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Budget Guidelines FY 2008 Dli~~E ~~~ MEMORANDUM November 15, 2006 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager ,.' SUBJECT: Budget and Fiscal Policy Guidelines for Fiscal Year 2008 Budget Directors Dawn Lang and Jennifer Larson are recommending adoption of the Fiscal Year 2008 Budget Policy Guidelines. The guidelines reflect City Council direction given as part of the August 29 and 30, 2006, goal setting sessions. The budget guidelines are developed and adopted by City Council early in the budgeting process in order to provide targets or parameters within which the budget recommendation will be formulated. The final budget presented by the City Manager may not meet all of these targets due to changing conditions and updated information during budget preparation. To the extent the recommended budget varies from the guidelines, an explanation will be provided in the printed budget document. Some highlights of the document are: ~ The net effect of changes in the gaming market based on a consultant's study is an increase of $2,241 ,853 in operating revenues over the next five years, and a decrease of $3,582,353 in the capital improvement budget over the next five years. ~ There are many high priority capital improvement projects, which need to be constructed during the FY 2008-2012 period. Many of these projects will be possible without borrowing (i.e., selling bonds) to help finance them. However, debt will be required on 3 major capital projects, that being the Drainage Basin Master Plan, Sanitary Sewer Fund, and Water Fund. Alternative sources of funds should always be evaluated (i.e. State Revolving Loan Funds) to maintain the lowest debt service costs. All requested projects will not be recommended for funding. ~ The Policy Guidelines include a property tax guideline that provides for no increase to the "City" share of property taxes for the average homeowner assuming the Homestead Property Tax Credit is fully funded. The State of Iowa has negatively impacted homeowners in Dubuque by chronically under-funding the Homestead Property Tax Credit. In Fiscal Year 2004, the State only funded 85% of the tax credit, 81 % in Fiscal Year 2005.78% in Fiscal Year 2006 and 77% in Fiscal Year 2007. This under funded credit has no impact on what the City receives, however as a result has caused the average homeowner to pay more taxes. Since FY 2004, the City has decreased the average homeowner's property taxes to offset the unfunded portion of the homestead tax credit. In the FY 2008 budget, this guideline will not decrease property taxes to offset the prior year unfunded portion of the Homestead Tax Credit by the State of Iowa. FY 2008 reflects no increase in property taxes paid by the average homeowner, however if the State continues to not fully fund the Homestead Property Tax Credit, this will increase the property taxes paid, but not provide any additional revenues to the City. Preliminary citizen participation opportunities will be available. There will be a City Manager's Public Input meeting on Tuesday, November 21st at 5:15 p.m. and 6 City Council Work Sessions prior to the adoption of the FY 2008 budget before the state mandated deadline of March 15, 2007. I concur with the recommendation and respectfully request Mayor and City Council adoption of the budget guidelines, which provides for no increase in the "City" share of property taxes for the average homeowner in Fiscal Year 2008. I/~ k~ Michael C. Van Milligen MCVM/dll/jml Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Jennifer Larson, Budget Director Dawn Lang, Budget Director Ken TeKippe, Finance Director BUDGET AND FISCAL POLICY GUIDELINES FOR FY 2008 OPERATING BUDGET GUIDELINES The Policy Guidelines are developed and adopted by City Council early in the budgeting process in order to provide targets or parameters within which the budget recommendation will be formulated. The final budget presented by the City Manager may not meet all of these targets due to changing conditions and updated information during budget preparation. To the extent the recommended budget varies from the guidelines, an explanation will be provided in the printed budget document. 