Finance & Economic Development Committee
April 26, 2010
Noon – 1:05 p.m.
Chair, Andy Ryder, Jason Hearn
Greg Cuoio, Scott Spence, Troy Woo, Scott Egger, Roger Schoessel, Carol Litten
Councilmember Hearn moved to approve the agenda. Councilmember Ryder seconded. Motion carried.
1st Quarterly Financial Update
Troy Woo, Finance Director, presented the 2010 1st Quarter Financial Report. He noted that as of March 31, 2010, total General Fund expenditures were $8,654,025 or 24.6% of the 2010 Budget. This is a total increase of $998,732 compared to the March 31, 2009 total.
Two categories are experiencing significant increases. The majority of the increase is due to a timing difference in transfers-out to the Arterial Street Fund for the overlay program. The $850,000 transfer occurred in March of this year, while the 2009 transfer occurred in August . Compared to the same period in 2009, the cost of labor (salaries, wages and personnel benefits) increased $101,498, and continues to grow faster than the rate of inflation due to fast rising benefit costs.
As of March 31, 2010, total General Fund revenues were $7,062,501 or 20.1% of the 2010 Budget. This is a total increase of $304,350 compared to the March 31, 2009 total. Property taxes and sales tax are the two largest sources of revenue.
Property taxes are due twice per year on April 30 and October 31, so the majority of property taxes will be collected then. Collections should increase due to a combination of 1.0% revenue limit and the increase from new construction assessments.
Sales tax receipts total $2,067,112 as of the end of September. This is 61% lower than last year. The top 20 sources of sales tax revenue provide about
93% of all sales tax. The categories related to construction and housing continue to show significant decreases and are 38% lower than the 1st quarter in 2009. General merchandise stores, food services, sporting goods, and motor vehicle dealer categories are showing 1st quarter increases.
The Business and Occupation (B&O) and utility tax revenues total 29.9% of the budget estimate. B&O taxes are down 7.4%, which reflects the economic downturn. Admissions taxes to movies and special events increased 31.6%. Utility taxes are $37,309 lower, due in part to lower utility collections from natural gas use.
Non-business license revenues are 86% higher than last year, due in part to higher building permit issuances. Building permit revenues increased $78,000 compared to 2009. If this trend continues, building permit increases will have postitive impacts to property, sales and utility tax growth.
State entitlement revenues decreased 13.6% in the 1st quarter. The majority of the decrease is due to 2009 Streamlined Sales Tax Mitigation receipts that are not expected in 2010. The Department of Revenue has determined that the City was overpaid $121,444, and discussion continues about whether the amount will need to be repaid.
Interest earnings rates continue to decline and are 35.9% lower than the 1st quarter in 2008. Operating expenditures for the Water, Wastewater, and Stormwater Utilities are within projections.
Troy noted that Lacey has been experiencing the same level of economic downturn as other local jurisdictions, but Lacey’s recent commercial growth, and conservative budgeting approaches have helped the City maintain its current level of services.
Forecasts continue to show large increases in medical insurance premiums. There are uncertainties about the impacts of National Health Care Reform. Increased costs are expected due to required insurance coverage charges such as prohibition of pre-existing condition exclusions for children, elimination of lifetime limits and restrictive annual limits, extension of dependent children coverage, requirement for new plans to cover preventive services and immunizations without cost-sharing, and development of appeals processes for new plans.
The most significant expenditure challenge will continue to be cost of labor. The American Federation of State, County and Municipal Employees (AFSCME) labor agreement expires on December 31, 2010. Potentially, employee benefits could increase $360,000 in 2011. To put this in perspective, the General Fund’s largest source of revenue, property tax, is only projected to increase $283,259 in 2011. The limitations placed on the growth of the General Fund’s largest source of revenue don’t allow it to keep pace with the largest source of expenditure growth, the cost of labor. Greg Cuoio, City Manager, commented that staff may seek direction from Council on labor negotiations.
Troy concluded his report by stating in 2011, the City’s focus will be on preserving service levels with revenue growth that is outpaced by inflation and cost growth.
Bond Issuance for Tacoma Goodwill
Greg Cuoio, City Manager, briefed the Committee on a request received from the Washington Economic Development Finance Authority (WEDFA). The Tacoma Goodwill Industries is a non-profit organization located in Tacoma. They intend to refinance outstanding debt through the issuance of WEDFA’s tax-exempt nonrecourse economic development revenue bonds. The bond proceeds will benefit several Goodwill locations around the state, two of which are in Lacey.
It is the policy of the WEDFA board to only issue bonds in support of projects which would be welcomed by the local community. As part of the issuance process, WEDFA is requesting the City Council, as the planning jurisdiction, to consider passage of a Planning Jurisdiction Approval Resolution to issue tax-exempt economic development revenue bonds. This resolution does not replace any portion of the normal permitting process. There is no liability against the City created by the issuance of WEDFA’s bonds.
Committee members agreed to forward a recommendation to full Council to adopt a resolution approving the action of the WEDFA to issue bonds to finance an economic development facility for Tacoma Goodwill Industries.