long-term strategies for budgeting new money · long-term strategies for budgeting new money....

Long-term Strategies for Budgeting New Money

Rodney MillerAssistant City Manager and CFO, City of Hickory, NC

Gabriel EngelandCity Manager, City of Sierra Madre, CAKathleen VonAchenChief Financial Officer, Unified Government of Wyandotte County and Kansas City, KS

MODERATOR/SPEAKER

SPEAKERS

#GFOA2017

Monday ■ MAY 22, 2017 2:40 - 3:55 PM

GFOA Conference 2017

Monday, May 22, 2017

Conference Session:New Influx of Revenues

Rodney N. MillerAssistant City Manager/CFO

City of Hickory, North Carolina(former Catawba County, NC CFO)

Catawba County, NC2016 Demographics

• Population: 156,182• Total 2016 County Property Tax Base:

– $16.1 billion• Apple, Inc. Property Tax Base:

– $1.1 billion (6.62%)• Property Tax Rate = $.575/$100• Unemployment Rate = 5.1%• Workforce = 25% Manufacturing

– Historically furniture & textiles

Apple, Inc.2016 Demographics

• Based in Cupertino, CA• Incorporated in January 1977• $233 Billion in sales• 110,000 Employees• Market worth of approximately $800 Billion • Most profitable company in the world

Apple Inc. Announcements• June 2009

– $1 Billion iData Center (East Coast Operations Center) in Catawba County/Town of Maiden

– 500,000 s.f. building on 183-acre site– Hosts iCloud, iTunes and Siri servers – Largest private investment in North Carolina

history– 150 initial jobs (estimated impact of 3,000 jobs in

region, plus hundreds of construction jobs)– County Unemployment Rate 15.5% in May 2009

Apple Inc. Announcements• February 2012

– $100 Million Solar Farm adjacent to Data Center on 170-acre site

• 20-megawatt renewable energy plant• Nations largest end-user owned solar facility

– 10-Megawatt Fuel Cell• Powered with biogas and provides 40 million kilowatt

hours of electrical power– Future plans (2017)

• Double size and capacity of Data Center ($2 billion)• Adding 5 new solar projects to increase on-site clean

energy to 87-megawatts

Key Management Considerations• Innovate Catawba

– Collaboration between local governments in advance of securing a buyer– Catalyze job growth by building facilities and sites that could be used to

attract new business (utilities, roads, sidewalks, signage)• Multi-jurisdictional partnership

– ncData Campus (MJP) in Conover (utilities, roads, signage)

– Investment = return (%) for county/four municipalities• 2014 NACo case study, Strong Economies, Resilient Counties: The

Role of Counties in Economic Development• Selling Points

– Power (reliable, affordable & sustainable)– Water (City of Hickory – regional provider)– Transportation (road network/Charlotte Douglas International

Airport)– Low Tax Rate

Impact to Catawba County -2016• County Property Tax Revenues

– $86 million• Apple Tax Base/Revenues

– $1.1 billion x .00575 = $6.1 million (7.1%)– Property tax incentives (avg. 75%) based on $ investment/job

matrix– Net property tax revenues of $1.5 million (1.7%)

• Approximately $200 million investment each year • More than 400 jobs currently• National Exposure – Data Center corridor: Google,

Facebook, Walt Disney Co. in surrounding counties

Impact to City of Hickory/Town of Maiden

• City of Hickory: Water Sales– 72 million gallons/year (198,610/day)– $260,000 in revenue/year (Annual revenues of $25

million or 1.0%)

• Town of Maiden– Approximately $1 million in new property tax revenue– New City Hall– New Fire Station

Long Term Strategies for Budgeting New MoneyKathleenVonAchen, CFO | Unified Government

of Wyandotte County & KansasCity, KansasAnnual Conference, May 2017

Case Study:Unified Government of WyandotteCounty and Kansas City, Kansas▪ Economic development / tourism project areas description

▪ How much “New Money”?

▪ Citizen engagement process

▪ Public policy and long term financial strategies

▪ Governing body direction and outcomes

Strategic Direction: Which Road toTake?

