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FY 2005 Policy GuidelinesMEMORANDUM November 26, 2003 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Fiscal Year 2005 Policy Guidelines The purpose of this memorandum is to transmit draft Fiscal Year 2005 Fiscal Guidelines for your review and presentation to the Council. The guidelines reflect City Council direction given as part of the September 3 and 4, 2003, goal setting sessions. During those sessions the City Council established goals for the next five years and established City priorities in Fiscal Year 2005. Dubuque 2008: City Council Goals In five years the Council wants the following for the community: 1. Improved connectivity: Transportation, Telecommunications 2. Planned and Managed Growth 3. Diverse, Strong Dubuque Economy 4. Riveffront Development 5. Partnering for a Better Dubuque Fiscal Year 2005 Priorities: Our Targets To begin the City on the path to achieving these five-year goals, the Council priorities and the foundation of the City's work program for Fiscal Year 2005 are: Top Priorities · Southwest Arterial · Stormwater Projects · Street Projects · Zoning Ordinance Update · Erosion Control Policy and Strategy High Priorities · Telecommunications Strategy · Annexation: Policyand Implementation · Riverfront Development Projects · Federal Strategy · Five Flags: Evaluation · Budget: Service Inventory, Costs of Services, Tax Rate Carryover Priority 2002-2004 · Downtown Master Plan Management Agenda 2002-2004 · Julien Dubuque Bridge · River Valley Initiative · State Grants · Industrial Park Development: Next Phase · Riverfront Master Plan: Implementation · Star Brewery Lease · Adams Company: Acquisition, Relocation · Capital Improvement Program: New and Maintenance Major Projects 2003-2004 · Stormwater: Carter Road, 32"d St. Detention Acquisition · Highway 20 Improvement Project As we develop a budget to achieve these priorities 1 believe it is important to begin with an overview of the City's past performance in terms of growth in personnel complement, tax asking, and changes in assessed valuations. This overview summarizes the impact of fiscal guidelines established by prior City Councils as they attempted to balance resources with community expectations. Overview Since 1981, the City has reduced the number of full-time employees from 588 to 520. This is a reduction in the full-time work force of 11.6 percent or 68 employees. This has happened during a time when new or expanded City programs and services have been added to meet increasing demands and mandates. Initiatives during that time period have included: · economic development efforts · yard waste and recycling programs · county-wide E911 dispatch · comprehensive housing programs · community oriented policing · DARE and other drug related programs · rental property inspections · operation of leisure pools · McAleece Recreation Complex operations · City Focus newsletter · industrial pretreatment and lead and copper testing programs · Fifth Street parking ramp · hazardous materials team · advanced life support ambulance service · government Channel 8 programming · cable TV monitoring and regulation · additional commissions including Long Range Planning, Environmental Stewardship, Investment Oversight, Development Review Committee. · extension of hike and bike trails · City operated FBO functions · increased Zoning Code enforcement · developers and builders roundtables · implementation of Riverfront Plan · downtown circulation study · coordination and public information programs related to the Highway 20 project · implementation of the Neighborhood Reinvestment Strategy · lead paint abatement program · additional neighborhood parks and open spaces · reinstatement of traffic accident investigations · school resource officer program · police canine unit · Washington D.C. initiative · Increased security operations at Airport · Development of a Riverwalk and new conference center The City continues to look for operating efficiencies through the program and service review process. Reviews, which have been completed include Community and Economic Development, Housing, Park Patrol, Water, Civic Center, Water Pollution Control Plant, Administrative Services, Planning Services, Recreation, Police, Transit, City Manager's Office, Health Services, Building Services, Parks, Emergency Communications Center, and Operations and Maintenance's Vehicle Maintenance and Solid Waste Operations. City staff is currently in the process of reviewing the Civic Center for a second time due to the new conference center and results of a study just completed. The City