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Fiscal Year 2015 Budget Correction Copyright 2014 City of Dubuque Action Items # 5. ITEM TITLE: Fiscal Year 2015 Budget Correction SUMMARY: City Manager submitting a list of Fiscal Year 2015 Capital Improvement Projects selected for possible elimination, substitution and/or later reconsideration through the Fiscal Year 2017 budget process. SUGGESTED DISPOSITION: Suggested Disposition: Receive and File ATTACHMENTS: Description Type ❑ Fiscal Year 2015 Budget Correction-MVM Memo City Manager Memo ❑ Staff Memo Staff Memo THE CITY OF Dubuque UB E 1 erica .1 11 Masterpiece on the Mississippi 2007-2012-2013 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Fiscal Year 2015 Budget Correction DATE: February 12, 2015 The Fiscal Year 2016 budget recommendation presented to the City Council on February 2, 2015 already considers a 9.17% downturn in the Dubuque Racing Association lease payments and the City Council will hold a public hearing on that Fiscal Year 2016 recommendation on March 12, 2015. This information is related to the current Fiscal Year 2015 budget. As occurred in February 2014, the City Council needs to consider a mid-budget year adjustment. The hiring freeze and the travel restrictions related to employee continuing education that was instituted in February 2014, has been continued through June 30, 2016. The Fiscal Year 2016 budget recommendations already take into account the revenue shortfalls, but these Fiscal Year 2015 budget revenue shortfalls must be addressed. It is anticipated that the Capital Improvement Budget will have $24,343 less in revenues than anticipated and an increase in expenses of $65,000 which results in a total capital shortfall of $89,343. The General Fund Operating Budget will have $1,779,963 less in revenues and $229,176 in increased expense which results in a total operating deficit of $210091139. 1 will be recommending increasing rental inspection fees in the current fiscal year, but delaying the increase in the rental licensing fees until January 2016. This will end the general fund subsidy of the rental licensing and inspection program over the next two years. There is $347,239 in capital projects that have been identified to be cancelled to fund the remainder of the general fund operating budget shortfall. The hiring freeze, travel freeze, local option sales tax revenue above budget, DRA Distribution above budget, canceled capital projects, Housing Inspection fee increases, reduction in contribution to Every Child I Every Promise and airport fuel savings totals $2,832,997. Then there would be no operating or capital deficit remaining and $734,515 will be used to increase the general fund reserve in Fiscal Year 2015. At this time, this is just informational as the City Council will be requested to set for public hearing the FY 15 Second Budget Amendment on April 6, 2015, for a public hearing to be held on April 20, 2015, where the final decision on eliminating projects, reducing expenses and increasing revenues will be made. / �� �� . Mich el C. Van Milligen MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager Jenny Larson, Budget Director 2 THE CITY ODubuque AI-AmericII a Ciry DUBi&E r Masterpiece on the Mississippi 2007-2012-2013 TO: Michael C. Van Milligen, City Manager FROM: Jennifer Larson, Budget Director SUBJECT: Fiscal Year 2015 Budget Correction DATE: February 12, 2015 The Fiscal Year 2016 budget recommendation presented to the City Council on February 2, 2015 already considers a 9.17% downturn in the Dubuque Racing Association lease payments. This information is related to the current Fiscal Year 2015 budget. As occurred in February 2014, the City Council needs to consider a mid-budget year adjustment. The decline in DRA lease revenues is a long-term trend, reducing from a high of $9,757,458 in Fiscal Year 2007 to the projection of $5,188,570 in Fiscal Year 2015. This is a cumulative reduction of$24,202,645 over that eight year period. DRA Rent (FY 2007 - 2016) 10.000.ODO '3,7 8 9,753,4111 9.000.000 8,OOO,DDO 15,820,283 7,000700D 5,343,130 6,001,193 6,000,001 6,000,00 D 5,345,816 5,450,052 5,188,670 6,000.000 ■Rent 4,0a0,DDD 3,00o,DOD 2,000,00D 1,aaD,DDD FY 200T FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2015 FY 2016 Actual Actual Actual Actual Actual Actual Actual Actual Budget Revised Budget The Fiscal Year 2015 revised projections are based on nine months of actual experience and gaming revenues are down 10% from the original projections. The impact of ending greyhound racing offsets a large deficit that the Dubuque Racing Association (DRA) would have experienced otherwise. In FY 2015, the DRA will have $3,575,000 in additional net income due to the ending of greyhound racing; however a payment of$1 million is required