HomeMy WebLinkAbout02/23/2016 03 2016 Five-Year Financial PlanITEM TITLE:
SUBMITTED BY:
BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDASTATEMENT
Item No. 3.
For Meeting of: February 23, 2016
2016 Five -Year Financial Plan
Jeff Cutter, Interim City Manager
Cindy Epperson, Director of Finance and Budget
SUMMARY EXPLANATION:
By providing a forecast of revenues and expenditures for the General Government (i.e. tax
supported) funds over a five-year period (FY 2016-FY2020), the Five -Year Financial Plan will
assist the City Council in meeting the following key goals:
• Ensuring a financially sustainable future
• Preserving the City's core services
• Committing to fund infrastructure, facilities and rolling stock
• Addressing Strategic Plan priorities
The prior Five -Year Financial Plan was adopted by City Council April 8, 2014. Several proposals
to balance the budget and make funding available for capital improvements were approved and
implemented. Since then, our revenues have about matched the projections in aggregate but
expenditures have grown beyond what was projected, so that we have used fund balance for
operations in 2015. Going forward, we are projecting moderate shortfalls in 2016-2020, with
expenditure estimates that do not include debt service for future projects (other than the Parks
Capital projects tied to the Charter amendment).
This report indicates that we need to review the 2016 budget and identify cost containment
measures to bring the expenditures back in balance with revenues, before entering into debt for
the next identified capital projects. City Management will develop a timeline to bring back cost
containment options.
ITEM BUDGETED:
NA
STRATEGIC PRIORITY: Public Trust and Accountability
APPROVED FOR SUBMITTAL: Interim City Manager
STAFF RECOMMENDATION:
Accept Report
BOARD/COMMITTEE RECOMMENDATION:
ATTACHMENTS:
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2016
City of Yakima
Five -Year Financial
Plan
Presented to City Council February 23rd, 2016
To:
From:
The Honorable Mayor and Members of City Council
Jeff Cutter, Interim City Manager
Cindy Epperson, Director of Finance and Budget
Subject: Five -Year Financial Plan
The Interim City Manager and the Director of Finance and Budget are providing to the City Council the
following Five -Year Financial Plan (FY 2016 - 2020) for its review and consideration. The prior Five -
Year Financial Plan (FY 2014 - 2018) was presented to the City Council in April of 2014. This new plan
updates the revenue and expenditure forecast for the City's General Government (i.e. tax -supported
funds, which include General; Streets and Traffic Engineering; and Parks and Recreation) budgets.
The Five -Year Financial Plan is designed to focus on the City's General Government budgets given
they represent the core operating services of the City. The balance of the City's other funds will be
addressed during the budget process.
The 2014 Plan anticipated modest budget shortfalls ranging from $200,000 to $1.1 million between FY
2016 and FY 2018. The updated Five -Year Financial Plan, like the prior Plans, includes measures to
eliminate these projected shortfalls to ensure annual balanced budgets, while also continuing to
respond to the operating and capital needs of the community. The previous plan included the first City
Charter amendment to allocate $2 million annually for street improvement. It also identified funds for
an additional $1 million in debt service to issue $10 to $12 million of debt to invest in critical
community infrastructure and improvements. Subsequent to that report, a second charter amendment
passed to allocate $750,000 annually for Parks and Recreation projects. This additional cost was
covered by a reduction in ongoing operating expenses, and so is "balanced" in this presentation. These
annual Parks commitments are being leveraged by partnerships to develop a new soccer complex and
aquatic center.
The 2015 actual year end budget close-out ended up using about $2.2 million of the $9.4 million or
almost one fourth of the beginning fund balance (also referred to as reserves). Several factors
combined to cause this disparity. First, revenues were estimated to carry forward the robust
performance experienced in 2014. Sales Tax was up 6.4%, and utility taxes were up 7.7% (over 4% if the
move of cable TV tax is excluded). Total revenues were about $500,000 more than estimated for 2014 in
the prior plan. We applied growth estimates of 4% and 5% respectively to these revenue sources for
the 2015 budget. These estimates did not materialize, primarily because of the drought and its effect on
our agricultural economy, along with the reduction in raw energy prices. Total utility tax revenue was
actually below 2014 levels. Unfortunately, some of these trends didn't emerge until later in the year, so
the 2015 and 2016 revenue estimates were made based on higher mid -year trends.
Page 1 1
The other side of the fund balance equation is expenditures. There were several unbudgeted initiatives
that went forward, such as improvements to Tahoma Cemetery roads; the Main Street Program
donation; contributions to the Yakima and the Hispanic Chambers of Commerce; extended hours of
operation at both Lions and Franklin pools; and outside legal support exceeding savings from a
position vacancy. Late "hits" to expenditures included the previous City Manager's severance
package; a snow event requiring extensive overtime and contractor expenses for plowing; a large
medical claim for an inmate housed at the Yakima County jail; and a high medical claims month in
December, requiring additional contributions from all operating funds. All of these combined to cause
all three General Government operating funds to overspend their budgets, even after operating funds
were requested to slow spending.
With these two opposing factors (declining revenue and "extra" expenditures) in place, we have used
reserves to the point that we only retain $7.2 million or 10.0% of the 2015 actual total expenditures,
which is $4.9 below the 16.7% of total expenditure target of $12.1 million. (The City purposely used
reserves of about $1.1 million in 2014 to purchase the Tiger Oil properties, and the sale of these
properties should be returned to the reserve balance when consummated.) It should be noted that the
"2015 actual" numbers used in this report still include a few estimates, as the Finance staff is still
closing the books, but they are expected to be materially correct.
