PRELIMINARY BUDGET PRESENTATION

CITY COUNCIL WORK SESSIONTONY PUENTE - DIRECTOR OF FINANCE JUNE 12, 2018

OBJECTIVE

Present overview of budget structure and budget process

Focus on General Fund

• Utility Funds previously discussed on May 22nd, June 4th and June 5th

• All other funds to be discussed during August 2nd Budget Work Session

Present preliminary estimates for FY 2018-19 Budget

Over 65 and Disabled Tax Limitation (Freeze)

Discuss Homestead Exemption

Debt by Fund and Bond Program Authorization

Receive Feedback and Direction from City Council:

• Budget Themes/Priorities

• Homestead Exemption

• Any Other Direction2

BUDGET OVERVIEW

City is required by state law to annually adopt a budget and set a property tax rate by September 30

(City’s fiscal year is October 1st to September 30th)

Tax rate requires City Council vote of 60% (5 or more), budget is a simple majority vote (4 or more)

• If a tax rate is not adopted by a 60% vote, the lower of the prior year tax rate or calculated

effective tax rate becomes the tax rate (Texas Tax Code Section 26.05)

• If a budget is not adopted by a simple majority, the budget as submitted by the City Manager shall

be deemed to have been finally adopted by the City Council (City Charter Section 8.05)

Adopted budget covers all operating and capital expenditures

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BUDGET CALENDAR

Budget Planning

Jan.-Feb.

Departmental Budgets

Mar.-May

City Manager’s Proposed Budget

Jun.-Jul.

City Council Budget Deliberations

Aug.-Sep.

Budget Adoption

Sep.

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BUDGET PROCESS

Finance Department develops baseline budgets for each department.

• Baseline budgets exclude one-time funding from the prior year.

• Baseline budgets are “scrubbed” on a line item basis and adjusted downward based on historical trends. Departments must

submit formal funding request for line item increases.

• Beginning this fiscal year, select line items were “zeroed out” and Departments had to submit requests for reinstatement of

funding. These line items were: Outside Contract Services, Licenses, Dues & Publications, and Consultant Fees.

Budget initiatives:

• Various management studies engaged for Planning, Building Inspections, Solid Waste and Electric.

• Eliminated contingencies in budgets.

• Simplified fund balances by reducing unnecessary reserves (i.e., Customer Service and Drainage).

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BUDGET PROCESS CONTINUED…

Other initiatives:

• Quarterly reviews with Department Directors.

• Various management studies engaged for Planning, Building Inspections, Police, Solid Waste and Electric.

• Monthly review of capital programs to re-prioritize projects and maximize available funding.

• Lean/Process Improvements throughout organizations to improve efficiency, eliminate duplication and streamline processes.

Beginning in FY 2016-17, City Management has been “right sizing” the organization to better serve the

community.

• Eliminated 10.35 FTEs in the General Fund totaling $1.16 million.

• Utilized approximately $810,000 in savings to add 5 patrol officers and 1 crime analyst in the Police Department.

• Eliminated 10.5 FTES in other City funds totaling $1.17 million.

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CITY FUNDS

Major Operating Funds – General, Debt Service, Electric, Water, Wastewater/Drainage, Solid Waste

and Airport

Internal Service Funds – Technology Services, Materials Management, Fleet, Risk Retention, Health

Insurance, Engineering Services and Customer Service

Capital Funds – General Government, Electric, Water, Wastewater/Drainage, Solid Waste and Airport

Special Revenue Funds – Recreation, Street Improvement, Tourist and Convention, Police Confiscation,

Traffic Safety, Economic Development Investment, Downtown Reinvestment, Parks Gas Well, Roadway

Impact Fee, Tree Mitigation, Public Education Government, McKenna Trust, Parkland Dedication Trust,

Parkland Development Trust, Downtown TIRZ, Westpark TIRZ, Donation (Police, Fire, Animal Control

and Library), and Grants

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FY 2017-18 BUDGET BY FUND - $1,140,747,079