to the Iowa Greyhound Association; a payment of $464,000 is required for Mystique cash flow; and a payment of$883,370 is required as additional charitable distribution as part of the five year smoothing that was previously approved. The State of Illinois passed a Video Gaming Act on July 13, 2009 which legalized the use of Video Gaming Terminals in liquor licensed establishments including bars, restaurants, truck stops and certain fraternal and veterans' organizations. In the part of Illinois that impacts the Dubuque market, the first year of operation of video gaming terminals generated $1 million in revenue monthly. The use of video gaming terminals has now grown to $9 million monthly which has caused a reduction to the gaming market in Dubuque. The Mystique Casino and Diamond Jo Casino average monthly revenue is $8.7 million. This is a similar impact as if a casino the size of the Mystique Casino and the Diamond Jo Casino combined was built half-way between Dubuque and Rockford. The recession has also impacted the gaming market. The revised DRA gaming projections include minimal growth in revenues over the next five years with the growth rate remaining at 1% through 2020. The hotel acquisition by the Dubuque Racing Association has helped to make the Mystique Casino a more competitive gaming option and is expected to generate $400,000 in profit in calendar year 2015. The issue to deal with tonight relates to the current Fiscal Year 2015 budget. The Dubuque Racing Association annual distribution payment will be $249,742 more than projections. These funds are dedicated to capital improvements; however this additional amount above budget will be used to increase the general fund reserve. The projections for Fiscal Year 2015 DRA lease revenues are less than anticipated when this budget was prepared in late 2013. The DRA lease revenues are budgeted 97% operating and 3% capital in FY 2015. The Fiscal Year 2015 impact of the reduced DRA lease revenues is a $787,088 reduction to General Fund Operating Budget and a $24,343 reduction to the Capital Improvement Budget. Another area in the Fiscal Year 2015 budget that is not meetingy revenue budget projections includes property leases. The 5.85 acres by the 16 Street detention basin has not been leased which will result in an $87,875 shortfall in revenue. In addition, the property lease for the ABC Building was inadvertently entered as $455,894 instead of $45,894 during the FY2015 budget process, which resulted in a revenue shortfall of $410,000. 2 Other revenue shortfalls include investment income due to continued low interest rates (-$140,000) and building permits due to a slower construction season than budgeted (-$145,000). The 2013 Property Tax Reform Legislation has impacted the City's tax increment financing districts. Beginning in FY2017, the new State legislation requires a rollback, or assessment limitations order, on multi-residential property which will eventually equal the residential rollback. This loss in tax revenue of$453,252 from multi-residential property when fully implemented in FY2022 will not be backfilled by the State. Most of the City's multi-residential property is located in the Greater Downtown Urban Renewal Area. In addition, a property revaluation of commercial and industrial property was conducted and the appraising firm applied size discounts to large office buildings, large factories and distribution buildings due to the limited number of buyers. Most of Dubuque's large buildings are located within urban renewal areas so this property revaluation greatly reduced the taxable value of these properties by $25.3 million ($762,303 in revenue). The taxable value in the Greater Downtown Urban Renewal Area was reduced $22,142,511 which resulted in reduced tax increment financing revenue of$666,122. The taxable value in Dubuque Industrial Urban Renewal Area was reduced $3,197,137 which resulted in reduced tax increment financing revenue of $96,181 . The reduction in revenue in the Greater Downtown TIF urban renewal area has resulted in reduced revenues to make debt payments and it will be necessary for the general fund to support $63,458 in FY 2015, $78,242 in FY 2016 and $93,868 in FY 2017 of debt service payments. Water usage and water department expenses vary from year to year based on several factors, especially the weather. Winter weather affects the number of water main breaks that must be repaired. Water usage is dramatically impacted by above or below average rainfall and temperature in spring and summer. Calendar year 2014 was the coldest year on record and did not have even one day that reached 90 degrees. When actual usage does not meet the usage projections, revenue projections are not met. There was a reduction of 4% in water usage in Fiscal Year 2014 and