Memorandum

City of Lawrence

City Manager’s Office

 

DATE:

5/13/2010

TO:

David L. Corliss, City Manager

FROM:

Casey Toomay, Budget Manager

CC:

Cynthia Wagner, Assistant City Manager

Diane Stoddard, Assistant City Manager

Jonathan Douglass, Assistant to the City Manager

RE:

Preliminary General Fund Budget for 2011

 

Attached is a preliminary budget for the general fund for 2011.  The summary includes current revenue projections for 2011 and expenditures as submitted by the general fund departments.  No adjustments have been made to these submittals, and no funds have been included for adjustments to compensation.  The City is currently in negotiations with MOU covered employees and discussions regarding compensation are on-going.  The assumptions used to prepare this preliminary budget are outlined below.

 

Revenues

Based on information received to date and historical trends, general fund revenues for the 2011 budget are expected to total $63,926,867.  Assumptions for each of the major revenue sources are provided below.

·         Property Tax.  According to the most recent estimate from the Douglas County Appraiser, assessed valuation is expected to decrease 3.5% from 2010.  This will be the second consecutive year of declining assessed valuation in the City.  This estimate does not include the incremental valuation of the Oread and is subject to change. 

·         Franchise Fees.  Revenues from franchise fees have increased and this trend is expected to continue in 2011.  The increase is largely due to increased electric rates, which are expected to increase again in 2011.

·         Sales/Use Tax.  When adjusted for the sales taxes adopted in 2008, proceeds collected from the city and countywide sales/use tax through the end of April 2010 are 3% below this same period in 2009.  However, recent national indicators suggest consumer spending may be on the rise.  The 2011 projection assumes a two percent increase in sales taxes over the 2010 projection, which is roughly flat with 2009 collections when adjusted for a full year of the new sales taxes. 

·         Intergovernmental Revenues.  This category of revenues includes distributions of liquor tax and highway funds received from the state.  In 2009, this category also included one half of the “slider” payment, which was intended to replace the revenue lost by cities due to the exemption of machinery and equipment from personal property tax.  This payment was eliminated due to state budget constraints in 2009 and is not expected to return.  Liquor tax is expected to increase five percent over 2010, however, highway connecting link funds are expected to decline.  Overall, this category is anticipated to remain flat with the 2010 projection.

·         Licenses and Permits.  This revenue source is expected to grow two percent from projected 2010 levels.  This is 9.5% below the three year average (2008, 2009, and projected 2010) for licenses and permit revenues. 

·         Fines.  Fines are expected to meet budget in 2010 but are expected to remain flat for 2011. 

·         Service Charges.  This revenue source is expected to grow two percent from projected 2010 levels, which is flat relative to the three year average.

·         Interest.  This projection assumes interest rates will begin to increase in 2011.  As a result, interest income is expected to increase one and one-half times over 2010 projected revenue to $250,000.

·         Miscellaneous Revenue.  The largest revenue items in this category are payments from Douglas County for EMS services by Fire Medical and for their share of the maintenance of the Community Health building.  This revenue category is expected to increase two percent over the projection for 2010. 

·         Transfers.  The 2011 projection includes an increase in transfers to the general fund from the City’s enterprise funds of five percent over 2010 budget.  These transfers are in lieu of franchise fee payments and are used to fund overhead expenses.

 

Expenditures

The preliminary expenditure budget for 2011 in the general fund totals $65,552,910.  Again, this total is as submitted by the departments.  No reductions have been made and no funds have been included for adjustments to compensations.  The City is currently in negotiations with MOU covered employees and discussions regarding compensation are on-going.   Additional assumptions are outlined below. 

·         Department Submittals.  The departments were directed to submit 2011 budgets that held non-payroll projection items to 2010 budget levels.  This included overtime for all employees as well as salaries and wage related benefits for part-time temporary employees.  Departments were allowed to reallocate funds between line items, provided their non-personnel totals remained flat.  Additional information about the department submittal is provided below.

§  Payroll Projections.  Submittals include the following items projected through the City’s payroll projections:

·         Salaries.  The submittals include wages projected using current full time and part time regular employee hourly rates and assuming no general wage adjustment or merit increase for 2011.  The City is currently in negotiations with MOU covered employees and discussions regarding compensation are on-going.  Part-time temporary employees are budgeted based on the projected needs of individual departments and are not part of payroll projections. 

·         Longevity.  The 2011 budget submittals include funding for longevity at $48/year of service for employees who have completed five years of service.  This payment is discretionary and will be decided by the City Commission in November 2011, based on available resources.  The 2010 budget also included funding for longevity at $48/year for eligible employees.  The 2009 budget included funding for longevity at only $24/year, however, the City Commission was able to fully fund longevity. 

·         Incentives, Ad Pays, On Call and Call Back.  The items are projected based on employee eligibility. 

