Fort Walton Beach Council agenda — 05-15-2007 special agenda - budget policy — reading text

2006-07 est. 2002-03 2003- 04 2004-05 2005-06 2006- 07 est. Capital, net of debt . Restricted [ JUnrestricted Capital, net of debt . Restricted J Unrestricted Interest & Rental Income - This category of revenue includes interest earnings on the checking account, investments, and reserves, as well as leases such as Edwin Watts and Two Trees Restaurant at the golf clubhouse, communication towers, and a parking lot. Interest earnings have greatly improved since the Federal Reserve began raising interest rates in late 2004 and as a result of the City changing banks in the fall of 2006. Investment earnings are anticipated to generate $ 1 M in FY 2007- 08. Most of the City' s leases stipulate annual increases based on the Consumer Price Index ( CPI) or 3%, whichever is higher. Consequently, lease revenues will provide $ 288K in FY 2007- 08, a modest 3% increase. Other User Fees - This category includes cemetery sales, recreation fees ( other than golf), library fees, museum fees, and other miscellaneous charges for services. Unlike taxes, these payments are directly related to the service received. User fees are set by City Council based on the cost of providing the service, are reviewed annually as part of the budget process, and are published in the Comprehensive Fee Schedule. The revenue generated from these fees, about $ 943K in FY 2007- 08, is fairly stable due to the City' s minimal population growth. Other Revenue - This category includes fines ( e. g. traffic, library, late payment), forfeitures, special assessments, impact fees, and other miscellaneous revenues that vary annually and are difficult to predict and budget. Accounting for 1. 6% of the total budget, these revenues total $ 622K. Licenses & Permits - This category includes business tax receipts ( formerly referred to as occupational building permits, and other miscellaneous licenses and permits. Accounting for 1. 1 % of the licenses), total budget, these revenues total $ 441 K. Revenue Diversification - Diversity in the revenue structure is an important indicator of economic health and a predictor of the City' s ability to cope with changes to the economic and financial environment, and is also desirable for political and social reasons. An optimal revenue structure includes a balance among major taxes ( e. g. property, sales) and relies on user fees ( e. g. recreation fees, building permits) where feasible. Taxes should be as broadly based as possible to allow for lower tax rates and improve economic efficiency. A diversified property tax base ( e. g. residential, commercial, industrial) with a balance between the different classes of property is desirable because it will be less vulnerable to 7 of 36 FY 2007- 08 Budget Policy Workshop economic shifts. The City' s tax base is 55% residential, 34% commercial, and 11% other. The Florida Legislature is working on property tax reform, which will most like result in a reduction in this revenue source for local governments. Certain proposals call for increasing the sales tax to make up a portion of the lost property tax revenue; however, this would result in less diversified General Fund revenues and increased reliance upon an economically volatile revenue stream. In light of property tax reform, many local governments are turning to user fees to fund services and are evaluating whether the fees cover the cost of providing all or a portion of the service. For example, the Florida Statutes permit local government to recoup the full cost of enforcing the Florida Building Code. Staff is currently conducting a comprehensive review of revenues and the General Fund' s revenue sufficiency. The analysis includes fees such as police, fire, recreation, building permits, and development fees and will consider both new and existing fees. The FY 2007- 08 budget presented to City Council in August will include Comprehensive Fee Schedule changes as a result of this review. If! II' 8 of 36 FY 2007- 08 Budget Policy Workshop EXPENSES FY 2006- 07 Budgeted Expenses - All Funds 37, 634, 154 Capital Oullay 3. 7% Operations & Debt Service Maintenance 6. 1% 23. 1% Waaes - As a full- service government, employees are the City' s most important asset in providing police and fire protection; cultural and recreational facilities and programs; planning and zoning services; infrastructure maintenance and construction such as streets, sidewalks, and cemeteries; utilities such as water, Wages 15. 0 wastewater, and storm water management; and garbage and recycling collection. Despite the number and quality of City 12. 0 services improving since FY 2001- 02, the number of full- time equivalent ( FTE) employees has remained constant at 9. 0 378.68. Citywide, wages have increased 30% or $ 3. 3M during the past five years. City Council's commitment to 6. 0 public safety has contributed to 36% of the increase, with police department salaries increasing 15% or $ 445K and fire 3. 0 department salaries increasing 62% or $ 764K including paramedic and EMT pay added in FY 2003- 04 and 6 new 0. 0 EMTs/ Paramedics added in FY 2005-06. The balance of the 2003 2004 2005 2006 2007 Budget increase is due to cost of living, merit, and pay plan adjustments for other employees. Over the past five years, inflation has increased 12.4% compared to the following employee cost of living adjustments: 11. 94% general employees, 25. 75% police officers, and 27. 14% firefighters. Even with these wage adjustments, the City has struggled to remain competitive with surrounding jurisdictions for police officers and firefighters. As property values have increased in recent years, Sheriff's Offices and Fire Districts, which have a bit more flexibility in setting their budgets, have been able to increase salaries at a higher rate than the City. In addition to a cost of living increase every October 1, employees are eligible for a performance increase on their anniversary date. General employees receive 3% and police officers and firefighters receive 3. 5% contingent upon a satisfactory performance evaluation. Benefits - Benefits include Social Security tax, Medicare tax, worker' s compensation insurance, unemployment compensation insurance, medical insurance ( health, dental, & life), and pension benefits. Affordable health insurance providing quality coverage is an important part of the City' s benefits package. The City contributes 75% of the premium for both single coverage and family coverage and currently offers three levels of coverage. In order to reduce premium increases, the City has modified plan 9 of 36 FY 2007- 08 Budget Policy Workshop structures ( both reducing benefits and increasing co- pays) over the past several years. Based on current plan medical and 5% dental increase are structures and utilization levels, a 7% anticipated. Life insurance was renewed in March 2007 at lower rates with a two- year rate guarantee. Benefits The City is required to maintain its three pension plans in a 2. 5 fiscally sound manner. Investment earnings and 2. 0 employee/ employer contributions comprise the plans' income. General employees and police officers contribute 5% of 1. 5 wages and fire personnel contribute 6. 6% of wages into their c: respective plans. The City' s actuaries estimate investment 1. 0 earnings at 8% annually for each plan and estimate annual salary increases as follows: General 5.4%, Police 7. 5%, and 0. 5 Fire 6. 5%. The City' s contribution is based on these estimates and must be adjusted in future years to make up for 0. 0 2003 2004 2005 2006 2007 any deviation from these estimates. Factors such as lower Budget than anticipated investment earnings, higher wages for Medical Pension employees, and more participants due to the early- out retirement program and additional fire personnel have necessitated that the City contribution steadily increase over the past several years. Based on actuarial analyses, the City' s pension contributions as percentages of payroll are currently: General Employees 14. 9%, Police Officers 12. 8%, and Firefighters 10. 9%. Police and Fire receive state funds to offset some of their pension costs. ii;. Incomparison, Retirement System ( FRS) contribution rates are 9. 85% for general current Florida and 20. 92% for II!' employees special risk employees ( i.e. police & fire). No employee matching contribution ispermitted. However, the FRS multiplier for general employees is