it is projected that there will be an additional reduction of 2% in water usage in Fiscal 2015. Although there have been water rate increases, the actual revenue from those increases has been lower than projected and revenue is not meeting expenses. Sanitary sewer revenue is based on water usage so those projections and revenues are directly impacted by water. Beginning in FY2010, auditors began reclassifying some water fund capital expenditures as operating expenditures, which required a $1 million shift from capital to operating expenditures. The City's water fund also has outstanding revenue bonds with covenants requiring debt service coverage of 1 .25 times the annual debt service payment. The sewer fund has outstanding State Revolving Fund revenue loans that have bond covenants that require debt service coverage of 1 .10 times the annual debt service payment. The debt service coverage for both funds must be calculated on an accrual basis rather than cash basis, making it much more difficult to project because the City budgets and prepares projections on a cash basis. 3 It will be necessary to recommend a series of significant Water rate increases over the next several years to address cash flow issues and meet the water bond covenant requirement in Fiscal Year 2016. In addition, the administrative overhead that is paid by the Water fund to administrative departments will need to be reduced beginning in Fiscal Year 2015. This will result in a reduction of general fund revenue of$210,000 in FY 2015. The City has three Family Self-Sufficiency Coordinators in the Housing and Community Development Department. The Fiscal Year 2015 budget included general property tax funding for the first six months of the fiscal year for two Family Self-Sufficiency Coordinators in the Housing and Community Development Department assuming that the City would be awarded three grants from HUD, one grant for the entire fiscal year and two grants for the last six months of the fiscal year. All three of these positions were funded with a FSS Coordinator grant and administrative funds through the Federal Housing and Urban Development Department in Fiscal Year 2014. During HUD's Fiscal Year 2014, funding for salaries of program coordinators, HUD combined the funding availability for Housing Choice Voucher and Public Housing FSS Coordinators. Limited funds were available with HUD noting that they will only fund applicants currently administering an FSS Program that previously had received a grant. Only if funding remained after the awards of currently funded positions, would HUD consider funding for new positions not previously funded. In Fiscal Year 2015, the City was only awarded one HUD grant for FSS Coordinators. All Public Housing Authorities (PHA) must enter into five-year contracts with new families on an ongoing basis. The contract spells out the terms and conditions governing participation and the responsibilities of both the PHA and the individual/family. The Housing Department employs three FSS Coordinators to work with 127 individuals/families. Ninety-four percent (94%) of the outstanding FSS contracts do not expire until Calendar Year 2016 or later. The objective of the FSS program is to enable participating low-income individuals/families to increase their earned income and reduce their dependency on welfare assistance and rental subsidies. Under the FSS program, individuals/families are provided opportunities for education, job training, transportation, child care, employment, financial literacy, counseling and other forms of assistance, while living in assisted housing units, so they can obtain skills necessary to achieve self-sufficiency. As required by the FSS statute and regulations, each FSS program reflects local needs and resources. An FSS program coordinator ensures that program participants are linked to the supportive services they need to achieve self-sufficiency. In addition to working directly with families, an FSS Program Coordinator is responsible for building partnerships with employers and service providers in the community to help participants obtain jobs and services. FSS Program Coordinators must ensure that the services included in contracts of participation of program participants are provided on a regular, ongoing and satisfactory basis, that participants are fulfilling their responsibilities under 4 the contracts and that FSS escrow accounts are established and properly maintained for eligible families. Despite many barriers and variables, the majority of families begin to earn FSS escrow credits during the term of their FSS contracts based on increases in their earned income after entering the FSS program. The FSS program provides critical tools that can be used by communities to help families develop new skills that will