Fort Walton Beach Council agenda — 05-20-08 special agenda - budget policy issues — reading text

April 2005 in conjunction with the Utility Bond issuance. Garbage fees increased 3% in October 2007, the first increase in over ten years. City Council opted not to increase golf club rates effective June 1, 2007 as scheduled. In order to continue to provide existing services and more fairly allocate the cost among users of the programs rather than through property taxes, the City is transitioning to increased reliance on user fees. Based on previous City Council direction and the recent Strategic Planning Session, staff is evaluating and preparing new fees for Council consideration in the near future ( e.g. fire assessment fee, stormwater fee). As usual, a review of existing fees will be conducted during the budget process. Other Maior Revenues — This category includes franchise fees, utility taxes, communications services tax, local option fuel tax, half -cent sales tax, and municipal revenue sharing. The City' s franchise fee agreements provide a 6% rate on gross electric and gas sales and a $ 1. 50 per ton sanitation host fee is also collected per contract. Utility taxes are levied against electric, gas, and water revenues at the rate of 10 %. Since the collection rates for franchise fees and utility taxes are fixed for 10 to 15 years, revenue growth in these categories is limited to energy price increases. The City currently has monthly caps and exemptions for the utility tax. The Attorney General has issued several opinions stating that caps and limitations on the dollar amount taxed under Florida Statute 166.231 are improper. 7of34 FY 2008 -09 Budget Policy Meeting The City levies a 5.620% communication services tax. In April 2007 the City was notified by the Department of Revenue that an audit had uncovered a $ 1. 7M overpayment to the City over a period of 28 months based on a vendor reporting error. Repayment would be required over a similar time frame. To date, the City has not received any additional information regarding the payback. Fort Walton Beach' s local option gas tax proceeds are based on a ten -year interlocal agreement between Okaloosa County and its municipalities re- written in FY 2002 -03 in which the City' s revenues were reduced approximately 50, 000 annually even though the tax was raised to $ 0. 02 per gallon. It is hoped revenues will return to their 2003 level in FY 2008 -09. 10 State revenue sharing is allocated via population - 8 based distributions, resulting in only marginal increases for the City, which is nearly built -out and 6 Cn relies on voluntary annexation. Half -cent sales tax 0 distributions are derived from net sales tax revenue 4 and generate the largest amount of municipal 2 revenue sharing revenue for local governments. Municipal revenue sharing is fairly stable and funded 0 by 1. 0715% of sales and use tax collections, 12. 5% 2003 -04 2004 -05 2005 -06 2006 -07 Budget of state alternative fuel user decal collections, and Franchise Fees 0 Utility Taxes 2007 -08 the net collections from -the one -cent municipal fuel 0 CST Fuel Tax Sales Tax Revenue Sharing tax. Interfund Transfers —Transfers to the General Fund are based on the City's Cost Allocation Plan and proportionate shared The first Cost Allocation Plan was completed in September 1998 by expenses. KPMG Consulting based on data from FY 1997. In March 2003 an updated Cost Allocation Plan was completed by DMG- Maximus based on data from FY 2001. The purpose of the Cost Allocation Plan is to provide reasonable and proportionate reimbursement to the General Fund for services such as accounting, human resources, information technology, public works, and purchasing. As a matter of budgetary policy, interfund transfers to the General Fund have been based on the Maximus study, adjusted for inflation, as well as other shared expenses that are not directly related to services provided by other funds, though nonetheless partly attributable to those funds, as well as new programs and services not in place at the time of the Cost Allocation Plan update. Examples include property and casualty insurance, employee morale, and CRA police officers. FY 2007 -08 Law Enf. Trust CRA Utilities Sanitation Golf Total General Fund Reimbursement $ 18, 280 $ 276, 720 $ 1, 895, 715 $ 959,445 $ 62, 150 $ 3, 212, 310 The Golf Fund does not reimburse the full cost of services received. Along with adopting a five -year rate plan in April 2006, City Council endorsed the General Fund continuing to absorb a large portion of the Golf Fund' s cost allocation expenses ( approx. $ 400K) for the next three years ( after which time the issue would be reevaluated) in order to permit the Golf Fund to retain all revenues for operational use and to replenish net assets. Appropriations from Fund Balance / Net Assets — Appropriations from fund balance ( governmental funds) or net assets ( enterprise funds) are budgeted for either specific purposes ( i. e. designated or restricted) or to make up the shortfall between projected revenues and projected expenditures ( i. e. undesignated or unrestricted). Depending on actual revenues received and expenditures incurred, the full budgeted amount may or may not be required. The City's annual audit identifies the three types of General Fund reserves: Reserved —funds committed for identified purposes or legally required to be segregated Examples: encumbrances, Harvey Trust Unreserved /Designated — funds not required to be identified as a reserve fund balance, but a tentative use hall already been identified Examples: disaster relief, retirement contributions, computer replacement Unreserved /Undesignated — funds not required to be on hand and have not been identified for a particular purpose; available for capital projects or to balance the budget 8 of 34  FY 2008 -09 Budget Policy Meeting The Government Finance Officer's Association ( GFOA) recommends, at minimum, an unreserved fund balance in the General Fund of no less than 5% - 15% of regular General Fund operating revenues. However, the actual unreserved level should be based on the jurisdiction' s specific circumstances ( e. g. coastal community, volatile revenue stream). The City is fiscally sound as reported by our independent auditors, though minimal revenue growth and escalating expenditures for maintaining current service levels could erode reserve stability. Staff feels the current General Fund unreserved /undesignated fund balance level is appropriate, targeting the 30 %* level for a coastal community and the auditor's recommendation. General Fund Reserve Analysis Actual Estimate Benchmark Reserve Levels: FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 GFOA - 15% of operating revenues min.; 33.8% 28. 9% 47. 6% 35.4% 41. 1% should be higher if coastal community GFOA - 17% operating expenses min.; 31. 5% 28.4% 37.5% 35.4% 32. 0% should be higher if coastal community FLOC revenue expert - 25 % 30% - of 31. 2% 27. 6% 36. 5% 34. 1% 31. 2% expensesexpenses forfor coastalcoastal communitycommunity AuditorsAuditors - - 33% 33% ofof operatingoperating expensesexpenses 31.31. 5% 5% 28.28. 4% 4% 37.37. 5% 5% 35.35. 4% 4% 32.32. 0% 0% Unreserved Unreserved / / Undesignated Undesignated FundFund BalanceBalance $ $