June 24, 2004

 

The Honorable Mayor and

Members of the City Commission

City of Lawrence

P.O. Box 708

Lawrence, KS  66044

 

I am presenting the City Manager's Recommended Operating and Capital Budget for the fiscal year 2005 (January 1 – December 31) for the City of Lawrence with what I believe to be an understanding of the City Commission's financial goals.  The City Commission and staff continued to face a variety of challenges this year during the budget preparation process due to significant expenditure issues that continue to challenge the organization.  Our local economy is starting to show signs of a moderate rate of growth in sales tax receipts and predictions have surfaced for an increase in interest rates, both positive revenue impacts for the 2005 budget if projections are accurate.   The expenditure issues and their impact to the 2005 budget year and beyond will be discussed later in this document.  This year’s transmittal letter to the City Commission addresses not only the issues, challenges, and recommendations that were developed over the past several weeks during the budget preparation process, but will also follow the Government Finance Officers Association (GFOA) criteria and guidelines for budget development.

 

Background

The General Fund revenue has been impacted the past couple of years, as noted in previous budget documents, by the loss of state revenue sharing and static sales tax and interest revenue.  Budgets for departments in the General fund were adjusted in 2003 and 2004 to compensate for the decreased revenues.  Significant in the cost reduction area for the 2004 budget was the lack of a general wage adjustment for City employees.  Although a conservative cost-cutting approach was carried over into the 2005 budget preparation process by the Department Heads as they began to fashion their 2005 budget proposals, efforts were made to follow City Commission direction to adopt the recommendations of the 2003 Compensation Study.   During the budget conferences that were held by the City Commission with each Department Head, priorities and issues were discussed as well as concerns related to the anticipation of providing excellent city services while attempting to fashion a compensation plan for City employees that rewards in a market appropriate fashion the efforts necessary to provide that level of service.

 

The City Commission, in a departure from previous practice, decided not to hold budget conferences with the Outside Agencies requesting funds from the General Fund, Special Recreation Fund, Library Fund, and Guest Tax Fund.  Rather, a committee of two commissioners (Highberger and Hack) studied the requests and developed a framework for evaluation and allocation that was then submitted to the whole Commission for their review.  In addition, the City's Alcohol Advisory Board reviewed all agency applications for funding from the Special Alcohol Fund and forwarded their recommendations to the City Commission.  Attached to this transmittal letter is a summary of the various funding requests for 2004 and the proposed budget for these requests (A-6 to A-7).  As noted by the commission committee during their review of outside agency requests and evident from the summary, developing a method for determining a funding level and equitable distribution of same was challenging.  The chosen method involved applying the percentage of assessed valuation increase (6%) to the 2004 funding level and was a non-arbitrary means to meet that challenge.  For the Lawrence Public Library, all Commissioners expressed interest in funding the budget proposal submitted by the Director that included various enhancements to that facility's ability to serve the public. Although some adjustments were made to the committee's original recommendations, the resulting "recommended budget" that is included in the summary is my understanding of the City Commission's direction regarding funding for these agencies.

 

In keeping with GFOA guidelines that view a municipal budget as “a political and managerial process that also has financial and technical dimensions”, the City Commission continued to guide staff with a broad set of broad goals that will serve to guide decision-making in the future.  These goals were the result of a goal setting session held in May, 2003, and facilitated by a consultant.  The resulting priorities were a reaffirmation of the governing body's commitment to the goals established in 2003 with an additional priority of continued excellence in service delivery.  City staff will continue developing and completing objectives that will tie performance to these goals and provide a system of measuring progress in meeting established priorities:

 

City Commission Top Priorities

O

Economic Development – promoting the economic development of Lawrence to provide varied work and business opportunities.

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Planned Growth – encouraging growth that protects our environment, neighborhoods, and cultural features while benefiting all of our citizens.

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Community Building – expand efforts and markets.

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Public Safety/Staffing – creating social capital and celebrating our heritage.

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Neighborhood Planning – improving the livability of all Lawrence neighborhoods.

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Environment – integrating the environment into our decisions as we work towards a sustainable city.

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Transportation – improving access for all citizens.

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Downtown Development – protecting the integrity of downtown while maintaining it as a unique community resource.

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City Services – providing excellent City services consistent with resources.

 

At the forefront of budgetary concerns for 2005 and beyond, the subject of increasing expenses and diminishing fund balances continued to produce the greatest challenge during this year's budget process.  It became apparent that state transfer payments, discontinued in 2003 and likely never to return, will need to continue to be made up with other revenue sources.  Moderate sales tax and interest income growth is anticipated to assist in that area.  A significant transfer to the general fund from the stormwater fund for curb repairs and a 5% increase in the transfer to the general fund from the water and sewer fund (following recommendations from the 2004 Water and Wastewater Rate Study) added to the revenue enhancements necessary to maintain our level of service for the many programs and projects that contribute to the quality of life in Lawrence.  Another concern was the need to reduce expenditures in order to accommodate the recommendations from the Health Care Committee regarding increased costs for the family health care coverage and from the Compensation Study leading to the adoption of new pay plans (Primary Pay Plan, Police Pay Plan, and Fire/Medical Pay Plan).  The recommended budget that follows has met those challenges.  The following sections provide more detailed discussion of the revenue and expenditure issues challenging us in this year's budget process.