General Fund , $119,687,991

General Debt Service Fund,

$85,790,964

Electric Fund, $180,903,753

Water Fund, $47,809,321

Wastewater Fund, $34,023,041

Solid Waste Fund, $38,528,086 Internal Service

Funds, $83,647,034

Street Improvement Fund, $13,961,195

Other Funds, $14,191,476

Grants , $3,769,218

Capital Budget -New Funding,

$154,333,000

Capital Budget -Available ,

$364,102,000

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FY 2017-18 GENERAL FUND REVENUES - $119,720,372

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Other 2.1% Fines and Fees3.3%

Service Fees 6.9%

Return on Investment 6.7%

Cost of Service6.7%

Franchise Fees4.2%

Sales Taxes 30.2%

Licenses and Permits 2.3%

Ad Valorem Taxes37.6%

FY 2017-18 GENERAL FUND EXPENDITURES BY

CATEGORY - $119,687,991

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Personal Services70.7%

Materials & Supplies2.6%

Maintenance & Repair2.6%

Insurance 1.0%

Miscellaneous 1.2%

Utilities 2.5%

Fuel and Maintenance1.5%

380 Agreements 2.8%

Operations 6.4%

Cost of Service 7.5%Fixed Assets 1.2%

FY 2017-18 GENERAL FUND EXPENDITURES BY

DEPARTMENT - $119,687,991

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Libraries 5.1%

Parks and Recreation11.2%

Fire/Community Improvement 25.3%

Police/Animal Services28.3%

Economic Development 1.0%

380 Agreements 2.7%

Planning/ Community Development/

Inspections 6.3%

Municipal Court/Judge1.5%

Traffic/Transportation/Street Lighting 2.9%

Finance/Internal Audit/ HR 4.2%

Legal and CMO 4.3%Facilities Management

3.6%Other 3.6%

SALES TAX RATES - COMPARISON

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City

Regular

Rate

Property

Tax Relief

Eco/Ind

Dev Sec 4A

Eco/Ind

Dev Sec 4B

Street

Maintenance

Sport/Comm

Venue

Crime

Control

Fire

Control Transit

Total Local

Rate

Denton 1.00% 0.50% 0.50% 2.00%

Lewisville 1.00% 0.25% 0.125% 0.125% 0.50% 2.00%

Flower Mound 1.00% 0.25% 0.25% 0.25% 0.25% 2.00%

Grapevine 1.00% 0.50% 0.50% 2.00%

Dallas 1.00% 1.00% 2.00%

Fort Worth 1.00% 0.50% 0.50% 2.00%

Grand Prairie 1.00% 0.25% 0.50% 0.25% 2.00%

Irving 1.00% 1.00% 2.00%

Arlington 1.00% 0.25% 0.50% 1.75%

McKinney 1.00% 0.50% 0.50% 2.00%

Allen 1.00% 0.50% 0.50% 2.00%

Plano 1.00% 1.00% 2.00%

BUDGETARY THEMES/PRIORITIES

Focus on cost containment and organizational efficiency

Proposed budget set at the effective property tax rate

• Provide options that may require increasing the tax rate above the effective tax rate.

Enhance street maintenance and inspection capacity

Expanded Public Safety response capacity

Maintain competitive compensation plan

Debt financing options for certain capital projects:

• Radio System Replacement

• Fire Station #8 Design

• Service Center Remodel

• Residential Street Reconstructions13

GENERAL FUND

Neighborhood Services

• Building Inspections, Community Improvement Services, Libraries, Parks and Recreation, Planning, Gas Well Review,

Community Development

Public Safety

• Fire, Police, Animal Services, Municipal Court and Judge

Transportation

• Traffic Operations and Transportation

Administrative and Community Services

• City Manager’s Office, City Council, Economic Development, Facilities Management, Finance, Human Resources, Internal

Audit, Legal Administration and Public Affairs/Communication

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GENERAL FUND PROJECTION ASSUMPTIONS

Assessed Value Increases

• FY 2018/19 – 10.0% (assumes new value is 3% of total value)

• FY 2019/20 and beyond – Assumes effective tax rate each year plus new value.

