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Fiscal Year 2014 Budget Policy GuidelinesTHE CITY OF Dui Masterpiece on the Mississippi TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Fiscal Year 2014 Budget Guidelines DATE: January 14, 2013 Dubuque kital All- America City II 111! 2012 The presentation of the Fiscal Year 2014 Budget Guidelines are taking on a different appearance than they have in past years. The impact of the Federal Affordable Care Act, implementation of state legislative changes to the Tax Increment Financing Program and the need to further review and calculate this year's assessed valuations, means that when you adopt this year's budget guidelines, they will not deal with a proposed property tax rate. That will be dealt with through the budget process. In fact, in the end, each fiscal year that is the manner in which the property tax issue is resolved, so, from that respect, the budget process remains the same. I will caution you that the effect of the Federal Affordable Care Act (Item K), increased employee pension costs mandated by the State of Iowa (Item R -2 -a), increases in health care costs (Item R -2 -c) and the impact of several significant capital improvement projects will be felt in the recommended budget. believe that as the budget recommendation is shaping up, it will advance the City Council goals and priorities in a responsible manner, while sustaining the progress that is being made to achieve Economic Prosperity, Environmental /Ecological Integrity and Social /Cultural Vibrancy. Budget Director Jennifer Larson is recommending adoption of the Fiscal Year 2014 Budget Guidelines. I concur with the recommendation and respectfully request Mayor and City Council approval. kr,„709,,, Michael C. Van Milligen MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager Jennifer Larson, Budget Director 2 Masterpiece on the Mississippi TO: Michael C. Van Milligen, City Manager FROM: Jennifer Larson, Budget Director SUBJECT: Budget and Fiscal Policy Guidelines for Fiscal Year 2014 DATE: January 14, 2013 Dubuque bierd All-America City 1 2007 I am recommending adoption of the Fiscal Year 2014 Budget Policy Guidelines. The guidelines reflect City Council direction given as part of the August 27 and 28, 2012, goal setting sessions. The budget guidelines are developed and adopted by City Council during 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 Fiscal Year 2014 Budget Policy Guidelines do not address the recommended property tax rate as it has in past. The impact of the Federal Affordable Care Act, implementation of state legislative changes to the Tax Increment Program and the need to further review and calculate this year's assessed valuations has not made it possible to project a property tax rate at this time. Some highlights of the document are: ➢ Gaming revenues generated from lease payments from the DRA have been increased slightly ($6,490) based on revised projections from the DRA. The following is a ten year history of DRA lease payments to the City of Dubuque: FY 2014 $ 6,253,228 estimate FY 2013 $ 6,246,737 budget FY 2012 $ 5,997,888 FY 2011 $ 6,343,130 FY 2010 $ 6,820,283 FY 2009 $ 8,406,930 FY 2008 $ 9,753,410 FY 2007 $ 9,757,458 FY 2006 $ 8,749,391 FY 2005 $ 6,429,621 The Diamond Jo fixed payment remains at $500,000 based on the revised parking agreement. ➢ The split of gaming revenues from taxes and the DRA lease (not distributions) in FY 2014 is split between operating and capital budgets at 90% / 10% which remains unchanged from FY 2013. ➢ Sales tax receipts are projected to increase 12.95% ($616,103) over FY 2013 budget and 13.88% over FY 2012 actual of $4,017,091 based on FY 2013 revised revenue estimate of $4,574,602 which includes a reconciliation payment from the State of Iowa of $781,877 received in November and then increase at an annual rate of 2.0 percent per year. The estimates received from the State of Iowa show a 5.1% increase in the first two payments estimated for FY 2014. ➢ Building Permits remain at $550,000 in FY 2014 based on the continuation of the current level of construction. ➢ Federal Transportation Administration (FTA) transit operating assistance is anticipated to increase 4.1 percent or $38,305 from FY 2013 budget based on the revised FY 2013 budget received from the FTA. ➢ Gas franchise fees have been projected to increase 10.0 percent over FY12 actual of $600,429 based on a two year average of FY 2011 and FY 2012. Also, Electric franchise fees have been projected to increase 5.4 percent over FY12 actual of $1,605,526 based on a two year average of FY 2011 and FY 2012. The franchise fee increases at an annual rate of 2.5 percent per year from FY 2015 thru FY 2018. ➢ Industrial riverfront property lease revenue is projected to increase by $797,835 in FY 2014 due to lease negotiations of old expiring leases and leases to new tenants on sites that are vacant. ➢ The Municipal Fire and Police Retirement System of Iowa Board of Trustees have increased the City contribution for Police and Fire retirement from 26.12 percent to 30.12 percent ( +15.31 % or an increase of $535,362 in General Fund). Also, the Iowa Public Employee Retirement System (IPERS) increased the City contribution from 8.67 percent to 8.93 percent ( +3.0% or an increase of $35,939 in General Fund) and the employee contribution from 5.78% to 5.95% (which did not affect the City's portion of the budget). The IPERS rate is anticipated to increase 7 percent each succeeding year according to IPERS. Total pension cost in FY14 increased $571,301 in the General Fund or a 2.50% property tax impact for the average homeowner. ➢ In FY 2014 there is a 2.5% employee wage increase at a cost of $1,131,736 to the General Fund or a 4.95% property tax impact for the average homeowner. ➢ The City portion of health insurance expense will increase from $835 per month per contract to $1,015 per month per contract (based on 553 contracts) which is 2 a 21.6% increase in health insurance reserves for an additional cost of $803,275 to the General Fund in FY 2014 or a 3.52% property tax impact for the average homeowner. ➢ The Affordable Care Act is expected to increase employee expense in Fiscal Year 2014 by $100,648 and in Fiscal Year 2015 by $249,828, with increases each year thereafter. ➢ Motor vehicle fuel (excluding Transit) is estimated to increase 26.3 percent ( +$168,776) over FY 2013 budget based on a three year average of actuals, then 2.5 percent per year beyond. ➢ Transit motor vehicle fuel, and low and high sulfur diesel fuel expense is estimated to increase 15.37 percent ( +$40,686) over FY 2013 budget based on a three year