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Fiscal Year 2010 Budget Policy GuidelinesTHE CITY OF Dubuque '' DUB E a~ r Masterpiece on the Mississippi 2007 December 9, 2008 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Budget and Fiscal Policy Guidelines for Fiscal Year 2010 Budget Director Jennifer Larson is recommending adoption of the Fiscal Year 2010 Budget Policy Guidelines. The guidelines reflect City Council direction given as part of the August 25 and 26, 2008, goal setting sessions. The budget guidelines are developed and adopted by City Council early in the budgeting process in order to provide targets or parameters within which the budget recommendation will be formulated. The final budget presented by the City Manager may not meet all of these targets due to changing conditions and updated information during budget preparation. To the extent the recommended budget varies from the guidelines, an explanation will be provided in the printed budget document. Recognizing that there is a great deal of uncertainty around the national economy, which certainly could spill over to negatively affect the local economy, these Fiscal Year 2010 budget guidelines call for no property tax increase for the average Dubuque homeowner and a property tax decrease for commercial (0.85%) and industrial (1.12%) properties. Also, the Fiscal Year 2010 financial plan had called for an increase in the Stormwater Fee; however, these guidelines recommend no increase in the $4.00 per month fee. In addition, these guidelines call for an increase of $1 million in the uncommitted cash reserve general fund balance, which is normally an amount that equals 10% of the general fund, to help weather any economic downturn with a minimal impact on the delivery of services. Some highlights of the document are: - As reported last year, with the opening of the renovated Diamond Jo Casino, there will be a decrease of $7.6 million in operating revenues for the City over five years, and a decrease of $15.9 million in the capital improvement budget over five years. This adjustment to the City budget was made through last year's budgeting process. - Gaming revenues generated from lease payments from the DRA will need to be further adjusted in this budget process by a revised DRA projection of a reduction of lease payments of just over one million dollars per year or $5,500,000 over the next five years. - Gaming revenues from taxes and the DRA lease (not distributions) will be recommended to be changed from the FY 2009 split of 76% / 24% between operating and capital budgets to 85% / 15% in FY 2010. - There are many high priority capital improvement projects, which need to be constructed during the FY 2010-2014 period. Many of these projects will be possible without borrowing (i.e., selling bonds) to help finance them. However, debt will be required on several major capital projects, that being the Drainage Basin Master Plan, Fire Truck & Ambulance Replacements, Airport Improvements, Park Improvements, Sidewalk and Street Improvements, Sanitary Sewer Fund, and Water Fund. Alternative sources of funds will always be evaluated (i.e. State Revolving Loan Funds) to maintain the lowest debt service costs. There is no DRA distribution budgeted in this 5-Year Capital Improvement Program budget cycle. Therefore, general fund supported debt is anticipated in each of those five years. Prior to the commencement of DRA distributions, issuance of this type of debt was an annual occurrence. All requested projects will not be recommended for funding. - There is no recommended increase in the $4.00 per month Stormwater Fee. - The Policy Guidelines include a property tax guideline that provides no increase to the "City" share of property taxes for the average homeowner assuming the Homestead Property Tax Credit is fully funded by the State of Iowa. - The property tax rate will decline 1.12 percent from $9.969 per thousand dollars of assessed valuation in Fiscal Year 2009 to $9.8577 per thousand dollars of assessed valuation in Fiscal Year 2010. - The "City" share of commercial property taxes will decrease .85 percent and industrial property tax will decrease 1.12 percent. This is the result of the increase of the residential rollback factor of 3.42 percent with no change to assessed values for commercial or industrial property. In the effort to keep the increase of property tax paid by the average homeowner low, it is necessary to reduce the City's property tax rate which results in the reduction of property taxes paid by commercial and industrial taxpayers, who are not impacted by the residential rollback factor. - The property tax asking will increase 3.87 percent from Fiscal Year 2009. - The following table summarizes the impact of the Policy Guidelines: FY 2010 Im act to Avera a Homeowner +0.00% Im act to Avera a Commercial - 0.85% Im act to Avera a Industrial -1.12% FY 2010 Tax Rate 9.8577 / -1.12% FY 2010 Pro ert Tax Askin $19,689,820 / +3.87% Preliminary citizen participation opportunities will be available. There will be six City Council Work Sessions prior to the adoption of the FY 2010 budget before the state mandated deadline of March 15, 2009. I concur with the recommended Budget and Fiscal Policy Guidelines and respectfully request Mayor and City Council approval. Michael C. Van Milligen MCVM/jml Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Jennifer Larson, Budget Director Ken TeKippe, Finance Director BUDGET AND FISCAL POLICY GUIDELINES FOR FY 2010 OPERATING BUDGET GUIDELINES The Policy Guidelines are developed and adopted by City Council early in the budgeting process in order to provide targets or parameters within which the budget recommendation will be formulated. The final budget presented by the City Manager may not meet all of these targets due to changing conditions and updated information during budget preparation. To the extent the recommended budget varies from the guidelines, an explanation will be provided in the printed budget document. 