1. CITIZEN PARTICIPATION Guideline To encourage citizen participation in the budget process, City Council will hold at least six work sessions in addition to the budget public hearing for the purpose of reviewing the budget recommendations for each City department and requesting public input following each departmental review. The budget will be prepared in such a way as to maximize its understanding by citizens. A copy of the recommended budget documents will be made available with the City Clerk and in the government documents section at the Carnegie Stout Public Library. The budget can be reviewed on the City's website at www.citvofdubuque.orq and copies of the budget on CD will be available. An opportunity will be provided for citizen input prior to formulation of the City Manager's recommended budget and again prior to final Council adoption, both at City Council budget work sessions and at the required budget public hearing. 2. SERVICE OBJECTIVES, ALTERNATIVE FUNDING AND SERVICE LEVELS Guideline The budget will identify specific objectives to be accomplished during the budget year, July 1 through June 30, for each activity of the City government. The objectives serve as a commitment to the citizens from the City Council and City administration and identifies the level of service which the citizen can anticipate. FY 2008 Policy Guidelines Page 2 3. TWO TYPES OF BUDGET DOCUMENTS TO BE PREPARED Guideline The recommended City operating budget for Fiscal Year 2008 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 2008 Budget. The Recommended City Council Policy Budget includes the following information for each department: Highlights of Prior Year's Accomplishments and Future Year's Initiatives, a financial summary, a summary of improvement packages requested and recommended, significant line items, capital improvement projects in the current year and those recommended over the next five years, organizational chart for larger departments, major goals, objectives and performance measures for each cost center within that department, and line item expense and revenue financial summaries. The purpose of these documents are to focus the attention of the City Council and the public on policy decisions involving what services the City government will provide, who will pay for them and the implications of such decisions. They will emphasize objectives, accomplishments and associated costs for the budget being recommended by the City Manager. The Citizens Guide section of the Recommended FY 2008 Budget is a composite of tables, financial summaries and explanations, operating and capital budget messages and the adopted City Council Budget Policy Guidelines. Through graphs, charts and tables it presents financial summaries, which provide an overview of the total operating and capital budgets. 4. BALANCED BUDGET Guideline The City will adopt a balanced budget in which expenditures will not be allowed to exceed reasonable estimated resources. The City will pay for all current expenditures with current revenues. FY 2008 Policy Guidelines Page 3 5. BALANCE BETWEEN SERVICES AND TAX BURDEN Guideline The budget should reflect a balance between services provided and the burden of paying for those services. It is not possible or desirable for the City to provide all of the services requested by individual citizens. The City must consider the ability of citizens to pay for services in setting service levels and priorities. 6. MAINTENANCE OF EXISTING SERVICES Guideline To the extent possible with the financial resources available, the City should attempt to maintain the existing level of services. Annually, however, each service should be tested against the following questions: (a) Is this service truly necessary? (b) Should the City provide it? (c) What level of service should be provided? (d) Is there a better, less costly way to provide it? (e) What is its priority compared to other services? (f) What is the level of demand for the service? (g) Should this service be supported by property tax, user fees, or a combination? 7. IMPROVED PRODUCTIVITY Guideline Efforts should continue to stretch the value of each tax dollar and the City services that it buys through improved efficiency and effectiveness. Using innovative and imaginative approaches to old tasks, reducing duplication of service effort, creative application of new technologies and more effective organizational arrangements are approaches to this challenge. 