Budget Committee Kickoff Meeting
February 19, 2015 6:00 PM
Civic Center Council Chambers, 1175 East Main Street
CALL TO ORDER
The meeting was called to order at 6:05pm
ROLL CALL & INTRODUCTIONS
Dave Kanner City Administrator/Budget Officer
Lee Tuneberg Finance Director
Kristy Blackman Administrative Assistant
ELECTION OF CHAIR & VICE-CHAIR
Runkel opened the nomination for election of Chair of the City of Ashland Citizens Budget Committee.
Moved - Stromberg
Second - Voisin
That David Runkel be appointed the Chair of the City of Ashland Citizens Budget Committee.
Moved - Voisin
Second - Furuichi
That Mary Cody be appointed the Vice Chair of the City of Ashland Citizens Budget Committee.
APPROVAL OF MINUTES
Moved - Rosenthal
Second - Voisin
That the draft minutes of the 17 November, 2014 Citizens Budget Committee meeting be approved as presented.
Stromberg introduced applicants for Budget Committee Ms. Pam Lucas and Bill Gates.
Lemhouse stated that he would need to leave early and would like to present an add package to the committee. He asked for the committee to consider and approve an idea for an add package where the city would provide a grant to graduating seniors from Ashland High School to attend Southern Oregon University. Believes this could encourage local seniors to stay local and for young families to potentially come into Ashland. Lemhouse added that he would work with Kanner and Tuneberg and allow them to determine the appropriate time to present this to the budget committee.
Stromberg noted that this is an unprecedented request, but he is in favor of councilors taking initiatives and believes it would be good for this to be presented.
Moved - Stromberg
Second - Morris
That councilor Lemhouse be allowed to present a proposal that would provide a grant to graduating seniors from Ashland High School to attend Southern Oregon University at the appropriate time.
PRESENTATION BY STAFF
Preliminary Budget Assumptions
Kanner directed the committee on the rules of the budget committee meeting.
Major revenue projections
Tuneberg noted that at the 19 month mark general fund revenues are up approx 4%. Departments are working on their projections and these estimates are what we use to base future projections. These numbers are subject to change. He pointed out that the city has a diverse set of revenues, e.g. charges for services, System Development Charges (SDC) and taxes and that the downside is complexity but the upside is that we have been recognized nationally for our revenue diversity and stability.
Property taxes are at the biennium budget which has been helped by collection rates increasing about 94%. He noted that the city is predicting at a 3.5% increase in tax revenues between years.
Transient Occupancy Tax (TOT) is up as a result of more rentals, added cost and frequency of occupancy. Tuneberg noted that while the TOT has increased approximately 15% (small increase one year and bigger another year) he doesn’t believe that this rate can be maintained so the city is using a conservative 5% per year increase for the next biennium budget.
Tuneberg noted this is the same with Food & Beverage Tax (F&BT), explaining that revenues were increasing in December by 9% but are now at 7%. He added that the city is using a conservative estimate of 5% each year and that these are just preliminary estimates.
Tuneberg explained that while the TOT is fully recorded in General Fund, the F&BT is spread between Parks Open Space Program through the City’s CIP fund and the Waste Water Treatment fund to pay for debt service and other projects, EUT is a 25% tax paid by users Franchise fees based upon sales. The amount can vary and therefore decreases are offset by the TOT increase. Tuneberg noted that as a result of the weather, even with a rate increase which was effective July 1, 2014, we are likely to see a shortfall of as much as $300k.
Charges for Services are contained in almost every fund in the city. Anything that has an operating budget will have some sort of revenue. These can be small or large and can include water, sewer, electric, storm drains, streets etc. The General Fund contains planning and building fees, ambulance etc.
Tuneberg explained that the city has increases in the Enterprise funds of 1.1% to 1.5% with the Waste Water Fund being the exception at 9%. Some are lower at the moment because of drought and different weather patterns as well as customers conserving because of the rate increase. This has impacted franchise fees. These decreases offset increases from other things.