of Dubuque has been able to hold its property tax askings down while continuing to provide the citizens with a very high level of City services. Unlike other cities, which have eliminated city services, quality of life continues to be a high priority of City Council and high service standards have been maintained by implementing operating efficiencies, increasing the tax base, eliminating debt payment, and using other resources such as sales tax, gaming revenues, utility franchise fee, and user fees for property tax relief. Property tax values have increased from $1,376,065,020 in Fiscal Year 1999 (January 1, 1997 values) to $1,572,843,167 for Fiscal Year 2004 (January 1, 2002 values), which represents an increase of $196,778,147 or 2.86 percent per year. The City's portion of the property tax rate has gone from $11.0734 in Fiscal Year 1999 to $10.2730 per thousand dollars of assessed value; a decrease of $2.8004 or 1.5 percent per year over the same five-year period. Why was the City able to reduce the tax rate over the past ten years? Some of the factors, which have affected the property tax rate include: The use of sales tax for property tax relief has grown from $2,513,320 in Fiscal Year 1994 to $3,339,012 in Fiscal Year 2004. This increase is the equivalent of property tax relief of $.52507151,000 of assessed value. This means that the local option sales tax has allowed a 4.2 percent reduction in the City's portion of the tax rate from Fiscal Year 1994 to Fiscal Year 2004; The net addition of only four property-tax-supported, full-time positions from Fiscal Year 1994 to Fiscal Year 2004 (the net increase has been held to only six in spite of the fact that the City added seven police officer positions in Fiscal Year 1994, five in Fiscal Year 2000, and one in Fiscal Year 2002; and The use of annual gaming revenues for property tax relief. This has avoided a 13.8 percent increase in the property tax rate for FY 2004. Also, the use of the annual distribution of 50 percent of Dubuque Racing Association net profits to the City's Five-Year Capital Improvement Program has eliminated the need for annual General Obligation borrowing for street, storm sewer and Airport capital improvements. The increase in taxable value averaging almost 3 percent per year over the five- year period. This analysis indicates that the City has used property tax valuation growth and other important growth revenues like sales tax to maintain City services and has not increased the tax rate to accomplish this. In fact, the City has reduced the tax rate over the past ten years. A comparison of the City of Dubuque's property tax rate for Fiscal Year 2004 with the other eight largest cities in Iowa shows Dubuque ranks eighth out of nine. This comparison is summarized in table format as follows: RANK CITY TAX RATE POPULATION 1 Waterloo 18.90914 68,747 2 Des Moines 17.04806 198,682 3 Iowa City 17.59587 62,220 4 Council Bluffs 16.74909 58,268 5 Sioux City 16.43302 85,013 6 Davenport 14.96445 98,359 7 Cedar Rapids 13.06777 120,758 8 Dubuque 10.27300 57,686 9 Ames 9.67267 50,731 Average 14.96800 The average tax rate is 45.7% higher than Dubuque's and the highest comparable city, Waterloo, is 84.1% higher. Fiscal Year 2005 Projection Update Fiscal Year 2004 is the current fiscal year, with a budget that was approved by the City Council in March 2003. During that process, I projected that the budget for Fiscal Year 2005 would require a 10.54% increase in taxes for the average homeowner based on an estimated equalization order of 7.7% and a rollback factor of 49.4045%. However, there have been several changes that significantly impact this projection including a reduction in interest earning of $300,000 and an increase in police and fire retirement rates of 21.7% from 20.48% to 24.92%, (+$400,000). Fiscal Year 2005 will also be the first year of utility expense (50%) and property insurance costs on the new conference center (+$147,000). These things are partially offset by healthy sales tax revenues and hotel/motel tax receipts. Significant Changes Significant expense changes include: · Police and Fire Retirement expense has been increased $400,000 based on notification from the State of Iowa of an anticipated change in rates from the current rate of 20.48% to 24.92% (a 21.7% increase) for FY 2005. This is in addition to the increase from 17% to 20.48% (a 20.5% increase) received in FY 2004; · Estimated energy costs for the Grand River Center ($123,000 for City's 50%) and property insurance on center ($24,200); Significant revenue changes include: · Interest earnings decreased from $800,000 to $500,000; · Franchise fees for 12 months versus 8 months in current year (+$361,654), which replaces the non-recurring CIP cuts used last year to balance the budget. In summary, these changes have increased tax askings over last year's projections by $847,200. To complicate matters even further, the State issued an 8% equalization order on residential property and issued new rollback factors for residential changing it from 51.3874% to 48.456% or a 6.7% reduction in the rollback factor. At the same time, commercial property classes received a 5% equalization order and a rollback factor of 99.257% or a .74% reduction. Currently commemial property is taxed on 100% of their assessed value. The net effect of these changes in Fiscal Year 2005 is a shift in tax burden from industrial and residential to commercial properties. Proposed Budget Guidelines Having reviewed this background information on where and how City functions and finances have developed over the past ten years, it's now time to look forward and establish the fiscal plan for the upcoming year. 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. The budget guidelines for Fiscal Year 2005 that are being recommended to you can be summarized as follows: · Preliminary Citizen participation opportunities Date Starting Time Tuesday, December 9 5:15 Wednesday, February 4 6:30 Monday, February 9 6:30 Thursday, February 19 6:30 Monday, February 23 6:30 Tuesday, February 24 6:30 Thursday, February 26 6:30 Wednesday, March 3 6:30 3.m.- 3.m.- 3.m.- ~.m.- 3.m.- 3.m.- City Manager's Public Input Meeting City Council Budget Worksess~on City Council Budget Worksession City Council Budget Worksession City Council Budget Worksession City Council Budget Worksess~on City Council Budget Worksess~on Public Hearing - City Council This schedule has been increased by one hearing from last years per City Council direction. · Service objectives Each department will identify specific objectives that reflect City Council goals. · Balanced budget Expenditures will not exceed revenue. Limited resources It is not possible to afford all of the services requested by individual citizens. Review of services Existing service levels are maintained and reviewed for appropriateness. Improved productivity Efforts will continue to become more efficient. Volunteers Efforts to expand the use of volunteers will be maintained. Outside funding Non-City funding sources, like federal grants, public/private partnerships and coordination with other local governments will be aggressively pursued. General Fund Balance To meet financial obligations prior to receiving certain tax revenues and to assist in maintaining an Aa bond rating, which reduces borrowing costs, the City will maintain a cash reserve of 10 percent of the total General Fund operating budget (excluding employee fringe benefits) or $2,710,000. Nonrecurring Income Nonrecurring income will only be spent on nonrecurring expenses to avoid future funding problems for the operating budget. Revenue Assumptions There are thirteen revenue assumptions in the attached document. Expenditure Assumptions There are eleven expenditure assumptions in the attached document. The sales tax distribution formula will be maintained at 50 percent tax relief, 30 percent for reduction of street special assessments and street construction, and 20 percent for maintenance of City-owned property and facilities. Expansion or creation of new facilities that will increase the required operational support, usually from property taxes, will only be considered with a demonstrated need and a long-term plan to incorporate the increased costs into the entire system. General Obligation borrowing is not anticipated if gaming distributions continue at the projected levels. To the extent they do not meet projections, general obligation borrowing may be necessary. · Emphasis will be placed on funding projects in the ClP that reduce future operating expenditures. Gaming revenues, excludinq the annual surplus distribution, will be used 75 percent in operating budget and 25 percent in the capital budget. This is a change from last year's guidelines of a 50/50 split and reflects a priodty given to maintaining current City services over capital improvement projects. The Policy Guidelines include a property tax guideline that provides no increase in the "City" share of property taxes for the average homeowner. In order to meet this guideline, the portion of gaming tax, admission, and rent going into the operating budget will need to be increased from 50 percent to 75 percent (or $1,091,610) as stated above. In order to achieve this goal, the amount