The City operates under a Mayor-Council form of government. The Mayor is elected at-large and serves a four-year term. The City council is composed of twelve representative citizens who are elected from wards to serve four-year terms. The major administrative and fund divisions of the City include: General Government (public safety, roads, buildings and grounds, recreation, and general), the Department of Electricity, the Gas, Water and Sewer Departments, the Clarksville Parking Authority, and the Clarksville Transit System. The City and its Component Units are separate entities for which the City is financially accountable. The City and its Component Units provide a full range of services including, but not limited to the construction and maintenance of highways streets and infrastructure; fire and police protection; public transportation; community services; electric. gas, water and wastewater utilities; sanitation services; recreation and cultural events. The City employs approximately 950 full time employees and approximately 356 part-time employees.
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Section 2 ISSUES FACING THE CITY IN FY 2004 The city faced several issues that had to be considered in the preparation of the FY 2004 budget. Some of the issues have implications beyond FY 2004. This budget document focuses primarily on the operations of the general government. The same issues that apply to the general government will also generally apply to the proprietary funds. Both the general government and the proprietary funds provide a service to essentially the same group of people. These people pay for the services they receive from the proprietary funds in their utility rates or user fees (transit). These people pay for the services they receive from the general government (fire and police protections, streets and highways, and recreational activities) in their taxes they pay, fines they pay, and/or in some instances user fees. These issues confronting the City in FY 2004 are: o
Economy. The national, state, and local economies impact the city’s revenue sources. As you will see in Section 4, about 75% of the revenues of the general government are sensitive to the economy. With the state’s current tax structure, this has both short-term and long-term implications. During good economic times the revenues will expand at a faster rate, in particular the revenues most affected are the sales taxes (both state and local), business taxes, and the property tax base. The ability of the city to expand and hopefully not contract its level of services is therefore dependent upon the economy. The city tries to avoid expanding and contracting its level of services with the economy. The city’s general government (general fund) budget is revenue driven. The maximum total expenditures and financing uses (transfers out) are limited to the total estimated revenues and financing sources (transfers in) the city can reasonably expect to receive. The proprietary funds are similar to the general fund. The proprietary funds establish their budget operations within the revenues they reasonably expect to receive, but unlike the general government, their budgets are flexible in that it expands and contracts with their sales.
o
State of Tennessee’s ongoing financial difficulties. The state has a funding imbalance. Depending upon who is speaking, it is either a funding problem or an expenditure problem. In any case, after years of consideration and debate on whether to take all or a portion of the state shared revenues, in FY 2004 the state made the decision to withhold revenues that in prior fiscal years the city would have received. This resulted in a loss of approximately $645,000 in state shared revenues. We believe that these revenues will not be restored in a future fiscal year. The State of Tennessee’s financial health is tied to the economy. This is not unlike the city’s problem. Tennessee’s financial health is dependent primarily on the sales tax. This economic dependency has two major problems: 1) We now live in an age of on-line purchases over the internet, these sales may or may not have the state and local sales taxes collected on them; and 2) Tennessee is surrounded by states with a lesser sales tax, with three of the top five cities on the borders of the state (Chattanooga, Memphis, and Clarksville). In FY 2004 the state indicated a willingness to balance their budget at the expense of local governments. Funds were taken that will probably not be restored in future years. A precedent was established that makes future reductions more probable. It is very possible that this was the beginning of the erosion of state share revenues the cities across the state receives.
o
Employee compensation. The city continues to implement the pay plan established in 1998. FY 2004 was a year in which there was to be a review of all salaries, comparing the salaries to the prevailing wage and salary market. Generally in those years in which this type of reevaluation occurs, there is a significant increase in salaries. FY 2004 was no exception. Those employees’ benefits that are a percentage of salaries and wages increased with the salaries and wages. These benefits are social security, payments to the Tennessee Consolidated Retirement System (TCRS), and the employees’ disability insurance. This wage and salary review and subsequent pay adjustment will carry forward to fiscal years beyond FY 2004. The TCRS is scheduled to issue adjustments in the rates for pension payments made to the TCRS by its participants such as the City of Clarksville. Our current
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Section 2 TCRS rate is 10.88%. It is very probable that this rate will increase for the Fiscal Years 2005 and 2006 because of several factors one of which will be the level of annual salary increases. Health and Dental Insurances increases substantially and FY 2004 was no exception. Additional information about significant changes may be found in Sections 5 and 6. o
Population. The city continues to grow at a rapid pace, the estimates for the city’s population is between 106,000 and 108,000. Population increases bring with it demands for services. Not only are there pressures just to maintain the current levels of services, but to provide new and better services.
