Finance & Economic Development CommitteeCouncil Present:
July 26, 2010
12:00 – 1:25 p.m.
Chair, Andy Ryder, Jason Hearn, Mary Dean
Greg Cuoio, Scott Spence, Troy Woo, Carol Litten, Scott Egger,Lori Flemm, Scott Spence, Brad Burdick, Rick Walk Mid-Year Financial Update
Troy Woo, Finance Director, provided a Mid-Year Financial Update. He reported three categories are experiencing significant increases. The mid-year 2010 cost of labor increased $239,543 compared to the same period last year. Contractual payments to Lacey Fire District #3 increased $138,486. The Capital Equipment Fund’s expenditures increased $786,967 due to a timing difference. The $850,000 transfer to the Arterial Street Fund for the overlay program occurred earlier in 2010. The 2010 transfer occurred in March while the 2009 transfer occurred in August.
Troy reported that as of June 30, 2010, total General Fund Revenues were $17,418,166 or 49.4 percent of budget. Last year at this same time, revenues were 49.5 percent of budget. Compared to last year, this is a decrease of $649,708.
The first half of 2010 property taxes are only 0.3 percent higher than 2009. Property taxes are expected to increase $343,843, because of a combination of Council exercising the 1.0 percent revenue limit and the increase from new construction assessments in the amount of $137,489,177.
Overall sales tax through June is down 6.2 percent compared to the same period last year. Categories related to construction and housing continues to decline. Construction related categories decreased 47.8% compared to 2009. Business and occupation revenues decreased 7.1% compared to 2009. Overall, utility taxes are down 4.2%, most likely due to a mild winter. Operating expenditures for the utilities are within projections. Operating revenues for Water, Wastewater, and Stormwater Utilities are at the same pace as 2009.
Troy reported staff will continue to monitor revenues and expenditures. July revenue collections will be critical indicators for how to proceed during the remainder of 2010 and will provide the basis for the 2011 Budget preparation. 2011 Budget Discussion
Troy Woo, Finance Director, reported the proposed 2011 Budget will be presented to Council on October 14, 2010. The first public hearing on revenue sources will be held on October 28. On November 4 and 18, public hearings will be held on the proposed budget with adoption scheduled for December 2, 2010.
Troy presented projected revenue changes for the 2011 Budget:
- The annexation of the City into Lacey Fire District 3 will result in a property tax decrease of approximately $4.7 million dollars.
- Projected property taxes are based on $100 million of estimated new construction added to Lacey’s assessed value. Since 2006, when new construction revenue was $361 million dollars, revenue has declined significantly every year.
- Staff will request that Council exercise its authority to increase property taxes by the 1.0 percent revenue limit.
- The general levy is estimated to decrease to $0.9689/$1,000 assessed value from the current $1.8975/$1,000 assessed value. This could result in a property tax reduction of approximately $210 for a house with an assessed value of $225,000.
- Sales tax receipts were $261,363 or 6.23 percent lower in June than the same period in 2009. In 2008, sales tax receipts declined 13.3 percent. Construction and housing related sales tax categories continue to struggle, and slow growth is projected.
- Business & Occupation (B&O) taxes are 7.1 percent lower than the 2009 midpoint and slow growth is expected.
- Year-to-date utility taxes are down 4.2 percent, which could be attributed to weather. Growth from new construction and rate increases should translate into growth in utility tax collections.
- Voter initiatives, I-1100 which proposes privatizing liquor sales, and I-1105 to repeal the liquor excise tax, could significantly impact City revenues. It is expected that the excise tax or equivalent tax will remain in effect if either or both of these initiatives pass.
- The 2011 water rate recommendation will be based on a multi-year rate analysis that is expected to be completed in September 2010. The wastewater rates will increase $0.25 based on a five year schedule adopted by the City Council in 2007. City staff will make a recommendation on the 2011 stormwater rates based on the budget request.
Troy presented projected expenditures in the 2011 Budget:
- AWC’s 2011 medical premiums are projected to increase 15%; dental premiums will increase 5%, having a significant impact on future budgets.
- AFSCME’s contract will expire at the end of 2010, so the City does not have any obligated AFSCME COLA’s. Police contracts have been negotiated. The expected low CPI is favorable to the City. It is expected that contracted services will increase.
Troy noted the fundamental budget challenge for 2011 will be maintaining current levels of service while at the same time addressing inflationary adjustments, labor cost increases, rising medical expenses, and increased contract costs such as District Court and jail services. It will be necessary to keep the 2011 General Fund Operating Budget at the 2010 level in order to present a balanced budget.2010 Budget Amendments
Troy Woo, Finance Director, provided an update on the 2010 Budget Amendments. He noted that throughout the year, adjustments to the budget become necessary as a result of City Council actions, activity levels that were not anticipated during budget development, and prior year budget appropriations that were not expended in the year for which they were approved. In the past, the City Council has consolidated budget amendments to one action per year and allowed staff to proceed without multiple budget amendments throughout the year when resources have been identified or the amendments were minor in nature.