of equipment replacement in FY 2005 will be significantly diminished and the previous cuts to travel for professional conferences remaining in place for Fiscal Year 2005 only. Expanded gaming operations at the Dubuque Greyhound Park and Casino have been assumed beginning in May 2005. This provides an additional $196,500 in FY 2005 and $1,179,000 per year thereafter with 75 percent going to the operating budget. · The January DRA distributions of surplus funds will be committed to support current- year capital projects. The five-year assumption on DRA distribution currently uses the DRA projections for distribution in the first two years of the five-year plan and reduces that estimate by 10% in the third year, 20% in the fourth year, and 30% in the fifth year. In FY 2005 this is beinq modified to a 5% reduction in the third year, a 10% reduction in the fourth year, and a15% reduction in the fifth year. This allows for additional projects to be funded in these three out-years and at this time remains only a projection. The FY 2005-2009 CIP includes DRA distribution revenues of $33,396.156 based on DRA receiving a favorable court decision, plus $4,656,256 from the original court settlement. Should DRA lose their case, the impact on the capital budget would be a reduction of $19,686,703 with $4,900,000 of this shifted to the stormwater utility (additional borrowing) over the five-year period. · The FY 2005-2009 CIP includes $8,671.621 over the five-year period from expanded gaming operations as it impacts rents, taxes, and distribution. At this time, I am respectfully requesting that the Mayor and City Council adopt the budget guidelines, which provides for no increase in the "City" share of property taxes for the average homeowner in Fiscal Year 2005. MCVM:ksf Attachment CC: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Pauline Joyce, Administrative Services Manager Dawn Lang, Budget Director Randy Peck, Human Services Manager Ken TeKippe, Finance Director Steward Sandstrom, Executive Director, Dubuque Chamber of Commerce Rick Dickinson, Executive Director, Greater Dubuque Development Corp. Teri Goodman, Development Director, National Mississippi River Museum POLICY GUIDELINES FOR FY 2005 BUDGET PLANNING AND ADMINISTRATION 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. 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. Copies of the budget on CD will be available at cost. 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. 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 2005 Policy Guidelines Page 2 3. TWO TYPES OF BUDGET DOCUMENTS TO BE PREPARED Guideline The recommended City operating budget for Fiscal Year 2005 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 2005 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 decision 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 2005 Budget is a composite of tables, financial summaries and explanations, operating and capital budget messages and the adopted City Council Budget Guidelines. Through graphs, charts and tables it presents financial summaries, which provide an overview of the total operating and capital budgets. = 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. BALANCE BETVVEEN 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 FY 2005 Policy Guidelines Page 3 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. = 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? N 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. USE OF VOLUNTEERS Discussion As our financial capabilities decrease, we must seek to expand our resources by continuing to get citizens directly involved in supplementing our service delivery capability. Citizens must be encouraged to assume tasks previously performed or provided by City government. This may require us to change our 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 where citizens can continue to take an active role include: Library, Recreation, Parks, Five Flags Center, Cable TV (government channel camera operators) and Police. The City initiated the Dubuque Volunteer Corps Program in FY 1998 to encourage citizen involvement in the many programs offered by the City and in maintaining the facilities for community betterment. FY 2005 Policy Guidelines Page z. Guideline In the future the maintenance of City services may well depend on volunteer citizen staffs. In FY 2005 efforts shall continue through the Dubuque Volunteer Corps to identity 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, Cable TV, 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" often 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 2005 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, 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. 