8. USE OF VOLUNTEERS Discussion Out of the respect for citizens that must pay taxes, the City must seek to expand resources by continuing to get citizens directly involved in supplementing service delivery capability. Citizens are encouraged to assume tasks previously performed or provided by City government. This may require the City to change FY 2008 Policy Guidelines Page 4 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 (through SMG, Inc., the private management company hired by the City as of July 1, 2004), and Police. Guideline In the future, the maintenance of City services may well depend on volunteer citizen staffs. In FY 2008, 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, Police) or (b) services can be "spun off" to non-government groups and sponsors (i.e., YMCANWCA, 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 DEPARTMENTCSI 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. FY 2008 Policy Guidelines Page 5 Guideline Salary increases over the amount budgeted for salaries shall be financed from operating budget reductions in the department(s) of the benefiting employees. 11. BALANCE BETWEEN CAPITAL AND OPERATING EXPENDITURES Guideline The provision of City services in the most economical and effective manner requires a balance between capital (with particular emphasis upon replacement of equipment and capital projects involving maintenance and reconstruction) and operating expenditures. This balance should be reflected in the budget each year. 12. USER CHARGES Discussion User charges or fees represent a significant portion of the income generated to support the operating budget. It is the policy that user charges or fees be established when possible so those who benefit from a service or activity also help pay for it. This is easy in some cases and municipal utility funds have been established for certain activities, which are intended to be self-supporting. Examples of utility funds include Water User Fund, Sewer User Fund, Stormwater User Fund, Refuse Collection Fund, and Parking Fund. In other cases, a user charge is made after the Council determines to what extent an activity is to be self-supporting. Examples of this arrangement are fees for swimming, golf and recreation programs and certain inspection programs. 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. FY 2008 Policy Guidelines Page b 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 2004 FY 2005 FY 2006 FY 2007 FY 2008 ACTUAL ACTUAL ACTUAL BUDGETED RECOM'D DEPARTMENT/DIVISION PERCENT PERCENT PERCENT PERCENT PERCENT leisure Services Department Recreation Division Adult Athletics* 76.0 77.9 60.9 61.8** 61.6 McAleece Concessions 152.3** 148.5 Children's Activities 52.0 54.7 53.5 53.2 52.7 Therapeutic Recreation 14.0 13.6 11.6 13.3 17.9 Recreation Classes 45.0 38.8 40.9 32.1 35.2 Swimming* 73.0 72.4 70.8 69.6 68.5 Golf* Surplus to Golf Devel' Fund 93.0 111.2 107.6 101.6 100.1 Park Division 10.7 13.4 11.6 12.4 11.1 Library Department exel' Gift Trusts 5.9 6.1 5.8 4.8 4.1 Airport Department wlabated debt 77.6 82.2 85.3 76.1 79.5 Building Services Division Inspections 95.6 111.5 85.2 92.1 96.6 Federal Building Maint. 100.0 100.0 Planning Services Department 17.6 16.6 15.4 12.4 11.9 Health Services Department Food/Environmental Insp. 51.8 54.4 57.6 49.5 52.1 Animal Control*** 99.2 70.2 62.7 55.7 54.3 Housing Services Department General Housing Inspection 54.6 42.1 42.9 40.1 38.2 , Includes an amount to help cover Indirect costs (administration). .. McAleece concessions moved to a separate activity in FY 2007. "'Increased cost of the Humane Society contract is decreasing this percentage. 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. FY 2008 Policy Guidelines Page 7 Guideline In order to minimize the property tax burden, the City of Dubuque will make every effort to obtain federal, state and private funding to assist in financing its operating and capital budgets. However, commitments to guarantee a level of service or level of funding after the outside funding ends shall be avoided. 14. GENERAL FUND OPERATING RESERVE OR WORKING BALANCE Discussion An operating reserve or working balance is an amount of cash, which must be carried into a fiscal year to pay operating costs until tax money, or other anticipated revenue comes in. Without a working balance there would not be sufficient cash in the fund to meet its obligations and money would have to be borrowed. Workinq balances are not available for fundinq a budqet: thev are required for cash flow (Le., to be able to pay bills before taxes are collected). The rule of thumb the state recognizes for determining a reasonable amount for a working balance is (a) anticipated revenues for the first three months of the fiscal year less anticipated expenditures or (b) 5 percent of the total General Fund operating budget (excluding fringes and tort liability expense). However, in discussions with Moody's Investor Service, a factor of 10 percent was recommended for "A" rated cities. This is due to the fact that a large portion of revenue sources are beyond the City's control and therefore uncertain. In the case of Dubuque, 10% represents approximately $3,169,157. Guideline The guideline of the City of Dubuque is to maintain a General Fund working balance or operating reserve of 10 percent of the total General Fund Operating budget requirements or approximately $3,169,157 for FY 2008. 