o
Fort Campbell. Fort Campbell is the home of the 101st Airborne Division. This division was deployed to Iraq and remains deployed there. We hope their safe return is at the earliest possible date. This deployment once again demonstrated the dependence of the nation on the 101st and the other tenant units at Fort Campbell in the overall defense of the United States. We also believe that this dependence insures the continued operation of the military post when future discussions occur about base closings. The deployment could have an adverse impact on the city if dependents should decide to leave the area, however at this time we do not believe this has happened, nor do we believe it will happen in FY 2004.
o
Implementation of changes in accounting principles as issued by the Governmental Accounting Standards Board, present a problem in that movement is further away from the cash or near cash thinking generally associated with the budgets. Movement of the GASB from flow of funds to results of operations will continue to increase the complexity of the budget’s preparation. The governmental funds are prepared on the basis consistent with the financial reporting at the fund level, the modified accrual basis. We believe that this method more closely matches up with the budget process where emphasis is on the flow of funds. FINANCIAL MANAGEMENT
The Commissioner of Finance and Revenue has charge of the fiscal affairs of the City except as those that may be delegated by the Council. He/she reports directly to the Mayor. The Commissioner is the department head of the Department of Finance and Revenue. The Department of Finance and Revenue is responsible for the accounting and financial management systems of general government of the City. The Commissioner has custody of all reports, papers, and vouchers relating to the fiscal affairs of the City and the records he/she maintains shall show the financial operation and condition of the property, assets, claims, and liabilities of the City. The non-governmental funds of the City maintain their own accounting and financial systems and have chief financial officers for the oversight of their respective funds. FISCAL YEAR The City operates on a fiscal year, which commences July 1 and ends June 30. ACCOUNTING SYSTEM AND FINANCIAL REPORTING The City's general government’s accounting system is maintained by the Department of Finance and Revenue. Each of the independent boards and commissions maintain separate accounting systems. The City maintains a financial reporting system that provides timely and accurate reports on the City's financial position and the results of its operation. The City follows generally accepted accounting principles accepted in the United States of America. Accounting records for general governmental operations are maintained on a modified accrual basis. Under this system, revenues are recorded when susceptible to accrual, that is, both measurable and available. Expenditures will be paid from expendable available financial resources. Budgetary control is maintained in each of the appropriate funds by a formal appropriation system. The City retains an independent certified public accounting firm to provide annual audits of all City funds. BUDGETING AND APPROPRIATION PROCEDURES The City's financial plans are embodied in the annual capital and operating budgets. These budgets reflect the projection of all receipts from and disbursements to all sources, and present the level of government services and the method of distributing costs to the various segments of the community
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Section 2 through the collection of taxes and fees. The City is required by its Charter to adopt annual budgets for those operating funds that are under the direct control of City Council. This includes the general fund, special revenue funds, debt service funds, and the capital projects fund, some internal service funds, certain enterprise funds, and certain capital project's funds. Article V, Section 2, Annual budget provides that on or before a date to be fixed by the city council, there shall be submitted to the council a proposed budget for the next fiscal year. Said budget shall be prepared under the direction of the mayor and by the commissioner of finance and revenue and those members of the council as may be appointed. Article V, Section 3, Action by council on budget states .The city council shall adopt an appropriations ordinance based on the approved budget. Appropriations need not be in more detail than a lump sum for each department and agency. The council shall not adopt any appropriations ordinance in excess of the available funds, except to provide for an actual emergency threatening the health, property or lives of the inhabitants of the city, providing council unanimously agrees there is such an emergency, and provided further that the council shall be empowered to borrow such funds as may be necessary to meet such emergencies notwithstanding the provisions of Article I, Section 5(a)(16), as amended. If an appropriations ordinance is not adopted before the beginning of the new fiscal year, the appropriations ordinance for the fiscal year ending on June 30, shall become the appropriations ordinance for the new fiscal year beginning on the following July 1, until such time as an appropriations ordinance for the new fiscal