In comparing this plan to the prior plan, the revenue estimates are similar if we add the Union Gap fire
contract of $1.2 million. What has happened is an escalation of expenditures, primarily with the
addition of 12 positions in the 2015 and 2016 budgets - the prior plan specifically stated that no new
positions are included in the forecast. So in relation to the prior Five -Year Plan, we're not necessarily
experiencing a revenue shortfall -but an increase in ongoing program costs not previously included.
Unfortunately, the implications are that we don't have either a balanced budget or the debt service
available for the capital projects currently included in the 2016 budget without other budget cuts.
Savings proposals already included in the plan include a 2% personnel vacancy rate (historically, the
rate has averaged 4%); and reductions in healthcare costs. Other operational efficiency savings, (eg.
position attrition, reorganization, managed competition, and service optimization) will need to be
reviewed just to bring future years into balance. For a balanced capital program to go forward, there
will need to be choices about the levels of current services.
This Five -Year Financial Plan allows the City to look into the future to meet our financial challenges by
developing long-term solutions rather than short-term fixes.
By providing a forecast of revenues and expenditures over a five-year period (FY 2016 - FY 2020), the
Five Year Financial Plan will assist the City Council in meeting the following key goals:
➢ Ensuring a financially sustainable future.
➢ Preserving the City's core services.
➢ Committing to fund infrastructure; facilities and rolling stock.
➢ Addressing Strategic Plan priorities.
Page 1 2
GENERAL GOVERNMENT REVENUE
The revenue forecast represents an analysis of the economic factors driving the City's revenue base and
specific revenue sources available to the City. The City's core General Government revenues are
increasingly affected by the economy. The financial plan revenue projections reflect various
assumptions about the future economic environment based on national, state and local economic
forecasts. The prior forecast assumed that the City's economy will lag behind the recovery of the State
and National economy. However, since mid -2012, Yakima has experienced growth in the revenue
base, after 4 years of flat revenues. The revenue assumptions are based on the following:
➢ The unemployment rate for Yakima County is 10.2% in December, 2015 (the most recent data
available). Even though this is high compared to state and federal rates, the nonfarm
employment has posted year -over -year increases for the past 37 consecutive months (December
2012 through December 2015). However, the job growth pace has decelerated during the past
six months - from 3.3% in June 2015 to 0.9% this December. This deceleration is likely tied to the
drought - because agriculture is such a major component to our local economy, it also affects
our nonfarm employment (i.e. bin, pallet and box manufacturing, and food processing).
➢ The Property Tax levy is capped at 1.0% growth plus new construction which was initially
estimated to grow another 1.5% annually over the next 5 years for a total annual estimate of
2.5%. Unfortunately, 2016 had 2 things negatively affect this major revenue stream - 1) the
annual cap also has an inflation factor, which was only 0.25% for 2016. Even though Council
could have gone to the 1% growth rate with a super -majority vote, the levy was passed at the
lower percent, resulting in a permanent loss of $132,200 annually; 2) the taxable new
construction growth was only 1.1%, not the expected 1.5%. So 2016 growth is only 1.35%, not
2.5%. Going forward, the growth rate is estimated to be 1.3% for 2017 and 2018, growing to
1.5% in 2019 and 2020 as the economic stimuli in our local economy takes effect.
➢ Total taxable sales have increased by 6.7% in 2013, 6.4% in 2014, but only 2.9% in 2015. Earlier
growth reflects strength in the agricultural sector of our economy improving employment
opportunities, but the drought put a damper on spending -- the last 3 months of receipts have
been below the prior year actual. In researching the growth rate of this key revenue, it grew at
an average annual rate of 4.7% in the 5 years leading up to the 2008 recession. Prior projections
expected it to grow an average of 4.0% as the economy improves over the next 5 years.
However, since we are starting 2016 below 2015 actual, the estimate is being reduced to 3.2% in
2016, going forward at 3.7%. The county -wide criminal justice sales taxes have grown at a rate
about 0.5% greater than the City's sales tax. When this is factored in, the "Sales Tax" category is
estimated to grow about 3.8% annually, after 2016's growth estimate of 3.3%.
➢ Utilities are sensitive to economic conditions - demand was reduced and capital programs were
delayed through the recession, and hard line telephone services are being eliminated as
consumers convert to cellular only. Both electric and gas utilities announced rate increases
going into 2015, however, the reduction in raw prices of natural gas is reducing that revenue
stream. The City's Refuse utility is raising rates to fund needed operational and capital
investments. Even through the recession, the annual average increase (before adding the
increased tax rate on city utilities) was 4.4%, but much of this was tied to the increase in raw
Page 1 3
energy costs during this time frame. This category was previously estimated to grow at 4.0%.
However, because 2015 actual was below 2014 actual, this categories growth estimate is revised
downward to 2.7%.
➢ Most other revenues have been historically flat, and are estimated to remain that way
throughout the next 5 years. Examples include business licenses, gambling taxes, and fines and
forfeitures, all expected to increase at an annual rate between 1.0 and 3.0%.
➢ The State budget crisis put pressure on local municipalities across the state during the recession.