average of actuals, then 2.5 percent per year beyond. The increase in property tax support for Transit from FY 2013 to FY 2014 is $136,310. The following is a ten year history of the Transit subsidy: FY 2014 $1,180,481 estimate FY 2013 $1,044,171 budget FY 2012 $ 717,611 FY 2011 $1,078,726 FY 2010 $1,161,393 FY 2009 $1,253,638 FY 2008 $1,070,053 FY 2007 $ 923,384 FY 2006 $ 710,453 FY 2005 $ 617,048 FY 2004 $ 513,259 ➢ FY 2013 is the first year that eligible retirees with at least twenty years of continuous service in a full -time position or retired as a result of a disability and are eligible for pension payments from the pension system can receive payment of their sick leave balance with a maximum payment of one - hundred twenty sick days payable bi- weekly over a five year period. The sick leave payout expense budget in the General Fund in FY 2013 was $161,358 as compared to FY 2014 of $116,728 based on qualifying employees officially giving notice of retirement. ➢ Beginning in FY 2013, the Cable TV Fund no longer funds Police and Fire public education and has reduced funding to the Information Services Department due to reduced revenues from the cable franchise. This is due to Mediacom's conversion from a Dubuque franchise to a state franchise in October 2009 which changed the timing and calculation of the franchise fee payments ➢ Greater Dubuque Development Corporation support of $577,613 is budgeted to be paid from Dubuque Industrial Center Land Sales in FY 2013 and FY 2014 and beyond 3 ➢ The Enterprise Funds have contributed to the administrative overhead of the City operation, but the General Fund has always carried most of the financial burden. In FY 2013, a multi -year process to more equitably distribute those costs across all funds was implemented. Preliminary citizen participation opportunities will be available. There will be six City Council Work Sessions prior to the adoption of the FY 2014 budget before the state mandated deadline of March 15, 2013. JML Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager Jennifer Larson, Budget Director Ken TeKippe, Finance Director 4 BUDGET AND FISCAL POLICY GUIDELINES FOR FY 2014 OPERATING BUDGET GUIDELINES The Policy Guidelines are developed and adopted by City Council during 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. A. CITIZEN PARTICIPATION Guideline To encourage citizen participation in the budget process, City Council will hold multiple 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.citvofdubuque.orq and copies of the budget on CD will be available. An opportunity was provided for citizen input prior to formulation of the City Manager's recommended budget and will be provided again prior to final Council adoption, both at City Council budget work sessions and at the required budget public hearing. B. 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 2014 Policy Guidelines Page 2 C. TWO TYPES OF BUDGET DOCUMENTS TO BE PREPARED Guideline The recommended City operating budget for Fiscal Year 2014 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 2014 Budget. It is anticipated these documents will be available on Friday February 1, 2013. 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 2014 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. D. 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. E. 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 FY 2014 Policy Guidelines Page 3 services requested by individual citizens. The City must consider the ability of citizens to pay for services in setting service levels and priorities. F. 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. As often as reasonably possible, 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? G. 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. H. 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 where citizens can continue to take an active role include: Library, Recreation, Parks, Five Flags Center, Transit, and Police. Guideline In the future, the maintenance of City services may well depend on volunteer citizen staffs. In FY 2014, 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. FY 2014 Policy Guidelines Page 4 I. 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. J. 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. The City has five collective bargaining agreements. The current contracts expire as follows: Bargaining Unit Contract Expiration Date Teamsters Local Union No 421 Teamsters Local Union No 421 Bus Operators Dubuque Professional Firefighters Association Dubuque Police Protective Association International Union of Operating Engineers Guideline June 30, 2014 June 30, 2014 June 30, 2014 June 30, 2014 June 30, 2014 Salary increases over the amount budgeted for salaries shall be financed from operating budget reductions in the department(s) of the benefiting employees. FY 2014 Policy Guidelines Page 5 K. THE AFFORDABLE CARE ACT Guideline The Affordable Care Act is a health care law that was signed into law on March 23, 2010 that aims to improve the current health care system by increasing access to health coverage for Americans and introducing new protections for people who have health insurance. Effective February 1, 2014, Employers with more than 50 full -time equivalent employees must provide affordable "minimum essential coverage" to full -time equivalent employees. The definition of a full -time equivalent employee under the Affordable Care Act is any employee that works 30 hours per week or more on average over a twelve month period (1,660 hours or more). The monitoring period for part -time employees begins January 1 of each year. If a part -time employee meets or exceeds 30 hours per week on average during that twelve month period, the City must provide health insurance effective February 1. January 1, 2013 through December 31, 2013 is the first monitoring period required with the first provision of health insurance date being February 1, 2014. The Affordable Care Act is expected to increase employee expense in Fiscal Year 2014 by $100,648 and in Fiscal Year 2015 by $249,828, with incremental increases each year thereafter. L. 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. M. 