Budget Committee Meeting
May 14, 2014
Civic Center Council Chambers, 1175 East Main Street
CALL TO ORDER
Stebbins called the meeting to order at 6:04pm and gave a formal welcome to Mary Cody, newest budget committee member (not present) and noted that there were two citizen member vacancies.
Daehler, Denise (arrived at 6:30pm)
APPROVAL OF MINUTES
May 1, 2013
May 8, 2013
May 15, 2013
May 22, 2013
April 9, 2014
April 10, 2014
It was agreed that approval of the above mentioned minutes would be deferred to the next meeting.
APPROVAL OF GRANT PROCESS AND ALLOCATIONS
Discussion was held regarding the process of approving the allocations of the Economic, Cultural, and Sustainability & Tourism (ECTS) Grant allocations. It was agreed that a motion to approve the grant allocations should be heard.
Motion to accept the subcommittee recommended ECTS Grant allocations.
Marsh thanked the subcommittee for participating in the ECTS Grant process and pointed out that she had received feedback that the grant process needs reviewing and requested this happen prior to the next grants process.
Stebbins noted that she had also received the same feedback and agreed that this should be reviewed.
Slattery noted that this subject has been broached on several occasions and suggested that this might be a topic for study session for review.
Stromberg stated that the conversation had been sufficient and requested that the motion be voted on.
Stebbins requested a roll call vote.
REVIEW OF CURRENT YEAR BUDGET REVENUES AND EXPENDITURES
Tuneberg referred to the 3rd quarter in the committee’s packet. He stated that the item would go to council the following Tuesday. Outlined items were;
Tuneberg focused on the General Fund (GF) and requested questions from the committee. He noted that he would like to convey how this year compared to first year of biennium budget as well as previous years.
- Budget compliance
- Capital improvements amongst departments
- General operations
- Various revenues
BUDGET DISCUSSION AREAS
Tuneberg pointed out Ashland’s resources are approximately 2 million dollars over expenditures year to date total. He also noted that people costs are running at around 75%. Tuneberg stated that Materials and Services are slightly lower but that this can vary for different reasons i.e. contract payments, capital repairs and that capital is only at 28.7% because of inclement weather affecting projects or projects being shifted around in the public works and water fund. He noted that much of that money would be absorbed into the tap line this summer.
Stromberg asked if that was a partial explanation as to why the resources exceed the expense requirements by 1.8.
Tuneberg responded that all factors are a cause and the City of Ashland (COA) is still utilizing tax receipts and have un-started projects. He noted that the COA is retaining money that was borrowed for other projects which has now been repurposed to the tap project. He pointed out that holding onto those funds can cause a variation. He also noted that while there are other small projects arising, there should be no significant variations.
Tuneberg the consistency of this year and pointed out that this year the COA is at 77% of revenues for the GF at March 31 compared to what has been at the end of the year which equates to a 3.5 million dollar differential. Tuneberg then noted that in 2014 the percentage is higher but the dollar amount is about the same as previous years.
Although there is a trend of 95% by the end of March we had received 93% of the tax revenues expected to get that year, therefore in the last quarter we would get 5%. He pointed out that this is because major distribution of property taxes occurs in November and the remainder is in February due to the current advantages of the 3% discount offered for early payment.
Kanner noted that there is a similar trend with Transient Occupancy Tax (TOT) and that the budget is on track. He stated that compared to prior years Ashland is very consistent. Kanner referred to discussions last year regarding an increase in TOT if the COA was to govern short term rentals, however after reviewing the first 2 quarters, this isn’t proving to be true for TOT or occupancy rates.
Tuneberg talked about internal franchise, electric, water and waste water and referred to a table from budget. Tuneberg noted rates are 10% electric, 6% water and 8% for waste water. He pointed out that the table depicts the trend for the prior 3 years and where the COA sat from March 31 this year and what is for budget. He noted there are some variations in water based on what happens externally but that the trend is normal, pointing out that usually by March the COA is in the 77% - 79% range.