We are now seeing a rebound in the revenues at the state level that support state shared -
revenue, including a significant increase in the Liquor Excise Tax distribution, and a new
transportation tax. Conversely, the Yakima School District dropped reimbursement of 1 Police
Sergeant from their 2016 agreement, and the firefighter SAFER grant peaked in 2015 and will be
reduced in 2016 and phased out in 2017. Overall Intergovernmental revenues are projected to
grow at a rate between 1.0 and 2.5%, averaging about 2.0 % into 2020.
Governmental
Payments
$4,905,937
Other Taxes, Lic,
Permits
$2,451,470
2016 General Government Projected Revenue
Generalized Categories
Chgs f/Svcs -
Interfund
$8,307,799
Fines, Forfeitures &
Misc.
$4,371,186
Property Tax
$16,653,030
Utility Tax Sales Tax
$16,135,100 $19,632,522
The following projection summarizes General Government's major revenue source totals and growth
for the next five fiscal years. Over the next four years, the average annual increase in General
Government revenue is estimated to be 2.8%.
Page 1 4
General Government Revenue
Growth Forecast
Jj0
Property Tax
Sales Tax
Utility Tax
Other Taxes, Licenses, Permits
Governmental Payments
Charges for Services/Interfund
Fines, Forfeitures and Misc.
Total
ME 11
1,41
2.0%
6.8%
7.7%
1.3%
4.7%
7.4%
16.9%
6.1%
H •
InommoNIMMIMM
2.7%
2.3%
(0.8%)
4.7%
12.0%
21.0%
0.6%
4.1%
1.3%
3.3%
2.7%
1.0%
2.8%
6.2%
11.1%
3.3%
2.3%
3.8%
2.7%
2.8%
(1.8%)
2.4%
2.2%
2.5%
2.3%
3.8%
2.7%
2.8%
2.0%
2.4%
(6.8%)
2.3%
f
2.5%
3.8%
2.7%
2.8%
2.0%
2.4%
2.4%
2.9%
hh
2.5%
3.8%
2.7%
2.8%
2.0%
2.4%
2.5%
2.9%
Property Tax
Property tax represents 23.5% of the General Fund revenue for 2015. The City sets the amount of the
levy each year within limits set by state law. The tax is then distributed among the taxpayers by the
assessed taxable value of all real property within the City.
Projections and Assumptions
The Property Tax levy is limited to 1.0% per year increase due to a citizen initiative from several years
ago. However, the increase in revenue is generally higher than the 1.0% because new construction and
annexations add to the base. The City is not anticipating any annexations in the near future, but new
construction has been increasing again, and is estimated to add 1.3% in 2017 - 2018, growing to 1.5%
annually for 2019-2020 to the property tax rolls.
Property Tax
Growth Forecast
Illlllllllllllllf�
$ 16,016,029
2.0%
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IXEMtwn
$ 16,376,215
2.2°
Illlllllllllllllf�
$16,444,894
2.7°
tiggem
$16,653,030
1.3%
arm II
f
17,036,050
2.3°
$17,427,879
2.3°
I
orf J
�i �£
$17,863,576
2.5°
11i`�immmmmmmmm
ff�rrrrrrrrrr
18,310,165
2.5°
Retail Sales and Use Tax
The City of Yakima receives 0.85% of the 8.2% tax collected on each sale within the city under this
revenue source (an additional 0.7% is currently received for restricted purposes - 0.3% for transit, and
0.4% for criminal justice purposes). This tax represents 27.1% of the General Fund revenue for 2015.
The portion of sales and use tax restricted to providing criminal justice related services represents 4.6%
of the General Fund revenue. There are two taxes - a 0.3% and a 0.1%. The 0.3% tax on sales was
originally passed in November, 2004, and is based on sales inside the County only - the proceeds are
divided between the County and Cities on a predefined formula under which the County receives 60%
and all cities within the County share the remaining 40%. The 0.1% tax was originally approved by
voters in 1992 - proceeds are allocated by the state between the County and Cities based on a
predefined formula. These taxes are also used to support the Law and Justice Capital program and
Public Safety Communications (i.e. dispatch). The amounts in this analysis represent only the tax
allocated to General Fund - the current allocations are assumed to continue.
Page 1 5
Projections and Assumptions
Sales tax history shows a large drop in 2009 after a decade of healthy growth. It had been pretty flat in
2010 and 2011, but started trending up in 2012. 2012 - 2014 ended the year up by 7.2%, 6.7% and 6.4%
respectively. The 2015 original budget projection was a 4.6% growth estimate. This growth rate was
holding through May (4.9% year over year increase for the first five months). However, June, 2015 was
flat compared to the prior year, so that the year-to-date growth for the first 6 months of 2015 was 3.9%.
With drought conditions and severe heat -waves in the forecast, sales tax grew at a lower rate for the
rest of 2015, and ended up increasing only 2.9% year over year. The 2015 budget was built assuming a
4.5% increase, so part of the current revenue shortfall is tied to the slowdown of sales tax growth. The
2016 budget assumes a 3.9% increase over the 2015 budget, but is ending up to be 5.6% over 2015 actual
receipts, which seems to be high considering current job growth trends. Because the drought appears
to be over, the revised projection is 3.2% growth in 2016, and 3.7% going forward. The criminal justice
sales taxes have historically grown at higher rates, so they are estimated to increase by 4.2%. These two
assumptions average 3.8% for total sales tax growth into 2020.