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 2014 Policy Guidelines Page 6 FY 2014 will be the sixth 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 and low -to- moderate income residents and a 75% subsidy for 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. The following chart shows activities with user charges and to what extent the activity is self - supporting: FY 2010 FY 2011 FY 2012 FY 2013 ACTUAL ACTUAL ACTUAL BUDGETED DEPARTMENT /DIVISION PERCENT PERCENT PERCENT PERCENT Leisure Services Department Recreation Division Adult Athletics* 59.1 57.3 56.0 57.5 McAleece Concessions 142.4 155.3 155.9 145.6 Children's Activities 46.9 48.7 45.2 65.0 Therapeutic Recreation 13.1 14.5 15.5 17.8 Recreation Classes 26.2 47.8 52.5 33.2 Swimming* 50.9 50.2 56.3 50.1 Golf* Surplus to Golf Devel' Fund 106.5 100.1 105.7 101.5 Park Division 12.2 11.0 11.0 12.7 Library Department excl' Gift Trusts 5.0 3.9 3.4 3.8 Airport Departmentw /abateddebt 83.6 90.5 90.2 65.3 Building Services Division Inspections 71.9 81.3 124.6 88.0 Planning Services Department 28.1 32.6 30.1 38.6 Health Services Department Food/Environmental Insp. 69.9 64.8 64.9 59.1 Animal Control * ** 59.5 57.1 60.0 55.3 Housing Services Department General Housing Inspection 62.2 57.4 68.8 55.7 Federal Building Maint. 104.2 106.1 98.7 73.0 * Includes an amount to help cover indirect costs (administration). FY 2014 Policy Guidelines Page 7 Prior to FY 2013, the General fund has been subsidizing a portion of the utility funds use of administrative services such as Engineering administration, Engineering Project Management, Finance accounting services, Economic Development, Planning Services, Workforce Development, City Clerk services, Legal services, City Manager's Office including Budget, Geographic Information Systems, Sustainability, Neighborhood Development, Arts and Cultural Affairs and Personnel. Prior to FY 2013, the Engineering department estimated the amount of time spent on projects and allocated that time to an Internal Service Fund which is then allocated to the various capital improvement projects that the personnel work on. The remaining time not allocated to the Internal Service Fund was considered administrative and has been charged to the General Fund. In addition, administrative departments such as the City Manager's Office, Legal, Planning, Economic Development, City Clerk's Office and Workforce Development recharged expenses based upon each enterprise fund's percent of the City -wide operating budget, excluding debt service. The accounting activity of the Finance Department has not been recharged to the other funds with exception of payroll and loan processing, parking tickets and landfill billing. Beginning in FY 2013, additional overhead recharges to the utility funds is being phased in over several years. Engineering administrative and project management expenses that are not recharged to capital projects will be split evenly between the Water, Sewer, Stormwater and General Funds. Finance accounting expenses and all other administrative departments such as Economic Development, Planning, Workforce Development, City Clerk, Legal Services and City Manager's Office will be split evenly between Water, Sewer, Stormwater, Refuse Collection and General Funds, with overhead costs being shared by the Landfill and Parking. This will be fully implemented over time. When the overhead recharges are fully implemented, the Enterprise Funds will split the cost of administrative overhead excluding Engineering as follows: Water 16.67% Sewer 16.67% Stormwater 16.67% Refuse 16.67% Parking 8.33% Landfill 8.33% Engineering Administration and Engineering Project Management will be split evenly between General Fund (25 %), Water (25 %), Sewer (25 %) and Stormwater (25 %). N. 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 minimized. FY 2014 Policy Guidelines Page 8 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 minimized. Also, any matching funds required for capital grants will be identified. O. 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 $4,363,273. 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 $4,363,273 for FY 2014. In FY 2014, several hundred thousands of dollars will be set aside in DRA Distribution funds for unexpected expenditures. If these funds are not needed for unexpected expenditures in FY 2014, the balance will be added to the General Fund Uncommitted Reserve, along with a portion of any surplus in the General Fund at the close of Fiscal Year 2014. Previously, there was a one -time General Fund operating reserve of one million dollars implemented in FY 2010, FY 2011, FY 2012 and FY 2013 for health insurance claims exceeding expectations and the possibility of needing to boost the health insurance reserve. The Health Insurance reserve is expected to be fully funded in FY 2013 and transfers from the General Fund should not be required in the future. It is anticipated that some of the one million dollars in FY 2013 for health insurance claims exceeding expectations will be added to the general fund reserve. FY 2014 Policy Guidelines Page 9 This increase in uncommitted reserves over the next several years helps the City to maintain its very attractive Aa1 bond rating achieving lower interest rates on borrowing costs. P. 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. Q. 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 2012 -13 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 2014 through FY 2018. 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 2013 -14 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. FY 2014 Policy Guidelines Page 10 R. PROPERTY TAX DISCUSSION 1. Assumptions - Resources a. Unencumbered funds or cash balances of $200,000 will be available in FY 2014 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 receipts are projected to increase 12.95% ($616,103) over FY 2013 budget and 13.88% over FY 2012 actual of $4,017,091 based on FY 2013 revised revenue estimate of $4,574,602 which includes a reconciliation payment from the State of Iowa of $781,877 received in November and then increase at an annual rate of 2.0 percent per year. The estimates received from the State of Iowa show a 5.1% increase in the first two payments estimated for FY 2014. c. Hotel /motel tax receipts are projected to increase 3.5 percent ($66,137) over FY 2012 actual receipts of $1,889,648, and then increase at an annual rate of 3 percent per year. d. Federal Transportation Administration (FTA) transit operating assistance is anticipated to increase 4.1 percent or $38,305 from FY 2013 budget based on the revised FY 2013 budget received from the FTA. e. Miscellaneous revenue has been estimated at 2 percent growth per year over budgeted FY 2013. f. Building Permits remain at $550,000 in FY 2014 based on the continuation of the current level of construction. g. Gaming revenues generated from lease payments from the DRA have been increased slightly ($6,490) based on revised projections from the DRA. The following is a ten year history of DRA lease payments to the City of Dubuque: FY 2014 $ 6,253,228 estimate FY 2013 $ 6,246,737 budget FY 2012 $ 5,997,888 FY 2011 $ 6,343,130 FY 2010 $ 6,820,283 FY 2009 $ 8,406,930 FY 2008 $ 9,753,410 FY 2007 $ 9,757,458 FY 2006 $ 8,749,391 FY 2005 $ 6,429,621 The Diamond Jo fixed payment remains at $500,000 based on the revised parking agreement. FY 2014 Policy Guidelines Page 11 h. Gaming revenues from taxes and the DRA lease (not distributions) remains at a split of 90% / 10% in FY 2014. 