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". FY 2008 Policy Guidelines Page 8 Nonrecurring income must not be spent for recurring expenses. To do so causes a funding shortfall the next budget year before even starting budget preparation. Nonrecurring expenditures would include capital improvements and equipment purchases. Guideline Nonrecurring un-obligated income shall be spent only for nonrecurring expenses. Capital improvement projects and major equipment purchases tend to be nonrecurring expenditures. 16. USE OF "UNENCUMBERED FUND BALANCES" Discussion Historically a budget is not spent 100% by the end of the year and a small unencumbered balance remains on June 30th. In addition, income sometimes exceeds revenue estimates resulting in some unanticipated balances at the end of the year. These amounts of un-obligated, year-end balances are in turn "carried over" into the new fiscal year to help finance it. The FY 2006-07 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 2008 through FY 2012. 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 2007-08 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 2008 and each succeeding year to support the operating budget. b. Sales tax funds are set by resolution to be used 50 percent in the General Fund for property tax relief. Sales tax projections for FY 2008 are projected FY 2008 Policy Guidelines Page 9 to increase 3.7 percent over FY 2007 budgeted receipts, and then increase at an annual rate of 2.7 percent per year. c. Hotel/motel tax receipts are projected to increase 5.8 percent over FY 2007 budget, and then increase at an annual rate of 3 percent per year. d. State Transit operating assistance is anticipated to decrease 16 percent based on revised formula from the Iowa Department of Transportation. Federal Transportation Administration (FTA) is anticipated to remain unchanged from FY 2007 budget. e. Miscellaneous revenue, excluding state shared revenues, has been estimated at 2 percent growth per year over budgeted FY 2007. f. Gaming revenues generated have been estimated based on FY 2006 and FY 2007 year to date actual from the implementation of a new lease agreement and expanded gaming operations from increasing slot machines (600 to 1,000) and adding table games at Dubuque Greyhound Park and Casino (DGP&C). Projections include the impact of the Diamond Jo's anticipated expansion beginning FY 2008 (4/1/08), which includes an increase to the overall gaming market of $20.8M, with an estimated decrease of $4.5M to the DGP&C cash flows. g. Gaming revenues from taxes and the DRA lease (not distributions) remain unchanged from the FY 2007 split of 70% / 30% between operating and capital budgets for FY 2008. The Diamond Jo Patio lease ($25,000) and the Diamond Jo parking privileges ($475,000 beginning in FY 2009 in connection with the expansion of the Diamond Jo Casino) have been included in the split with gaming revenues from taxes and lease, which is a change from the prior year. h. The residential rollback factor will decrease from 45.996 percent to 45.560 percent or a .95 percent reduction for FY 2008. A 10-year average for rollbacks and equalization orders was used for Fiscal Years 2009 and beyond. i. FY 2008 reflects this increased assessed value for the average homeowner. Assessed valuations were increased 2 percent per year beyond FY 2008. j. Gas and electric franchise fees have been projected to increase 4 percent over FY06 actual collections based on three year's trend data, and then increases at an annual rate of 2.5 percent per year. The City is currently undergoing a franchise fee study. These guidelines assume the 2% franchise fee will continue. FY 2008 Policy Guidelines Page I 0 k. 