year can be adopted. The council shall adopt an appropriations ordinance by affirmative vote of a majority of the council on two (2) separate readings of the appropriations ordinance. The proposed budget includes anticipated expenditures by department and sources of financing expenditures." Public hearings are conducted to allow taxpayers an opportunity to comment on the proposed budgets before they become law. The Mayor is authorized to transfer budgeted amounts within departments’ operations of the governmental funds. All other transfers or supplemental appropriations or amendments to the budgets must be enacted by City Council. Other management is not authorized to make such change. Appropriations lapse at each fiscal year end. Actual expenditures and operating transfers out cannot legally exceed budget appropriations at the individual fund level. Budgetary control, however, is maintained at the departmental level for the general fund. The City prepares its budget on a basis of accounting consistent with Generally Accepted Accounting Principles ("GAAP"). The actual results of operations are presented in the combined financial statement of revenues, expenditures and changes in fund balance-budget and actual on the budgetary basis to provide a meaningful comparison of actual results with the budget because all funds are not budgeted. Currently the City does not encumber, however those commitments that would normally be an encumbrance or a commitment related to an unperformed contract for goods or services are provided for in the subsequent years budget during the amendment process of current fiscal year and the adoption process for the subsequent fiscal year. The City is considering encumbering in future years, however the current system works in the annual allocation of the City's resources. CASH MANAGEMENT SYSTEM The City's general government 's and Parking Authority's Cash Management System is maintained in the Department of Finance and Revenue. The City's proprietary funds' (Electric Department; Gas, Water, and Sewer Departments; and Trans t System) Cash Management Systems are maintained internally within each department. The objective of ach System is to maximize both the cash available for investments and the earnings from such investment. Statutes authorize the City to invest in obligations of the United States Treasury, its agencies and instrumentalities, commercial paper, banker's acceptances and the State Treasurer's investment Pool. The City's banking relationship, for all funds, is designed to capture the gains possible through external float management and utilizes techniques such as master disbursement accounts and lock-box services.
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Section 2 BUDGET SUMMARY Fees charged to the consumers of the funds’ services and products fund the budgets of the proprietary funds. For the Electric Department, the Gas Department, and Water and Sewer Department this will be the utilities’ ratepayers. For the Transit System it the funding is from riders and also from federal, state, and local subsidies. For the Parking Authority the funding of comes from users of on and off-street parking. In all cases the payer receives a tangible service at the point of receiving the service. Taxes, licenses, permits, fines, grants, and user fees fund the general government. The return on what is paid to the general government is not as evident or is frequently not perceived as being a fair exchange, this contributes to the attention given the general government.
Fund General Fund Drug Fund Community Development Debt Service Fund Gas and Water Department Electric Department Transit System Parking Authority Internal Service Fund Totals
Chart 2 - 1 All Funds Operating Budget Fund Approving Operations Budget - FY 2004 Type Authority Revenues Expenditures Surplus/Deficit Governmental Council 51,646,482 51,371,990 274,492 Governmental Council 86,800 86,800 Governmental Governmental
Council Council
1,648,500 7,083,515
1,648,500 6,900,032
183,483
Proprietary
Council
59,832,960
56,782,481
3,050,479
Proprietary Proprietary
Board Council Council / Board Council / Board
77,498,694 2,793,406
76,947,289 2,793,406
551,405 -
359,000
359,000
2,480,000 203,429,357
2,480,000 199,369,498
Proprietary Proprietary
4,059,859
All the above funds of the city have budgeted at least break even on their respective budgets. Each of the funds should have sufficient fund balance or retained earnings that will enable them to provide a consistent level of services throughout the fiscal year. For additional information see the following sections: o
General fund starting with Section 3 and continuing through Section 9
o
Gas and Water, Section 11
o
Electric Department, Section 12
o
Parking Authority, Section 13
o
Transit System, Section 14
o
Internal Service Fund, Section 15
o
Special Revenue Funds, Section 16
o
Debt Service Fund, Section 17 GENERAL GOVERNMENT
The budget is summarized in Chart 2-2. The total budgeted expenditures are $51,371,989. The $51,371,989 total budget is allocated as illustrated by Chart 2-3. Because the city is a service provider, it is not surprising that our greatest investment during the fiscal year is in our human resources, our personnel. The city’s personnel provide necessary services that cannot be replaced by automation or equipment. As might be expected that public safety consumes 46% of the city’s