Sales Tax
Growth Forecast
11111111111111111
$18,565,014
6.8%
VERImmi
$19,236,800
3.6%
$18,998,098
2.3%
62, 16-
00416
$19,632,522
3.3%
$20,375,733
3.8%
mmmmmmmm
EIfI
fer
$21,147,148
3.8%
trM550tt "i"
$21,947,842
3.8%
fiRlf101!"1"1"1"1"1"1"1"1"1"111'
$22,778,927
3.8%
Utility Tax
Utility tax represents approximately 22.4% of the General Fund revenue. This revenue comes from
taxes on utilities, both City -operated and outside utilities, and varies according to weather conditions,
consumer conservation efforts and utility rates.
Projections and Assumptions
Utility tax rates were increased 6.0% by the Council effective in February 2012 to increase Public Safety
funding. Certain rates were also increased which also increases the tax revenue. The City's bond
covenants require that the water, wastewater and irrigation systems be maintained adequately to serve
our citizens throughout the life of the bonds. Rate studies are done every 3 to 5 years to help the City
determine that there are adequate financial resources to maintain the system, and all the utilities are
preparing studies to include in the Capital Facilities Plan that is being developed in conjunction with
the Comprehensive Plan update due in mid -2017. These rates will anticipate necessary capital
replacement, improvements or potential mandated upgrades by regulatory agencies. None of the 5 city
utilities (Water, Wastewater, Stormwater, Irrigation, and Refuse) had rate increases in 2015, and only
Refuse has a rate increase in 2016.
Outside utilities systematically enact rate increases for the same reasons—to maintain the capital
infrastructure and keep up with operating inflation. We are seeing a decline in telephone taxes, both
cellular and landline, as people are dropping landlines for cellular service, and cellular service is
trending away from voice toward data so both of these revenue sources have been declining in recent
years. Also, the underlying "raw" energy charge for natural gas has dropped in recent months, also
turning this revenue downward. These factors all came together to result in an actual 2015 total
revenue less than 2014 actual, or 6.4% below the 2015 budget. In reviewing historical increases and
known rate adjustments, this revenue source was initially estimated to grow at an annual average of
Page 1 6
4.0%. However, to temper the potential reductions, this was dropped to 2.7% to forecast a more
conservative outcome.
Utility Tax
Growth Forecast
Illlllllllllllllf�
$ 15,848,483
7.7%
hz
$ 15,821,650
Illlllllllllllllf�
$15,714,506
1111112 f6
$16,135,100
2.7%
117111111111
$16,573,413
2.7%
$17,023,732
2.7%
t91550t1 "i"
$17,486,388
2.7%
IFOmmmmmmmmm
iff�rrrrrrrr
$17,961,723
2.7%
Other Taxes, Licenses, and Permits
This category includes business licenses, gambling taxes and building licenses and permits,
representing only about 3.5% of total revenue.
Projections and Assumptions
The business license fee has been unchanged since the late 1980s, when these fees where increased so
that the City could participate in building the SunDome. Any change would just be the number of
businesses and/or employees operating within the City limits. Gambling tax has been rather steady
over the past several years, although Council changed the ordinance in 2013 to exempt certain non-
profit organizations, so the base was reduced in 2013. Building permits dropped during the recent
recession, but the major school rebuilding projects shored up this revenue in 2011 and 2012. Going
forward, YVCC has an expansion planned, and economic climate is good for building projects since
interest rates are at historic lows. Future revenues in these categories are conservatively projected to
grow about 2.8% over the next 5 years.
Other Taxes Lic Permit
Growth Forecast
Illlllllllllllllf�
2,318,561
1.3%
$ 2,361,550
1.9%
Illlllllllllllllfl
$ 2,427,004
4.7%
M111112 16.-
tiNtgem
$2,451,470
1.0%
$2,519,514
2.8%
d11
$2,589,490
2.8%
�1
�i�i '£
$2,661,452
2.8%
mmmmm1 m
ff�rrrrrrrrrr
$2,735,459
2.8%
Governmental Payments
Intergovernmental revenue makes up about 6.8% of the total pie. The major component of this
category is state -shared revenue, including the liquor taxes and profits; gas tax; and criminal justice
distributions. Also included is the contract with Yakima School District for school resource officers,
and Yakima County for the joint purchasing agreement, among other grants/agreements.
Projections and Assumptions
At the end of 2012, the State suspended the local Liquor Excise Tax distribution to use in their budget,
but this has been restored to previous levels in the 4th quarter of 2015. Part of the increased
governmental payments in 2015 was the full year of the firefighters hiring grant, and the first year of
the airport marketing grant. Because of potential long-term issues for the State's budget, this revenue
is projected to grow at a rate of about 2.0% through the next several years, after the one time grants
noted above are completed.
Governmental Payment
Growth Forecast
Illlllllllllllllf�
4,261,688
4.7%
$ 4,781,863
12.2%
Illlllllllllllllfl
$ 4,774,417
12.0%
M111112 16.-
tiNtgem
$4,905,937
2.8%
$4,815,614
$4,909,810
2.0%
$5,006,031
2.0%
9616111111111111111111
IFOmmmmmmmmm
iff�rrrrrrrr
$5,104,325
2.0%
Page 1 7
Charges for Services/Interfund
Charges for Services represent 11.2% of the 2015 General Government revenue. The majority of this
revenue comes from fees paid by other City funds in order to allocate the costs of general fund support
services (legal, administration, purchasing, accounting, payroll, etc.) These services are billed to each
department based on a percentage of the total amount of costs required to be recovered from other
funds. Also included are certain charges for services to the public such as Parks program fees and the
utilities reimbursing General Fund for customer service/billing activities.