Voisin asked Tuneberg what the COA expected if curtailment occurred and how the revenue stream would be affected. Tuneberg responded that a long period of curtailment may cause revenue to decrease and that even if we charge more it was not likely to cover what we lose in revenues. He pointed out that the COA should expect a drop and explained that this is why the water fund has a 20% ending fund target balance due to situations such as this.
Voisin asked if there would be enough income to pay for operational cost. Tuneberg answered that he believed there would be and that the COA had tools deal with this situation.
Tuneberg then referred to miscellaneous revenues noting that the miscellaneous fees (MF) trends are hard to track since they are miscellaneous and come from various sources. Sothern Oregon University (SOU) permits were trending higher at 67% for FY 11-12 due to SOU paying close to over 1 million dollars in permits in June. This caused the higher trend. If the COA were to remove that and it were to normalize that would be closer to 73%.
Tuneberg referred to the Municipal Courts revenue and expenses including misdemeanor fines, court fees and costs and noted that they have minor variations and are low at the ¾ point and should end close to their budget. Tuneberg pointed out the significance of the temporary offensive surcharge that the state implemented a few years ago, possibly 2010, as a result of the courts having trouble with revenues and therefore implementing a surcharge to fines that had to be assessed.
Kanner noted he was concerned about court diversion fees which are trending noticeably below budget due to a sentencing decision made by the judge that is out of COA’s control.
Stromberg requested elaboration. Kanner clarified that the judge has the discretion to wave the fee for persons who complete the diversion program. Lemhouse asked if that commission would be available to the COA at the next budgeting cycle if we are aware there is a revenue drop due to the decision of the court. Kanner answered yes.
Tuneberg showed the expenditure portion of the GF and how it is following normal trends which is approximately the .75% range. Personal running at .75 %. Material Services 75% with no capital outlay; most of these cost are people cost. Fire; trending 75%.
Tuneberg reviewed Parks and Recreation at March 31st; personal and material services vary due to seasonality. Capital outlay which is their CIP fund is at 40% with work increasing due to favorable weather.
Kanner referred to the budgets 2 second year add packages. There were clear sustainable increases in revenues, two in the GF. One was new FTE in police and one in Fire. Kanner noted he does not recommend going forward with either of those and that he doesn’t believe they are sustainable and that they should be revisited next year.
He noted that the other second year add package was an IT upgrade to Central Service Fund (CSF). Net cost is around $10k and the CSF is staying under budget. Kanner believes this is worth the expense as it increases storage.
Runkel asked for clarification on the FTE and if the fire position was a regular position. Kanner responded that this was an EMT position. Runkel asked about overtime funding. Kanner stated fire overtime is over budget at the moment due to decisions during the budget deliberations to fund the fire wise program instead of the fire inspector position and because of using regular fighters on overtime for inspections. In response to a question by Runkel regarding feasibility of hiring another firefighter to carry out inspections Kanner then noted, that it would not be feasible to do so.
Rosenthal asked about the CSF 2% increase and whether it was introduced to fund the computer upgrade for the fund. Kanner responded that it wasn’t and explained that there was a large beginning working capital which helped. Without that they would have recommended a larger increase.
Heimann questioned future increases in revenues and where the COA stands in regard to building permit apps. Kanner answered that while permits had increased, revenue had not.
Marsh asked if the fees charged for fire inspections cover the cost of the overtime. Lee answered that he didn’t think that it was fully funding and Kanner reiterated that they did not predict that it would. Kanner noted that there was a 50% increase in fire inspection fees in this fiscal year; however this does not cover the overtime.
Stromberg raised a point of order and it was agreed by all that the Parks and Recreation items be address in order to excuse parks staff who were audience members.