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 ($500,000 in FY 2014) have not been included in the split with gaming revenues. This revenue is allocated to the operating budget. i. The residential rollback factor will increase from 50.752 percent to 52.817 percent or a 4.07 percent increase for FY 2014. The rollback has been estimated to increase 3.50% each year from Fiscal Years 2014 thru 2018. No equalization orders were estimated for Fiscal Years 2014 and beyond due to the City Assessor voluntarily increasing assessments to equal the two year sale average. The increase in the residential rollback factor increases the value that each residence is taxed on. This increased taxable value for the average homeowner ($130,367 assessed value in FY 2013 and 2014) results in more taxes to be paid per $1,000 of assessed value. In an effort to keep property taxes low to the average homeowner, the City calculates the property tax impact to the average residential property based on the residential rollback factor and property tax rate. In a year that the residential rollback factor increases, the City recommends a lower property tax rate than what would be recommended had the rollback factor remained the same. Commercial and Industrial taxpayers normally are taxed at 100 percent of assessed value and benefit from the lower tax rate that is recommended by the City when the residential rollback factor increases. The residential rollback in Fiscal Year 1987 was 75.6481 percent as compared to 52.817 percent in Fiscal Year 2014. The rollback percent had steadily decreased since FY 1987, which has resulted in less taxable value and an increase in the City's tax rate. However, that trend began reversing in FY 2009 when the rollback reached a low of 44.0803 percent. If the rollback had remained at 75.6481 percent in FY 2013, the City's tax rate would have been $7.09 per $1,000 of assessed value instead of $10.78 in FY 2013. In addition, the State of Iowa eliminated the Machinery and Equipment Tax Replacement in FY 2003 (- $200,000); Personal Property Tax Replacement in FY 2004 (- $350,000); Municipal Assistance in FY 2004 (- $300,000); Liquor Sales Revenue in FY 2004 (- $250,000); and Bank Franchise Tax in FY 2005 (- $145,000). The combination of the decreased residential rollback, State funding cuts and increased expenses has forced the City's tax rate to increase since FY 2014 Policy Guidelines Page 12 j. 1987 when the citizens passed a referendum to establish a one percent local option sales tax with 50% of the revenue gong to property tax relief. FY 2014 will reflect this increased assessed value for the average homeowner. Assessed valuations were increased 2 percent per year beyond FY 2014. k. Gas franchise fees have been projected to increase 10.0 percent over FY12 actual of $600,429 based on a two year average of FY 2011 and FY 2012. Also, Electric franchise fees have been projected to increase 5.4 percent over FY12 actual of $1,605,526 based on a two year average of FY 2011 and FY 2012. The franchise fee increases at an annual rate of 2.5 percent per year from FY 2015 thru FY 2018. The franchise fee charged on gas and electric bills increased from 2% to 3% in FY 2011. While State law allows a 5% fee, the City of Dubuque's two utility franchise fee agreements limits the fee to 3 %. 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 2015, with the gaming revenue (from taxes and the DRA lease) split at 90.0% operating budget and 10.0% capital budget based on note "g" above. m. FY 2014 reflects the sixth year that payment in lieu of taxes is charged to the Water and Water Pollution Control funds for Police and Fire Protection. In FY 2014, 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. Industrial riverfront property lease revenue is projected to increase by $797,835 in FY 2014 due to lease negotiations of old expiring leases and leases to new tenants on sites that are vacant. 2. Assumptions — Requirements a. The Municipal Fire and Police Retirement System of Iowa Board of Trustees have increased the City contribution for Police and Fire retirement from 26.12 percent to 30.12 percent ( +15.31 % or an increase of $535,362 in General Fund). Also, the Iowa Public Employee Retirement System (IPERS) increased the City contribution from 8.67 percent to 8.93 percent ( +3.0% or an increase of $35,939 in General Fund) and the employee contribution from 5.78% to 5.95% (which did not affect the City's portion of the budget). The IPERS rate is anticipated to increase 7 percent each succeeding year according to IPERS. Total pension cost in FY14 increased $571,301 in the General Fund or a 2.50% property tax impact for the average homeowner. FY 2014 Policy Guidelines Page 13 b. In FY 2014 there is a 2.5% employee wage increase at a cost of $1,131,736 to the General Fund or a 4.95% property tax impact for the average homeowner. c. The City portion of health insurance expense will increase from $835 per month per contract to $1,015 per month per contract (based on 553 contracts) which is a 21.6% increase in health insurance reserves for an additional cost of $803,275 to the General Fund in FY 2014 or a 3.52% property tax impact for the average homeowner. In the last few years, the City Council has boosted the general fund reserves and in FY 2011 and FY 2012, some of the General Fund reserves went to bolster the Health Insurance Reserve since the City of Dubuque is self- insured actual expenses are paid each year with the City only having stop -loss coverage for major claims. It is projected that future transfers from the General Fund will not be needed. Estimates for FY 14 -18 have been increased by 10 percent per year. d. FY 2013 is the first year that eligible retirees with at least twenty years of continuous service in a full -time position or retired as a result of a disability and are eligible for pension payments from the pension system can receive payment of their sick leave balance with a maximum payment of one - hundred twenty sick days payable bi- weekly over a five year period. The sick leave payout expense budget in the General Fund in FY 2013 was $161,358 as compared to FY 2014 of $116,728 based on qualifying employees officially giving notice of