The city will be looking at rate increases for the next budget mindful of specific needs such as Capital Improvements and Debt Service. Departments are looking closely at operational costs so they can be put together and considered as the budget is built.
Tuneberg pointed out that the Electric Department could see increases from Bonneville Power that may increase electricity fees by 4%. This should be clearer closer to summer. Franchise from outside the organization e.g. natural gas and sanitation can also be affected by economics and weather. Natural gas is driven by weather and can fluctuate where as sanitation is more stable.
Another major revenue stream is SDC’s. These are up significantly which correlates with an increase of permits for new buildings and improvements. Tuneberg cautioned that SDC’s are restricted and are required to be used for future qualifying expenses generally reserved for growth.
Lee presented a Property Taxes Revenue Trend chart explaining that the prediction for property tax rev increase this year is 3.5%.
Kanner noted that this year’s budget will include a proposal to raise the city’s permanent tax rate to its maximum limit and to dedicate the bulk of funds to the Ashland Forest Resiliency Project (AFRP) for which a revenue stream has yet to be identified. During the last biennium cycle at the last budget meeting the committee agreed to appropriate $350k dollars for the biennium to AFRP without identifying a revenue source. It was assumed that the beginning fund balance would be higher and that would be utilized. This is unlikely to happen again and we need a dedicated revenue stream. $175k dollars a year is required for AFRP to maintain work done or the city will face losing $6 million dollars worth of work.
Runkel asked how much the property taxes will increase. Kanner answered approximately $205k dollars per year.
Stromberg noted that when he asked for $175k dollars per year for direct payments for city costs to remove fuels from the watershed, it was because the city needed to do something to get some standing in the conversation with the forest service in terms of getting major forest service continuation of funding and that he hopes there will be an announcement soon regarding this. The city is using the same rationale for this next biennium which puts us in the status as an ecosystems services collaborator. Stromberg explained the way he came up with that number was, once the project is worked and finished the city is going to have to continue to use fire as the substitute for mechanical thinning to maintain fuel levels and at a safe low level.
Voisin questioned when the city would be adding the marijuana tax revenue. Kanner answered that at this point there was no plan for this biennium as it is doubtful the city will see any revenue until 2017 with licensing issuance delays etc. He pointed out that the city may do a place holder in the 2nd year, but he cautioned against making appropriations in the next budget based on anticipated Marijuana tax revenues.
***Furuichi asked about miscellaneous revenues and what is captured in that category totaling $2.5 million dollars. It was agreed that Tuneberg would provide this information to Furuichi at another time.***
***Darrow questioned why property tax revenue trends are down and permits are up?
Tuneberg answered part of the complication of calculating property tax revenue is the distribution from the county. If something on reserve is released to us, we may not always get all of this money. It was agreed that Tuneberg would look into this further. ***
Tuneberg pointed out that there is nothing new in the budget other than what was already discussed
Same services at same levels
Nothing new in the budget beyond what has been discussed
Revenues consistent with 2014-15 and trends; General Fund revenues up about 4%
Personnel impacted by health self insurance and labor contracts (but PERS impact flat)
Materials & Services to support programs – default 2% CPI will be used if needed
Departments analyze what they really need and use 2% increase as a default
Dave pointed out the issue of gasoline and the difficulty of predicting what will happen in 2 years. The city is currently projecting $2.80 (wholesale pretax) in year one and $3.30 (wholesale pretax) in year two of the biennium
Capital Improvement Plans
Tuneberg said there are big projects throughout enterprises and they will be budgeted as either coming from the master capital plans from each of those enterprises require. Some are in work now but some of them are a couple of years old. These are usually funded by reserves. Quite often a department will identify needs and are usually short in cash; therefore other financing is often used if the project goes ahead.