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, 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 pay-as-you-go financing for future capital improvement projects. 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). FY 2005 Policy Guidelines Page 6 DEPARTMENT/DIVISION Leisure Services Department Recreation Division Adult Athletics* 79.0 81.0 81.0 79.0 77.0 Children's Activities 57.0 41.6 54.0 58.0 57.0 Therapeutic Recreation 15.0 20.0 19.0 23.0 21.0 Recreation Classes 46.0 46.7 42.0 51.0 51.0 Swimming* 77.0 81.0 69.0 79.0 76.0 Golf* 100.0 100.0 100.0 100.0 100.00 Park Division 9.6 10.3 10.50 11.5 11.7 Civic Center Division** 43.9 42.1 44.10 42.7 44.2 Library Department 7.0 8.2 6.1 6.3 6.3 Airport Department w/abated debt84.1 89.6 79.8 74.0 75.0 Building Services Division 94.6 94.4 77.77 98.8 98.0 Planning Services Department 13.1 11.6 11.9 15.6 15.0 Health Services Department Food/Environmental Insp. 62.5 58.6 57.6 51.9 52.0 Animal Control 96.2 94.3 81.7 90.2 90,0 Housing Services Department General Housing Inspection 50.2 45.4 34.8 42.7 43.0 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 ACTUAL ACTUAL ACTUAL BUDGETED RECOM'D PERCENT PERCENT PERCENT PERCENT PERCENT * Includes an amount to help cover indirect costs (administration) ** Excludes Self-Promotion Activity 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. FY 2005 Policy Guidelines Page 7 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 our 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 our revenue sources are beyond our control and therefore uncertain. In the case of Dubuque, 10% represents approximately $2,710,000. Guideline The guideline of the City of Dubuque is to maintain a General Fund working balance or operating reserve of 10 pement of the total General Fund Operating budget requirements or approximately $2,710,000 for FY 2005. '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 you even start 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. FY 2005 Policy Guidelines Page 8 16. USE OF"UNENCUMBEREDFUND 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 2003-04 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 2005 through FY 2009. Guideline 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 2004-05 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 Assumptions - Resources a. Unencumbered funds or cash balances of $200,000 will be available in FY 2005 and each succeeding year to support the operating budget. State-shared revenues will be reduced by 2.5 percent from the FY 2003 budget to arrive at the estimates for FY 2005 and beyond, based on a mid- year notice from the state. Hotel/motel tax receipts will increase 5 percent per year over FY 2003 actual receipts for FY 2005, and then increase at an annual rate of 3 percent per year. d. State Transit operating assistance will also be maintained at its current level. e. Miscellaneous revenue, excluding state shared revenues, has been estimated at 2 percent growth per year over budgeted FY 2004. FY 2005 Policy Guidelines Page 9 f. Gaming revenues generated have been estimated based on the FY 2003 actual receipts plus 5 percent per year. Expanded gaming operations from increase slot machines (600 to 900) have been assumed effective May 2005 and beyond. If expanded gaming doesn't occur, taxes would increase $196,500 I FY 2005 and another $1,179,00 per year beginning in Fiscal Year 2006. Gaming revenues have been adjusted from a 50/50 split between operating and capital budgeted to a 75 percent operating and 25 percent capital budget split. h= Interest earnings from the Self-Insurance Reserves (Health and Workers' Compensation) will continue to be used to reduce tax askings for fringe benefit expense. The residential rollback factor will decrease from 51.3874 percent to 48.456 percent or a 5.7 percent reduction for FY 2005. For fiscal years 2006 and beyond, a 10-year average for rollbacks and equalization orders was used. Assessed valuations were increased 2 percent per year beyond FY 2005. Sales tax projections anticipate 50 percent of four quarterly payments in the General Fund for property tax relief. Sales tax projections for FY 2005 have been estimated to increase 5 percent over actual FY 2003 to arrive at a revised FY 2004 estimate and then +6 percent for the FY 2005 estimate. k= It is anticipated that in FY 2005 and beyond, 75 percent of the revenue from the Downtown TIF will be used for downtown development projects in order to support additional downtown parking, gateway improvements