Total Effective Tax Rate

• Tax rate set as a rough estimate of effective tax rate of $0.610738 (2.7 cents below current rate of $0.637856)

• Staff reviewing Truth-In-Taxation calculation on effective tax rate and will provide the City Council additional details during the August 2nd Budget Workshop. Tax Year 2018 is the first year impact of the Over 65 & Disabled Tax Limitation (Freeze).

Sales Tax

• FY 2018/19 – 5% above revised estimate for FY 2017/18 ($39.2 million vs $36.2 million)

• FY 2019/20 and beyond – 5% in Year 2; 4% in Year 3; and 3% in Years 4 & 5

Franchise Fees

• All growth in franchise fee revenue and an additional $622,000 transferred annually to the Street Improvement Fund (based on 10 year plan to transfer all franchise fees to street improvement)

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HOMESTEAD EXEMPTION

Currently 0.5% of value or $5,000 whichever is greater

• Homes up to $1 million receive same exemption

Preliminary values as of 5/31/18 reflect:

• 19,046 single family homes with a homestead exemption (64%)

• 29,630 total single family homes in the City

• Exempted value equals $92,300,932 or approximately $588,747 in revenue to City.

Preliminary average home value is $234,351

Denton Central Appraisal District (DCAD) encompasses 42 cities

• 16 cities have a homestead exemption and those range from 0.5%;$5,000 ($1M) to 20%;$10,000 ($50K)16

HOMESTEAD EXEMPTION

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City HS Over 65/DP Freeze 2017 Tax Rate