Projections and Assumptions
The increase in the Charges for Services category in 2015 is tied primarily to the addition of Union Gap
fire service at a cost of about $1.2 million. As the administrative City divisions consist primarily of
staff -related costs, the payroll growth assumptions of 2 to 2.5%, the related charges for service are
estimated to increase about 2.4%.
Chgs f/Svcs - Interfund
Growth Forecast
Illlllllllllllllf�
6,461,983
7.4%
VERImmi
$ 7,938,341
22.8%
Illlllllllllllllfl
$ 7,821,568
21.0%
62, 16-
00416
$8,307,799
6.2%
$8,505,102
2.4%
$8,708,340
2.4%
rf
11
1tHt
$8,916,457
2.4%
Ifilitummm
IEIEMmmmmmmmmm
ff�rrrrrrrrrr
$9,129,570
2.4%
Fines, Forfeitures and Miscellaneous
Fine and Forfeiture revenue is derived primarily from criminal fines, noncriminal penalties, and
parking violations. This category also includes the transfer of 3.5% of water, wastewater and refuse
utility tax designated for Parks and Recreation programs from General Fund. Other miscellaneous
revenue consists primarily of interest income from investing available cash balances. These 3
categories together represent about 5.6% of total General Government revenues in 2014.
Projections and Assumptions
Prior to the recession, interest income was 3 times more than it is today. Interest is anticipated to grow
slightly for the next 5 years. The transfer to the Parks and Recreation Fund is expected to grow at the
same rate as related utility taxes — 3.0%. Fines and Forfeitures are estimated to grow at about 2%. The
Miscellaneous category also includes an estimate for the sale of the Tiger Oil properties after they are
remediated, which is causing some fluctuations in the near term. These projections average about 2.5%
going forward.
Fines Forfeitures & Mis
Growth Forecast
Illlllllllllllllf�
3,910,921
16.9%
VERImmi
$ 4,354,180
11.3%
Illlllllllllllllf�
$ 3,932,892
0.6%
62, 16-
00416
$4,371,186
11.1%
$4,466,960
2.2%
J11
$4,164,995
-6.8%
1tHt
$4,263,923
2.4%
Ifilitummm
IEIEMmmmmmmmmm
ff�rrrrrrrr
$4,369,962
2.5%
Page 1 8
GENERAL GOVERNMENT EXPENDITURES
As a reminder, the most significant initiatives included in the 2013 and 2014 budgets were:
• $2 million annually for Street repair and maintenance, as approved by the citizens in a 2013 vote
to amend the City Charter. (The Cable Television utility tax previously used for Law and Justice
Center debt service is being redirected to General Fund for this purpose). This is budgeted in
2014 as debt service on approximately $16.5 million of road improvements.
• Several positions were added both in 2013 and 2014 to restore service cut during the recession
or to enhance services as identified in response to the Citizen Survey, including:
o Enhanced Policing programs, i.e. Gang Unit, Bicycle Patrol, Violent Crime Task Force
o Animal Control
o Fire Inspections
o Code Enforcement
o Restore Fire Service
o Gang Free Initiative (GFI) Manager
o Police succession planning
o Separating jobs that were combined --Information Technology/Public Safety
Communications manager and Planner/Parks Administrative support.
• $400,000 has been added to meet the Indigent Defense minimum case rules that will be effective
the beginning of 2015
• $350,000 was added in 2015 to pay for the City's allocation of the Public Safety
Communication's move to a new facility, including debt service and ongoing operating costs.
The prior 5 year plan did not include any additional staff going forward. However, the following
strategic initiatives adding staff were implemented in 2015 and 2016:
• Enhanced Policing programs, i.e. 2 Police Officers for Federal Task Forces, 1 Public Information
Officer, implement a Corporal position, and 1 Police Services Specialist
• Human Resources - 2.5
• City Clerk - 0.5
• Economic Development -1.0
• Emergency Preparedness Specialist -1.0
• Planning -1.0
• Information Technology -1.0
• The Gang Free Initiative/ Emergency Management Director was traded out for a Neighborhood
Partnership Program manager, and an Assistant was added -1.0
• 3 Firefighters were added, but overtime was reduced by the same amount
These 12 position additions basically used the funds we were planning to use for additional debt service.
A project included in the prior plan was the local match for the Cascade Mill Site redevelopment area -
$500,000 in 2014 and 2015, growing to $1.0 million in 2016. Washington State has committed up to $1.0
million per year for project costs or debt service, which we need to match dollar for dollar. Because much of
the road work in the area was included in the new state transportation package, utility work can be used as
the local match, so we are only estimating $500,000 in 2017 and 2018 being required from General Fund,
which is not included in the base expenditures—it is added to the Other Obligation category in the
summary charts at the end of this report.
Page 1 9
The following chart depicts 2016 projected expenditure budget in generalized categories:
Capital Outlays Debt Service
$76,500 committed
Intergovernmental $3,627,774
Services
$1,999,327
Services & Charges
$11,377,619
Supplie s
$2,528,980
Personnel Benefits
$11,959,794
Transfers
$3,653,686
Salaries &Wages
$37,984,418
The primary costs of the General Government expenditures are for salaries and wages, and personnel
benefits, which combined comprise 69.2% of the General Government expenditure budget.