PARKS - Kanner noted that parks staff would answer questions but did not have a presentation. Kanner addressed items that were a result of the Parks Ad-Hoc Committees meetings. One being the Parks Commission’s determination of how to use their unappropriated fund balance this budget cycle and the other was to review and adopt an incentive cycle to rewards Parks for creative programming and or cost affective practices.
Kanner first spoke to unappropriated funds balance, COA Council and Parks Commission met on March 12th where Parks presented a recommendation to use its funds balance for two large capital projects; one is a dog park on Engle St and the other is a sidewalk on Winburn way through Lithia Park. Kanner noted that these two projects are subject to statutory budget process and that they can’t spend the money this year as it is unappropriated. He stated that the Budget committee would have to appropriate those funds and be added to the CIP.
Kanner noted that while parks was working with a figure of $470,000 as their projected beginning cash however, they were now facing unexpected expenditures from having to hire a new director which makes it difficult to predict the ending fund balance.
Stebbins asked how the CBC would be involved with this process for the next biennium. Kanner confirmed that the CBC would assist for the next biennium. He then noted that there were a couple of caveats and that it seems the COA will take the unappropriated fund balance and bring it to zero. Kanner pointed out that Parks is funded primarily by a payment from the GF and that there is no need for an ending fund balance. We will know by the end of the next cycle what that cash balance is and Kanner believes it should be substantial.
Rick Landt introduced himself and explained that he was standing in for Stefani Seffinger and stated that he was available for questioning.
Stebbins complimented parks on the document.
Heimann asked if the new dog park would have its own parking. Rich responded that the parking would be incorporated into the dog park for convenience and ease of access as well as people being able to utilize the YMCA parking.
CITY - Kanner returned subject to the COA budget noting that SOU received money for a new building which should result in more permits being purchased from the COA. Kanner explained that Jackson County recently received a federal reprieve of its timber funding and included in that is a program called Title III. This pays for wildfire protection and forest health programs and for many years has given a grant to Firewise programs. Kanner pointed out that the amount of Title III money has been declining over the years but noted that getting something is better than nothing.
Kanner outline the bad news; one being a measure on the November ballot to privatize liquor sales in Oregon which would place a cap on wholesale mark up of liquor which is lower than what OLCC currently practices. Kanner stated the expectation is to see a 30-35% decline in state shared liquor revenue. Kanner pointed out that currently the COA receives $300,000 a year and could potentially lose close to $100,000 in revenue to the GF.
Kanner noted that water sales could also be down due to curtailment which could mean less money available in water franchise fees and a potential 9% decline in water revenues.
Kanner noted that court fines and fees are down and are not likely to reverse which means more money from other GFs needing to be used to help the municipal courts programs.
Noted that Council and the CBC expressed desire to lower the growth of the electric user tax and noted that there are a few proposals available for the CBC to review if they desired.
PERS – Kanner reported that 2015 will remain the same and noted that PERS had a good year with a 13% rate of return which means that the rate increases to be experienced in next budget cycle will not be as high as previously predicted. Kanner went on to explain that budgeted rates were set in December 2013 prior to the Senate Bill 822 passing, and as a result of this and a good PERS investment year, the projected rates are now lower than predicted. Kanner pointed out that the COA had already budgeted this money as payment for services prior to the bill passing and didn’t want to leave money sitting in department budgets as this can appear that they have more funds than they have. Therefore a payment was made as a service to the insurance fund instead of sitting in personal services line item. Kanner explained that this is a defacto PERS reserve and the following options are available for the next budget cycle;
Kanner noted that a decision wasn’t needed this at this meeting but one would need to be made going into the next budget cycle.
- Take money out and put it in reserve fund;
- Return the money to the funds from which it came to help them balance their budgets;
- Move money to health benefits funds.
Lee mentioned that a similar incident occurred in 2006 and the COA set the funds aside in case the information was not correct and ended up using the funds when the rates went back up.
Runkle questioned if lawsuits over Senate Bill 822 had been settled and if it could be challenged by the state to which Kanner responded it could but the money would be set aside and available if this occurred at rates went back up. PERS will provide a prelim rate in Sept 2014 and an actual rate in November 2014.