Carrollton Y – 20% or $5,000 $60,000/$60,000 N $0.599700

The Colony N $10,000/$10,000 N $0.665000

Denton Y – 0.5% or $5,000 $50,000/$50,000 Y $0.637856

Flower Mound N $100,000/$100,000 N $0.439000

Highland Village N $75,000/$75,000 N $0.568020

Lewisville N $60,000/$20,000 Y $0.436086

Roanoke Y – 20% or $10,000 $40,000/$4,500 Y $0.375120

Coppell Y – 5% or $5,000 $75,000/$75,000 N $0.579500

Trophy Club N $35,000/$0 Y $0.451442

Plano Y – 20% or $5,000 $40,000/$40,000 Y $0.468600

Frisco Y – 7.5% or $5,000 $80,000/$80,000 N $0.446600

AVERAGE TAXABLE HOME VALUE COMPARISON

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City/Town

# HS

Residences

Average

Market Value

Average HS

Exemption

Average

Taxable Tax Rate

Taxes Due to

City

Taxes Due on

200k Home

Ft Worth 205,541 174,846$ 41,523$ 133,323$ 0.805000$ 1,073.25$ 1,610.00$

Dallas 217,643 252,509$ 60,532$ 185,074$ 0.780400$ 1,444.32$ 1,560.80$

Garland 58,214 160,467$ 31,099$ 129,368$ 0.704600$ 911.53$ 1,409.20$

Little Elm 6,647 262,990$ 8,746$ 254,244$ 0.657671$ 1,672.09$ 1,315.34$

Arlington 89,050 177,524$ 48,741$ 128,783$ 0.639800$ 823.95$ 1,279.60$

Denton 18,404 226,706$ 12,570$ 214,136$ 0.637856$ 1,365.88$ 1,275.71$

Richardson 19,346 233,023$ 37,672$ 195,351$ 0.625160$ 1,221.26$ 1,250.32$

Carrollton 16,419 276,448$ 63,401$ 213,047$ 0.599700$ 1,277.64$ 1,199.40$

Irving 36,039 210,396$ 45,457$ 164,939$ 0.594100$ 979.90$ 1,188.20$

Coppell 10,848 394,980$ 18,466$ 361,552$ 0.579500$ 2,095.19$ 1,159.00$

Highland Village 4,377 368,676$ 6,353$ 362,323$ 0.568020$ 2,058.07$ 1,136.04$

Corinth 5,163 253,775$ 4,663$ 249,112$ 0.536860$ 1,337.38$ 1,073.72$

Frisco 16,325 452,990$ 39,324$ 413,666$ 0.446600$ 1,847.43$ 893.20$

Flower Mound 17,578 381,743$ 3,270$ 378,473$ 0.439000$ 1,661.50$ 878.00$

Lewisville 13,124 224,637$ 3,719$ 217,318$ 0.436086$ 947.69$ 872.17$

Roanoke 1,401 291,560$ 66,148$ 225,412$ 0.375120$ 845.57$ 750.24$

Grapevine 11,480 326,527$ 88,055$ 238,472$ 0.289271$ 689.83$ 578.54$

HOMESTEAD EXEMPTION

July 1st – Council must adopt an ordinance prior to this date in order to make the change effective for

Tax Year 2018 (available meeting dates are June 19th or 26th).

Exemption percentage may not exceed 20% per the Texas Tax Code, Section 11.13(n).

Council may increase minimum but must be in $5,000 increments (-$588,000 each increment).

$5,000 exemption = $31.89 per year based on current tax rate of $0.637856.

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$5,000 $10,000 $20,000

0.5% $1,000,000 $2,000,000 $4,000,000

1.0% $500,000 $1,000,000 $2,000,000

5.0% $100,000 $200,000 $400,000

7.5% $66,666 $133,333 $266,666

10% $50,000 $100,000 $200,000

20% $25,000 $50,000 $100,000

COMPENSATION & BENEFITS ASSUMPTIONS

FY 2018/19 has 3% average merit increase and increases for civil service based on meet & confer

agreement

• Preliminary planning level estimate based on market pay comparisons

Future FY’s have 3% average estimated increase

Health Insurance

• Assumes a 3% increase in City contributions

• Employee contribution rates to be reviewed in coming weeks

Retirement

• TMRS rate decrease of 17.31% to 17.18%

• Fire Pension rate at 18.50%

• Details on City pensions will be presented to Council in July/August 20

FIVE YEAR FINANCIAL FORECAST

Purpose of Forecast

• Evaluate budgetary decisions for long-term impacts under conservative scenarios

• Ensure financial affordability and sustainability of budgetary decisions

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PRELIMINARY GENERAL FUND FORECAST

(PROPERTY TAXES AT EFFECTIVE TAX RATE)

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Amended Current Preliminary Year 2 Year 3 Year 4 Year 5

Budget Estimate Budget Projected Projected Projected Projected

2017-18 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

Beginning Fund Balance 31,770,772$ 31,770,772$ 31,582,129$ 31,903,527$ 32,250,511$ 33,053,676$ 33,440,580$

Property Tax 44,460,191$ 44,460,191$ 45,824,128$ 47,416,268$ 49,302,133$ 51,548,343$ 54,240,825$

Sales Tax 36,181,384$ 39,202,935$ 41,163,082$ 43,221,236$ 44,950,085$ 46,298,588$ 47,687,546$

Other Revenues 39,078,797$ 39,307,459$ 40,379,208$ 40,403,151$ 40,550,689$ 40,746,978$ 40,831,455$

Total Revenues 119,720,372$ 122,970,585$ 127,366,418$ 131,040,655$ 134,802,907$ 138,593,909$ 142,759,826$

Base Expenditures 119,687,991$ 118,273,937$ 126,295,020$ 129,193,671$ 131,749,742$ 135,207,005$ 138,495,760$