1. CITIZEN PARTICIPATION Guideline To encourage citizen participation in the budget process, City Council will hold at least six work sessions in addition to the budget public hearing for the purpose of reviewing the budget recommendations for each City department and requesting public input following each departmental review. The budget will be prepared in such a way as to maximize its understanding by citizens. A copy of the recommended budget documents will be made available with the City Clerk and in the government documents section at the Carnegie Stout Public Library. The budget can be reviewed on the City's website at www.cityofdubugue.orq and copies of the budget on CD will be available. An opportunity will be provided for citizen input prior to formulation of the City Manager's recommended budget and again prior to final Council adoption, both at City Council budget work sessions and at the required budget public hearing. 2. SERVICE OBJECTIVES. ALTERNATIVE FUNDING AND SERVICE LEVELS Guideline The budget will identify specific objectives to be accomplished during the budget year, July 1 through June 30, for each activity of the City government. The objectives serve as a commitment to the citizens from the City Council and City administration and identify the level of service which the citizen can anticipate. FY 2010 Policy Guidelines Page 2 3. TWO TYPES OF BUDGET DOCUMENTS TO BE PREPARED Guideline The recommended City operating budget for Fiscal Year 2010 will consist of a Recommended City Council Policy Budget that is a collection of information that has been prepared for department hearings and a Citizens Guide to the Recommended FY 2010 Budget. The Recommended City Council Policy Budget includes the following information for each department: Highlights of Prior Year's Accomplishments and Future Year's Initiatives, a financial summary, a summary of improvement packages requested and recommended, significant line items, capital improvement projects in the current year and those recommended over the next five years, organizational chart for larger departments, major goals, objectives and performance measures for each cost center within that department, and line item expense and revenue financial summaries. The purpose of these documents are to focus the attention of the City Council and the public on policy decisions involving what services the City government will provide, who will pay for them and the implications of such decisions. They will emphasize objectives, accomplishments and associated costs for the budget being recommended by the City Manager. The Citizens Guide section of the Recommended FY 2010 Budget is a composite of tables, financial summaries and explanations, operating and capital budget messages and the adopted City Council Budget Policy Guidelines. Through graphs, charts and tables it presents financial summaries, which provide an overview of the total operating and capital budgets. 4. BALANCED BUDGET Guideline The City will adopt a balanced budget in which expenditures will not be allowed to exceed reasonable estimated resources. The City will pay for all current expenditures with current revenues. FY 2010 Policy Guidelines Page 3 5. BALANCE BETWEEN SERVICES AND TAX BURDEN Guideline The budget should reflect a balance between services provided and the burden of paying for those services. It is not possible or desirable for the City to provide all of the services requested by individual citizens. The City must consider the ability of citizens to pay for services in setting service levels and priorities. 6. MAINTENANCE OF EXISTING SERVICES Guideline To the extent possible with the financial resources available, the City should attempt to maintain the existing level of services. Annually, however, each service should be tested against the following questions: (a) Is this service truly necessary? (b) Should the City provide it? (c) What level of service should be provided? (d) Is there a better, less costly way to provide it? (e) What is its priority compared to other services? (f) What is the level of demand for the service? (g) Should this service be supported by property tax, user fees, or a combination? 7. IMPROVED PRODUCTIVITY Guideline Efforts should continue to stretch the value of each tax dollar and the City services that it buys through improved efficiency and effectiveness. Using innovative and imaginative approaches to old tasks, reducing duplication of service effort, creative application of new technologies and more effective organizational arrangements are approaches to this challenge. 8. USE OF VOLUNTEERS Discussion Out of the respect for citizens that must pay taxes, the City must seek to expand resources by continuing to get citizens directly involved in supplementing service delivery capability. Citizens are encouraged to assume tasks previously performed or provided by City government. This may require the City to change the approach to service delivery, such as, providing organizational skills, training, coordinating staff, office space, meeting space, equipment, supplies and materials, but not directly providing the more expensive full-time staff. Activities FY 2010 Policy Guidelines Page 4 where citizens can continue to take an active role include: Library, Recreation, Parks, Five Flags Center (through SMG, Inc., the private management company hired by the City as of July 1, 2004), Transit, and Police. Guideline In the future, the maintenance of City services may well depend on volunteer citizen staffs. In FY 2010, efforts shall continue to identify and implement areas of City government where (a) volunteers can be utilized to supplement City employees to maintain service levels (i.e., Library, Recreation, Parks, Transit, Police) or (b) services can be "spun off' to non-government groups and sponsors (i.e., YMCA/YWCA, United Way groups, Recreation Groups). 9. RESTRICTIONS ON INITIATING NEW SERVICE Guideline No new service will be considered except (a) when additional revenue or offsetting reduction in expenditures is proposed or (b) when mandated by state or federal law. 10. SALARY INCREASES OVER THE AMOUNT BUDGETED TO BE FINANCED FROM BUDGET REDUCTIONS IN THE DEPARTMENT(S) OF THE BENEFITING EMPLOYEES Discussion The recommended budget will include salary amounts for all City employees. However, past experience shows that budgeted amounts are often exceeded by fact finder and/or arbitrator awards. Such "neutrals" do not take into account the overall financial capabilities and needs of the community and the fact that the budget is a carefully balanced and fragile thing. Such awards have caused budgets to be overdrawn, needed budgeted expenditures to be deferred, working balances to be expended and, in general, have reduced the financial condition or health of the City government. To protect the financial integrity