The following chart shows projected General Government expenditures for the next five fiscal years by
major category. Over the next four years, the average annual increase in General Government
expenditure is projected to be 2.5%.
General Government Expenditure
Growth Forecast
Expenditure Category
2015
Actual
2016
Forecast
2017
Forecast
2018
Forecast
2019
Forecast
2020
Forecast
Salaries & Wages
5.1%
0.9%
2.5%
2.5%
2.5%
2.0%
Personnel Bene fits
9.5%
6.8%
4.3%
4.3%
4.4%
4.4%
Supplies, Equipment, Misc.
(6.6%)
1.6%
2.0%
2.0%
2.0%
2.0%
Services &Charges
11.8%
(0.7%)
(1.1%)
1.7%
3.7%
2.2%
IntergovernmentalServices
1.5%
(4.3%)
4.9%
2.0%
2.0%
2.0%
Capital Outlays
(89.8%)
(36.4%)
0.0%
0.0%
0.0%
0.0%
Debt Service
(12.7%)
9.2%
5.4%
0.0%
9.4%
(2.1%)
Transfers
40.7%
(7.5%)
2.8%
3.3%
(6.0%)
3.4%
Total
1.3%
1.3%
2.4%
2.6%
2.9%
2.3%
Page 1 10
Salaries & Wages
The primary costs of the General Government expenditures are for salaries and wages, which reflect
the service nature of local government. Salary costs account for 51.9% of general government
expenditures.
Projections and Assumptions
All of the bargaining unit contracts are either settled, or in the final stages. The major units (i.e.
AFSCME, YPPA, and IAFF) are settled through at least 2017, with YPPA's current contract going
through 2019, giving some certainty to these future calculations. The 2016 budget includes the
additional staffing to meet Council's strategic priorities in the base. Future salaries and wages have
been calculated to reflect estimates for recently negotiated increases. No new positions are included in
this forecast. It should be noted that the 2% vacancy rate offset identified as a balancing strategy in the
2012 plan is incorporated in these totals. Salaries and Wages are projected to increase an average of
2.5% through 2019, and 2.0% in 2020.
Salaries &Wages
Growth Forecast
"NNE
1
$ 35,836,813
9.1%
$ 37,436,681
4.5%
MOE
$ 37,660,489
5.1%
m,I)M11:111tHlrmt1111111.t111111111111111111111111111111111111111
37,984,418
0.9%
hh
$ 38,937,076
2.5%
$ 39,913,659
2.5%
$ 40,914,767
2.5%
$ 41,731,161
2.0%
Personnel Benefits
The second largest City expense is the cost of personnel benefits. These benefits include Social Security,
pension costs, and medical, dental, vision and life insurance. Personnel Benefit costs represent
approximately 16.3% of the General Government expense. The City is self-insured for its medical,
dental and vision; unemployment; and workers' compensation programs for all eligible employees,
which is the least expensive way to provide these benefits.
Projections and Assumptions
The City's cost to provide the standard benefits are anticipated to rise at a rate higher than the CPI.
Although certain benefit costs such as Social Security increase at the same rate as the related salaries,
health care costs could potentially increase at a rate of 6.5% to 10.0%, although we have put in place
measures to slow the growth. Co -pays and incentives were designed into the plan in 2012, a medical
clinic was opened in 2013, and hospital charges were moved from a preferred provider network model,
to a reference based reimbursement model to help mitigate the cost increases. These changes have
helped to contain health plan costs. Internal premiums were dropped from the recommended rates
because of the cost containments implemented, but the plan ended 2015 with only a balance of $1.5
million, which is under the state risk manager's recommended minimum, so we may need to surcharge
the rates in 2016 to rebuild an adequate reserve. Going forward they are then estimated to increase
about 6.0% annually, as we continue to focus on wellness incentives and clinic use.
State pension contribution rates were also increased in 2015 and 2016, but are expected to remain at the
current level so that the expenditure growth is only in relationship to base salaries. Worker's
compensation and unemployment are expected to remain relatively flat. When all of these components
are considered together, this total category is projected to grow at an average annual rate of 4.3 to 4.4%.
Page 1 11
Personnel Benefits
Growth Forecast
$ 10,233,271
-2.5%
$ 11,239,439
9.8%
MOI
$ 11,201,569
9.5%
$ 11,959,794
6.8%
$ 12,479,153
4.3%
PIr
$ 13,021,882
4.3%
tai
$ 13,589,034
4.4%
12 2
$ 14,181,709
4.4%
Supplies, Equipment and Miscellaneous
This represents the tangible goods purchased by the City. Examples include office supplies; fuel;
gravel, tar and deicer for street programs; items sold at the concession stands for parks programs;
ammunition for the police department; and hoses for the fire department. The equipment budget was
greatly reduced through the recessionary years. Although the City cannot continue to offer services
without investment in facilities and equipment, minimal capital expenditures are included in this
projection.
Projections and Assumptions
Supply and equipment costs are expected to increase at a modest 2.0% rate as the economy moves
slowly forward.