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 2008, with the gaming revenue (from taxes and the DRA lease) split remaining the same as FY 2007 at 70% operating budget and 30% capital budget. Assumptions - Reauirements a. A wage increase is reflected in the projections for FY 2008 of 3 percent. b. Police and Fire retirement rates have been decreased 2.7 percent, saving the City approximately $64,127 per year. Also, the Iowa Public Employee Retirement System (IPERS) increased the City contribution from 5.75 percent to 6.05 percent (+5.22% or an increase of 30,198 in General Fund) and the employee contribution from 3.7% to 3.9% for the first time since 1979. The IPERS rate is anticipated to increase 3 percent each succeeding year according to IPERS. c. Health insurance costs are estimated to remain the same as FY 2007 budgeted rates with FY 2008 representing the 3rd year employees are contributing 10% towards their health insurance premium. Estimates for FY 08-12 have been increased by 6.5 percent per year. d. General operating supplies and services are estimated to increase 5 percent over actual in FY 2006 or 2.5 percent over FY 2007 budget, depending on which year reflects expenditures more accurately. 2.5 percent increase is estimated in succeeding years. e. Electrical energy expense is estimated to increase 4 percent over FY 2006 actual expense, then 2.5 percent per year beyond. f. Natural gas expense is estimated to increase 4 percent over FY 2006 actual, then 2.5 percent per year beyond. There is no degree-day adjustment this year. g. The Convention and Visitors Bureau contract will continue at 50 percent of actual hotel/motel tax receipts, less a $35,000 loan repayment. h. Equipment costs for FY 2007 are estimated to increase 2.5 percent over FY 2007 budget, then 2.5 percent per year beyond. FY 2008 Policy Guidelines Page II I. Debt service is estimated based on no additional tax-supported unabated General Obligation bond sales in FY 2008 - 2012. j. Unemployment expense in the General Fund has been increased from $50,000 to $65,000 for FY 2008 based on past years actual experience. k. Motor vehicle fuel, and low and high sulfur diesel fuel expense is estimated to remain the same as FY 2006 actual expense, then 2.5 percent per year beyond. I. Postage rates for FY 2008 are estimated to increase 8 percent over FY 2006 actual expense and remain at that level per year beyond. m. Vehicle maintenance expense for FY 2008 is estimated to increase 7% over FY 2006 actual expense, then 2.5 percent per year beyond. n. Insurance costs are estimated to change as follows: Workers Compensation is increasing 4.8 percent, General Liability is increasing 7.9 percent, Property insurance in remaining constant, and Boiler and Machinery insurance is decreasing 54% due to a new contract negotiated for FY 2008. FY 2008 Policy Guidelines Page 12 IMPACT ON AVERAGE RESIDENTIAL PROPERTY - EXAMPLE CITY TAX PERCENT DOLLAR ACTUAL - PAST HISTORY CALCULATION CHANGE CHANGE FY 1989 "City" Property Tax $ 453.99 -11.40% - $ 58.39 FY 1990 "City" Property Tax $ 449.94 - 0.89% - $ 4.04 FY 1991 "City" Property Tax' $ 466.92 + 3.77% +$ 16.98 FY 1992 "City" Property Tax $ 483.63 + 3.58% +$ 16.71 FY 1993 "City" Property Tax' $ 508.73 + 5.19% +$ 25.10 FY 1994 "City" Property Tax $ 510.40 + 0.30% +$ 1.51 FY 1995 "City" Property Tax' $ 522.65 +2.43% +$ 12.41 FY 1996 "City" Property Tax $ 518.10 - 0.87% -$ 4.54 FY 1997 "City" Property Tax' $ 515.91 - 0.42% -$ 2.19 FY 1998 "City" Property Tax $ 512.25 - 0.71% -$ 3.66 FY 1999 "City" Property Tax' $ 512.25 - 0.00% $ 0.00 FY 2000 "City" Property Tax $ 511.38 - 0.17% -$ 0.87 FY 2001 "City" Property Tax $ 511.38 0.00% $ 0.00 FY 2002 "City" Property Tax $ 511.38 0.00% $ 0.00 FY 2003 "City" Property Tax' $ 485.79 - 5.00% -$ 25.58 FY 2004 "City" Property Tax $ 485.79 0.00% $ 0.00 FY 2004 With Homestead Adj. $ 493.26 + 1.54% +$ 7.46 FY 2005 "City" Property T ax* $ 485.93 + 0.03% +$ 0.14 FY 2005 With Homestead Adj.* $ 495.21 +0.40% +$ 1.95 FY 2006 "City" Property Tax(1) $ 494.27 + 1.72% +$ 8.34 FY 2006 With Homestead Adj. (1) $ 504.62 + 1.90% +$ 9.41 FY 2007 "City" Property Tax'(2) $ 485.79 - 1.72% -$ 8.48 FY 2007 With Homestead Adj.*(3) $ 496.93 - 1.52% -$ 7.69 PROPOSED FY 2008 "City" Property Tax'(4) $ 496.93 0.00% $ 0.00 Average FY 1989-FY 2008 with Homestead Adj. - 0.09% -$ 0.77 Average FY 1989-FY 2008 without Homestead Adj. - 0.21% -$ 1.33 PROJECTION .