and plaza amenities. To the extent these funds are not required to support debt payments or project expense, the excess will be distributed per state code to each taxing body. Certain economic development grants require 100 percent of the revenue from a particular project. For purposes of budget projections only, it is assumed that property taxes will continue to increase at a rate necessary to meet additional requirements over resources beyond FY 2005. m. Gas and electric franchise fees have been maintained as originally estimated, since no trend data was available. FY 2005 Policy Guidelines Page ].0 Assumptions - Requirements a. A wage adjustment is reflected in the projections for FY 2005 and each succeeding year. Police and Fire retirement rates have been increased 21.7 percent, costing the City an additional $400,000 per year. b. Health insurance costs are estimated to increase 10 percent over the FY 2004 budgeted rates. Estimates for FY 06-08 have been increased by 7 percent per year. c. General operating supplies and services are estimated to increase 2 percent over budget in FY 2005 and succeeding years. d. Electrical energy expense is estimated to increase 7.6 percent over FY 2003 actual expense, then 2.5 percent per year beyond. e. Natural gas expense is estimated to increase 7.6 percent from FY 2003 actual and a projected 2.5 percent inflation adjustment. There is no degree- day adjustment this year. f. The Convention and Visitors Bureau contract will continue at 50 percent of actual hotel/motel tax receipts. g. Equipment costs are estimated at 2 percent per year over the FY 2004 budget; however, in FY 2005, equipment requests will be held to a minimum and replacement needs spread over the next four years (FY 06-09). h. Debt service is estimated based on no additional tax-supported General Obligation bond sales in FY 2005 - 2009. I. Unemployment insurance expense in the General Fund has been increased from $18,000 to $25,000 for FY 05 based on past years actual experience. j. Motor vehicle fuel and maintenance expense has been increased 2.5 percent per year over FY 2003 actual expense. k. Postage rates are estimated to remain steady over the next few years. I. Travel Professional Conference and Strategic Planning expense are not funded again in FY 05. However, this funding is reinstated in FY 06-09. FY 2005 Policy Guidelines Page ]] IMPACT ON AVERAGE RESIDENTIAL PROPERTY - EXAMPLE ACTUAL - PAST HISTORY CITY TAX CALCULATION PERCENT INCREASE DOLLAR INCREASE FY 1989 "City" Property Tax $ 453.99 -11.4% - $ 58.51 FY 1990 "City" Property Tax $ 449.94 .9% - $ 4.05 FY 1991 "City" Property Tax* $ 468.92 + 3.8% +$15.98 FY 1992 "City" Property Tax $ 483.63 + 3.6% +$16.71 FY 1993 "City" Property Tax* $ 508.73 + 5.0% +$ 5.10 FY 1994 "City" Property Tax $ 510.40 + .3% +$ 1.51 FY 1995 "City" Property Tax* $ 522.65 + 2.4% +$12.41 FY 1998 "City" Property Tax $ 518.10 .9% - $ 4.54 FY 1997 ~City" Property Tax* $ 515.91 .4% - $ 2.19 FY 1998 "City" Property Tax $ 512.25 .7% - $ 3.86 FY 1999 "City" Property Tax* $ 512.25 .0% - $ 0.00 FY 2000 "City" Property Tax $ 511.38 .2% - $ 0.87 FY 2001 "City" Property Tax* $ 511.38 0.0% $ 0.00 FY 2002 "City" Property Tax $ 511.38 0.00% $ 0.00 FY 2003 "City" Property Tax $ 485.79 - 5.00% -$ 25.59 FY 2004 "City" Property Tax $ 485,79 0.00% 0.00 FY 2004 With Homestead $493.24 + 1.53% +$ 7.45 Adjustment PROPOSED FY 2005 "City" Property Tax* $ 493.24 + 0.00% +$ 0.00 Average FY 1989-FY 2005 - .17% +$ 2.31 PROJECTION ** FY 2006 "City" Property Tax $ 500.57 + 1.48% +$ 7.32 FY 2007 "City" Property Tax* $ 536.14 + 7.11% +$ 35.57 FY 2008 "City" Property Tax $ 556.59 + 3.81 +$ 20.45 FY 2009 "City" Property Tax* $ 622.97 +11.93 +$ 66.38 *denotes year of State-issued equalization orders ** The projections for FY 2005 includes $196,500 and for Fiscal Years 2006 through 2009 include $1,179,00 per year from expanded gaming operations at Greyhound Park. FY 2005 Policy Guidelines Page i2 IMPACT ON COMMERCIAL PROPERTY - EXAMPLE CITY TAX PERCENT ACTUAL-PAST HISTORY CALCULATION INCREASE DOLLAR INCREASE FY 1989 "City" Property Tax $2,106.42 -15.4% -$ 384.00 FY 1990 "City" Property Tax $2,086.50 .9% - $ 20.00 FY 1991 "City" Property Tax* $2,189.48 + 4.9% +$102.98 FY 1992 "City" Property Tax $2,280.18 + 4.1% +$ 90.70 FY 1993 "City" Property Tax* $2,231.05 - 2.2% -$ 49.13 FY 1994 "City" Property Tax $2,250.15 + 0.9% +$ 19.10 FY 1995 "City" Property Tax* $2,439.60 + 8.4% +$189.45 FY 1996 "City" Property Tax $2,439.60 + 0.0% +$ 0.00 FY 1997 "City" Property Tax* $2,659.36 + 9.0% +$ 219.76 FY 1998 "City" Property Tax $2,738.43 +2.97% +$ 79.07 FY 1999 "City" Property