lead to economic self- sufficiency. Many families participating in FSS have achieved stable employment which has made it possible for them to become homeowners or move to other non-assisted rental housing. HUD funding in future years will rely on the number of families with escrow accounts as a performance measure. In Fiscal Year 2015, it is necessary to use general property tax funds of$66,873 to fund the two FSS Coordinators that did not receive a HUD grant in FY 2015. It will also be necessary to continue general property tax funding of the two FSS Coordinators through FY 2016. This is especially important now that the City is operating in a voluntary contract agreement with the Department of Housing and Urban Development. Other increased costs in Fiscal Year 2015 include increased Washington Neighborhood police patrol ($30,000); cost of the franchise fee hearing which will occur this spring ($85,000); and installation of additional street security cameras ($65,000). The Fiscal Year 2016 budget recommendations already take into account the revenue shortfalls, but these Fiscal Year 2015 budget revenue shortfalls must be addressed. It is anticipated that the Capital Improvement Budget will have $24,343 less in revenues than anticipated and an increase in expenses of$65,000 which results in a total capital shortfall of$89,343. The General Fund Operating Budget will have $1 ,779,963 less in revenues and $229,176 in increased expense which results in a total operating deficit of $2,009,139. The following is the recommended solution: 1 . Operating Budget The City Manager will administratively continue the hiring freeze on most general fund positions, excluding sworn public safety positions, positions in the Emergency Communications Center, the Leisure Services Recreation Supervisor position and the Arts and Cultural Affairs position. Other general fund positions will be evaluated by the City Manager on a case-by-case basis as they become vacant, with there being few exceptions to the freeze. No sworn public safety positions are frozen, but the lag time in going through the lengthy civil service process to fill sworn public safety positions will provide a savings in FY 2015. The hiring freeze and other vacancy savings are anticipated to save $1 ,111 ,037 in Fiscal Year 2015. This hiring freeze will be extended thru June 30, 2016 and will be reevaluated during the Fiscal Year 2017 budget process. 5 The frozen positions as of February 9, 2015 are as follows: Department Position FTE Type City Manager's Office Management Intern 0.60 PT City Manager's Office Secretary 1.00 FT Engineenng Traffic Engineering Assistant 1.00 FT Information Services Information Services Help Desk 1.00 FT Library Library Aide 0.50 PT Library Library Assistant 0.50 PT Library Library Assistant 0.75 PT Library Library Assistant 0.75 PT Library Library Clerks 0.18 PT Park Assistant Horticulturalist 1.00 FT Park Maintenance Worker 1.00 FT Park Park Ranger/Maintenance Worker 1.00 FT Park/Public Works Assistant Horticulturalist 1.00 FT Park/Recreation Custodian 0.20 PT Police Records Clerk 1.00 FT Water Secretary 0.50 PT TOTAL 11.98 FTEs The travel budget for property tax departments has been frozen unless the conferences or education is needed to retain job certifications, the registration has been already paid, the employee is on the Board of Directors or has agreed to make a presentation. This is a one-time savings in FY15 totaling $115,163. The Fiscal Year 2016 travel budget will also remain frozen. Local option sales tax revenue is expected to exceed budget by $132,709. Of this amount, $66,354 will be used towards the general fund operating shortfall and $66,354 will be used to fund the capital improvement budget deficit. Revenue shortfalls in FY 2015 and 2016 will require increases in rental license and inspection fees beginning in FY 2015, the current budget year, ending the subsidy of the rental inspection program by General Fund property taxes. In FY 2015 the increases in inspection fees will generate $88,395 in additional revenue. The housing inspection fee increases as well as new fees that are being recommended are as follows: Current Recommended Fee Fee Certificate of Structural Compliance New Fee $40.00 Inspection for New Rental Properties Annual Rental License Late Penalty New Fee $25.00 No Show Ins ection Fe2e $50.00 $50.00 e for Re-inspection Fe " and $25.00 $70.00 Subsequent re-inspections Dwelling Unit Inspection Fee New Fee $70.00 Rooming Unit Inspection Fee New Fee 1 $70.00 Confirmed Complaint Inspection Fee New Fee $85.00 6 Every Child I Every Promise has an annual budget of$25,000 to help fund grant programs and local match on grants. The current balance of these funds in FY 2015 is $100,000. This balance of$100,000 will be used to help fund the