of the City government, it is recommended that the cost of any salary adjustment over the amount provided in the budget (that is, not financed in the budget) come from reductions in the budget of the department(s) of the benefiting employees. Guideline Salary increases over the amount budgeted for salaries shall be financed from operating budget reductions in the department(s) of the benefiting employees. FY 2010 Policy Guidelines Page 5 11. BALANCE BETWEEN CAPITAL AND OPERATING EXPENDITURES Guideline The provision of City services in the most economical and effective manner requires a balance between capital (with particular emphasis upon replacement of equipment and capital projects involving maintenance and reconstruction) and operating expenditures. This balance should be reflected in the budget each year. 12. USER CHARGES Discussion User charges or fees represent a significant portion of the income generated to support the operating budget. It is the policy that user charges or fees be established when possible so those who benefit from a service or activity also help pay for it. This is easy in some cases and municipal utility funds have been established for certain activities, which are intended to be self-supporting. Examples of utility funds include Water User Fund, Sewer User Fund, Stormwater User Fund, Refuse Collection Fund, and Parking Fund. In other cases, a user charge is made after the Council determines to what extent an activity is to be self-supporting. Examples of this arrangement are fees for swimming, golf and recreation programs and certain inspection programs. FY 2010 will be the second fiscal year that the Stormwater User Fund is fully funded by stormwater use fees. The General Fund will continue to provide funding for the stormwater fee subsidies which provide a 50% subsidy for the stormwater fee charged to property tax exempt properties, low-to-moderate income residents, and residential farms. Guideline User fees and charges should be established where possible so that those who utilize or directly benefit from a service, activity or facility also help pay for it. User fees and charges for each utility fund (Water User Fund, Sewer User Fund, Stormwater User Fund, Refuse Collection Fund, and Parking Fund) shall be set at a level that fully supports the total direct and indirect cost of the activity, including the cost of annual depreciation of capital assets and financing for future capital improvement projects. In FY 2010, the Stormwater User Fund will be self-supporting. The schedule of rate increases to make this guideline is proposed as follows: FY 2010 Policy Guidelines Page 6 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Current Rates $4.00 $5.00 $5.50 $6.35 $7.00 $7.00 Proposed Rates $4.00 $4.00 $5.50 $6.35 $7.00 $7.00 User fees and charges in the General Fund shall be established to cover not less than the following percentages of direct operating costs (excluding debt service): DEPARTMENT/DIVISION Leisure Services Department Recreation Division Adult Athletics* McAleece Concessions Children's Activities Therapeutic Recreation Recreation Classes Swimming* Golf* Surplus to Golf Devel' Fund Park Division Library Department excl' Gift Trusts Airport Department Wiabated debt Building Services Division Inspections Planning Services Department Health Services Department Food/Environmental Insp. Animal Control*** Housing Services Department General Housing Inspection Federal Building Maint. FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 ACTUAL ACTUAL ACTUAL BUDGETED RECOM'D PERCENT PERCENT PERCENT PERCENT PERCENT 60.9 61.8** 61.4 59.7 60.0 146.9** 151.9 154.5 162.2 53.5 53.2 45.9 49.8 45.3 11.6 13.3 23.4 18.5 20.1 40.9 32.1 39.0 25.0 25.5 70.8 69.6 51.0 66.4 62.7 107.6 101.6 102.3 100.6 100.0 11.5 12.7 10.6 11.4 11.0 5.8 14.5 9.3 3.9 3.7 85.3 81.7 86.3 81.5 82.8 85.2 84.5 90.7 105.5 97.3 18.1 16.0 13.5 34.9 34.1 57.6 49.5 66.6 62.0 62.8 62.7 61.3 126.3 101.1 103.1 77.5 78.5 72.6 64.8 60.9 91.4 124.3 100.0 83.4 * Includes an amount to help cover indirect costs (administration). ""' McAleece concessions moved to a separate activity in FY 2007. ""* Humane Society contract moved to the Purchase of Service activity in FY 2008. FY 2010 Policy Guidelines Page 7 13. OUTSIDE FUNDING Discussion The purpose of this guideline is to establish the policy that the City should aggressively pursue outside funding to assist in financing its operating and capital budgets. However, the long-term commitments required for such funding must be carefully evaluated before any agreements are made. Commitments to assume an ongoing increased level of service or level of funding once the outside funding ends must be avoided. Guideline In order to minimize the property tax burden, the City of Dubuque will make every effort to obtain federal, state and private funding to assist in financing its operating and capital budgets. However, commitments to guarantee a level of service or level of funding after the outside funding ends shall be avoided. 14. GENERAL FUND OPERATING RESERVE OR WORKING BALANCE Discussion An operating reserve or working balance is an amount of cash, which must be carried into a fiscal year to pay operating costs until tax money, or other anticipated revenue comes in. Without a working balance there would not be sufficient cash in the fund to meet its obligations and money would have to be borrowed. Working balances are not available for funding a budget; they are required for cash flow (i.e., to be able to pay bills before taxes are collected). The rule of thumb the state recognizes for determining a reasonable amount for a working balance is (a) anticipated revenues for the first three months of the fiscal year less anticipated expenditures or (b) 5 percent of the total General Fund operating budget (excluding fringes and tort liability expense). However, in discussions with Moody's Investor Service, a factor of 10 percent was recommended for "A" rated cities. This is due to the fact that a large portion of revenue sources are beyond the City's control and therefore uncertain. In the case of Dubuque, 10% represents approximately $3,622,769. Guideline The guideline of the City of Dubuque is to maintain a General Fund working balance or operating reserve of 10 percent of the total General Fund Operating budget requirements or approximately $3,622,769 for FY 2010. However, FY 2010 Policy Guidelines Page 8 recognizing the current economic uncertainties for FY 2010 it is recommended that the General Fund operating reserve be increased by one million dollars for FY 2010 alone. If these funds were not needed in FY 2010 they would be available in FY 2011 for a capital project, or for an important economic development initiative. 