Supphe s
Growth Forecast
$ 2,664,790
-3.5%
2,477,088
-7.0%
MOI
$ 2,488,821
-6.6%
$ 2,528,980
1.6%
$ 2,579,560
2.0%
Pir
$ 2,631,151
2.0%
$ 2,683,774
2.0%
2,737,449
2.0%
Services and Charges
These expenditures are split between professional services needed that are from outside sources, and
our internal charges made between funds for services offered by other areas of the City. The largest of
these interfund payments are for equipment rental by various areas of the City, along with Public
Works Administration charges for streets and parks and contributions to the Risk Management Fund.
Outside categories include communications (telephone, postage); utilities; training; indigent defense;
the city's annual audit; and repairs & maintenance.
Projections and Assumptions
Service costs are expected to increase at a modest 2.0% rate as the economy moves slowly forward.
Because of some cyclical expenditures such as election costs and pavement condition indexing which
happen bi-annually, and the tapering off of special projects such as the Airport marketing and
Comprehensive Plan professional services, there is a fluctuation in this category ranging from a -1.1%
to 3.7% depending on the year.
Services & Charges
Growth Forecast
$ 10,138,393
8.3%
$ 10,808,092
6.6%
$ 11,337,595
11.8%
)111111111 1111111111111111111111111h
$ 11,252,619
-0.7%
$ 11,123,959
$ 11,315,779
1.7%
$ 11,737,834
3.7%
$ 11,993,791
2.2%
Page 1 12
Intergovernmental Services
Jail costs provided by other governments make up most of this category.
Projections and Assumptions
The City has negotiated a jail contract with Yakima County which reduced this expense category in
2014 and has brought some stability to this expenditure, and is expected to grow by 2.0% going
forward.
Intergovernmental Sv
Growth Forecast
$ 2,185,948
-14.2%
Wd:
$ 2,019,143
-7.6%
$ 2,218,676
1.5%
2 16
$ 2,124,327
-4.3%
;TOW
$ 2,228,354
4.9%
$ 2,272,921
2.0%
tMAC
$ 2,318,379
2.0%
11,mI11
lliii1111111111111111:1111
�
2,364,747
2.0%
Deferred Maintenance and Capital Improvements
Over the years, the City has failed to keep pace with needed capital investment and deferred
maintenance of its capital assets. In the most recent Strategic Plan, Council is addressing the Street
maintenance deficiency. However, other areas of need exist. Currently, approximately 50% of the
Equipment Rental Fleet (which excludes Police, Fire, and Transit rolling stock) is beyond its calculated
replacement age. Although we have recently addressed the critical issue of street maintenance, parks
facilities, and economic development, it is extending the deferred maintenance in other areas, so that
current equipment and facilities will continue to deteriorate, until a long-term solution can be
determined.
Capital Outlays
Growth Forecast
$ 1,184,002
-49.0%
118,412
-90.0%
pgU
$ 120,194
-89.8%
illImIllm11111111ft 1111111111111111
76,500
-36.4%
$ 76,500
0.0%
$ 76,500
0.0%
tai
$ 76,500
0.0%
t r 2
76,500
0.0%
Debt Service
As the economy started to grow in 2012, the City addressed capital deficiencies, especially in it Streets
infrastructure, and invested in other strategic priorities, such as public safety (i.e. the Police vehicle take-
home program and Fire equipment replacement), and economic development through our match for the
Cascade Mill Site project. In instances where improvements are high dollar value and have an extended
service life, it is appropriate to borrow and repay the debt over the useful life of the asset acquired.
Washington State limits the amount of General Obligation debt that a City can have outstanding to a
percentage of the taxable assessed valuation of property in its jurisdiction. The most restricted category
is General Obligation (GO) debt authorized by City Council, which can't exceed 1.5% of assessed value,
net of assets that are available to repay the debt. At the end of 2014, the 1.5% limit is approximately
$82.7 million, and net outstanding debt was $43.2 million, leaving remaining capacity of $39.5 million.
Accordingly, we have used 52.3% of our GO debt capacity. The City's current Financial Management
Policy restricts using no more than 70% of the capacity, in order to reserve 30% for emergencies. This
means the City has at least $14.7 million of its general obligation debt capacity available at the end of
2014. The voter approved Parks capital program will use about $9.5 million.
Page 1 13
Projections and Assumptions
The detail of the debt service including the final payment date is as follows:
Police Vehicles — DS thru 2019, then replacement in 2020
$789,037
Fire Truck -2023
39,216
Airpacks - 2019
86,898
2 Fire Vehicles — 2020
69,959
3 Fire Vehicles — purchase in 2016, DS starts in 2017
230,000
Fire Ladder Truck - 2021
72,275
CERB loan — 2016
35,601
SunDome improvements - 2021
110,000
Streets — 2024
2,024,789
SOZO - 2035
400,000
Aquatic Center- estimated to start DS in 2019
360,000
This results in 2016 Debt Service of $3,627,774, growing to $4,182,173 in 2019. The allocation for the aquatic
center is included in the interfund transfer to the Parks Capital Fund category until 2019.
No other additional debt service is included in this presentation in the base numbers. Other projects
contemplated in the 2016 budget that would have debt service begin in 2017 include $7 million for the
Downtown Plaza - expected debt service of $560,000; $8 million for N 1St Street - expected debt service
of $640,000; and additional street rehabilitation of $5 million - expected debt service of $400,000. The
annual debt service of $220,000 that was for the improvements made to River Road/16th Avenue in 2007
will be completed in 2017, freeing up gas tax currently being directed to the Arterial Street fund.