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Section 2 total budget. Police, Fire, Streets, and Financing Use (transfers out to other funds of the city) account for 75% of the city’s total budget. When changing the view from a program perspective to type of expenditure or financing use perspective, salaries and benefits account for 62% of the total budget. Chart 2-4 provides actual dollar amounts budgeted for major expenditures illustrated by percentages in Chart 2-3. Chart 2 - 2 Summary Budget FY 2004 Operating Revenues 47,674,753 Financing Sources (Transfers In) 3,971,729 Total Available 51,646,482 Less: Departments (39,785,482) Other Expenditures (594,296) Miscellaneous Agencies (2,955,787) Transfers Out (8,036,425) Total Expenditures and Uses (51,371,990) Estimated Surplus 274,492 Beginning Fund Balance 13,739,845 Ending Fund Balance 14,014,337
Chart 2-3 FY 2004 Budget $51,371,989 Transit System 2% Other Expenditures and Miscellaneous Agencies 7%
Debt Service 13%
Misc. Financing Uses 1% Salaries 46%
Capital Outlay 1% Operating Expenditures 15% Employees Benefits 15%
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Section 2
Chart 2-4 Summary of Expenditures and Financing Uses FY 2004 Salaries Employees Benefits Operating Expenditures Capital Outlay Other Expenditures and Miscellaneous Agencies Transit System Debt Service Misc. Financing Uses Total Expenditures and Uses
24,115,980 7,720,329 7,684,049 265,123 3,550,083 866,846 6,505,402 664,177 51,371,989
NOTE: Actual budget is $51,371,990, however there is a rounding difference of $1.00 In FY 2004, the revenues and financing sources of funding to pay for the above budgeted expenditures total $51,646,482. Obviously the estimated revenues and financing sources (transfers in from other funds of the city) exceed the $51,371,989. There should be a surplus of approximately $274,492 if the actual operations are reasonably close to the budgeted amounts (see Chart 2-2). The Charts 2-5 and 2-6 disclose the primary sources of funding.
Chart 2 - 5 FY 2004 Estimated Revenues - $51,646,482
Grants-Federal 1.2%
Grants-Other 0.0% Interest 0.4% Miscellaneous 0.5%
Fees for Services 3.0%
Fines and Forfeitures 1.0%
Transfer in From Other Funds 7.7%
Permits and Licenses 3.3% Grants-State 0.1% Local Taxes 62.6%
State Shared Revenues 20.4%
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Section 2
Chart 2 – 6 Summary of Revenues For Fiscal Years FY 2002, FY 2003, and FY 2004
Description Local Taxes State Shared Revenues Grants-State Permits and Licenses Fees for Services Fines and Forfeitures Grants-Federal Grants-Other Interest Miscellaneous Transfer in From Other Funds Total Operating Revenues and Other Financing Sources
FY 2002 Actual 30,903,639 11,093,253 34,058 1,760,830 1,359,581 626,429 655,097 277,997 544,569 3,362,501
2003 Amended 31,545,350 10,976,900 23,790 1,712,200 1,302,110 513,100 490,210 2,900 187,500 137,555 3,577,330
FY 2004 Proposed 32,350,601 10,524,113 28,504 1,708,700 1,536,910 503,600 597,160 187,500 237,665 3,971,729
50,617,954
50,468,945
51,646,482
GENERAL BUDGETING PROCESS FOR FY 2004 For FY 2004, all programs and departments of the city are essentially line item based, however the city will continue to work toward measuring performance. The city continued to participate with the Municipal Technical Advisor Service (MTAS) in FY 2003 in MTAS’s program to measure and compare performance in the public safety sector (fire and police). All participants in this program are Tennessee cities. The City concluded a compliance audit that addressed compliance and internal control issues. We will address those issues raised by the compliance and internal control audit that need to be addressed. The budget preparation in FY 2004 began with departments submitting request for what they believed their departments needed to function at current or improved levels. FY 2004’s expenditures were estimated for each program. Revenues were estimated during the same period that the departments were estimating their expenditures. The departments and miscellaneous agencies submitted their budgets. Due to the situation at the state level, the departments were then told to reduce their initial FY 2004 requests, with each department’s goal being 5% less than FY 2003’s budget levels. Many departments that are labor intensive had difficulty making the requested reductions. General guidelines were that were given, stated that no employees’ positions would be eliminated as part of the budget reductions. Other than restrictions on eliminating positions, departments were allowed total discretion as to where to make their reduction. If the department proposed reductions that involved public safety or services that the citizens accustomed to receiving were part of the department’s proposed reductions, the departments were then directed to find other cost reduction options elsewhere. Throughout the spring there was indecision at the local level because of the indecision at the state level. As the spring progressed, it became apparent that the state’s financial situation would result in reduced levels state shared revenues to the city. Capital requests within the departments budgets were in FY 2004 are very limited. There were no new capital projects proposed to the city council in FY 2004. Operating expenditures were scaled back to extremely low levels.