* FY 2009 "City" Property Tax $ 506.86 FY2010 "City" Property Tax' $529.10 FY 2011 "City" Property Tax $ 545.75 FY 2012 "City" Property Tax' $ 568.30 . Denotes year of State-issued equalization orders. + 2.00% + 4.39% + 3.15% + 4.13% +$ 9.93 +$ 22.24 +$ 16.65 +$ 22.55 (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. FY 2008 Policy Guidelines Page I 3 (3) The City adopted a budget in FY 2007 that provided a decrease in costs for the average homeowner of $18.83. The State of Iowa then underfunded the Homestead Property Tax Credit costing the average homeowner costing an additional $11.14. The average homeowner then paid $496.97 to the City, instead of $485.79. This provided no additional revenues to the City. (4) Assumes State of Iowa funds 100% of Homestead Property Tax Credit in FY 2008 and beyond. Homestead Property Tax Credit History u:::=> State of Iowa Funded 100% of the Homestead Property Tax Credit * 2002-2003 u:::=> State of Iowa Funded 85% of the Homestead Property Tax Credit * 2003-2004 u:::=> State of Iowa Funded 81 % of the Homestead Property Tax Credit * 2004-2005 u:::=> State of Iowa Funded 78% of the Homestead Property Tax Credit * 2005-2006 u:::=> State of Iowa Funded 77% of the Homestead Property Tax Credit * 2006-2007 u:::=> Assumed Homestead will be 100% Funded by the State of Iowa * 2007-2008 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 resuit has caused the average homeowner to pay more taxes. Since FY 2004, the City has decreased the average homeowner's property taxes to offset the unfunded portion of the homestead tax credit. In the FY 2008 budget, the City will not offset the prior year unfunded portion of the Homestead Tax Credit. FY 2008 reflects no increase in property taxes paid by the average homeowner, however if the State continues to not fully fund the Homestead Property Tax Credit, this will increase the property taxes paid. FY 2008 Policy Guidelines Page 14 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 PROPOSED FY 2008 "City" Property Tax $3,668.64 + 4.26% +$ 150.62 Average FY 1989-2008 + 2.17% +$ 59.90 PROJECTION .. FY 2009 "City" Property Tax' $3,767.25 + 2.13% +$ 78.60 FY 2010 "City" Property Tax $3,919.34 + 4.04% +$ 152.10 FY 2011 "City" Property Tax' $4,047.95 + 3.28% +$ 128.61 FY 2012 "City" Property Tax $4,201.05 + 3.78% +$153.10 . 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 2008 Policy Guidelines Page I 5 IMPACT ON INDUSTRIAL PROPERTY - EXAMPLE CITY TAX PERCENT DOLLAR ACTUAL - PAST HISTORY CALCULATION CHANGE CHANGE FY 1989 "City" Property Tax $5,900.35 -15.40% -$1,074.65 FY 1990 "City" Property Tax $5,844.55 - .90% -$ 55.80 FY 1991 "City" Property Tax $6,133.00 + 4.90% +$ 288.45 FY 1992 "City" Property Tax $6,387.05 + 4.10% +$ 254.05 FY 1993 "City" Property Tax $6,249.45 - 2.20% -$ 137.60 FY 1994 "City" Property Tax $6,302.95 + 0.90% +$ 53.50 FY 1995 "City" Property Tax $5,891.05 - 6.50% -$ 411.90 FY 1996 "City" Property Tax $5,891.05 + 0.00% +$ 0.00 FY 1997 "City" Property Tax $5,690.75 - 3.40% -$ 200.30 FY 1998 "City" Property Tax $5,700.56 + .17% +$ 9.81 FY 1999 "City" Property Tax $5,536.70 - 2.87% -$ 163.86 FY 2000 "City" Property Tax $5,358.00 - 3.23% -$ 178.70 FY 2001 "City" Property Tax $5,533.00 + 3.28% +$ 175.55 FY 2002 "City" Property Tax $5,380.42 - 2.77% -$ 153.13 FY 2003 "City" Property Tax $5,106.00 - 5.10% -$ 274.40 FY 2004 "City" Property Tax $5,136.50 + .60% +$ 30.50 FY 2005 "City" Property Tax $5,036.00 - 1.96% -$ 100.50 FY 2006 "City" Property Tax(1) $5,814.61 +15.46% +$ 778.61 FY 2007 "City" Property Tax $5,983.21 + 2.90% +$ 168.60 PROPOSED FY 2008 "City" Property Tax $6,184.95 + 3.37% +$ 201.74 Average FY 1989-FY 2008 - 0.43% -$ 39.50 PROJECTION** FY 2009 "City" Property Tax $6,316.75 + 4.47% +$ 270.43 FY 2010 "City" Property Tax $6,571.78 + 4.04% +$ 255.03 FY 2011 "City" Property Tax $6,787.42 + 3.28% +$ 215.64 FY 2012 "City" Property Tax $7,044.13 + 3.78% +$ 256.71 (1 )The FY 2006 property tax calculation takes into account the 19.9% valuation increase for industrial property as determined by the reappraisal. FY 2008 Policy Guidelines Page I 6 History of Increases in Property Tax Askings Fiscal Year "City" Property Tax AskinQs (000) FY 1989 FY 1990 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 2005 FY 2006 FY 2007 FY 2008 Estimate Average FY 1989-2008 'Without TIF Accounting change. $10,918,759 $10,895,321 $11,553,468 $12,249,056 $12,846,296 $13,300,756 $13,715,850 $14,076,320 $14,418,735 $14,837,670* $15,332,806* $15,285,754 $15,574,467 $15,686,579 $15,771,203 $16,171,540 $16,372,735 $16,192,215 $17,179,994 $18,224,164 % Chanae in Tax Askinas -12.0% - 0.2% +6.0% +6.0% 4.9% +3.5% +3.1% +2.6% +2.4% +2.9% +3.3% - 0.3% + 1.9% + 0.7% + 0.5% +2.5% + 1.2% - 1.1% + 6.1% + 6.1% Sales Tax initiated + 2.00% Impact on Tax Askings