retirement. e. General operating supplies and services are estimated to increase 2 percent over actual in FY 2012. A 2.5 percent increase is estimated in succeeding years. f. Electrical energy expense is estimated to have no increase over FY 2012 actual expense, then 2.5 percent per year beyond. g. Natural gas expense is estimated to increase 3.0 percent over FY 2012 actual, then 2.5 percent per year beyond. h. The Convention and Visitors Bureau contract will continue at 50 percent of actual hotel /motel tax receipts, less a $35,000 loan repayment which will be paid in full in FY 2014. i. Equipment costs for FY 2014 are estimated to decrease 27.08 percent under FY 2013 budget, then increase 5 percent per year beyond. j. Debt service is estimated based on the tax - supported unabated General Obligation bond sale for fire truck and ambulance replacements in FY 2010. k. Unemployment expense in the General Fund decreased slightly from $70,204 in FY 2013 to $68,800 in FY 2014 based on past years actual experience. FY 2014 Policy Guidelines Page 14 I. Motor vehicle fuel (excluding Transit) is estimated to increase 26.3 percent ( +$168,776) over FY 2013 budget based on a three year average of actuals, then 2.5 percent per year beyond. m. Transit motor vehicle fuel, and low and high sulfur diesel fuel expense is estimated to increase 15.37 percent ( +$40,686) over FY 2013 budget based on a three year average of actuals, then 2.5 percent per year beyond. The increase in property tax support for Transit from FY 2013 to FY 2014 is $136,310. The following is a ten year history of the Transit subsidy: FY 2014 $1,180,481 estimate FY 2013 $1,044,171 budget FY 2012 $ 717,611 FY 2011 $1,078,726 FY 2010 $1,161,393 FY 2009 $1,253,638 FY 2008 $1,070,053 FY 2007 $ 923,384 FY 2006 $ 710,453 FY 2005 $ 617,048 FY 2004 $ 513,259 n. Postage rates for FY 2014 are estimated to increase 5.0 percent over FY 2012 actual expense. A 5.0 percent increase is estimated in succeeding years. o. Insurance costs are estimated to change as follows: Workers Compensation is increasing 26.2 percent based on actual history, General Liability is increasing 3.7 percent and damage claims is decreasing 15 percent, Property insurance is increasing 29.8 percent and Boiler Insurance is decreasing 1.0 percent. P. The Section 8 Housing subsidy payment from the General Fund increased from $161,326 in FY 2013 to $210,820 in FY 2014. In FY 2011, the City approved reducing the number of allowed Section 8 Housing Vouchers from 1,060 to 900 vouchers. This reduction in vouchers was estimated to reduce Section 8 administrative fees from HUD by $100,000 per year. However, in the transition, the number of vouchers dropped to 817 vouchers. HUD has based the Section 8 administrative fees for FY 2014 on the lower number of vouchers held in FY 2013 which has decreased the amount of revenue received by the Section 8 program in FY 2014. The City is in the process of increasing the Section 8 Housing Vouchers back to 1,060. q. Beginning in FY 2013, the Cable TV Fund no longer funds Police and Fire public education and has reduced funding to the Information Services Department due to reduced revenues from the cable franchise. This is due to Mediacom's conversion from a Dubuque franchise to a state franchise in October 2009 which changed the timing and calculation of the franchise fee FY 2014 Policy Guidelines Page 15 payments. r. Greater Dubuque Development Corporation support of $577,613 is budgeted to be paid mostly from Dubuque Industrial Center Land Sales in FY 2013 and FY 2014 and beyond. s. The Enterprise Funds have contributed to the administrative overhead of the City operation, but the General Fund has always carried most of the financial burden. In FY 2013, a multi -year process to more equitably distribute those costs across all funds was implemented. FY 2014 Policy Guidelines Page 16 IMPACT ON AVERAGE RESIDENTIAL PROPERTY - EXAMPLE ACTUAL - PAST HISTORY FY 1989 "City" Property Tax FY 1990 "City" Property Tax FY 1991 FY 1992 FY 1993 FY 1994 FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2004 FY 2005 FY 2005 FY 2006 FY 2006 FY 2007 FY 2007 FY 2008 FY 2008 FY 2009 FY 2009 FY 2010 FY 2010 FY 2011 FY 2011 FY 2012 FY 2012 FY 2013 FY 2013 "City" Property Tax* "City" Property Tax "City" Property Tax* "City" Property Tax "City" Property Tax* "City" Property Tax "City" Property Tax* "City" Property Tax "City" Property Tax* "City" Property Tax "City" Property Tax "City" Property Tax "City" Property Tax* "City" Property Tax With Homestead Adj. "City" Property Tax* With Homestead Adj.* "City" Property Tax(1) With Homestead Adj. (1) "City" Property Tax *(2) With Homestead Adj.* "City" Property Tax With Homestead Adj. "City" Property Tax With Homestead Adj. "City" Property Tax With Homestead Adj. "City" Property Tax With Homestead Adj. (3) "City" Property With Homestead Adj. (3) "City" Property With Homestead Adj. (3) CITY TAX CALCULATION $ 453.99 $ 449.94 $ 466.92 $ 483.63 $ 508.73 $ 510.40 $ 522.65 $ 518.10 $ 515.91 $ 512.25 $ 512.25 $ 511.38 $ 511.38 $ 511.38 $ 485.79 $ 485.79 $ 493.26 $ 485.93 $ 495.21 $ 494.27 $ 504.62 $ 485.79 $ 496.93 $ 496.93 $ 510.45 $ 524.53 $ 538.07 $ 538.07 $ 550.97 $ 564.59 $ 582.10 $ 611.19 $ 629.78 $ 661.25 $ 672.76 Average FY 1989 -FY 2013 with Homestead Adj. Average FY 1989 -FY 2013 without Homestead Adj. + 0.44% + $ 2.47 ACTUAL PERCENT CHANGE - 11.40% - 0.89% + 3.77% + 3.58% + 5.19% + 0.30% + 2.43% 0.87% 0.42% 0.71% 0.00% 0.17% 0.00% 0.00% 5.00% + 1.54% + 0.40% + 1.90% 1.52% + 2.72% + 5.41% + 2.40% + 5.65% + 8.19% + 6.82% CHANGE IF HTC 100% FUNDED 0.00% + 0.03% + t72% 1.72% 0.00% + 2.76% + 0.00% + 2.47% + 5.00% + 5.00% DOLLAR CHANGE - $ 58.39 - $ 4.04 +$ 16.98 +$ 16.71 +$ 25.10 +$ 1.51 +$ 12.41 - $ 4.54 - $ 2.19 - $ 3.66 $ 0.00 - $ 0.87 $ 0.00 $ 0.00 -$ 25.58 $ 0.00 +$ 7.46 +$ 0.14 +$ 1.95 +$ 8.34 +$ 9.41 -$ 8.48 -$ 7.69 $ 0.00 +$13.52 +$14.08 +$27.62 +$ 0.00 +$12.90 +$13.62 +$31.13 +$29.09 +$47.68 +$31.47 +$42.98 + 1.17% + $ 6.42 FY 2014 Policy Guidelines Page 17 Denotes year of State - issued equalization orders. A Impact to the average homeowner if the State funds the Homestead Property Tax Credit at 62 %. (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 2011 and 2012 that provided no increase to the average homeowner. The State of Iowa under funded the Homestead Property Tax Credit in both years costing the average homeowner an additional $17.51 in FY 2011 and $18.59 in FY 2012. 