12

Northeast Corner of KansasWest of the Kansas and Missouri Rivers Kansas City, Missouri is East of Rivers Wyandotte County Population 163,000Total Annual Budget $345 million

(excludes electric/water utility)Total FTE: 2,200

STAR Bond TIF Districts

13

Wyandotte County, Kansas DemographicsThe Business Case for Economic Development / JobGrowth

▪ Population Declines▪25,000 residents moved out of the County

between 1970 and 1990

▪ Low Resident Income Levels▪ Median household income (2014) - $36,637 p/yr.▪ Living below the poverty line – 16.5% of residents

▪ Low Public Health Ranking▪ County ranks 101 out of 102 Kansas counties▪ Affluent Johnson County (neighbor to the south) ranks

#1 of all Kansas counties

▪ Life Expectancy byWyandotte County Zip Code▪ East side of County – 66 years of age▪ West side of County – 72 years of age

White 43%

Hispanic or Latino 21%

Black or African

American 20%Other Race

11%Twoor More Races 3%

Asian 2%

Race & Ethnicity - Wyandotte County

14

Tourism – NASCAR - Casinos – Soccer - Retail

15

Tax Increment Financing

Tourism Districts (Kansas STAR

Bonds)Planning began in 1998

The Base and the Sales TaxIncrement

Constant

Changes based on new retail

sales above base

sales

Base Sales

State Sales Tax Rate of 6.5% on additional retail

sales

City / County Sales Tax Rateof 2.625% on

additionalretail sales

Base Sales

No New Development

Sales tax revenue collections used to pay debt service on STAR bonds

16

Legends Outlets KansasCity

17

Opened 2006; lifestyle center1.2 million sq. ft. super-regional mall 122 businesses employing 5,700 people 10 million shoppers/visitors annually Shopping Center Cost: $230 million Annual Sales: $730 million

Cabela’sOpened in 2002 195,500 sq. ft. featuring hunting, fishing, and outdoor items

Nebraska Furniture Mart Opened in 20031.1 million sq. ft. of furniture, electronics, appliances, & floor covering retail

Kansas SpeedwayOpened 1999; Seats 82,0001.5 mile race track4 NASCAR major races p/yr & Many other eventsStadium Cost: $280 million

Sporting KC – Children’s Mercy Park Major League Soccer (MLS) Stadium Opened 2010; Seats 25,0001st “European Style” soccer venue in theUSKC team won MLS Cup in 201313 home games p/ yr & eventsStadium cost: $200 million

18

How much “New Money”? $17 million annuallyfor the Unified Government

20

▪ Village West STAR tax increment financing▪ STAR bonds paid off December 2016▪ Paid off 5 years early due to strong revenue performance▪ An additional $12.4 million in sales tax revenue to the Unified Government (UG)

▪ 19% increase in total sales tax revenue▪ 4.6% increase in General Fund revenue base

▪ State of Kansas “new money” = $43 million annually

▪ Hollywood Casino Revenue Sharing Per Developer Agreement (began in 2012)▪ 3% of gross casino revenue remitted = $3.3 million annually▪ 1% of gross casino revenue donation = $1.4 million annually

Citizen Engagement Process:Mayor’s Listening Tour▪ Eight neighborhood meetings/events

▪ Exercise: How would you spend $12 million?

▪ Over 700 residents participated

21

Mayor’s Listening Tour – Lots of Ideas

22

Aging Services

Animal Control

Park Improvements

Fire Protection

Curbs, Sidewalks, Street InfrastructureHome Repair & Rehabilitation

Police

New Business Development

Job Training

Land Bank & Vacant LotsAuto Registration

Demolition

Mowing Vacant Lots

Transit, Bus Shelters & Bike & Trail Lanes

Youth & Education

Property Tax Relief Street Resurfacing

UG Employee Salaries

Grocery Store/Food Access Code Enforcement

Fund Balance ReservesSnow Removal

Citizen EngagementRecreational Programs/ Pools

Governing Body Public Policy and Long Term Financial Strategies

▪ Strategic Planning Retreat October 2013 SetGuidelines▪ Reduce property tax rate over time

▪ Repay money previously borrowed from internal service funds

▪ Address long-neglected needs (employee compensation, deferred maintenance)

▪ Pursue capital improvement needs using pay-as-you-go

▪ Pursue initiative to reduce blight and abandoned homes

▪ Strategic Planning Retreat April 2016 Revisited Guidelines▪ Align funding decisions to community survey results

▪ Focus on one-time projects to maximize future funding flexibility

▪ Governing Body small group exercise using MuniCast Interactive Tool to reach consensus on five-year spending plan

▪ Presented a Long Term Financial Forecast April 2017

26

Governing Body Direction and Outcomes

29

▪ Village West STAR revenue of $12.4 million annually

▪ Allocated based on citizen feedback from listening tours and community survey

▪ Retained some future flexibility▪ About ½ of total allocated for one-time projects▪ Remaining ½ of total funded on-going operational costs

▪ Hollywood Casino shared revenue allocation of $5.7 million

▪ 3% of gross casino revenue ($3.3 million) allocated for financing the “Healthy Campus” (food desert-grocery store/YMCA)

▪ 1% of gross casino revenue donation ($1.4 million) distributed to local non-profits through annual competitive grant applicationprocess

Governing Body Conclusion and QuestionStemming from the Citizen Engagement and LongTerm Financial Planning Process

It became clear that the “new money” can’t support all our community needs!