 

Revenue Issues and Requirements

Revenue estimates provided for 2005 are anticipated to reflect several economic factors at the State and local level.  In addition, various fee increases are assumed for the Water and Sewer fund, the Golf Course fund, the Solid Waste fund, and the Recreation fund in order to continue providing service at levels acceptable to and expected by the community.  The following assumptions were made in developing revenue estimates for the 2005 City Manager's Recommended Budget:

 

1.

Sales tax trend - assumption of moderate growth of both local sales tax and county-wide sales tax.

2.

Assessed valuation - continued growth (6.4%) anticipated for 2005.

3.

Utility fee increases - for water/sewer treatment and solid waste services are necessary in order to continue providing quality services and meeting regulations.

4.

Fund balances - of ongoing concern for the General Fund, although recent efforts to keep expenditures below revenue levels has helped this issue. 

5.

Interest on investments - anticipated increases as early as late summer, 2004.

 

Expenditures - Services and Debt

The budget proposals submitted by the Department Heads were reflective of the direction provided at the onset of this process to "maintain" service levels without increasing or adding new programs or features.  Payroll projections based on the pay plans that were developed in response to the Compensation Study recommendations have been included in the recommended budget, as has a general wage adjustment of 2% for all City employees.  This latter adjustment comes as a result of negotiations with the two employee groups (Lawrence Police Officers Association and the International Fire Fighters Association).  These negotiations produced a two year contract that acknowledges the compensation philosophies that were established in the Compensation Study and the City's ongoing attempts to follow those philosophies by providing compensation that is at the median market level of area municipalities.

 

The Commissioners were presented with a variety of program improvements via the budget proposals developed by the department heads.  It is my recommendation, based on budgetary constraints and direction from the Commission, to recommend the following program additions for the 2005 budget:

1.

Engineer position for Water/Wastewater Fund

2.

Solid Waste Operator position for Solid Waste Fund

3.

Maintenance Worker position for Solid Waste Fund

4.

Comprehensive Employee Assistance Program (EAP)

5.

Staff Attorney position for the public safety departments

6.

Enhancement of the Public Works crack sealing program

7.

Replacement of uninterrupted power source (UPS) for computer servers

8.

Municipal Court case management software replacement

9.

Part-time clerk for the Master Street Tree Program

The last six additions affect the General Fund, however, increased revenue associated with the programs in #8 and #9 are anticipated to offset the added expense.  A summary of the various recommendations proposed by the Department Heads in their budget submittals for 2004 is attached (A-8). During the 6/30/04 budget study session, the Commission requested that an additional Planner position be added to the General Fund budget.

                

Summary

Pages A-14 thru A-22 contain information that relates the revenue requirements for the 2005 recommended budget to the mill levy, as well as tables and pie charts that summarize the revenue and expenditure requirements for the 2005 proposed budget.  Additionally, I have provided (A-9 thru A-13) some longer term (through 2008) projections that Ed Mullins, Finance Director, developed for the property tax supported funds to illustrate the need to be vigilant in our tracking of fund balances for these funds in the future.  The total expenditures for the fourteen funds that make up the City's annual operating budget is $122,082,941, according to my recommended budget for 2005.  Based on an estimated assessed valuation of $717,269,825 for taxable property within the City limits, the proposed mill levy for this recommended budget is 27.902.  This represents a 0.163 mill decrease from the 2004 budget mill levy.  The property tax supports five (5) funds - Recreation, Library, Public Transit, Bond and Debt, and the General Fund.

 

The budget process continues to challenge the City Commission and the City staff to balance revenue with expenditures while maintaining service levels.  The recommended budget includes an anticipated mill levy decrease along with some recommended fee increases.  I am encouraged by our ability to incorporate the compensation philosophies that were developed in 2003 and further refined in 2004 that allow for an overall positive impact on our employees.  Employees with family coverage will be sharing in the anticipated increases in the City's health care plan.  This recommended budget includes a 2% general wage adjustment for City employees in 2005, and follows City Commission direction in this area.  Additionally, an emphasis on street and curb maintenance, continued park facility maintenance, and ongoing efforts regarding web-based information for the public and e-gov applications has been included in this year's budget.  As our infrastructure grows and ages and the costs to maintain it increase (equipment, vehicles, and staffing), we will continue to be challenged to stay within the constraints of our resources in the future.

 

I have been assisted in the preparation of this budget recommendation by Debbie Van Saun, Regan Carrizales, Ed Mullins, Laura Warner, and Casey Liebst, and the various members of the Management Team.  My thanks to them and to you for your time commitment these past few weeks during budget conferences, committee meetings, and study sessions.  As you review this document, please don't hesitate to contact me with your questions and comments.

 

In 2004, the celebration of the City's Sesquicentennial provided an opportunity to reflect on the past as well as contemplate the future.  With the support of the City Commission, I'm confident that City staff can continue to provide excellent city services to this community in our 151st year, and beyond.

 

Respectfully,

 

 

Mike Wildgen

City Manager