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. * 2002 -2003 * 2003 -2004 * 2004 -2005 * 2005 -2006 * 2006 -2007 * 2007 -2008 * 2008 -2009 * 2009 -2010 * 2010 -2011 * 2011 -2012 * 2012 -2013 State of Iowa Homestead Property Tax Credit History °n> Funded 100% of the Homestead Property Tax Credit °n> Funded 85% of the Homestead Property Tax Credit Funded 81 % of the Homestead Property Tax Credit °n> Funded 78% of the Homestead Property Tax Credit Funded 77% of the Homestead Property Tax Credit o=> Funded 73% of the Homestead Property Tax Credit °n> Funded 72% of the Homestead Property Tax Credit °=> Funded 72% of the Homestead Property Tax Credit Funded 64% of the Homestead Property Tax Credit °n> Funded 62% of the Homestead Property Tax Credit °=> Funded 78% of the Homestead Property Tax Credit Assumed Homestead will be 100% Funded by the State of Iowa as proposed in Governor Branstad's 2013 -2014 budget proposal submitted on January 15, 2013 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 2014 Policy Guidelines Page 18 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* $2,659.36 + 9.01 % +$ 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 (1) $3,152.52 - 5.89% -$ 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 FY 2010 "City" Property Tax $3,524.48 - 0.85% -$ 30.23 FY 2011 "City" Property Tax $3,585.16 + 1.72% +$ 60.68 FY 2012 "City" Property Tax $3,736.64 + 4.23% +$ 151.48 FY 2013 "City" Property Tax $3,855.96 + 3.19% +$ 119.32 Average FY 1989 -2013 + 1.92% +$ 54.61 * Denotes year of State - issued equalization orders (1) The FY 2006 property tax calculation takes into account the 3% valuation decrease for commercial property as determined by the reappraisal. FY 2014 Policy Guidelines Page 19 IMPACT ON INDUSTRIAL PROPERTY - EXAMPLE ACTUAL - PAST HISTORY FY 1989 "City" Property Tax FY 1990 "City" Property Tax FY 1991 "City" Property Tax FY 1992 "City" Property Tax FY 1993 "City" Property Tax FY 1994 "City" Property Tax FY 1995 "City" Property Tax FY 1996 "City" Property Tax FY 1997 "City" Property Tax FY 1998 "City" Property Tax FY 1999 "City" Property Tax FY 2000 "City" Property Tax FY 2001 "City" Property Tax FY 2002 "City" Property Tax FY 2003 "City" Property Tax FY 2004 "City" Property Tax FY 2005 "City" Property Tax FY 2006 "City" Property Tax(1) FY 2007 "City" Property Tax FY 2008 "City" Property Tax FY 2009 "City" Property Tax FY 2010 "City" Property Tax FY 2011 "City" Property Tax FY 2012 "City" Property Tax FY 2013 "City" Property Tax Average FY 1989 -FY 2013 CITY TAX CALCULATION $5,900.35 $5,844.55 $6,133.00 $6,387.05 $6,249.45 $6,302.95 $5,891.05 $5,891.05 $5,690.75 $5,700.56 $5,536.70 $5,358.00 $5,533.00 $5,380.42 $5,106.00 $5,136.50 $5,036.00 $5,814.61 $5,983.21 $6,184.95 $5,976.44 $5,909.69 $6,011.44 $6,265.43 $6,465.48 PERCENT CHANGE - 15.40% - .90% + 4.90% + 4.10% - 2.20% + 0.90% - 6.50% + 0.00% - 3.40% + .17% - 2.87% - 3.23% + 3.28% - 2.77% - 5.10% + .60% - 1.96% +15.46% + 2.90% + 3.37% - 3.37% - 1.12% - 1.72% + 4.23% + 3.19% - 0.30% DOLLAR CHANGE - $1,074.65 - $ 55.80 +$ 288.45 +$ 254.05 - $ 137.60 +$ 53.50 - $ 411.90 +$ 0.00 - $ 200.30 +$ 9.81 - $ 163.86 - $ 178.70 +$ 175.55 - $ 153.13 - $ 274.40 +$ 30.50 - $ 100.50 +$ 778.61 +$ 168.60 +$ 201.74 - $ 208.51 - $ 66.75 +$ 10115 +$ 254.00 +$ 200.04 - $ 20.38 (1)The FY 2006 property tax calculation takes into account the 19.9% valuation increase for industrial property as determined by the reappraisal. FY 2014 Policy Guidelines Page 20 History of Increases in Property Tax Askings % Change Fiscal "City" Property in Tax Year Tax Askings Askings FY 1989 $10,918,759 -12.0% Sales Tax initiated 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 $18,736,759 + 3.0% FY 2010 $19,095,444 + 1.9% FY 2011 $19,878,962 + 4.1 % FY 2012 $21,284,751 + 7.1% FY 2013 $22,758,753 + 6.9% 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% +2.5% +5.0% +5.0% Average FY 1989 -2013 + 2.51% +0.44% *Without TIF Accounting change. * *Does not reflect State unfunded portion of Homestead Credit. ^ Impact to the average homeowner if the State funds the Homestead Property Tax Credit at 78 %. The Diamond Jo expansion opened on December 2, 2008 tracking fairly closely to the need to increase property tax revenues with the corresponding decreases in the Dubuque Racing Association lease payments. FY 2014 Policy Guidelines Page 21 Impact on Tax Askings and Average Residential Property The following is a historical City tax rate comparison: Fiscal "City" % Change Year Tax Rate in Tax Rate FY 1987 14.5819 FY 1988 13.9500 -4.33% FY 1989 11.8007 -15.41% FY 1990 11.6891 -0.95% FY 1991 12.2660 4.94% FY 1992 12.7741 4.14% FY 1993 12.4989 -2.15% FY 1994 12.6059 0.86% FY 1995 11.7821 -6.54% FY 1996 11.7821 0.00% FY 1997 11.3815 -3.40% FY 1998 11.4011 0.17% FY 1999 11.0734 -2.87% FY 2000 10.7160 -3.23% FY 2001 11.0671 3.28% FY 2002 10.7608 -2.77% FY 2003 10.2120 -5.10% FY 2004 10.2730 0.60% FY 2005 10.0720 -1.96% FY 2006 9.6991 -3.70% FY 2007 9.9803 2.90% FY 2008 10.3169 3.37% FY 2009 9.9690 -3.37% FY 2010 9.8577 -1.12% FY 2011 10.0274 1.72% FY 2012 10.4511 4.22% FY 2013 10.7848 3.19% Average FY 1987 -2013 -1.06% Guideline As described in the City Manager's transmittal memo, there will not be a property tax guideline recommended at this stage in the process. Note: One percent increase in the tax rate will generate approximately $234,146. FY 2014 Policy Guidelines Page 22 CIP BUDGET GUIDELINES S. 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. T. 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. U. RENOVATION AND MAINTENANCE Guideline Capital improvement expenditures should concentrate on renovating and maintaining existing facilities to preserve prior community investment. V. 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. W. 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 FY 2014 Policy Guidelines Page 23 sharing to develop joint -use facilities and cost sharing to improve roads and bridges are examples. X. 