·         KPERS and KP&F.  Submittals include funding for the City’s contribution to the state retirement system for employees at the rates estimated by Human Resources. 

·         Life Insurance.  Submittal include funding for the City’s contribution to life insurance coverage for eligible employees. 

·         Fica, Unemployment.  Submittals include funding for these salary related items at rates estimated by Human Resources. 

§  Overtime.  Submittals include funding for overtime based on projected needs of individual departments.  Departments were to include funds not just for salaries but for other wage related items (Fica, unemployment, etc.) for overtime hours worked.  It should be noted that staff is currently reviewing overtime policies and practices.  Recommendations may result that have a budget impact in 2010 and/or 2011. 

§  Utilities.  Submittals include increases for electricity (30% over 2009 actuals) and for natural gas (15% over 2009 actuals) for 2011.

§  Fuel.  Departments were to assume the same fuel usage as 2009 but budget $3.16/gallon for diesel fuel and $3.00/gallon for unleaded fuel. 

§  Computers.  Departments were able to include funding for computer replacements, provided they kept their total non-payroll projection items flat with 2010 levels. 

In order to achieve flat budgets, most departments were required to make reductions or eliminate items from their budget requests.  The attached memo describes the needs of the departments that were unable to be met in the preliminary 2011 budget.  Many of these items have been deferred for a number of years as resources have not been available. 

 

In addition to the department submittals, the preliminary budget for the general fund includes other expenditures.

·         Health Care.  Funding for the City’s contribution to employee healthcare for general fund employees, all eligible retirees, and the three school resource officers funded from the Special Alcohol fund is included at the level outlined in the Healthcare committee’s memo. 

·         Transfers.  The preliminary budget includes a number of transfers, including the following:

§  Recreation Fund.  Some of the proceeds from the County-wide sales tax are transferred to the Recreation Fund each year.  In 2010, a significant increase in the transfer was budgeted to replace revenue from property tax due to a reduction in the mill levy for the Recreation Fund and due to decreased assessed valuation.  The preliminary budget for 2011 includes an increase of two percent over 2010 budget.

§  Sales Taxes.  State law requires sales tax to be deposited in the General Fund before being transferred to other funds, so the proceeds from the three sales taxes adopted by voters in 2008 are shown in the preliminary budget as transfers.  The amounts equal the revenues from each of these sales taxes projected for 2011.

§  Reserve Funds.  The preliminary general fund budget for 2011 includes transfers to a number of the City’s reserve funds in the amounts shown below.

·         Capital Improvement Reserve Fund - $50,000

·         Equipment Reserve Fund - $50,000

·         Sales Tax Reserve Fund - $3,069,311

·         Worker’s Compensation Reserve Fund - $25,000

·         General Liability Reserve Fund - $10,000

·         General Overhead.  The preliminary budget includes funding for general overhead expenses, including the following:

§  Emergency Communications (Dispatch).  Funding for this service, which is provided by Douglas County, was held flat with 2010 budget.

§  Social Service Agencies.  Funding for these agencies was held to 2010 budget levels.

§  Economic Development.  Funding for agencies that provide economic development services was held to 2010 budget levels

§  Arts Center Support.  City support for the Arts Center was held to 2010 budget levels.  (note – maintenance for the arts center is included in the public works budget for building maintenance.)

 

Fund Balance

The preliminary 2011 general fund budget shows expenditures exceeding projected revenues by $1,626,043.  Assuming 100% of budgeted revenues are collected and 100% of budgeted expenditures are actually made, the ending fund balance would be 16.69%, or $10.9 Million. 

 

Historically, spending in the General Fund has not totaled 100% of budget.  As shown on the table below, actual expenditures and a percent of budget has increased in each of the past three years.  However, expenditures remained within available revenues.  These trends are projected to continue for 2010. 

 

 

 

2007

 

2008

 

2009

2010

(projected)

2011

@ 97.5% of

prelim. budget

Actual expenditures as % of budget

93.16%

94.55%

96.38%

97.58%

97.5%

Revenues over expenditures

$365,778

$774,841

$340,581

$714

($403,659)

 

Assuming 100% of budgeted transfers but only 97.5% of the remaining preliminary 2011 general fund budget was actually spent, it would still be necessary to spend down $403,659 of fund balance.  However, the projected fund balance at the end of 2011 would still be $12 million, or 18.9% of projected 2011 expenditures.  This would be well within the Commission guidelines for fund balance in the general fund and would be roughly equal to the ending fund balance as of the end of 2008. 

 

It will not be easy for departments to achieve 97.5% of the preliminary 2011 budget.  As work on the City Manager’s Recommended Budget for 2011 continues, staff will work with departments to identify reductions to their department submittals in order to shrink the gap between projected revenues and budgeted expenditures. 

 

Staff seeks Commission direction on 2011 funding priorities.