15. USE OF UNANTICIPATED. UN-OBLIGATED. NONRECURRING INCOME Discussion Sometimes income is received that was not anticipated and was not budgeted. Often this money is not recurring and reflects something, which happened on a one-time basis to generate the "windfall". Nonrecurring income must not be spent for recurring expenses. To do so causes a funding shortfall the next budget year before even starting budget preparation. Nonrecurring expenditures would include capital improvements and equipment purchases. Guideline Nonrecurring un-obligated income shall be spent only for nonrecurring expenses. Capital improvement projects and major equipment purchases tend to be nonrecurring expenditures. 16. USE OF "UNENCUMBERED FUND BALANCES" Discussion Historically a budget is not spent 100% by the end of the year and a small unencumbered balance remains on June 30th. In addition, income sometimes exceeds revenue estimates resulting in some unanticipated balances at the end of the year. These amounts of un-obligated, year-end balances are in turn "carried over" into the new fiscal year to help finance it. The FY 2008-09 General Fund budget, which went into effect July 1, anticipated a "carryover balance" of $200,000 or approximately 2 percent of the General Fund. For multi-year budget planning purposes, these guidelines assume a carryover balance of $200,000 in FY 2010 through FY 2014. Guideline FY 2010 Policy Guidelines Page 9 The available carryover General Fund balance to help finance the budget and to reduce the demand for increased taxation shall be anticipated not to exceed $200,000 for FY 2009-10 and beyond through the budget planning period. Any amount over that shall be programmed in the next budget cycle as part of the capital improvement budgeting process. 17. PROPERTY TAX DISCUSSION Assumations -Resources a. Unencumbered funds or cash balances of $200,000 will be available in FY 2010 and each succeeding year to support the operating budget. b. Sales tax funds are set by resolution to be used 50 percent in the General Fund for property tax relief. Sales tax projections for FY 2010 are projected to increase 5.0 percent over FY 2008 actual receipts or an average of 2.5% per year, and then increase at an annual rate of 2.0 percent per year. c. Hotel/motel tax receipts are projected to increase 4 percent over FY 2009 budget, and then increase at an annual rate of 3 percent per year. d. State Transit operating assistance is anticipated to remain unchanged from FY 2009 budget. Federal Transportation Administration (FTA) is anticipated to increase 18% from FY 2009 budget. e. Miscellaneous revenue, excluding state shared revenues, has been estimated at 2 percent growth per year over budgeted FY 2009. Gaming revenues generated had been estimated based on the impact of the Diamond Jo's anticipated expansion beginning FY 2009 (12/11/08), which includes a decrease to the DGP&C gaming market of 21 percent. This impacted the City's five year capital program (FY 2010 - FY 2014) by a reduction of $14 million in distribution payments and $1.4 million in lease payments for a total reduction to the CIP of $15.4 million. The reduction of the lease payment over the next five years would impact the operating budget by $8.1 million. g. Gaming revenues generated from lease payments from the DRA have been decreased by $1.1 million per year based on revised projections from the DRA. In addition, the $.50 per patron tax received from the Diamond Jo is anticipated to increase 2.5 percent ($15,859) in FY 2010 and is expected to FY 2010 Policy Guidelines Page 10 be eliminated during FY 2011. This is based on statements from the Diamond Jo about the uncertainty of this fee in the future. The riverboat related tax on bets has also been increased 2.5 percent ($10,747) in FY 2010. h. Gaming revenues from taxes and the DRA lease (not distributions) changed from the FY 2009 split of 76% / 24% between operating and capital budgets to 85% / 15% in FY 2010. The operating portion of the split includes the debt service required on the 2002 general obligation bonds for the America's River Project that was previously considered as part of the capital portion of the DRA lease. Debt obligations are considered a continuing annual expense and are more accurately reflected as part of the operating portion of the DRA lease. The Diamond Jo Patio lease ($25,000) and the Diamond Jo parking privileges ($475,000 beginning in FY 2009 in connection with the expansion of the Diamond Jo Casino) have not been included in the split with gaming revenues. This revenue is allocated to the operating budget. The residential rollback factor will increase from 44.080 percent to 45.589 percent or a 3.42 percent increase for FY 2010. The rollback has been estimated to increase 4% each year from Fiscal Years 2011 thru 2014 and a 10-year average for equalization orders was used for Fiscal Years 2011 and beyond. FY 2010 reflects this increased assessed value for the average homeowner. Assessed valuations were increased 2 percent per year beyond FY 2010. k. Gas and electric franchise fees have been projected to increase 4 percent over FY08 actual collections based on three year's trend data. Also, Alliant has applied fora 4.38% increase and Black Hills Energy fora 10.3% increase with the State Utility Board and this budget assumes they will each get 50% of their requested increase. In FY 2011 the franchise fee has been projected to increase from a 2% to a 3% fee due to the City anticipating a positive outcome of the franchise fee litigation or a legislative change during FY 2010. The franchise fee increases at an annual rate of 2.5 percent per year from FY 2012 thru FY 2014. The City is currently undergoing a franchise fee study. These guidelines assume the 2% franchise fee will continue in FY 2010 and increase to 3% in FY 2011. I. For purposes of budget projections only, it is assumed that City property taxes will continue to increase at a rate necessary to meet additional requirements over resources beyond FY 2010, with the gaming revenue (from FY 2010 Policy Guidelines Page 1 1 taxes and the DRA lease) split