operating shortfall. The FY 2016 budget for Every Child I Every Promise will be cut by 10% with a recommended budget of$22,500 The Airport has estimated a one-time savings from aviation fuel of$50,000 due to the declining costs of fuel purchases this year. This fuel savings will offset some of the general fund operating shortfall. There is $347,239 in capital improvement projects that have been identified to be canceled to fund the remainder of the operating budget shortfall. The hiring freeze, travel freeze, local option sales tax revenue above budget, DRA Distribution above budget, canceled capital projects, Housing Inspection fee increases, reduction in contribution to Every Child I Every Promise and airport fuel savings totals $2,832,997. There is no operating or capital deficit remaining and $734,515 will be used to increase the general fund reserve in Fiscal Year 2015. 2. Capital Improvement Budget The City needs to cancel some capital improvement projects that impact the general fund. This does not include projects for water, sanitary sewer, storm sewer or parking, or projects supported by tax increment financing. The following projects are being recommended for elimination to be reconsidered for funding through the Fiscal Year 2017 budget process: Project Reduction 175 Birthday $3,390 Accessibility Barriers $19,537 Airport GIS Improvements $9,372 Cedar Cross Road Improvements $100,000 City Owned Sidewalk Program $50,000 Comiskey Entry Sign - Signage $7,000 Comiskey Lights $100,000 Downtown ADA Improvements Assistance $2,893 Dubuque Schools — Replace Play Equipment $30,000 Eagle Point Park Overlay Tennis Court Lot - Construction $20,040 Eagle Point Stone $15,000 Eagle Point Stone $5,626 EPP - Riverfront Pavilion - Construction $7,435 EPP - Riverfront Pavilion - Consulting Engineers $37,565 Erosion Control Study $22,672 Federal Building Renovation $1 ,414 Fire Station #4 Improvements $8,222 Flood Plain Buyout $7,379 7 Project Reduction Flora/Sutton Renovate Electrical Controllers and Disconnects $10,000 Flora/Sutton Replace Filter Tanks $60,000 Flora/Sutton Shade Fabric Replacement $17,000 Grand River Center Concrete Maintenance $13,045 Greenhouse - Landscaping MFC Planters $9,800 Ice Harbor Maintenance/Dredging $25,121 ITS Improvements - Liebert Smart Row System $124,000 ITS Traffic Control Equipment $40,000 Maintenance of Vacant and Abandoned Buildings $26,524 Municipal Service Center Maintenance $5,000 Municipal Service Center Security Camera $19,834 North Grandview Estates Road $44,000 Painting of Street Lights $10,000 Park Drinking Fountains - Consultant Engineers $9,957 Police Mobile Data Terminals $32,026 Police Storage Area Network $9,328 Port of Dubuque Amenities Maintenance $5,000 Port of Dubuque Marina Navigation Lights $15,000 Replace Security Lights - All Parks $10,000 Safe Routes to School $24,655 Sustainability Initiative $1 ,031 Terminal Building Concession Equip $25,090 Usha Park Development $1 ,995 Grand Total $985,951 The following is a list of additional General Fund CIP projects that the City Council could choose to substitute for any of the above recommended projects: Project Balance Catfish Creek Hike/Bike Study $5,400 Comiskey Entry Sign $7,000 Comiskey Park Building Security Alarm $10,000 Eagle Point Park Clear Trees on Bluff $15,000 Eagle Point Park Paint Bridge $9,902 Eagle Point Park Riverfront Pavilion $50,000 Environment and Sustainability Management System $1 ,663 Fiber Optic - Miscellaneous $45,555 Finance Plus Upgrade $17,000 Five Flags Paint Arena Ceiling $79,311 Flora Park Roof Brick Pavilion $10,000 Flora/Sutton Pool Deck Grate $10,000 Flora/Sutton Water Playgrounds $15,000 GIS Enhancements $3,082 GIS System Implementation $9,977 GIS Training $6,750 Grand River Center Outdoor Furniture $21 ,037 8 Project Balance Grand River Center River Room Cool $25,000 Stud Hilltop Park $10,136 Intersection Preemption $3,722 Library Book Drop Repairs $15,500 Library HVAC Handling Units $18,454 Library Integrated System $16,069 Library Sanitary Line $2,847 Marshall Park Pool Repair $18,721 Multicultural Family Center Maintenance $5,000 Neighborhood Grants $1 ,274 Riverwalk Security Cameras $16,093 Trails/Parking Lots Seal Coat $15,000 Total $464,493 The previous actions will resolve the Fiscal Year 2015 current year revenue shortfalls. As I mentioned, the administrative hiring freeze will be carried into Fiscal Year 2016 and will be reevaluated during the Fiscal Year 2017 budget process. The City Council will be requested to set for public hearing the FY 15 Second Budget Amendment on April 6, 2015 for a public hearing to be held on April 20, 2015, where the final decision on eliminating projects will be made. No approval is needed of the hiring freeze at this time, as it will be implemented administratively. JML 9