How can we identify low-priority/ inefficient programs that can be re-allocated to meet higher-priority effective programs that better meet our community needs?

30

Long-term StrategiesforBudgeting New Revenue:

Case Study - Kansas City, Kansas

32

Planning For One-Time Revenues

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Trinidad, CO: Just the Facts

• Population 8,153 (peak pop. 13,223)• Median Age: 40.8• Median Income: $43,614• Median House Value: $156,331• College Degree or Higher: 16.9%• Unemployment: 6.9%• Job Growth: -1.93%

Trinidad is older, less educated, poorer, with higher unemployment than Colorado average.

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Today’s Agenda

1. The Abyss of Nothingness2. Angering Your City Council (Budget Edition)3. Policies to Promote Responsible and Prudent

Spending of One-Time or Unstable Revenues4. Angering Your City Council (Regulatory Edition)5. Marijuana Money6. 2016 City of Trinidad Budget (Sustainable vs.

Balanced Budget)7. Spending

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Agenda




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The Abyss of Nothingness

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http://www.cnn.com/2016/04/20/health/trinidad-colorado-small-town-marijuana/index.html

http://www.cnn.com/2016/04/20/health/trinidad-colorado-small-town-marijuana/index.html

Trinidad, CO

• Center of the Santa Fe Trail for the “wild west”• Doc Holliday, DDS• Billy the Kid• Marshall Bat Masterson• Al Capone

• Economy based on “Boom and Bust”• Coal• Gas/Fracking • Sex Changes• Marijuana

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Extraction Well Sites

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Sex Change Capital of the World

“Taking a trip to Trinidad”w/Dr. Stanley Biber

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Sex Change Capital of the World

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Dr. Marci Bowers

Marijuana Dispensaries, Trinidad, CO

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The Green Mile

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Marijuana Reviews, Trinidad, CO

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Marijuana Reviews + Maps, Trinidad, CO

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Budtender Jobs (420 Careers), Trinidad, CO

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420 Recreational Tours, Trinidad, CO

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Trinidad, CO History

1973—Trinidad perfected government…

…they wrote the book on it!

• New 40 mile water transmission line

• New fire engine

• Balanced budget w/ surplus

• New sewer pipes

• New-ish water pipes

• Full employment

• Four department stores downtown

• Two car dealerships

• Three drugstores

• Under 10% vacancy

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Extraction Well Sites

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Looking forward from 1973, In the next 45 years:• Each decade will see population loss • Negative job growth & shrinking local economy as

energy economy craters• Downtown vacancy will top 60% • No sewer pipes will be replaced• No upgrades will be made to Power and Light• No water pipes will be replaced (80% of all water pipes

will pass useful life)• Water system will lose 40% of its water annually• The “new” fire engine is still in service in 2015

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Main Street, Trinidad, CO, Mid-Century

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Main Street, Trinidad, CO, Early-Century

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Main Street, Trinidad, CO (Rendering)

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Main Street, Trinidad, CO, Present Day

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Trinidad, CO, 2016

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Trinidad, CO, 2015

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Trinidad, CO, 2017

What is the gap between how we see ourselves and how others perceive us?

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Agenda




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Trinidad, CO Budget History (2010-16)

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City of Trinidad2016 Proposed Budget

Trinidad will provide the highest quality service at the lowest possible cost

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$(2,000,000)

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

2010 2011 2012 2013 2014 2015

Trinidad Budget 2010-15

Revenue Expenditures Surplus/Deficit (2010-15)

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$58,124

$(92,585)

$(336,461)

$(631,558)

$(802,350)$(928,900)

$(1,000,000)

$(800,000)

$(600,000)

$(400,000)

$(200,000)

$-

$200,000

2010 2011 2012 2013 2014 2015

Surplus/Deficit (2010-15)

6.17%

9.90%

22.75%

14.32%

22.06%

4.24% 4.90%

13.97%

3.46%

9.57%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2011 2012 2013 2014 2015

Revenue vs. Expenditure

Expenditure Increase from 2010 Revenue Increase from 2010

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$906,696 $906,696 $958,548

$1,337,880 $1,338,000 $1,294,800

2010 2011 2012 2013 2014 2015

Transfers from Utilities to GF (2010-15)

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6%10%

23%

14%

22%

5% 4% 4%-2%

6%

2011 2012 2013 2014 2015

True Revenue vs. Expenditure

Expenditure Increase from 2010Percentage Revenue Growth w/o Utility Transfers

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Trinidad Balanced Budgets 2011-15

Agenda




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Policies to Promote Responsible and Prudent Spending of One-Time or Unstable Revenues

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Bureaucratic Rules to the Rescue


New Policies:• Policy of Responsible Financial

Management• Use of One-Time Revenues • Use of Unpredictable Revenues

• Capital Purchasing Policy • What, When, How Much?