and Average Residential Property 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% - 0.22% To maintain the current level of service based on the previous assumptions would require the following property tax asking increases: Year FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 "City" Property Tax Askinas (000) $17,180 $18,224 $18,985 $20,146 $21,223 $22,467 % Increase % I $ Impact on Avg. Residential Property* + 6.08% + 4.17% + 6.12% + 5.35% + 5.86% 0.00% 1$ 0.00 +2.00% I +$9.93 +4.39% I +$22.24 +3.15% I +$16.65 +4.13% I +$22.55 FY 2008 Policy Guidelines Page I 7 Guideline The recommended guideline is no tax increase for the average residential property owner assuming the Homestead Property Tax Credit is fully funded, and to leave unchanged the percent of annual gaming revenues going into the operating budget at 70 percent. Note: One percent increase in the tax rate will generate approximately $182,242. 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 2008 Policy Guidelines Page I B 21. NEW CAPITAL FACILITIES Guideline Construction of new or expanded facilities which would result in new or substantially increased operating costs will be considered only if: 1) their necessity has been clearly demonstrated; 2) their operating cost estimates and plans for providing those operating costs have been developed; 3) they can be financed in the long term; and 4) they can be coordinated and supported within the entire system. 22. COOPERATIVE PROJECTS Guideline Increased efforts should be undertaken to enter into mutually beneficial cooperative capital improvement projects with the county, school district and private groups. Cost sharing to develop joint-use facilities and cost sharing to improve roads and bridges are examples. 23. USE OF GENERAL OBLIGATION BONDS Discussion The Iowa Constitution limits the General Obligation debt of any city to 5 percent of the actual value of the taxable property within the city. The Iowa legislature has determined that the value for calculating the debt limit shall be the actual value of the taxable property prior to any "rollback" mandated by state statute. The FY 2006-07 taxable value for calculating the debt limit is $2,907,950,782, which indicates a total General Obligation debt capacity of $145,397,539. Outstanding G.O. debt (including tax increment debt) on June 30, 2007 will be $48,317,112 (33.2 percent) leaving an available debt capacity of $97,080,427 (66.8 percent). It should be noted that none of the City of Dubuque's outstanding debt is paid with property taxes (except TIF), but is abated from other revenues. As we approach the preparation of the FY 2008-2012 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 2008 Policy Guidelines Page I 9 Guideline There are many high priority capital improvement projects, which need to be constructed during the FY 2008-2012 period. Many of these projects will be possible without borrowing the money (i.e., selling bonds) to help finance them. However, debt may be required on 3 major capital projects, that being the Drainage Basin Master Plan, Sanitary Sewer Fund, and Water Fund. In determining whether a project should be financed in total or in part from bond funds the City Council must consider and balance: (a) the community impact of not doing the project (poor streets, deteriorated park buildings, sewer problems, higher operating costs); (b) possible operating budget cuts to offset higher debt service payments; (c) anticipated interest rate; and (d) the impact on the tax rate and taxpayer of issuing the bonds. Alternative sources of funds should always be evaluated (i.e. State Revolving Loan Funds) to maintain the lowest debt service costs. All requested projects will not be recommended for funding. 24. ROAD USE TAX FUND Discussion Actual Road Use Tax Fund receipts are as follows: FY 1985 - $2,069,065 FY 1986 - $2,207,467 FY 1987 - $2,259,436 FY 1988 - $2,379,592 FY 1989 - $2,617,183 FY 1990 - $3,037,587 FY 1991 - $3,122,835 FY 1992 - $3,119,087 FY 1993 - $3,121,357 FY 1994 - $3,343,678 FY 1995 - $3,484,524 FY 1996 - $3,841,921 FY 1997 - $3,977,528 FY 1998 - $4,072,296 FY 1999 - $4,415,192 FY 2000 - $4,671,656 FY 2001 - $4,628,072 FY 2002 - $4,620,514 FY 2003 - $4,696,399 FY 2004 - $4,806,295 FY 2005 - $4,798,667 FY 2006 - $4,831,935 The FY 2007 budget was based on receiving $4,805,244 in Road Use Tax funds. In FY 2007,85.6 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 FY 2008 Policy Guidelines Page 20 is increased revenues or reduced expense that would allow this shift without a property tax impact. 