Tax* $2,952.03 + 7.8% +$ 213.60 FY 2000 "City" Property Tax $2,934.21 - 0.6% -$ 17.82 FY 2001 "City" Property Tax $2,993.00 + 2.0% +$ 58.86 FY 2002 "City" Property Tax $2,910.25 -2.77% -$ 82.83 FY 2003 "City" Property Tax* $3,186.27 + 9.48% +$276.03 FY 2004 "City" Property Tax $3,278.41 + 2.89% +$ 92.14 *denotes year of State-issued equalization order PROPOSED FY 2005 "City" Property Tax* Average FY 1989-2005 $3,349.90 + 2.18% +$ 71.49 + 1.93% +$ 50.79 PROJECTION ** FY 2006 "City" Property Tax $3,394.90 + 1.32% +$ 44.29 FY 2007 "City" Property Tax* $3,478.15 + 2.47% +$ 83.96 FY 2008 "City" Property Tax $3,578.44 + 2.88% +$100.29 FY 2009 "City" Property Tax* $3,664.99 + 2.42% +$ 86.55 *denotes year of State-issued equalization orders ** The projections for FY 2005 includes $196,500 and for Fiscal Years 2006 through 2009 include $1,179,00 per year from expanded gaming operations at Greyhound Park. FY 2005 Policy Guidelines Page ]3 IMPACT ON INDUSTRIAL PROPERTY - EXAMPLE ACTUAL-PAST HISTORY CITY TAX CALCULATION PERCENT INCREASE DOLLAR INCREASE 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 PROPOSED FY 2005 "City" Property Tax Average FY 1989-FY 2005 $5,036.00 - 1.96% +$100.50 - 1.79% -$114.06 pROJECTION** FY 2006 "City" Property Tax $5,064.67 + .57% +$ 28.67 FY 2007 "City" Property Tax $5,189.95 + 2.40% +$125.29 FY 2008 "City" Property Tax $5,339.60 + 2.88% +$149.65 FY 2009 "City" Property Tax $5,468.75 + 2.42% +$129.15 ** The projections for FY 2005 includes $196,500 and for Fiscal Years 2006 through 2009 include $1,179,00 per year from expanded gaming operations at Greyhound Park. FY 2005 Policy Guidelines Page 14 History of Increases in Property Tax Askings % Change Fiscal "City" Property in Tax Year Tax Askinqs (000) Askings Present Impact on Homeowner FY 1989 $10,918,759 -12.0% Sales Tax initiated -11.4% FY 1990 $10,895,321 - 0.2% - .9% FY 1991 $11,553,468 + 6.0% + 3.8% FY 1992 $12,249,056 + 6.0% + 3.6% FY 1993 $12,846,296 4.9% + 5.0% FY 1994 $13,300,756 + 3.5% + .3% FY 1995 $13,715,850 + 3.1% + 2.4% FY 1996 $14,076,320 + 2.6% .9% FY 1997 $14,418,735 + 2.4% .4% FY 1998 $14,837,670' + 2.9% .7% FY 1999 $15,332,806' + 3.3% .0% FY 2000 $15,285,754 - 0.3% .2% FY 2001 $15,574,467 + 1.9% .0% FY 2002 $15,686,579 + .8% .0% FY 2003 $15,771,203 + .5% - 5.0% FY 2004 $16,171,540 + 2.5% + 1.5% FY 2005 $16,470,870 + 1.85% 0.00% est. Average FY 1989-2005 *Without TIF Accounting change. + 1.65% + .05% 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 2004 $16,171 FY 2005 $16,470 + 1,85% % I $ Impact on Avg. Residential Property* -0-%/-0-% FY 2006 $16,881 + 2.50% FY 2007 $17,646 + 4.53% FY 2008 $19,667 + 4.94% FY 2009 $19,345 + 4.47% + 1.48%/+$7.32 + 7.11%/+$35.57 + 3.81%/+$20.45 +11.93%/+$66.38 FY 2005 Policy Guidelines Page t5 Guideline The recommended guideline is no tax increase for the average residential property owner, and to change the percent of annual gaming revenues going into the operating budget from 50 percent to 75 percent. Note: One percent increase in the tax rate will generate approximately $167,800 and a 1 percent increase in tax asking will generate approximately $161,700. Each 1 pement increase in property taxes on the average home generates $165,200. An additional 25% gaming tax into the operating budget generates $1,091,610 in FY 2005. 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 2005 Policy Guidelines Page 16 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 recreation 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 2003-04 taxable value for calculating the debt limit is $2,435,865,649, which indicates a total General Obligation debt capacity of $121,793.284. Outstanding G.O. debt (including tax increment debt) on June 30, 2004 will be $23,665.000 (19.4 percent) leaving an available debt capacity of $98,128,284 (80.6 percent). As we approach the preparation of the FY 2005-2009 Capital Improvement Program (CIP) the problem is not our 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 2005 Policy Guidelines Page ~L7 Guideline There are many high priority capital improvement projects, which need to be constructed during the FY 2005-2009 period. Most of these projects will be possible without borrowing the money (i.e., selling bonds) to help finance them. This is based on the plan approved by City Council in 1997 that shifts Road Use Tax funds from the operating budget to the capital budget and uses DRA distributions of annual net surpluses to the City for capital improvements. In determining whether a project should be financed in total or in part from bond funds the City Council must consider and balance of: (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. 