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Section 2 IMPACT OF THE STATE OF TENNESSEE’S ACTIONS IN FY 2004 Unfortunately the State of Tennessee chose to balance its budget at the expense of the cities and counties. For a brief period of time it appeared that the city would loose about 9% of all its state shared revenues. The final loss in state shared revenues was about $645,000. The following estimates by the University of Tennessee’s Municipal Technical Advisory Service for state shared revenues in FY 2004 are as follows: 1) State sales tax (cut 7.5 percent) $56.49 2) State beer tax (cut nine percent) $0.45 3) Special petroleum products tax (no cut) $2.26 4) Gross receipts tax (TVA in lieu of taxes – no cut) $7.08 a. Total General Fund revenue $66.28 5) Gasoline and motor fuel taxes (no cut) $27.13 6) TOTAL PER CAPITA (General and state street aid funds) $93.41 7) The Hall Income Tax. The omnibus bill cuts amounts going back to cities by 33 percent beginning in FY 2004. The statewide projected increase is four percent, but individual city amounts will fluctuate. A few cities will not be cut the entire 33 percent due. 8) The corporate excise tax. The statewide projected increase is one percent. This tax is based on bank profits and is distributed based on situs in lieu of intangible personal property taxes. Cities must levy a property tax in order to receive revenue from this tax. 9) The mixed drink tax. The statewide projected increase is 5.07 percent. The distribution back to cities was cut nine percent in the omnibus bill. 10) Public safety salary supplements, which will be funded at reduced rates from FY 2003. The supplements were cut by nine percent in the appropriations bill. Upon completion of certain training requirements, police officers and fire personnel are eligible for bonus salary supplements of $546 and $409.50 respectively. BALANCED BUDGET The city’s revenues and other financing sources (transfers in) will exceed the city’s expenditures and financing uses. The city should finish out the year with a fund balance of $14 million, which is 27% of the revenues and financing sources and 27% of the expenditures and financing uses. There are no new capital projects planned for FY 2004. Capital projects were reviewed and a decision was made not to undertake any project that would require the issue of debt or result in reductions of the fund balance. There was no new request submitted to the city council to authorize additional debt in FY 2004. Funding of the debt service should be in excess of actual requirements. From a conservative perspective, the interest rate on the variable rate loans was estimated at 3%, however we believe the debt will be closer to 1% to 1.5% during the fiscal year. We anticipate transferring the total amount of the appropriated debt to the debt service fund. What is not required for the payment of debt service (the payment of principal and interest) will be accumulated in the debt service fund for possible early retirement of principal. We have completed a refunding of the 1993 general obligation bonds. The refunding will result in excess of $130,000 in reduced debt service over the next five years. In FY 2004 we will retire the 1992 general refunding bonds, debt service on this debt was in excess of $500, 000 in FY 2004. FY 2004’s budget continues the implementation of the 1998 pay plan as found within the municipal code and the implementation of the city’s longevity plan. Across the board adjustments were made to all steps in all pay grades in grades 1 through 6. A grade 7 was added the additional grade is 3.5% above grade 6. The salary differential between grades in grades 1 through 6 is 4%. The cost of the adjustments to the city’s salaries and
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Section 2 Many of the employees benefits (the employer’s social security, payments to the Tennessee Consolidated Retirement System, and the disability insurances are percentages of the employees’ salaries, therefore as the salaries increased these payments increased. Overtime rates will increase with the increase in the rates of pay. Insurances increased significantly. The city estimates that health insurance will increase by 15% and dental insurance will increase by 10%. The operation of the Municipal Garage as an internal service fund was discontinued. The administration believed that the interest of the city as a whole will be better served if the garage operations are within the framework of the general fund and the manager of the garage is held responsible for the maintenance of the city’s fleet of vehicles. There were very few new employees’ positions authorized in FY 2004. The Police Department received a Department of Justice COPS grant. As a result of the grant the city council approved twelve police officer positions to be hired in FY 2004. Capital outlay is down from prior years levels. For additional information see Section 5. FIVE-YEAR CAPITAL IMPROVEMENT PLAN The city’s five years capital improvement plan may be found in Section 10. The capital improvement plan represents those projects that the city will evaluate and consider for inclusion in a future operating or capital projects budget. Inclusion