HEALTH BENEFITS - Kanner explained that this was the first year for the COA as a self insured entity. COA did not increase health benefit charges to individual departments which would be integral in being able to balance budgets despite the increase in PERS rates. Kanner explained that the COA’s 3rd party administrator presents budgeted amounts in 12 chunks and that the CBC was currently looking at 10/12s of the budgeted amount. YDT expenditures for claims administrative cost and stop loss coverage is over budget by $16,338 which is about .5%. Kanner noted that while the COA has had a good history of low claims, this year has not been good and this is contributing to not being able to build a reserve in this fund. This could possibly lead to increase in expenses next year.
Cost for stop loss insurance will increase 10% next year, cost for claims administration is going to increase approximately 10% because it’s a flat fee and per employee per claim cost. While we have not had to increase health benefits charges this or next year, we may have to next cycle by 10%.
Dave noted that CIS has already notified its fully insured health insurance customers of an average 13.5% rate increase therefore the COA actually is faring well compared to the market place especially considering the city’s unfortunate year with claims. Also noted that he is pleased with the way the self insured benefits program is going and that it is working at the COA predicted.
Runkel asked if we needed to adjust the second year of the budget to reflect increased cost. Kanner responded no and explained that based on claims history, this year is an aberration and that if everything were to return to normal next year that it would be fine. He went on to explain that if it did not then there is a reserve and the city can make up for any overages with that. Another thing the COA will be doing is increasing their self insured retention on the stop loss from $100,000 to $125,000 and noted that if we had been insured at a $125,000 retention in the current year, it would have saved the COA $55,000 keeping the COA under budget.
ASHLAND FOREST RESILIENCY PROJECT (AFRP) – Kanner discussed the 2.2 million dollars paid by the Water Fund (WF) to the AFRP over time and noted that this has not been reimbursed by grants. He went on to explain that each 1% increase in water rates generates $55,000 and noted that water customers have provided a substantial subsidy payment to AFRP. Kanner pointed out that this may sound misleading because an increase in water rates was built in a long time ago to help pay for AFRP and has increased over time. Kanner explained that the CBC agreed last year to budget $350,000 in this biennium for AFRP without identifying an offsetting revenue and that they discussed that the cash balance was always higher than what you budgeted and therefore assumed it will be higher the following year and that is how the COA would pay for it. Kanner noted that the cash balance was higher by $500,000 so the $350,000 that was budgeted for the AFRP is covered with water fund cash. He went on to say that this cash is not available for other water fund expenditures and at some point it has to be made up for in the rates. Kanner noted his concerns being that this has occurred for a long time without being as transparent as possible. Kanner stated that he would like to see the AFRP expenses formally recognized in the next budget cycle in the rates and adjust the rates accordingly. Kanner also noted that rather than budget the forest interface project in the WF as is done now, the COA should budget it in the Fire Department and show it in the budget as a transfer from the WF to the GF Forest Interface Project and that this would be more transparent. Kanner pointed out that if the COA wanted to continue to fund AFRP a source of revenue needs to be identified. Stebbins asked if that was possible through the Fire Department. Kanner confirmed, noting this is a transfer from the WF to the Fire Department.
Slattery and Marsh requested clarification regarding AFRP funds. Kanner explained that forestry chief is paid by the water fund. Other 350,000 is used to provide matching funds from the federal government and that the project is expected to be an ongoing one.
ELECTRIC USER TAX (EUT) and FRANCHISE FEES (FF) – Kanner gave the following brief description of the history of the EUT and FFs – The COA has traditionally relied on non property tax sources of revenue to support its general operations. One Hundred years ago the COA used the profit from the EUT to fund general operations. Then came Transient Occupancy Tax (TOT) which is a major source of revenue and then franchise fees on the COA’s own utilities. Because we have relied on this non property tax revenue, our property tax rates which are locked in place by Measure 50, are much lower. Kanner went on to outline how much more money the COA could have if it raised its prop taxes.