Public Employee Retirement System (PERS) update
Kanner explained that in the current biennium PERS projected a 31% increase in rates; this was offset by switching to a Self Insured Health Benefits Plan which has left the health benefits charges at a 0% increase. He explained that shortly before final adoption of budget in 2013 the actual rates came through lower, therefore our budgeted amount was higher than projected actual. Kanner noted at that time the budget was already balanced. Because PERS warned that the rates could go up again the next period, instead of changing the budget, the difference was moved into the Insurance Fund as a reserve to cover potential increases. Kanner went on to explain that PERS investments increased but the new rates have not increased. The amount in the Insurance Fund reserve is about $1.2 million dollars. He cautioned that the money needs to be treated as one time money; not ongoing operational money and should be used for one time projects only. Kanner suggested transferring most of the money into the health benefits fund.
Lemhouse left the meeting at 6:54pm.
Voisin asked what would happen if the rate went up in 2016. Kanner answered that this is a set rate and PERS will not go up in that time.
Health Benefits Fund
Kanner explained that the city converted to a Self Insured Health Benefits Plan and immediately had a bad year suffering a loss ratio on medical and vision claims of 90%. Kanner pointed out the plan is doing much better this year with the first 6 months showing a loss ratio of 71% and a prediction to end the year at 75% to 80%. He continued that the first year’s claims dictated an increase in health benefits charges by 16.3% based on an actuarial evaluation of the plan and a projection of future claims. He pointed out that once the reinsurance markets look at our claims experience, they will raise our stop loss premiums significantly. These could improve if we have better loss ratios in the future. The city is planning for 16.3% increase first year and 5% in second year. If all goes well, 5% might not be needed. Kanner pointed out that the city went 3 years without raising health benefits charges and now feeling the effects as a result.
Kanner explained that the Self Insured Health Benefits Plan needs to have a reserve on day one of the plan and in order to create that the city borrowed money from the reserve fund with the assumption that it would be paid back. He noted that because of the bad year the city was unable to pay this back in full and are unable to create the reserve again, putting the city back in the same position of having to borrow funds. Kanner proposed the majority of the PERS reserve be transferred into to the health benefits fund to build a debt free reserve and to prevent the city from having to charge departments/personnel to fund the reserve. He then noted that if it grows beyond the required reserve we could use that money in the future years to hold health benefit charges down. If the city is unable to repay the loan in full by the end of the year, it may be forced to transfer money out of the insurance fund to repay the loan and then appropriate additional money into the health benefits fund as part of the budget process.
Stromberg noted that the stop loss process is bid out every year and that there is always competition for the contract.
Kanner noted that the 16% increase is still below what other fully insured entities are looking at for next year. Some are rising at 15-20%.
Voisin asked how much was originally borrowed from the reserve fund. Tuneberg answered $900k dollars total ($500k first year $400k second year) and that the city has been paying this back, but have been having difficulty paying back the second year. He went on to note that the city never anticipated generating 100% of the reserve in first biennium.
Voisin questioned how much of the loan had been paid back. Tuneberg answered that $250k dollars had been paid back at this point and $500k was budgeted to be paid back this year.
Furuichi asked what the employee co-pay was and if they can contribute to PERS. Kanner answered they cannot contribute to PERS and that the employee co-pay is 5% of the premium. He explained that an actuarial calculates the value of health benefits to an individual employee or, employee plus spouse or, a family and this becomes the premium that the employee contributes toward. Employee contribution will go up by the same percentage.
Darrow asked for confirmation that the city still owed $650k dollars on the loan. Tuneberg answered yes.
Tuneberg clarified that the city tries to pay back what is borrowed in the following fiscal year in a given year however; this was when the city was on a one year budget. On a biennium budget you can pay it back in the next biennium. He went on to explain that the approach in setting up this fund 2 years ago was to borrow $500k in the first year, pay it back in the second year and then, if needed, borrow the $400k for the subsequent biennium. He explained that if the city pays back the $500k they would be where they predicted they would be in the budget.