New Recurring Expenses -$ -$ 750,000$ 1,500,000$ 2,250,000$ 3,000,000$ 3,750,000$

New One-Time Expenses 4,885,291$ 4,885,291$ -$ -$ -$ -$ -$

Total Expenditures 124,573,282$ 123,159,228$ 127,045,020$ 130,693,671$ 133,999,742$ 138,207,005$ 142,245,760$

Ending Fund Balance 26,917,862$ 31,582,129$ 31,903,527$ 32,250,511$ 33,053,676$ 33,440,580$ 33,954,646$

Change in Fund Balance (4,852,910)$ (188,643)$ 321,398$ 346,984$ 803,165$ 386,904$ 514,066$

Fund Balance as % of Expend. 21.6% 25.6% 25.1% 24.7% 24.7% 24.2% 23.9%

GENERAL FUND SUPPLEMENTAL REQUESTS

Supplemental Requests are requests for funding of capital and operational expenses.

Currently, the requests total $47,294,648

• Capital - $41,256,000

• Recurring Operational Expenses - $3,467,867

• One-Time Operational Expenses - $2,570,781

The final detailed list of supplementals based on priority and funding options, will be discussed with Council in July/August. 23

DEBT BY FUND (PRINCIPAL & INTEREST) – 9/30/17

Fund GOs COs Revenue Bonds Total

General Gov’t.1 $151,237,097 $63,840,736 - $215,077,833

Electric2 $56,348,813 $553,567,798 $346,732,250 $956,648,861

Water $71,261,668 $42,408,790 - $113,670,458

Wastewater $18,684,893 $39,239,344 - $57,924,237

Solid Waste $5,145,846 $61,200,448 - $66,346,294

Total $302,678,317 $760,257,116 $346,732,250 $1,409,667,683

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1Includes General Fund, Water Park, Warehouse and Airport debt.

2City has $16,917,916.67 is bonds that will offset outstanding revenue bonds as capitalized interest. Additionally,

$60.5 million in debt at TMPA not reflected.

3Does not include sale of $29.685 million in debt for General Government in June 2018.

GO BOND AUTHORIZATION

Purpose

Date

Authorized

Amount

Authorized

Amount

Issued

FY 2017/18

To Issue

Remaining

Authorization

Streets 11/6/2012 $20,400,000 $20,400,000 - -

Streets 11/4/2014 $61,710,000 $18,290,000 $15,650,000 $27,770,000

Public Safety 11/4/2014 $16,565,000 $16,565,000 - -

Drainage 11/4/2014 $8,545,000 $5,255,000 $2,585,000 $705,000

Parks 11/4/2014 $11,355,000 $4,280,000 $1,515,000 $5,560,000

$118,575,000 $64,790,000 $19,750,000 $34,035,000

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Note: Anticipate issuing $19,370,000 in FY 2018/19 and $14,665,000 in FY 2019/20

DEPARTMENTAL PRESENTATIONS

Presentations to continue through July at each scheduled Council meeting

Areas to be covered:

• Structure and Staffing

• Goals and Accomplishments

• Performance Measures

• Cost Containment

• Process Improvements

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BUDGETARY DATES

JUNE 23 – Utility Budgets recommendation from PUB

MAY to JULY – Departmental Presentations

JULY 25 – Final Certified Value

AUGUST 2 – Budget Workshop & Adoption of Maximum Tax Rate (basis for public hearings)

AUGUST 14 & SEPTEMBER 11 – Public Hearings on Tax Rate & Proposed Budget

SEPTEMBER 18 – Adoption of Tax Roll, Tax Rate and Budget

Budget Transparency - Dedicated budget page on City website

• Budget idea submission form

• Posting all presentations, proposed budget and budgetary agenda items 27

RECEIVE FEEDBACK AND DIRECTION

Budget Themes/Priorities

Homestead Exemption

Any Other Direction

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QUESTIONS