Kanner noted that the COA enjoys the benefit of having low tax rate, but because property values are high as per ad valorem tax system generally tax bills are higher.
- If the COA collected same as Central Point which is $7.59 per thousand dollars, we could collect $7.8 million dollars and this would eliminate EUT and FF and the COA would still come out ahead.
- Medford rates could mean $2 million in revenue equal to franchise fees from utilities.
Kanner then gave the following brief description of the Electric User Tax (EUT).
- In the mid 1970s federal revenue sharing programs were based on the amount of money that came to local government on the level of local taxation. Because Ashland’s property taxes were so low, COA council opted to call the Electric User Profit a tax because they could report a higher level of taxation to the Federal Government and therefore would get more money in federal revenue sharing. The COA therefore created the EUT. This worked because it doubled the amount of money from the Federal Government revenue share. The federal revenue sharing program has since been dispersed. The EUT had an added benefit because when COA became a wholesale customer to the Bonneville Power Administration (BPA), the BPA had a rule that you couldn’t transfer more than 5% of your Electric Fund (EF) revenues to the GF. The COA at this time wasn’t transferring any revenues to the GF because it was all EUT that went directly into the GF and not into the EF.
There has been discussion about capping the EUT or reducing the EUT rate, it’s been noted that whenever we increase the electric rate it also increases the amt of EUT going into the GF.
Kanner outlined one of two proposed programs;
Runkle questioned if the BPA contribution and whether this would be affected as a result of this. Kanner responded that the BPA contribution is stable and what the COA pays for staff who liaise with homeowners and business to perform energy efficiency evaluations. COA also uses its own money to fund energy conservation programs that can’t be funded by the BPA and as a result Ashland has one of the most aggressive and robust energy conservation programs in the state. Kanner was unsure of official numbers but believes the COA spends more money per-capita on conservation than any other city in Oregon. Runkel asked if there was money available through other state wide energy programs. Kanner confirmed there is money through the Energy Trust of Oregon that is available to anyone who qualifies and stated that he didn’t believe that the COA acts as a pass through for the Energy Trust or for state and federal tax credit money. Runkel pointed out that the state just allocated approximately 10 million dollars toward energy efficiency programs and questioned if it might be possible for the COA to tap in to that. Tuneberg noted that we currently take advantage of a number of programs and that the money coming from BPA was specifically designated to things that the BPA feel are important and should effect efforts to source funds from other areas, however he agreed that we would look into that information further.
- Move conservation program out of the EF and place in GF. This decreases the amount of revenue the EF needs to generate through rates having the effect of lowering electric rates which also has the effect of decreasing the EUT. The EUT would remain at 25% but is applied to a smaller bill. Kanner stated that he recommends freezing the amt of EUT that is coming into the GF at its FY15 level and anything above that level that comes in from EUT goes into the conservation program. Balance of what would be needed would be funded by a transfer from the EF. Over time the revenue generated from EUT grows above the amount of the frozen level, the transfer from EUT decreases and eventually reaches zero. At that point conservation is part of the GF and is funded the same as we would any other fund program. EUT can continue to grow at its normal pace but the COA no longer has the expense in the EF that is a part of the electric rate. This has the attraction of if not lowering electric bills, then at least dampening the rate of increase in the EF. Downside is that currently conservation has a reliable revenue stream and if we move this to the GF then it has to compete with everything else that is in the GF and no guarantee that it will continue being funded at current levels.
Heimann asked what percentage impact this might have on the electric fees by moving from the EF to the GF. Kanner stated that the percentage would remain at 25% of the bill but would be applied to a smaller bill. Heimann asked for clarification on how much smaller that would be and Tuneberg answered that it would be approximately .7%.