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. On October, 15, 2012, the City Council adopted a formal Debt Management Policy for the City of Dubuque. While this debt management policy just put into writing what the City of Dubuque was already doing in practice, there were some changes to those policies. The most significant components of the Debt Management Policy include an internal policy of maintaining the City's general obligation outstanding debt at no more than 95% (except as a result of disasters) of the limit prescribed by the State constitution as of June 30th of each year; City will not use short -term borrowing to finance operating needs except in the case of an extreme financial emergency which is beyond its control or reasonable ability to forecast. Recognizing that bond issuance costs (bond counsel, bond rating, and financial management fees) add to the total interest costs of financing, bond financing should not be used if the aggregate cost of projects to be financed by the bond issue does not exceed $500,000; City will consider long -term financing for the construction, acquisition, maintenance, replacement, or expansion of physical assets (including land) only if they have a useful life of at least six years; City shall strive to repay 20 percent of the principal amount of its general obligation debt within five years and at least 40 percent within ten years. The City shall strive to repay 40 percent of the principal amount of its revenue debt within ten years. Total annual debt service payments on all outstanding debt of the City shall not exceed 25% of total annual receipts across all of the City's funds. As of June 30, 2013, it is projected the City will be at 17 %; and it shall be the goal of the City to establish an internal reserve equal to maximum annual debt service on future general obligation bonds issued that are to be abated by revenues and not paid from ad- valorem property taxes in the debt service fund starting with debt issued after July 1, 2013. This reserve shall be established by the fund or revenue source that expects to abate the levy, and shall be carried in said fund or revenue source on the balance sheet as a restricted reserve. This reserve does not exist now, except where required by bond covenants. This internal reserve would be implemented by adding the cost of the reserve to each debt issuance. The FY 2012 -13 assessable values for calculating the statutory debt limit is $3,633,353,076, which indicates a total General Obligation debt capacity of $181,667,654. Outstanding G.O. debt (including tax increment debt, TIF rebate remaining payments and general fund lease agreement) on June 30, 2013 will be $143,385,856 (78.93 percent of the statutory debt limit) leaving an available debt FY 2014 Policy Guidelines Page 24 capacity of $38,281,798 (21.07 percent). It should be noted that most of the City of Dubuque's outstanding debt is not paid with property taxes (except TIF), but is abated from other revenues, except for one issuance for the replacement of a Fire Pumper truck in the amount of $1,410,000 with debt service of $120,820 in FY 2013. Included in the debt is $24,091,119 of property tax rebates to businesses creating and retaining jobs and investing in their businesses. There is anticipated to be additional debt of $5,830,565 to be issued in FY 2014 that is subject to the statutory debt limit of $183,621,403 in Fiscal Year 2014. As of June 30, 2014, the City is estimated to be at 75.39 percent of the debt limit, down from 78.93 percent in FY 2013 because the amount of debt retired in FY 2014 exceeds the amount of additional debt issued in FY 2014 and the statutory debt limit increases each year with the amount of increased assessed value. Statutory Debt Limit Fiscal Year Statutory Debt Limit Amount of Debt Subject to Statutory Debt Limit % Debt Limit Used 2012 $177,667,991 $142,682,292 80.31 % 2013 $181,667,654 $143,385,856 78.93% 2014 $183,621,403 $138,432,564 75.39% The City also has debt that is not subject to the statutory debt limit. This debt includes revenue bonds. Outstanding revenue bonds payable by water, sewer and stormwater fees on June 30, 2013 will have a balance of $88,243,243. The total City indebtedness as of June 30, 2013 is $231,629,099. The total City indebtedness as of June 30, 2012 was $229,155,092. With anticipated debt of $5,830,565 in FY 2014 minus debt being retired, the estimate for total City indebtedness as of June 30, 2014 is $224,088,351. The City is using debt to accomplish the projects that need to be done and to take advantage of the attractiveness of interest rates in the current market. Part of the City's FY 2013 debt was in the form of a grant from the Iowa Finance Authority and the Iowa Department of Natural Resources. Through a new state program, the interest rate was lowered on the Water and Resource Recovery Center State Revolving Loan Fund debt allowing the City to borrow $9.4 million more at the same debt service cost to construct permeable pavers in over forty alleys. During the FY 2013 budget process, a projection of the statutory debt limit usage was presented at the public hearing to adopt the Fiscal Year 2013 budget. The following was the projection that was previously shown: FY13 FY14 FY15 FY16 FY17 FY18 86.15% 84.89% 81.90% 77.16% 74.55% 71.32% FY 2014 Policy Guidelines Page 25 These statutory debt limit usage projections have changed slightly due to being advised that the $4.5 million dollar Iowa Finance Authority loan for the Caradco project in the Historic Millwork District is subject to the City's statutory debt limit due to the debt being issued by the City instead of by the developer; utility extensions were not requested by property owners for previously annexed areas and therefore the debt was not issued; and the Bee Branch Creek Restoration project has other grant funding opportunities that may allow less debt in the future such as the new State of Iowa Flood Mitigation Program, an application for an Economic Development Administration grant and Federal Surface Transportation Program Enhancement funds from Dubuque Metropolitan Area Transportation Study. The revised projection of the statutory debt limit usage is as follows: FY13 FY14 FY15 FY16 FY17 FY18 78.93% 75.39% 75.44% 63.88% 53.09% 46.15% As we approach the preparation of the FY 2014 -2018 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. In the past twelve months the City has successfully issued bonds at interest rates less than 3 percent. Guideline There are many high priority capital improvement projects, which need to be constructed during the FY 2014 -2018 period. The reductions in DRA rent and distribution over the years has increased the need to borrow for projects. As in the past, debt will be required on several major capital projects, that being the Drainage Basin Master Plan, Airport Improvements, Park Improvements, Sidewalk and Street Improvements, Sanitary Sewer Fund, Parking Fund and Water Fund. In FY 2014- 2018 borrowings will also include smaller projects and equipment replacements such as Park developments and Police software. These smaller borrowings will be for a term not exceeding the life of the asset and not less than six years in accordance to the Debt Management Policy. Alternative sources of funds will always be evaluated (i.e. State Revolving Loan Funds) to maintain the lowest debt service costs. The City is applying for State and Federal grants to minimize the amount of local dollars needed for City projects. Since February 2009, the City