of the project in the capital improvement plan does not necessarily guarantee inclusion of the project or expenditure of funds in a future budget. It does however start the review and evaluation phase of the project’s value to the city and/or the proposed expenditure’s merits. The city is aware that as the capital improvements are completed and come on line there will be increased maintenance and operating cost associated with the project’s economic life. Generally for equipment, streets, or buildings, the maintenance should generally be relatively low during the first few years of the economic life. We believe that there will be very little financial impact during the early years of an asset’s economic life. As the economic life of an asset progresses the oversight department will make the appropriate adjustments in their maintenance line items of their budget. A significant number of projects are street related. As part required by GASB 34 implementation, the Street Department will be developing minimum levels of maintenance, their goal is to maintain streets at minimum predetermined standards. In lieu of depreciating the streets, the city has adopted the modified method. The non-technical definition of this approach is that the city has determined certain minimum standards that the streets of Clarksville must be in. The city will fund the Streets Department at levels necessary to insure they are maintained at this minimum standard, therefore in theory, there will not be any decline in the useful life of the asset below the minimum standard.
DEBT Outstanding debt at June 30, 2003 by issue is Chart 2 – 7
Original Amount of Debt Issue Debt Issue Series 1976 FmHA Loan Industrial Park Series 1992 General Refunding Series 1993
Debt Outstanding at June 30, 2003 Due at June 30, 2003 Variable Fixed Total Rate Rate Debt Debt Debt Due
Inception to 30-Jun-03 Principal Paid
Balance to Be Drawn on TMBF Loans (4)
800,000
440,000
440,000
360,000
-
4,475,000 5,185,000
515,000 2,530,000
515,000 2,530,000
3,960,000 2,655,000
-
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Section 2
Chart 2 – 7
Original Amount of Debt Issue Debt Issue General Obligation Series 1994 TMBF Loan Series 1996 TMBF Loan Series 1997 TMBF Loan Series 1999 TMBF Loan Series 2001 TMBF (1) Loan Series 2001 TMBF Loan Series 2001 Interfund Loan Series 2002 Taxable General Obligation Total Due at June 30, 2003 Self-Supporting Debt for Which City is Contingently Liable In The Event of NonPayment Series 1990 TMBF Loan Parking Authority Series 2002 General Improvement Revenue and Tax Bonds (E-911 Emergency Communication District Total SelfSupporting Debt(2) Total All G. O. Debt (includes debt for which city is contingently liable)
Debt Outstanding at June 30, 2003 Due at June 30, 2003 Variable Fixed Total Rate Rate Debt Debt Debt Due
Inception to 30-Jun-03 Principal Paid
Balance to Be Drawn on TMBF Loans (4)
4,000,000
2,052,100
2,052,100
1,947,900
-
4,976,000
946,700
946,700
4,029,300
-
16,457,000
12,837,000
12,837,000
3,620,000
-
18,025,000
15,337,470
15,337,470
1,886,000
801,530
13,795,000
6,653,397
6,653,397
4,010,000
3,131,603
4,976,000
3,618,352
3,618,352
148,000
1,209,648
137,157
137,157
715,245
-
852,402 6,750,000
-
6,630,000
6,630,000
120,000
80,291,402
41,445,019
10,252,157
51,697,175
23,451,445
5,142,781
1,969,544
1,068,246
1,068,246
901,298
-
4,950,000
4,950,000
150,000
-
1,068,246
4,950,000
6,018,246
1,051,298
-
42,513,265
15,202,157
57,715,421
24,502,743
5,142,781
5,100,000
The outstanding general obligation debt at June 30, 2003 was $51,697,175, which does not include self-supporting debt. Self-supporting debt is that debt that another fund or entity has promised to pay the debt service from its funds. The general government will issue debt with the pledge of the city’s underlying tax support (the pledge of the full faith and credit of the city). The city does to get a lower interest rate for the entities pledging to get a lower interest rate. Two such pledges for the payment of debt service are from the Parking Authority and the E-911 Emergency Communication District. The
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Section 2 debt of the parking authority at June 30, 2003 was $1,068,246. Debt for which the E-911 Emergency Communication District has promised to repay was $4,950,000. Interest is not calculated in the outstanding debt at June 30, only the principal. The reason for this is interest is not considered due until the due date. See Section 8 for additional information. The city does not have any debt limitations within its city code or within the Tennessee Code Annotated. Common business sense prevails in the absence of the debt limitations. Before debt can be issued, the debt issue must be recommended to the city council and the city council must approve the debt. No new debt issues will occur in FY 2004 except for a refunding of the 1993 general obligation bonds to take advantage of lower interest rates. No new debt for new money will occur in FY 2004 and FY 2005 is doubtful. In the issuance of debt the following management policies guide: 1) Debt will not be issued to fund operating expenditures. Operating expenditures are those costs that can be expected to occur on a reoccurring basis and are for the normal operations of the city. These expenditures are typically non-capital acquisition costs, however some capital outlay is included in the operating budget of the departments. These capital costs are included in the operating budgets of the departments because they can be reasonably expected to be reoccurring in some amount each fiscal year. Operating expenditures may include costs of planning that may or may not result in some future capital project or capital acquisition. 