at 85% operating budget and 15% capital budget based on note "g" above. m. FY 2010 reflects the second year that payment in lieu of taxes is charged to the Water and Water Pollution Control funds for Police and Fire Protection. In FY 2010, the Water Pollution Control fund is charged 0.43% of building value and the Water fund is charged 0.62% of building value for payment in lieu of taxes for Police and Fire Protection. This revenue is reflected in the General Fund and is used for general property tax relief. n. FY 2010 anticipates the City receiving an Energy and Environmental Block Grant ($330,000) to fund the Sustainability Community Coordinator position ($78,489) and the remainder of the grant to fund a portion of the annual Growing Sustainable Conference, printing of sustainability materials, and replacement of the City Hall roof with photovoltaic shingles. FY 2010 Policy Guidelines Page 1 Z Assumptions -Requirements a. A wage increase is reflected in the projections for FY 2010 of 3.5 percent. b. The Municipal Fire and Police Retirement System of Iowa Board of Trustees has decreased the City contribution for Police and Fire retirement from 18.75 percent to 17.00 percent (-5.21% or a decrease of $110,387in General Fund). Also, the Iowa Public Employee Retirement System (IPERS) increased the City contribution from 6.35 percent to 6.65 percent (+10.25% or an increase of $72,454 in General Fund) and the employee contribution from 4.10% to 4.30% for the third time since 1979. The IPERS rate is anticipated to increase 3 percent each succeeding year according to IPERS. c. The City portion of health insurance expense will decrease from $715 per month per contract to $665 per month per contract (based on 514 contracts) to draw down excess health fund reserves. Estimates for FY 10-14 have been increased by 6.5 percent per year. d. General operating supplies and services are estimated to increase 5 percent over actual in FY 2008 or 2.5 percent over FY 2009 budget, depending on which year reflects expenditures more accurately. 2.5 percent increase is estimated in succeeding years. e. Electrical energy expense is estimated to increase 10 percent over FY 2008 actual expense, then 2.5 percent per year beyond. f. Natural gas expense is estimated to increase 6 percent over FY 2008 actual, then 2.5 percent per year beyond. There is no degree-day adjustment this year. g. The Convention and Visitors Bureau contract will continue at 50 percent of actual hotel/motel tax receipts, less a $35,000 loan repayment. h. Equipment costs for FY 2010 are estimated to decrease 16.9 percent under FY 2009 budget, then increase 5 percent per year beyond. i. Debt service is estimated based on additional tax-supported unabated General Obligation bond sales for fire truck and ambulance replacements and Purchase/Rehab/Resale/Demolition of homes in targeted neighborhoods in FY 2010 - 2014. Unemployment expense in the General Fund remains unchanged from FY 2009 at $52,356 based on past years actual experience. FY 2010 Policy Guidelines Page 13 k. Motor vehicle fuel, and low and high sulfur diesel fuel expense based on a three year average of FY 2007 and 2008 actual and FY 2009 projected actual, then 2.5 percent per year beyond. I. Postage rates for FY 2010 are estimated to increase 0 percent over FY 2008 actual expense and remain at that level per year beyond. m. Vehicle maintenance expense for FY 2010 is estimated to increase 7 percent over FY 2008 actual expense, then 2.5 percent per year beyond. n. Insurance costs are estimated to change as follows: Workers Compensation is increasing 6.46 percent, General Liability is increasing 7.0 percent, Property insurance is decreasing 8.3 percent, and Boiler and Machinery insurance is increasing 10.1 percent. FY 2010 Policy Guidelines Page 14 IMPACT ON AVERAGE RESIDENTIAL PROPERTY -EXAMPLE CITY TAX PERCENT DOLLAR ACTUAL -PAST HISTORY CALCULATION CHANGE CHANGE FY 1989 "City" Property Tax $ 453.99 -11.40% - $ 58.39 FY 1990 "City" Property Tax $ 449.94 - 0.89% - $ 4.04 FY 1991 "City" Property Tax* $ 466.92 + 3.77% +$ 16.98 FY 1992 "City" Property Tax $ 483.63 + 3.58% +$ 16.71 FY 1993 "City" Property Tax* $ 508.73 + 5.19% +$ 25.10 FY 1994 "City" Property Tax $ 510.40 + 0.30% +$ 1.51 FY 1995 "City" Property Tax* $ 522.65 + 2.43% +$ 12.41 FY 1996 "City" Property Tax $ 518.10 - 0.87% - $ 4.54 FY 1997 "City" Property Tax* $ 515.91 - 0.42% - $ 2.19 FY 1998 "City" Property Tax $ 512.25 - 0.71 % - $ 3.66 FY 1999 "City" Property Tax* $ 512.25 - 0.00% $ 0.00 FY 2000 "City" Property Tax $ 511.38 - 0.17% - $ 0.87 FY 2001 "City" Property Tax $ 511.38 0.00% $ 0.00 FY 2002 "City" Property Tax $ 511.38 0.00% $ 0.00 FY 2003 "City" Property Tax* $ 485.79 - 5.00% -$ 25.58 FY 2004 "City" Property Tax $ 485.79 0.00% $ 0.00 FY 2004 With Homestead Adj. $ 493.26 + 1.54% +$ 7.46 FY 2005 "City" Property Tax* $ 485.93 + 0.03% +$ 0.14 FY 2005 With Homestead Adj.* $ 495.21 + 0.40% +$ 1.95 FY 2006 "City" Property Tax~~> $ 494.27 + 1.72% +$ 8.34 FY 2006 With Homestead Adj. ~~~ $ 504.62 + 1.90% +$ 9.41 FY 2007 "City" Property Tax*~2~ $ 485.79 - 1.72% -$ 8.48 FY 2007 With Homestead Adj.* $ 496.93 - 1.52% -$ 7.69 FY 2008 "City" Property Tax $ 496.93 0.00% $ 0.00 FY 2008 With Homestead Adj. $ 510.45 + 2.72% +$13.52 FY 2009 "City" Property Tax $ 524.53 + 2.76% +$14.08 FY 2009 With Homestead Adj. ~s~ $ 538.07 + 5.41 % +$27.62 PROPOSED FY 2010 "City" Property Tax*~a~ $500.88 0.00% $ 0.00 Average FY 1989-FY 2010 with Homestead Adj. + 0.28% +$ 1.17 Average FY 1989-FY 2010 without Homestead Adj. - 0.06% -$ 0.57 PROJECTION ** FY 2011 "City" Property Tax* $ 589.29 + 9.52% +$ 51.22 FY 2012 "City" Property Tax $ 637.89 + 8.25% +$ 48.60 FY 2013 "City" Property Tax* $ 676.41 + 6.04% +$ 38.52 FY 2014 "City" Property Tax $ 723.09 + 6.90% +$ 46.68 * Denotes year of State-issued equalization orders FY 2010 Policy Guidelines Page 15 (1) The FY 2006 property tax calculation takes into account the 6.2% valuation increase for the average residential homeowner as determined by the reappraisal. (2) Offsets the impact of the State reduced Homestead Property Tax Credit in FY 2005 ~ 2006. (3) The City adopted a budget in FY 2009 that provided no increase to the average homeowner. The State of Iowa under funded the Homestead Property Tax Credit costing the average homeowner an additional $27.62. The average homeowner then paid $538.07 to the City, instead of $524.53. This provided no additional revenues