and its partners have received $101,624,201. The following is a list of recent grants received by the City only: Grant Project Award Amount Community Development Block Grant Caradco Building $ 8,900,000 State of Good Repairs Grant Intermodal Facility $ 8,000,000 Transportation Investment Generating Millwork District Complete $ 5,600,000 FY 2014 Policy Guidelines Page 26 Grant Project Award Amount Economic Recovery (TIGER) Streets State Revolving Loan Fund Green Project Upper Bee Branch $4,400,000 State of Iowa I -JOBS Lower Bee Branch $ 3,950,000 Lead Paint Grant Lead Paint Removal $ 3,090,000 U.S. Department of Transportation State of Good Repair Bus Replacements $ 2,300,000 Vision Iowa RECAT Bee Branch Restoration $2,250,000 U.S. Economic Development Administration Central Parking Ramp $ 1,500,000 Iowa Finance Authority Workforce Housing Loan Caradco Building $ 1,500,000 U.S. Department of Transportation Clean Fuels Bus Replacement $ 1,500,000 Iowa Power Fund Smarter City Initiative $ 1,400,000 FEMA Public Assistance North Fork Sanitary Improvements $ 1,004,229 U.S. Housing and Urban Development Green and Healthy Homes $ 1,000,000 State Revolving Loan Fund Green Project Smart Water Meters $ 1,000,000 NSB Grant Bee Branch Trails $1,000,000 Energy Efficiency Conservation Block Grant Comprehensive Strategy $ 574,700 State of Iowa I -JOBS Southwest Arterial $ 558,967 Homeless Prevention Funds Homeless Prevention $ 502,294 State Competitive EECBG US 52 Traffic Flow Optimization $ 500,000 Neighborhood Stabilization Program Purchase of Foreclosed Homes $ 444,000 Federal Transit Administration 3 Bus Replacements $ 384,939 Justice Assistance Grant Police Initiatives $ 360,320 Federal Highway Infrastructure 1 Bus Replacement $ 349,000 State Revolving Loan Funds North Fork Catfish Creek Stormwater and Sanitary $ 337,000 Community Development Block Grant Formula Funds Homeownership Rehabs /Green Alleys $ 328,269 Iowa Clean Air Attainment Program (ICAAP) Grant The Jule Medical Loop $ 300,160 Public Transit Infrastructure Grant ARC Transfer Center $ 289,375 AmeriCorps Grant Various Programs $ 186,201 MRT Grant Bee Branch Trails $ 100,000 Federal Firefighters Assistance Grant Smoke Detectors /Extinguishers $ 78,549 State Energy Program 18`" & Central Energy Improvements $ 69,831 Iowa Community Cultural Grant Arts Coordinator Salary $ 13,021 Total $53,770,855 FY 2014 Policy Guidelines Page 27 Y. 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 FY 2009 - $4,788,633 FY 2010 - $5,105,327 FY 2011 - $5,253,650 FY 2012 - $5,469,256 The FY 2013 budget was based on receiving $5,263,848 in Road Use Tax funds. In FY 2013, 100 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. Z. 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 2014 Policy Guidelines Page 28 AA. 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. Workforce rental housing is becoming increasingly important and the City provides assistance for building rehabilitations. BB. 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. CC. 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, December 31st, of 50 percent of its net cash operating funds to the City of Dubuque. In early- February, 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 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 February 2014 projections of operating surplus have been anticipated as resources to support the Fiscal Year 2014 capital improvement projects. This level will be maintained for the Fiscal Year 2015 surplus for the FY 2015 resource estimate and then reduced by 5 percent for the February 2016 projected surplus for FY 2016, 10 percent for FY 2017, and 15 percent for FY 2018 resources. FY 2014 Policy Guidelines Page 29 Guideline In Fiscal Year 2014, 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. DD. 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. EE. 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 %% 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 2004 the split of gaming taxes and rents between operating and capital budgets was 50% operating and 50% capital. In FY 2005 this split was changed to 75% operating and 25% capital. In FY 2009 the split was 76% operating and 24% capital. In FY 2010, the budget was changed to reflect 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 2011, the budget was changed to reflect a split of gaming taxes and rents between operating and capital budgets of 86.5% operating and 13.5% capital. FY 2013 changed the split to 90.0% operating and 10.0% capital and FY 2014 remains at this level. FY 2014 Policy Guidelines Page 30 The Diamond Jo expanded to a land based barge casino facility and increased to 1,100 slots on December 1, 2008. This expansion was projected to decrease the Mystique gaming market and correspondingly the coin -in by just over 21 percent. Based on the projected market share loss, the City did not receive a distribution of cash flows from the Dubuque Racing Association (DRA) in Fiscal Years 2009 and 2010. DRA distributions restarted in FY 2011 instead of the projected year of FY 2012. The reduction in the DRA's market share and the downturn in the local economy impact 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 4.8 percent of gross revenue from table games. In FY 2009, the City's estimated lease payments through FY 2013 were reduced $7.1 million based on projections from the DRA. In FY 2010, gaming revenues generated from lease payments from the DRA were decreased an additional $4.8 million through FY 2014 based on revised projections from the DRA. In FY 2011, the City's estimated lease payments through FY 2015 were reduced $1 million based on updated projections from the DRA. In FY 2012, the City's estimated lease payments through FY 2016 were reduced an additional $3.2 million based on revised projections from the DRA. In FY 2013, The City's estimated lease payments through FY 2017 were reduced an additional $2.9 million based on revised projections from the DRA. In FY 2014, it is estimated that the City's lease payments through FY 2018 will remain at the FY 2013 level and not be reduced based on the updated projections from the DRA. From FY 2009 thru FY 2018, the City's lease payments have been reduced $19 million. The reduction in coin -in is estimated to be 32% instead of the 21 % originally projected due to the expansion of the Diamond Jo Casino as well as the economic downtown which was not projected. The 50¢ per patron tax previously received from the Diamond Jo was replaced by a $500,000 fixed payment based on their revised parking agreement. The riverboat related tax on bets remains at the FY 2013 budget level of $379,501.