• Long-Range Infrastructure Policy• Infrastructure planning based on age,

condition, maintenance history, depreciation

• Fund Balance Reserve Policy• No less than 25% of GF expenditures

5/20/2017 71

Bureaucratic Rules to the RescueOne-Time Revenues: Any revenue that cannot be relied on in future budget periods.• Fund Balance and/or

Contingency• Grants

• YES, multi-year grants are one-time!

• Land Sale(s) and/or Development

• Revenues which greatly exceed predictions

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Unpredictable Revenues: Revenues where the level generated or collected is difficult to determine AND can affect operations or financial outlook.• Mineral Production Leases• Interest Incomes • Lottery Revenues• Legal Fee Recovery• Revenues which greatly exceed

predictions

5/20/2017 73


One-Time/Unpredictable Revenue: Stabilization (temporary only)Startup CostsEarly Debt RetirementCapital Purchases*

*that do not add to on-going costs AND have an offsetting revenue source

One-Time/Unpredictable Revenue: Balance a FundIn-year modification to on-going costCover ANY on-going or recurring costCapital Purchase that adds to on-going costs without offsetting revenue

5/20/2017 74

Bureaucratic Rules to the RescuePriority Based Budgeting • Revenues:

• One-Time vs. On-Going• Based on a rolling average (25%-25%-50%) of actual

experience, not budget• Revenues that exceed these projections are treated as one-

time• Expenditures

• One Time vs. On-Going• On-going expenditures paid for with on-going funds• Line by Line Review

• “Cost goes where benefit goes” (EX) Sewer Loan Payments Paid by Water ($420,000)

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This is a process, not an event (Balanced Budget vs. Sustainable Budget)• Have we considered:

• Deferred maintenance on facilities or infrastructure• Previous use of one-time revenues (fund balance)

• Budget is controlled with expenditures, not revenues• Normally occurring revenues must equal normally

occurring expenditures

5/20/2017 76

Policy on Use of One-Time Funds

Policy on Use of One Time Funds:• GF will not be balanced using

reserves• One-time revenues go to one-time

uses • EX) Capital purchases, debt, startup

costs, limited programs• Unpredictable revenues

• Cannot be used for operating expenses• Cannot be used to balance budget• Cannot be used to add long-term costs

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Deficit vs. Structural Deficit 2015 GF Budget

89.4%

10.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Deficit

71%

29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Structural Deficit

5/20/2017 78

Use of Reserves

On-Going Costs paid w/ One-Time Funds

(Reserves, Transfers, One-Time etc)

10%11%8%

0%10%20%30%40%50%60%70%80%90%

100%

Revenue Type by Percentage 2015

Transfer in from UtilitiesUse of Fund BalanceOne Time RevenueOn-Going Revenue

71

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Council Policy of Responsible Financial Management

The City’s financial policies establish the framework for overall fiscal planning and management.1. Balanced Budget: Expenditures will not exceed

revenues2. Long Range Planning: Long-term financial implications

of current and proposed budgets will be assessed3. Flexibility: The City will be in a position to respond to

opportunities and challenges4. Transparency and Communication: The City will

communicate financial information transparently and will seek input to facilitate sound decision making

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Council Policy of Responsible Financial Management

Long Term

Service Level

Budgetary

Cash

5/20/2017 81

Ability to pay the bills!

Ability to plan for and pay future costs, including

infrastructure

Ability to provide needed and desired services

currently and in the future

Ability to balance the budget w/o one-time or

reserve funds

Agenda




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Marijuana Rollout and Regulations

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Marijuana Rollout (AKA Oops)

Recreational Marijuana is Legalized in Trinidad in 2014Trinidad allows……

• Only 5 stores, first come, first serve. It’s the most fair.• Oops, we meant a lottery system, that’s MOST fair (sorry

to the campers)• Oops, please don’t sue. It’s lotto + campers. This is the

absolute MOST fair.• Okay, how about everyone gets a Marijuana Store?