to the City, as this money would have come to the City from the State if they appropriated the proper amount of funds. (4) Assumes State of Iowa funds 100% of Homestead Property Tax Credit in FY 2010 and beyond. Homestead Property Tax Credit History a~ State of Iowa Funded 100% of the Homestead 2002-2003 Property Tax Credit ~ State of Iowa Funded 85% of the Homestead 2003-2004 Property Tax Credit o~~ State of Iowa Funded 81 % of the Homestead 2004-2005 Property Tax Credit ~J State of Iowa Funded 78% of the Homestead 2005-2006 Property Tax Credit ~~~ State of Iowa Funded 77% of the Homestead 2006-2007 Property Tax Credit State of Iowa Funded 73% of the Homestead 2007-2008 0~ Property Tax Credit ~ State of Iowa Funded 72% of the Homestead 2008-2009 Property Tax Credit ~ Assumed Homestead will be 100% Funded by 2009-2010 the State of Iowa The Homestead Property Tax Credit was established by the state legislature to reduce the amount of property tax collected. The intent of the credit was to be a form of tax relief and provide an incentive for home ownership. The State Homestead Property Tax Credit works by discounting the tax collected on the first $4,850 of a property's taxable value. This has no impact on what the City receives from property tax collections, but provides tax relief for the average homeowner. Beginning FY 2004, the State of Iowa did not fully fund the State Homestead Property Tax Credit resulting in the average homeowner paying the unfunded portion. Again this has no impact on what the City receives, however as a result has caused the average homeowner to pay more taxes. FY 2010 Policy Guidelines Page 16 In the FY 2010 budget, the City will not offset the prior year unfunded portion of the Homestead Tax Credit. FY 2010 reflects no increase in property taxes paid by the average homeowner, however if the State continues to not fully fund the Homestead Property Tax Credit, this will increase the property taxes paid. This will not provide any additional revenues to the City, however. IMPACT ON COMMERCIAL PROPERTY -EXAMPLE CITY TAX PERCENT DOLLAR ACTUAL -PAST HISTORY CALCULATION CHANGE CHANGE FY 1989 "City" Property Tax $2,106.42 -15.43% -$ 384.19 FY 1990 "City" Property Tax $2,086.50 - .95% - $ 19.92 FY 1991 "City" Property Tax* $2,189.48 + 4.94% +$ 102.98 FY 1992 "City" Property Tax $2,280.18 + 4.14% +$ 90.70 FY 1993 "City" Property Tax* $2,231.05 - 2.15% -$ 49.13 FY 1994 "City" Property Tax $2,250.15 + 0.86% +$ 19.10 FY 1995 "City" Property Tax* $2,439.60 + 8.42% +$ 189.45 FY 1996 "City" Property Tax $2,439.60 + 0.00% +$ 0.00 FY 1997 "City" Property Tax* $2,6'59.36 + 9.01 % +$ 219.76 FY 1998 "City" Property Tax $2,738.43 +2.97% +$ 79.07 FY 1999 "City" Property Tax* $2,952.03 + 7.80% +$ 213.60 FY 2000 "City" Property Tax $2,934.21 - 0.60% -$ 17.82 FY 2001 "City" Property Tax $2,993.00 + 2.01 % +$ 58.86 FY 2002 "City" Property Tax $2,910.25 -2.77% -$ 82.84 FY 2003 "City" Property Tax* $3,186.27 + 9.48% +$ 276.03 FY 2004 "City" Property Tax $3,278.41 + 2.89% +$ 92.15 FY 2005 "City" Property Tax* $3,349.90 + 2.18% +$ 71.48 FY 2006 "City" Property Tax ~~~ $3,152.52 - 5.89% -$ 197.38 FY 2007 "City" Property Tax* $3,538.03 +12.23% +$ 385.50 FY 2008 "City" Property Tax $3,668.64 + 4.26% +$ 150.62 FY 2009 "City" Property Tax* $3,524.48 - 3.63% -$ 133.94 PROPOSED _ FY 2010 "City" Property Tax $3,524.48 -0.85% -$ 30 23 Average FY 1990-2010 + 0.02% +$ 46.99 PROJECTION ** FY 2011 "City" Property Tax* $3,575.18 + 1.44% FY 2012 "City" Property Tax $3,720.59 + 4.07% FY 2013 "City" Property Tax* $3,656.42 - 1.72% FY 2014 "City" Property Tax $3,759.13 + 2.81 * Denotes year of State-issued equalization orders (1) The FY 2006 property tax calculation takes into account the 3% valuatic property as determined by the reappraisal. +$ 50.70 +$ 145.41 - $ 64.17 +$ 102.71 m decrease for commercial FY 2010 Policy Guidelines Page 17 IMPACT ON INDUSTRIAL PROPERTY -EXAMPLE CITY TAX PERCENT DOLLAR ACTUAL -PAST HISTORY CALCULATION CHANGE CHANGE FY 1989 "City" Property Tax $5,900.35 -15.40% -$1,074.65 FY 1990 "City" Property Tax $5,844.55 - .90% -$ 55.80 FY 1991 "City" Property Tax $6,133.00 + 4.90% +$ 288.45 FY 1992 "City" Property Tax $6,387.05 + 4.10% +$ 254.05 FY 1993 "City" Property Tax $6,249.45 - 2.20% -$ 137.60 FY 1994 "City" Property Tax $6,302.95 + 0.90% +$ 53.50 FY 1995 "City" Property Tax $5,891.05 - 6.50% -$ 411.90 FY 1996 "City" Property Tax $5,891.05 + 0.00% +$ 0.00 FY 1997 "City" Property Tax $5,690.75 - 3.40% -$ 200.30 FY 1998 "City" Property Tax $5,700.56 + .17% +$ 9.81 FY 1999 "City" Property Tax $5,536.70 - 2.87% -$ 163.86 FY 2000 "City" Property Tax $5,358.00 - 3.23% -$ 178.70 FY 2001 "City" Property Tax $5,533.00 + 3.28% +$ 175.55 FY 2002 "City" Property Tax $5,380.42 - 2.77% -$ 153.13 FY 2003 "City" Property Tax $5,106.00 - 5.10% -$ 274.40 FY 2004 "City" Property Tax $5,136.50 + .60% +$ 30.50 FY 2005 "City" Property Tax $5,036.00 - 1.96% -$ 100.50 FY 2006 "City" Property Tax~~~ $5,814.61 +15.46% +$ 778.61 FY 2007 "City" Property Tax $5,983.21 + 2.90% +$ 168.60 FY 2008 "City" Property Tax $6,184.95 + 3.37% +$ 201.74 FY 2009 "City" Property Tax $5,976.44 -3.37% -$ 208.51 PROPOSED FY 2010 "City" Property Tax $5,909.69 -1.12% -$ 66.75 Average FY 1990- FY 2010 - 0.60% -$ 48.42 PROJECTION** FY 2011 "City" Property Tax $6,012.75 +1.74% +$ 103.05 FY 2012 "City" Property Tax $6,238.52 + 3.75% +$ 225.77 FY 2013 "City" Property Tax $6,149.37 - 1.43% -$ 89.15 FY 2014 "City" Property Tax $6,303.14 + 2.50% +$ 153.77 (1)The FY 2006 property tax calculation takes into account the 19.9% valuation increase for industrial property as determined by the reappraisal. FY 2010 Policy Guidelines Page 18 History of Increases in Property Tax Askings Change Fiscal "City" Property in Tax Year Tax Askings Askin s FY 1989 $10,918,759 -12.0% FY 1990 $10,895,321 - 0.2% FY 1991 $11, 553,468 + 6.0% FY 1992 $12,249,056 + 6.0% FY 1993 $12,846,296 + 4.9% FY 1994 $13,300,756 + 3.5% FY 1995 $13,715,850 + 3.1 FY 1996 $14, 076, 320 + 2.6% FY 1997 $14,418,735 + 2.4% FY 1998 $14,837,670'` + 2.9% FY 1999 $15,332,806* + 3.3% FY 2000 $15,285,754 - 0.3% FY 2001 $15,574,467 + 1.9% FY 2002 $15,686,579 + 0.7% FY 2003 $15,771,203 + 0.5% FY 2004 $16,171,540 + 2.5% FY 2005 $16,372,735 + 1.2% FY 2006 $16,192,215 - 1.1% FY 2007 $17,179, 994 + 6.1 FY 2008 $18,184,037 + 5.8% FY 2009 $18,955,770 + 4.2% FY 2010 $19,683,545 +3.8% Estimate Sales Tax initiated Present Impact on Homeowner** -11.4% - 0.9% + 