The following are significant budget amendments that have been identified since the development and adoption of the 2010 Budget.
- $50,000 allocated from Parks and Open Space Funds for the 50th Anniversary Train Depot project.
- A carryover of $95,376 for the construction of the Regional Athletic Complex (RAC) storage building from the 2009 Budget.
- $57,000 allocated from the Parks and Open Space Fund for construction of a 10 foot wide paved trail that will connect the Woodland Trail to the foot bridge at Woodland Park. The $57,000 will serve as the local match for the RCO grant.
- A carryover of $211,000 from the 2009 Budget for completion of the City Hall Expansion Project.
- Since Thurston County has not been able to pay $118,788 of its share in 2009 for the Regional Athletic maintenance and operations, staff proposes that the interfund loan from the Parks and Open Space Fund be expanded to address the cash shortfall of $39,608. The interfund loan will require City Council action and a future budget amendment.
- $50,256 from Reserve Funds to pay for the cost of the election for the Fire District annexation proposition.
- $74,869 from Street Fund Reserves to restore the striping and crack sealing programs.
- $250,000 was appropriated in the 2009 Budget for the Marvin Road Well Site Acquisition project. These funds will require re-appropriation from the fund balance of the Water Construction Fund in 2011.
- Council approved an agreement with Thurston County to transfer ownership and responsibility of the Regional Athletic Complex (RAC) to the City of Lacey. A settlement of $1,625,000 was included in the agreement. These funds will be receipted by the Parks and Open Space Fund for RAC operations. Also included in the settlement agreement, $200,000 will be provided by the County to be used for acquisition of land in the Woodland Creek Corridor.
Budget amendments for 2010 will be forwarded to Council later in the year for action.
Local Revitalization Program Update
Rick Walk, Community Development Director stated the Local Revitalization Financing (LRF) Program was created by the 2009 Washington State Legislature to assist local governments in funding public improvements that promote economic development, create jobs, and community revitalization. The maximum state contribution to an individual project is $500,000 per year for 25 years, which must be matched by local revenue.
The LRF program authorizes cities and counties to create “revitalization areas” that allow jurisdictions to leverage the increase in local sales and use tax revenues and local property tax revenues generated by development in the revitalization area with the state contribution to make payment on bonds issued to finance the public improvements.
In 2009, the City Council adopted an ordinance establishing the Lacey Gateway Town Center Revitalization Area. To protect the City’s financial health, important safeguards establishing the structure of the revitalization area and conditions prerequisite to the issuance of bonds were established within both the ordinance and letter of intent.
Key elements of the agreement include:
- The Lacey Gateway Town Center develops as the mixed use project defined by the Lacey Gateway Town Center Draft Supplemental Environmental Impact Statement.
- The public improvements financed by the LRF are those necessary to complete the full build out of the Lacey Gateway Town Center.
- All public improvements are constructed to City of Lacey standards and dedicated to the City.
- Prior to issuing bonds, the public improvements required by the City are constructed and the City is receiving sales and property tax revenues at least 3 times the amount required to retire the local match requirement.
In 2010, the legislature amended provisions of the LRF program to allow demonstration projects, such as the Lacey Gateway Town Center project, to be approved by the Department of Revenue in 2010, provided the application is updated and resubmitted to the State by September 1, 2010.
The updated application must include the same project as in the original application submitted in 2009; and, an economic analysis performed by the University of Washington Department of Economics must confirm there is an 85% probability that the application’s assumptions and estimates of jobs created and increased tax receipts will be achieved and the net state tax revenue will increase in an amount equal to or exceed the state award.
Greg Cuoio, City Manager, stated it is the City’s intent to maintain the Lacey Gateway Town Center vision, and this message has been shared with the banks and developers interested in the property.
Rick stated that staff will continue to coordinate the application process to ensure the City meets the September 1, 2010, deadline. Electronic Meeting Packs
Councilmember Andy Ryder expressed an interest in receiving Council meeting packets in electronic format. He noted that converting electronic packets could reduce the cost of paper needed for creating meeting packets.
Carol Litten, City Clerk, remarked that staff could provide electronic packets to those Councilmembers who are interested in receiving this format. She noted that staff would also continue to provide paper packets for those who prefer hard copies.
Staff will coordinate the effort and contact the full Council to determine who would like to receive electronic packets. Those interested would need to use their personal computers to access the electronic packets.