Personnel costing assumptions
Tuneberg noted that there will be an approx 4.5% per year increase (9% biennium) and senior employees seeing an approx 3% increase keeping in mind variability’s of overtime and premium pay. He pointed out that it is hard to predict contracts but on others the city utilized required percentages.
He continued noting the City had evaluated personnel costs in the internal fund review and found that in the internal service fund, particularly in the central service fund, over 70% of our budget is people costs. He explained that when looking at increases in people costs the city must charge those to the other funds because of the internal service activity that is providing that support. Tuneberg concluded that the city can no longer hold internal service charges, low.
Tuneberg noted that prior to 2013 the city had departments who would under spend their budgets and the city earned other discretionary revenues resulting in positive ending fund balance which was carried forward. The amounts were held flat in the central service funds; however, with people costs being 72% and the possibility of 9% biennial increases, the city can no longer do this. Projections show that revenues will be consumed going forward; therefore, the city needs to increase charges to those who receive central service support by 5%. Tuneberg pointed out that not everyone will receive the same charges as these are based on departmental variables.
Kanner noted that this 5% increase comes after cutting approximately $170k from departmental projections. He also noted that other costs have increased which are out of the city’s control, e.g. banking fees which are up almost $200k dollars. This increase is due to more customers paying online with credit cards. He explained that 40% of utility customers pay this way and the city gets charged a fee for each payment processed. However, at the same time, this has allowed the city to maintain current Utility Billing staffing levels regardless of increased customer base.
Kanner noted that software licensing fees have also gone up and that the city has not really kept up with technology so it is using some outdated freeware. He stated that there is a need to convert to Microsoft office 365 for email and that this program would support more programs currently being used by staff. The downside to this would be an increase in licensing fees. He noted that it is also inevitable for the city to update their financial software because the providers are getting ready to end their support for the version currently in use. The low end estimate for doing this is $1million dollars.
Voisin asked what the 5% increase would cover and what costs were cut from the departments. Kanner answered that the 5% increase is to maintain central services, to cover departmental requests (which were cut by $170k dollars), banking fees and to purchase software and licensing.
Furuichi asked what the discount credit card rate is that the city is paying. Tuneberg answered that it is as low as 2-3% because of the volume we utilize. The main cost comes from the proprietary software fees that are incurred from using the portal. He pointed out that there are issues with having to use two different portals. Tuneberg noted this is an expectation of customers, to be able to pay using cards.
Furuichi asked about the minimum wage legislation and how it might affect this budget. Kanner stated there would be no effect. Furuichi asked if there would be any wage increases. Kanner noted Cost of Living Adjustments (COLA) are uncertain at this point and that the city will be in negotiations with 3 of our 5 bargaining units this spring including 2 of our strike prohibited bargaining units. The electrical workers unit is due a 2% increase on July 1st. Labor is unionized and has a minimum 1.5% COLA and management non represented COLA is based on January to January CPI which will be released a week from today. December to December CPI was .85%. He continued that the city is anticipating management cola will be 1% and may see a saving in the budget because the budget assumption that was used was more than that; however, this remains an unknown at this point. Furuichi asked if timing of the legislation may prevent any affect to the city this budget cycle. Kanner responded that it is unlikely to affect the city because at the moment our lowest paid employee is at around $14.
***Kanner handed out a memo (see attached)***
Tuneberg summarized Current Trends slide;
12/2014 CPI 0.8%
Property tax revenue to date is up 5.2% compared to PY, (better collection rate) using 3.5% growth each year in biennium
TOT revenue is up 14.4%, projecting 5% year
F&B revenue is up 5.4%, projecting 5% year
Enterprise revenue increasing but electricity usage/water consumption down
Fuel costs rising again but lower than 2013
Internal health care premiums up 16.3%
Tuneberg summarized Other Appropriations slide;
Capital outlay/CIP presented to BC as part of department budgets where applicable; reflect master plans where appropriate
Transfers as needed
Debt service as required
Contingency as needed – normally 3% of appropriations (Exceptions: Central Service lower, Insurance Fund higher)
Voisin asked how much higher the contingency percentage for the insurance fund is. Tuneberg noted that they don’t use a percentage but a dollar figure of approximately $300k. He went on to state there is a study however that suggests it should be more like $1 million dollars.