2) The debt is not issued for planning alone; there must be an asset that will be realized from the issue of debt. Obviously, feasibility studies, impact studies, architectural and engineering studies and plans are part of the cost of a project, however unless we are ready to proceed with construction, we pay for these from the funds of the general government. If the project has a high probability of proceeding, the City Council will pass a resolution expressing its intent to reimburse itself if the city issues bonds at some future date. 3) The users of or those persons receiving benefits from the asset should pay for high cost capital assets having an economic life of five years or longer. It would not be prudent or financially feasible to pay for these types of assets from current fiscal year’s operating revenues. While it is desirable to have a mix of debt financing and pay as you go financing, capital assets with a substantially long economic life should be paid for with debt proceeds over the economic life by the citizens benefiting from the asset. 4) The assets acquired with debt proceeds must have an economic life at least equal and generally in excess of the term of the bonds. 5) At least 50% of the debt being considered will be retired within 10 years of issue. Debt service schedules will provide for relatively equal annual debt service. 6) The city is not subject to any state or other law, which limits the amount of net bonded debt, that a city may have outstanding. The City’s full faith and credit is pledged for the repayment of all general obligation debt and the city is contingently liable for repayment of revenue bond debt. WHAT IS AHEAD IN FY 2005 AND BEYOND We believe it is possible that the state will again have financial problems in FY 2005 or soon thereafter. The legislature has shown a willingness to take a portion of the state shared revenues, we believe it is possible that they will do this again if the legislature’s choices are take additional state shared revenues or pass a state income tax. In FY 2004 they retained approximately $645,000 that had been previously distributed to the city. The city’s options when this situation occurs are quite limited. Our options are: (1) cut expenditures, (2) raise property taxes, or (3) a combination of (1) and (2). The $645,000 that the state retained was equal to approximately five cents of the property tax rate. Salaries and benefits will continue to increase. Under the current system, employees receive a one step pay increase each fiscal year until they reach the last step, now step 7. Employees on step 7
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Section 2 may receive periodic pay adjustments to their salaries upon the recommendation of the city’s salary consultant. Benefits that are a percent of salaries such as the employer’s share of social security, payments to the Tennessee Consolidated Retirement System (TCRS), payments for employees’ disability insurance will increase as pays increase. Overtime pay will also follow salaries in this upward trend. The cost of health insurance will continue to increase as will dental insurance. In FY 2005 the city’s contribution to the Tennessee Consolidated Retirement System will change. The rate is subject to change every two years after the completion of the actuarial study by the State. We believe it is highly probable that the 10.88% rate will increase. We believe the increase will be due to the following factors: (1) the TCRS suffered declines in the equities market like many other investors, (2) adjustments to the pay scales like the one performed in FY 2004 will ultimately lead to higher pension payments, therefore the current cost to pay for these future payments will increase, and (3) as the number of employees increases, the payments to the TCRS will increase. In FY 2004 the city used a 3% interest rate in its calculation of the interest estimates for FY 2004 that will be paid on the Tennessee Municipal Bond Fund Loans (TMBF) (variable rate loans). At June 30, 2003, the variable interest rate was approximately 1.4%. We realize that we a near historic lows in interest rates and that in future years the rates will increase, however in the absence of additional debt, the principal should be lower at that time and partially offset the interest rate increase. Interest rates for the variable rate loans have typically been in 3.5% to 4.5% since we have 1988 when we first started using the TMBF loan program. Growth in population has a cost. Demand for services will increase. Demand for additional services will occur. The city is a service provider. The service we provide is generally labor intensive. To expand