3.8% + 3.6% + 5.0% + 0.3% + 2.4% - 0.9% - 0.4% - 0.7% 0.0% - 0.2% 0.0% 0.0% - 5.0% 0.0% 0.0% + 1.7% - 1.7% 0.0% +2.8% 0.0% Average FY 1990-2010 + 2.17% - 0.07% *Without TIF Accounting change. **Does not reflect State unfunded portion of Homestead Credit. Impact on Tax Askings and Average Residential Property To maintain the current level of service based on the previous assumptions would require the following property tax asking increases: "City" Property Year Tax Askings (000) % Increase FY 2009 $18,956 FY 2010 $19,690 + 3.87% FY 2011 $21,132 + 7.32% FY 2012 $22,820 + 7.99% FY 2013 $23,790 + 4.25% FY 2014 $25,381 + 6.68% / $ Impact on Avg. Residential Proaerty* +0.00% / $ 0 +9.52% / +$51.22 +8.25%/ +$48.60 +6.04% / +$38.52 +6.90% /+$46.68 FY 2010 Policy Guidelines Page 19 Guideline The recommended guideline is no tax increase for the average residential property owner assuming the Homestead Property Tax Credit is fully funded, and the percent of annual gaming revenues going into the operating budget at 85 percent. Note: One percent increase in the tax rate will generate approximately $199,058. CIP BUDGET GUIDELINES 18. INTEGRATION OF CAPITAL RESOURCES Guideline In order to obtain maximum utilization, coordination and impact of all capital improvement resources available to the City, state and federal block and categorical capital grants and funds shall be integrated into a comprehensive five year Capital Improvement Program (CIP) for the City of Dubuque. 19. INTEGRITY OF CIP PROCESS Guideline The City should make all capital improvements in accordance with an adopted Capital Improvement Program (CIP). If conditions change and projects are to be added and/or deleted from the CIP, the changes shall be made only after approval by the City Council. 20. RENOVATION AND MAINTENANCE Guideline Capital improvement expenditures should concentrate on renovating and maintaining existing facilities to preserve prior community investment. FY 2010 Policy Guidelines Page 20 21. NEW CAPITAL FACILITIES Guideline Construction of new or expanded facilities which would result in new or substantially increased operating costs will be considered only if: 1) their necessity has been clearly demonstrated; 2) their operating cost estimates and plans for providing those operating costs have been developed; 3) they can be financed in the long term; and 4) they can be coordinated and supported within the entire system. 22. COOPERATIVE PROJECTS Guideline Increased efforts should be undertaken to enter into mutually beneficial cooperative capital improvement projects with the county, school district and private groups. Cost sharing to develop joint-use facilities and cost sharing to improve roads and bridges are examples. 23. USE OF GENERAL OBLIGATION BONDS Discussion The Iowa Constitution limits the General Obligation debt of any city to 5 percent of the actual value of the taxable property within the city. The Iowa legislature has determined that the value for calculating the debt limit shall be the actual value of the taxable property prior to any "rollback" mandated by state statute. The FY 2008-09 taxable value for calculating the debt limit is $3,269,743,957, which indicates a total General Obligation debt capacity of $163,487,198. Outstanding G.O. debt (including tax increment debt) on June 30, 2009 will be $76,181,766 (46.6 percent) leaving an available debt capacity of $87,305,432 (53.40 percent). It should be noted that none of the City of Dubuque's outstanding debt is paid with property taxes (except TIF), but is abated from other revenues. As we approach the preparation of the FY 2010-2014 Capital Improvement Program (CIP) the problem is not the city's capacity to borrow money but (a) how to identify, limit and prioritize projects which justify the interest payments and (b) how to balance high priority projects against their impact on the property tax rate. FY 2010 Policy Guidelines Page 21 Guideline There are many high priority capital improvement projects, which need to be constructed during the FY 2010-2014 period. Many of these projects will be possible without borrowing the money (i.e., selling bonds) to help finance them. However, debt may be required on some capital projects, that being the Drainage Basin Master Plan, Fire Truck & Ambulance Replacements, Airport Improvements, Park Improvements, Sidewalk and Street Improvements, Sanitary Sewer Fund, and Water Fund. In determining whether a project should be financed in total or in part from bond funds the City Council must consider and balance: (a) the community impact of not doing the project (poor streets, deteriorated park buildings, sewer problems, higher operating costs); (b) possible operating budget cuts to offset higher debt service payments; (c) anticipated interest rate; and (d) the impact on the tax rate and taxpayer of issuing the bonds. Alternative sources of funds should always be evaluated (i.e. State Revolving Loan Funds) to maintain the lowest debt service costs. All requested projects will not be recommended for funding. The following table shows the schedule of GO debt for CIP projects in FY 2010: Project FY 2010 Fire Truck & Ambulance Replacement 1,355,500 Airport Improvements 254,219 Fiber Optic Conduit -Paving Projects 97,200 Streetlight Replacement & New Installation 39,000 Downtown Streetlight Replacement 48,000 Sidewalk Curb Catch Basin 145,000 Sidewalk Program -City Owned 100,000 Total 2,038,919 FY 2010 Policy Guidelines Page ZZ 24. ROAD USE TAX FUND Discussion Actual Road Use Tax Fund receipts are as follows: FY 1985 - $2,069,065 FY 1986 - $2,207,467 FY 1987 - $2,259,436 FY 1988 - $2,379,592 FY 1989 - $2,617,183 FY 1990 - $3,037,587 FY 1991 - $3,122,835 FY 1992 - $3,119,087 FY 1993 - $3,121,357 FY 1994 - $3,343,678 FY 1995 - $3,484,524 FY 1996 - $3, 841, 921 FY 1997 - $3,977,528 FY 1998 - $4,072,296 FY 1999 - $4,415,192 FY 2000 - $4,671,656 FY 2001 - $4,628,072 FY 2002 - $4,620,514 FY 2003 - $4,696,399 FY 2004 - $4,806,295 FY 2005 - $4,798,667 FY 2006 - $4, 831, 935 FY 2007 - $4,809,990 FY 2008 - $4,944,336 The FY 2009 budget was based on receiving $4,862,930 in Road Use Tax funds. In FY 2009, 97.7 percent of the Road Use Tax income is in the operating budget. Guideline It is preferable to shift Road Use Tax funds to the capital budget for street maintenance and repair to reduce the need to borrow funds for routine street maintenance and improvements. This shift cannot occur until such time as there are increased revenues or reduced expense that would allow this shift without a property tax impact. 