Other issues from the Council and citizen members of the Budget Committee
Rosenthal asked Kanner to explain the process behind the new MOU with the Parks and Recreation Commission and how their involvement in the budget process might look. Kanner responded he doesn’t believe the process will change significantly and suggested this would be a question better directed to the Parks and Recreation Commission. He noted that now the Parks and Recreation department will be competing alongside all of the other departments for funds and a member of the commission will sit on the budget officer review meetings. He also stated that he understands that a recommendation of the Ad-Hoc committee was that there should be another joint meeting prior to the budget process.
It was suggested that more information regarding this process and any questions regarding this might be better addressed outside this forum. Furuichi noted there was another joint meeting of the Council and the Parks and Recreation Commission and that budget members were invited. Kanner noted that while they can attend, they cannot participate.
There was a limited discussion on meeting ethics which led the chair to remind the committee that there would be Budget Training held on February 27 at 9am at Rogue Community College in White City and encouraged them to attend.
Marsh suggested forwarding council goals to the Budget Committee member, some of which are in the form of ad-packages, which are coming from the Ashland City Council and the Parks and Recreation Commission. The committee members agreed this was a good idea.
Tuneberg outlined the change in the Social Services Grant process noting that the Community Development department (Linda Reid, member Housing and Human Services Commission) will now be overseeing the Social Service Grant Program. He also pointed out that for this first transitioning year that the Administrative Services Department (Kristy Blackman) would be supporting that department in this process. Tuneberg pointed out that the change was made because it was more appropriate for the Housing and Human Services Commission to allocate social service funding as they are more aware of the community needs. He also pointed out that the amount this year is approximately $130,000 and the budget committee will continue to appropriate the total amount over all, they will no longer decide who receives the funds.
Darrow asked what the level of citizen involvement is on the Housing and Human Services Commission. Kanner answered 100%.
Seffinger asked if this meant there will be less oversight from the budget committee. Tuneberg answered there will be less participation.
Seffinger asked about the scholarships suggested by Lemhouse and if it would be included in the social service grants. Kanner answered no, that they do not fall under the same category.
Kanner discussed the resource center and noted that he feels they aren’t self sufficient and that a situation could potentially arise where the city may have to help them with a grant and that this money may have to be taken out of the social service grant money.
Seffinger asked if this is about $65k dollars. Kanner answered he wasn’t’ sure.
Marsh noted that while the resource center is an eligible entity to apply for Social Service grant funds, they would still need to meet the priorities that the Housing and Human Services Commission have established.
Tuneberg again pointed out the Budget Officer training on February 24 in White City and suggested if anyone missed this that they could meet with himself and Kanner if they had any questions.
Process Overview & Proposed Calendar (days & times)
First meeting budget officer presents message and deliberations start.
2013 was done in 4 consecutive nights.
Kanner would like all meetings done in May
Voisin noted her preference for Thursday
Actual Budget presentation May 6 or 7?
Budget would be delivered in April 2 weeks in advance.
Meetings agreed to be on
May 28 (reserved only as a backup if needed)
Tuneberg briefly discussed the Economic, Cultural, Tourism and Sustainability grant process noting that there had been a small change with the funding for this year’s round. The new resolution identifying TOT revenue which funds these grants, was not yet available. There was a change on Tuesday’s Council meeting and based upon projections the city will be granting at the higher level for tourism activities, however, the non tourism activities are going to be subject to what we include in the budget and will not be driven by that resolution. The decision regarding right amount is been being discussed.
Tuneberg went on to note that volunteers are needed from the budget committee to be on the grant subcommittee which oversees the grants process. Blackman will email all committee members with more information.
The meeting was adjourned at 7:58pm