services or to maintain current levels of services, e.g. a certain number of police officers per 1,000 of the city’s population, the city’s workforce will need to expand. Increases in the number of employees will increase not only the salaries and other pays (overtime and longevity), but increases will occur in social security, TCRS payments, and disability insurances. Other fixed rate employees’ benefits such as health and dental insurance payments will in increase. Inflation will continue to be a factor. The cost of doing business will go up from fiscal year to fiscal year because of inflation. Inflation has been very low, however as economic cycles change, we realize that the inflation rate could increase. In some future fiscal year if the federal deficits continue, there is the potential for inflation to increase at a higher rate than we are currently experiencing. The deficit will also pressure interest rates upward. Stability of Fort Campbell is fairly certain, we do not believe it will be subject to either closing or downsizing. Fort Campbell and the 101st Airborne Division are important components in the national defense. We do not believe Fort Campbell is in danger of down sizing because of this importance. Fort Campbell is unique in that it is probably the largest employer in two states, Tennessee and Kentucky. Fort Campbell should benefit from the support of representatives and senators from two states. Deployments, both the magnitude and the duration of the deployments, present uncertainty not only to the active duty personnel assigned to the post and their families but present uncertainty to the community as w whole. The deployment to Iraq has not adversely affected the economy to the extent past deployments have. Police fleet of vehicles that was purchased in the October 1998 to February 1999 period, should have an economic life expectancy of 6 to 8 years. We believe the expected life will be closer to 8 years. The fleet will probably need to be replaced in approximately FY 2007. The city may choose to try a phased in replacement beginning in FY 2006 to FY 2008. COPS grants that were awarded for the twelve officers and other Department of Justice grants, have a limited life. These grants generally pay a limited percentage over an initial start up period. In the case of COPS grants, this initial period is three years after which the city is paying 100% of the salaries and benefits. This goes to the increases in the costs of a service organization such as the city in the providing of services. Growth in revenues and other financing sources should be at a rate of 5% per year. We are using revenues and other financing sources as our measurement due to the changes that the Governmental Accounting Standards Board has caused to occur in the classification of revenues.
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Section 2 HOW TO USE THIS BOOK? We recommend the following for the user of this book. 1) Read the Mayor’s letter. As the administrative elective head of the government he sets the direction of the city within the framework or the parameters established by the council through their legislative acts. 2) Read Section 3 the “Budget in the Brief”. This section presents an abbreviated and concise view of the city’s general government. For many readers the level of detail in the Section 3 may be sufficient. 3) If after reading Section 3, the reader needs more information, Sections 4 through 9 addresses the budgets and operations of the governmental funds (generally tax supported funds such as the general fund). 4) Section 10 provides information about the five-year capital improvement program. 5) Section 11 through 14 contains the proprietary funds’ budgets (Gas and Water Department, Electric Department, Transit System, and Parking Authority). 6) Section 15 provides information about the internal service fund. 7) Section 16 is the Special Revenue Funds summary. We did not devote a lot of space to these governmental funds because their transactions are basically very few in numbers and dollar amounts or they are in and out types of transactions. 8) Section 17 presents the Debt Service Fund. This section is very abbreviated because there are not that many transactions during the fiscal year. Funds are generally transferred into the Debt Service Fund on the day the debt service is due and is transferred out immediately. 9) Section 18 presents the legal basis for the budgets as found within the Tennessee Code Annotated and the Official Municipal Code of the City of Clarksville. 10) Section 19 is a glossary of frequently used terms and it might be advantageous for the reader to review the glossary before reading sections 4 through 14. 11) Sections 20 through 25 present miscellaneous data that may help the reader unfamiliar with the city’s organizational structure, and policies. These sections should help the reader understand the city a whole better. We hope you find the budget document useful and invite your comments. It is our hope that our objective of providing a useful document will be achieved. Sincerely, Wilbur M. Berry Jr. Commissioner of Finance and Revenue City of Clarksville
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