Slattery noted that he felt there was an issue of transparency and would like to see the two following items viewed separately therefore being made more transparent in the future and
Voisin questioned how other agencies that do not pay the 25% tax were paying their share into the GF when the COA are paying their share. Kanner answered that other agencies base rate for electricity is 30% higher than the COA’s base rate for residential and business customers. Voisin then asked about additional cost for energy above that and what happened if other agencies used higher amounts over the base rate and if they are paying any tax on that extra amount. Kanner answered that he believed it evened out in the end but was unsure on numbers right then and would research further.
- To approved the increase in the utility tax and ;
- Increase, decrease or hold steady but to make it slightly more transparent that the COA didn’t have a vested interest in increasing the utility rates in order to increase the COA’s 25% on top of that.
Voisin then requested a presentation on progressive tax concept because she feels right now that it’s regressive. Kanner agreed that this could be discussed at a study session in the future. Lemhouse noted that he would like to hear input regarding this subject as well.
Kanner agreed to wrap up with FF’s. Kanner pointed out that questions have been raised about limiting FF and how they originated. Kanner explained that the COA introduced FF’s to its own utilities in the mid1970s and accordingly to Brian Omquest who was the City Administrator at the time, the COA did this because they needed more money and did not want to raise property taxes. Kanner went on to explain that there are a large number of properties that don’t pay taxes and therefore the council at the time thought this was a fairer way to raise revenues. Kanner noted that the council at the time imposed FF’s with without a resolution or an ordinance and it was just part of budget process; simply an interfund transfer and the rate is set as part of budget process and is simply an interfund transfer from the enterprise fund to the GF. Kanner pointed out that the COA reports to CBC what the rate is to be set at and although he was unable to find original tax rates he believed they were approx 5% water, 5% wastewater and 10% electric and that these would have fluctuated a little over time.
Runkle asked for clarification regarding water and waste water going from 8% to 5% in 2009 and if that was because of a need for revenues in that fiscal year. Kanner said he assumed so. Runkel asked if the FFs could also be applied to Ashland’s Fiber Network (AFN) to which Kanner answered yes. Runkel then questioned if this had ever been set up. Tuneberg interjected noting that it had been but was unsure of the exact amount was at the time. Tuneberg went on to explain that this was instituted when the COA got into the cable TV business as part of the philosophic standard that the COA would treat its cable company like they do all other cable companies. Tuneberg noted that it was taken out later when the Federal Government said that Peg fees offset FF so instead of getting 2 sources of revenue from all cable TV companies the public education and government rate was then called part of the FF. Tuneberg stated that currently cable companies do pay a fee, but the COA doesn’t call them FF and that they go into the GF and are treated as an external fee instead of an internal fee. Tuneberg noted that he thought that the amount was approx 7% but would look into that further.
Voisin asked for clarification of the following statement found on pg A25 in the COA budget document and if there were any changes made to FF would the COA have to find a new source of revenue.
Internal franchise charges are similar to the payments required of non-city utilities for using the City right of way. The percentages are set by the City as part of the budget process but may be adjusted based upon ability to pay or financial need.
Tuneberg answered yes.
Stromberg offered a brief report on his recent efforts for AFR. Slattery called a point of order and suggested that the meeting be closed first. Stromberg withdrew his offer.
Voisin left at 7:58pm
POSSIBLE TOPICS FOR NEXT MEETING
Agreed that Next meeting discussions will be
- Budget Incentive Programs
- Long-Term Planning for Future Budget Issues
- Budget Implications of Council Goals
- Review Long-Term Infrastructure Plans and Financing Options
- Update on Water Master Plan Budget and Revenues
- Marsh requested review of the Grants process with agreement from Heimann.
- Lemhouse suggested 2 more meetings.
- Pam would like 2 meetings also. Would also like to see desired outcomes in agenda.
- Lemhouse agreed and suggested staff generates desired outcome suggestions as preparation for the 2016 budget process.
Meeting adjourned at 8:07pm
Kristy Blackman, Administrative Assistant