25. COMMERCIAL AND INDUSTRIAL DEVELOPMENT Guideline Current City, commercial and industrial development efforts should be continued to (a) preserve current jobs and create new job opportunities and (b) enlarge and diversify the economic base. Financing these efforts and programs should continue to be a high priority. 26. HOUSING Guideline In order to maintain an adequate supply of safe and decent housing, the City should strive to preserve existing single family and rental housing and provide opportunities for development of new housing, particularly owner occupied, within the City's corporate limits for all citizens, particularly for people of low and moderate income. 27. SALES TAX Guideline Thirty percent of projected sales tax receipts will be used for: (a) the reduction by at least 75 percent of street special assessments and (b) the maintenance and repair of streets. Twenty percent will be used for: (a) the upkeep of City-owned property such as sidewalks, steps, storm sewers, walls, curbs, traffic signals and signs, bridges and buildings and facilities (e.g., Airport, Five Flags Center, Library, Law Enforcement Center, City Hall, fire stations, parks and swimming pools); (b) Transit equipment such as buses; (c) riverfront and wetland development; and (d) economic development projects. FY 2008 Policy Guidelines Page 2 I 28. NET CASH PROCEEDS (SURPLUS DISTRIBUTION) FROM THE DUBUQUE RACING ASSOCIATION The contract with the Dubuque Racing Association calls for distribution at the end of its fiscal year, November 30th, of 40 percent (this was 50 percent, but changed with the new lease agreement on April 1. 2004) of its net cash operating funds to the City of Dubuque. In mid-December, the City will receive payment of proceeds to be distributed. These proceeds will then be allocated for capital improvements, with the highest priority given to reducing the City's annual borrowing. 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 2008 projections of operating surplus have been anticipated as resources to support the Fiscal Year 2008 capital improvement projects. This level will be maintained for the Fiscal Year 2009 surplus for the FY 2009 resource estimate and then reduced by 5 percent for the January 2010 projected surplus for FY 2010, 10 percent for FY 2011, and 15 percent for FY 2012 resources. Guideline In Fiscal Year 2008, 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. FY 2008 Policy Guidelines Page 22 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 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, and electrical costs), a 20.5 percent increase in Police and Fire Pension costs, decreasing State revenues, and reduced sales tax projections. 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 reflected increasing financing challenges and the split was 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. 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, allows the split between capital and operating expenses to be adjusted from 25% capital and 75% operating, to 37.28% capital and 62.72% operating in FY 2006. FY 2007 changed to 70% capital and 30% operating, and FY 2008 remains the same. In FY 2007, the Diamond Jo announced their intentions of expanding in the spring of 2008 (assumed 4/1/08) to a land based barge casino facility and increasing to 1,100 slots. Maintaining the 30% operating /70% capital split of gaming receipts, this expansion impacts the 5 year operating projections by an FY 2008 Policy Guidelines Page 2J estimated increase of $2,241 ,853 and impacts the 5 year capital improvement program by an estimated increase of $960,794. The Diamond Jo Patio lease ($25,000) and the Diamond Jo parking privileges ($475,000 beginning in FY 2009 in connection with the expansion of the Diamond Jo Casino) have been included in the split with gaming revenues from taxes and lease, which is a change from the prior year. The annual profit distribution is projected to decline beginning 4/1/08 due to an estimated decrease of $4.5M to the Dubuque Greyhound Park & Casino (DGP&C) cash flows, and capital improvement needs at DGP&C. This results in a 5 year reduction of the annual profit distribution of $4,543,147. Assuming the market expands by 20.8% as projected in a consultant's study, the net effect is an increase of $2,241 ,853 in operating revenues over the next five years, and a decrease of $3,582,353 in the capital improvement budget over the next five years.