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 FY1987-$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- $3,343,878 FY 1995- $3,484,524 FY 1996- $3,841,921 FY1997-$3,977,528 FY 1998- $4,072,296 FY 1999- $4,415,192 FY 2000-$4,671,656 FY 2001-$4,689,000 FY 2001 -$4,628,122 FY 2002- $4,620,514 FY 2003- $4,696,399 The FY 2004 budget was based on receiving $4,632,453 in Road Use Tax funds. In FY 2004, 74.9 percent of the Road Use Tax income is in the operating budget. Guideline It is preferable to shift Road Use Tax funds have been shifted 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 is increased revenues or reduced expense that would allow this shift without a property tax impact. FY 2005 Policy Guidelines Page t8 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 our economic base. Financing these efforts and programs should continue to be a high priority for Community Development funding. 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 within the City's corporate limits for all citizens, particularly for people of Iow 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) river[rcnt and wetland development; and (d) economic development projects. 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) of 50 percent of its net cash operating funds to the City of Dubuque. In mid-December, the City will receive an un-audited estimate of proceeds to be distributed. These proceeds will then be allocated beginning with the next fiscal year through the capital improvement process with the highest pdority given to reducing the City's annual borrowing. This policy FY 2005 Policy Guidelines Page was changed in FY 2004 to allow for use of the proceeds to support the current capital improvement budget (versus the next fiscal year's budget). In addition, 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. One hundred percent of the January 2005 projections of operating surplus have been anticipated as resources to support the Fiscal Year 2005 capital improvement projects. In the past, this level would have been maintained for the Fiscal Year 2006 resource estimate and then reduced by 100 percent of the January 2007 projected surplus for FY 2007, 20 percent for FY 2008, and 30 percent for FY 2009 resources. This year, the guidelines have changed to discount the three out-years by 5 percent, 10 percent, and 15 percent. Guideline In Fiscal Year 2005, the City anticipates distribution of a significant amount of net cash proceeds for use in the Capital Improvement Program. 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. 30. USE OF GAMING RELATED RECEIPTS Guideline The amount of total gaming receipts from taxes and rent committed annually in support of the annual operating budget has historically been one-third of the total gaming tax and lease revenues. It was felt that a fiscally sound policy was to commit two thirds of the gaming revenues to the capital budget, thereby providing a cushion for future years, when gaming revenues could fluctuate with FY 2005 Policy Guidelines Page 20 the local economy. Should gaming revenues begin to decline, the capital budget projects would be eliminated, deferred or funded from some other source if they were a high priority. The City has always tried to minimize dependence on gaming revenues in the operating budget. This was maintained over years, while still meeting the property tax guideline of no increase for the average residential property. However, FY 2004 brought new financing challenges including double-digit inflation in key areas (health costs, liability, and property insurance, electrical costs), a 20.5 percent increase in Police and Fire Pension costs, decreasing State revenues, and reduced sales tax proiections. The FY 2004 guideline reflected the impact of the changes and included a change to a 50/50 split of gaming taxes and rents between the operating and capital budgets. The FY 2005 guideline again reflects increasing financing challenges and the split is recommended to change from 50/50 to 75 percent operating and 25 percent capital. This change reflects priority being given to maintaining current service levels in the operating budget and reduced resources in the capital budget. The impact in the operating budget is increased revenues of $1,091,610 in FY 2005, $1,433,287 in FY 2006, $1,471,492 in FY 2007, $1,506,242 in FY 2008, and $1,533,134 in FY 2009. The increase in FY 2006 and beyond reflects going from two month's to a full year's increase in gaming revenues from expanded slot machines at Greyhound Park and Casino (from 600 to 900 slot machines).