Letting the market decide is the truly, the absolute and MOST fair way to go!

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Retail Locations

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Marijuana Regulations

• No limits***• No setbacks• No separation • No distance

requirements• Not a lot of sense…..….but a lot of revenue

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Agenda




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Let’s Talk About Marijuana Money

How do you convince a council to stick with policies limiting spending, when there is SOOOOO much money?

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Marijuana Revenues (Cont.)

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• 27 locations (1:300 Ratio)• 85%-90% of sales from out of state• 10.5% of sales tax goes to Trinidad• $2,000,000 in sales tax annually• More than 20% of GF and growing• In 2016 several months of industry

sales exceeded $1,000,000

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• The Sales and Use Tax projected to increase 20.6% • Revenue projections for permits increase 85.5%• Total revenue for 2017 is $1,496,845 more than

2016 projected

• Council Reactions were, well, mixed…..

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Agenda




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Sustainable vs. Balanced Budget

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2015 Budget

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2016 Budget

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2015 vs. 2016 General Fund Expenditures

• 2015 vs. 2016 Budgeted Expenditures are down 16.2% • The executive team has cut $0.17 from every $1.00 from last

year’s budget

• 2015 Actual Expenditures vs. Budgeted are down $1.3M (savings this year)

• Funds Available for Future Appropriation increase from $21,602 to $372,320

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2015 vs. 2016 General Fund Expenditures

New policies called for cuts when revenues were growing:Revenues are flat or down across the board with one exception:

• Sales Tax is up 9.2%, w/o marijuana sales overall Sales Tax increase would be at 5.5%

• The sales tax increase of 5.5% is likely due to activity from MJ• Property Taxes are down approximately 10% (account for 12% of budget)• Severance Tax and Mineral Leases are down and will continue to decrease• Utility transfers to GF are reduced by nearly 50% ($1.3M to $700k)• Decline in property and severance taxes are greater than increase in sales tax

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$(1,000,000) $(800,000) $(600,000) $(400,000) $(200,000) $- $200,000 $400,000

2010

2011

2012

2013

2014

2015

2016

Surplus/Deficit (2010-16)

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Budgeted Expenditures 2014-2016

6.77%

-16.23%-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

2014 2015 2016

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Decrease in 2015 Expenditures

EXPENDITURES:General Government 2,661,300 2,263,881 2,941,014 Public Safety 4,037,100 3,581,677 3,208,320 Public Works 2,260,600 2,261,967 1,465,204 Parks & Recreation 492,200 459,382 331,383 Carnegie Public Library 244,100 237,735 175,824 GF In-Kind Expense to CIP - (400,000) -

Total Expenditures 9,695,300 8,404,641 8,121,745

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GENERAL FUNDSTATEMENT OF REVENUES, EXPENDITURES AND FUND BALANCE

2015 2015 2016BUDGET PROJECTED BUDGET

Decrease in Total Revenues

2015 2015 2016BUDGET PROJECTED BUDGET

REVENUES:Taxes $ 5,580,500 $ 5,833,590 $ 5,826,301 Licenses & Permits 172,300 296,783 96,325 Intergovernmental Revenues 765,100 640,305 646,624 Charges for Services 686,400 591,135 850,764 Fines & Forfeitures 51,600 21,274 50,284 Miscellaneous Revenues 194,700 135,075 135,528 Other Revenues - Library 21,000 10,402 15,680 Transfers-in from Other Funds 1,294,800 1,294,800 689,600

Total Revenues 8,766,400 8,823,363 8,311,106

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2010 vs. 2016 General Fund Budgets

Adopted Budget Revenue Utility Transfers % Change Utility Transfers2010 $8,001,008 $ 906,696 2016 $8,317,454 $ 689,600 -23.94%

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Deficit vs. Structural Deficit 2015 GF Budget

89.4%

10.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Deficit

71%

29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Structural Deficit

5/20/2017 104

Balanced vs. Sustainable Budget

97.54% 96.26%

3.76% 3.74%

ON-GOING REVENUES

ON-GOING EXPENDITURES

ONE-TIME REVENUES

ONE-TIME EXPENDITURES

5/20/2017 105

Agenda




5/20/2017 106

What did we spend the Marijuana Money on?• $3M water/sewer project

• Payments are sustainable w/o MJ money

• Economic Development programs • Downtown vacancy reduced to 20%

• Fire Engine

• Slip-lining water transmission line (planned)

• ArtSpace

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1973!

ArtSpace

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ArtSpace

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ArtSpace

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Thank you

• Questions or Comments

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Questions?

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