25. COMMERCIAL AND INDUSTRIAL DEVELOPMENT Guideline Current City, commercial and industrial development efforts should be continued to (a) preserve current jobs and create new job opportunities and (b) enlarge and diversify the economic base. Financing these efforts and programs should continue to be a high priority. FY 2010 Policy Guidelines Page Z3 26. HOUSING Guideline In order to maintain an adequate supply of safe and decent housing, the City should strive to preserve existing single family and rental housing and provide opportunities for development of new housing, particularly owner occupied, within the City's corporate limits for all citizens, particularly for people of low and moderate income. 27. SALES TAX Guideline Thirty percent of projected sales tax receipts will be used for: (a) the reduction by at least 75 percent of street special assessments and (b) the maintenance and repair of streets. Twenty percent will be used for: (a) the upkeep of City-owned property such as sidewalks, steps, storm sewers, walls, curbs, traffic signals and signs, bridges and buildings and facilities (e.g., Airport, Five Flags Center, Library, Law Enforcement Center, City Hall, fire stations, parks and swimming pools); (b) Transit equipment such as buses; (c) riverfront and wetland development; and (d) economic development projects. FY 2010 Policy Guidelines Page 24 28. NET CASH PROCEEDS (SURPLUS DISTRIBUTION) FROM THE DUBUQUE RACING ASSOCIATION The contract with the Dubuque Racing Association calls for distribution at the end of its fiscal year, November 30th, of 40 percent of its net cash operating funds to the City of Dubuque. Usually, in mid-December, the City receives payment of proceeds to be distributed. These proceeds are then allocated for capital improvements, with the highest priority given to reducing the City's annual borrowing. The City is currently renegotiating the DRA lease which is anticipated to provide for no distribution in FY 2009, FY 2010 and FY 2011. In addition, the DRA projects no distribution in FY 2012 and FY 2013. The Dubuque Racing Association provides the City with projections of future distributions since gaming is a highly volatile industry the estimates are discounted prior to including them in the City's Five Year CIP, when a distribution is projected. The lack of DRA Distribution will require some General Fund supported debt issuances to support the Five Year Capital Improvement Program budget. Guideline In Fiscal Year 2010 and for the near future, the City does not anticipate distribution of net cash proceeds for use in the Capital Improvement Program. However, in Fiscal Years where there is anticipated distribution of a significant amount of net cash proceeds, these amounts will be budgeted in the Five Year CIP in the year they are received and will be used to reduce required General Obligation borrowing. The three out-years will be discounted by 5 percent, 10 percent, and 15 percent respectively. 29. EMPHASIS ON INITIATIVES THAT REDUCE FUTURE OPERATING BUDGET EXPENSE Guideline Capital improvement expenditures that will reduce future maintenance and operating expense will receive priority funding and these types of initiatives will be encouraged in all departments and funding sources as a means of maximizing the use of available resources. This emphasis reflects fiscally responsible long range planning efforts. FY 2010 Policy Guidelines Page 25 30. USE OF GAMING RELATED RECEIPTS Guideline On April 1, 2004, a new lease took effect with the Dubuque Racing Association for lease of the Dubuque Greyhound Park and Casino. This new lease was negotiated after the FY 2005 budget was approved and raised the lease payment from '/2% of coin-in to 1 % of coin-in. This new lease and the expansion of gaming at Dubuque Greyhound Park and Casino, from 600 gaming positions to 1,000 gaming positions, effective August 1, 2005, provided additional revenues to the City of Dubuque. In FY 2009 the split was 76% operating and 24% capital. FY 2010 reflects the actual split of 85% operating and 15% capital. The operating portion of the split now includes the debt service required on the 2002 general obligation bonds for the America's River Project that was previously considered as part of the capital portion of the DRA lease. Debt obligations are considered a continuing annual expense and are more accurately reflected as part of the operating portion of the DRA lease. In FY 2007, the Diamond Jo announced their intentions of expanding in the fall of 2008 (assumed 12/11/08) to a land based barge casino facility and increasing to 1,100 slots. This expansion creates a decrease to the DGP&C gaming market of 21 percent. Based on the projected market share loss, the City is not expected to receive a distribution of cash flows from the Dubuque Racing Association (DRA) in Fiscal Years 2010 through 2014. This was projected to impact the City's five year capital program by a reduction of $14 million. The reduction in the DRA's market share also impacts the City's lease payment from the DRA. The current lease requires the DRA to pay the City 1 percent of coin in from slot machines and 1 percent of table drop from table games. In FY 2010 it is estimated that the City will lose $9.5 million through FY 2014 in lease payments based on what was originally projected to be received compared to the revised projections. Eighty-five percent of the lease payments are used for general property relief and twenty percent is used to fund the City's five year capital improvement program. The reduction of the lease payment over the next five years would impact the operating budget by $8.1 million and the capital improvement budget by $1.4 million. FY 2010 Policy Guidelines Page Zb Gaming revenues generated from lease payments from the DRA have been further adjusted by a revised DRA projection of a reduction of lease payments of just over one million dollars per year or $5,500,000 over the next five years. In addition, the $.50 per patron tax received from the Diamond Jo is anticipated to increase 2.5 percent ($15,859) in FY 2010 and is expected to be eliminated during FY 2011 based on statements from the Diamond Jo about the uncertainties of the fee in the future. The riverboat related tax on bets has also been increased 2.5 percent ($10,747) in FY 2010