Debt Service
Growth Forecast
$ 3,805,036
94.8%
3,321,824
-12.7%
IU
3,321,824
-12.7%
11111111111111'1'1'1'1
3,627,774
9.2%
$ 3,822,173
5.4%
i111.1M1t
$ 3,822,173
0.0%
$ 4,182,173
9.4%
r
2t
4,095,275
-2.1%
Transfers
This category includes the utility tax transfers of 3.5% to Parks and 0.5% to Law and Justice Capital
funds, along with the operating subsidy for the City's portion of the Public Safety Communication
funds dispatch function. It also includes Streets and Parks transfers to Equipment Rental fund for
equipment replacement, Parks subsidy of the Cemetery operations, and the transfer from Parks
operating to the Parks Capital Fund.
Trans fe rs
Growth Forecast
"MN
111111 IIID
$ 2,807,059
98.5%
1111112015
3,937,242
40.3%
Mil
3,949,607
40.7%
IIU
3,653,687
-7.5%
hh
$ 3,754,528
2.8%
$ 3,877,680
3.3%
111
$ 3,643,210
-6.0%
3,766,988
3.4%
Page 1 14
SUMMARY
Since the 2014 plan was issued, the economy has improved and the City took steps to reduce
expenditures. However, a relatively recent downturn in revenues and the resulting more conservative
revenue estimates has this Five -Year Financial Forecast predicting use of an already depleted fund
balance. Based on projected revenue and expenses the Preliminary Five -Year Financial Forecast reflects
projected budget shortfalls between $0.8 million annually in 2016 dropping to $600,000 in 2020, as
revenue is estimated to continue to grow, and debt service remains flat after it is initially added. As we
go forward through 2016, management will continue to look for operational efficiencies, such as
position attrition, reorganization, managed competition, and service optimization, just to assure the
2016 budget comes in balanced. Any growth in revenue beyond these estimates should be applied to
rebuild reserves to policy -required levels before considering new initiatives.
The following chart summarizes the budget shortfalls identified in the 5 -year Financial Forecast, along
with additional operational expenditures tied to current commitments (i.e. the ACLU legal settlement;
underfunding of the medical plan; street improvements to access the SOZO property; a potential LIFT
match; and operating costs of the new aquatic center). Lastly, the debt service for new capital initiatives
are identified.
X11
r
Aovo
m 11111111111111111
farRsoolffiffi
IU
Dipsoot
Vif
J
mml
Enmo
ai
POREOh
Revenues
Expenditure s
Budget Gap- Status Quo
$67.38 $70.87 $70.11 $72.46 $74.29 $75.97 $78.15 $80.39
$68.86
($1.47)
$71.36
($0.49)
$72.30
($2.19)
$73.21
($0.75)
$75.00
($0.71)
$76.93
($0.96)
$79.15
($1.00)
$80.95
($0.56)
ACLU settlement
ttilg/119thaII I fluu�f l
131
$1.80
jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjj� 111111111111111111111111111111111111111111111111111111111 111111111111111111111111111111111111111111111111111111111 111111111111111111111111111111111111111111111111111111111
Me dical plan unde r-funde d
$0.50
$0.50
$0.50
$0.50
$0.50
SOZO street imp. $2m bond
$0.16
$0.16
$0.16
$0.16
LIFT match - not included above
$0.50
$0.50
$0.00
$0.00
Aquatic Center operating costs
$0.35
$0.35
Subtotal -Other Issues
$2.30
$1.16
$1.16
$1.01
$1.01
Budget Gap- likely additional Exp.
($3.05)
($1.87)
($2.12)
($2.01)
($1.57)
Downtown Plaza
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
0.16
0.56
0.56 $0.56
No 1st St
0.64
0.64
0.64 $0.64
Road Rehabilitation
0.40
0.40
0.40 $0.40
Subtotal -New Debt
1.20
1.60
1.60 51.60
Budget Gap- all factors
3.05)
($3.07)
($3.72)
($3.61) ($3.17)
LIFT match is $1m/year. Match can be met by right-of-way donation and County work on the East-West Corridor
within the LIFT boundary. Utility projects in the boundary can also apply toward the match, which may start in 2019.
Page 1 15
Projected General Government Reserves
The City has a policy to maintain 16.7% unassigned operating reserve in the combined General
Government funds to address unforeseen expenditures of an emergency nature. This reserve level is
recommended by the Governmental Finance Officers Association (GFOA) and represents 2 months of
expenditures. The following table depicts the ending reserve balance based on the summary forecast
presented above, and the calculated percentage of operating expenses.
Operating Reserve % of GF
Total Re se rve
IHMINMfite
13.7%
$9.4
111
12.5%
$8.9
10.0%
$7.2
RP tom
Epit
8.8%
$6.5
11 1111111111111111111111
farigsaRtimil
7.6%
$5.7
mom
vemsic
6.2%
$4.8
111
4.8%
$3.8
MIME
4.0%
$3.2
The City of Yakima has been using general government reserves in the past 2 operating years, and is
heading into 2016 with a fund balance that is only 10% of operating expenses instead of the
recommended 16.7%. This is demonstrating that we have over -committed our limited resources, and
we need to come back together to recast the 2016 budget to develop a balanced strategy for meeting its
fiscal challenges. Obviously, the City can't keep using its general government reserves - senior
management is committed to identify appropriate cost containment measures. Even though we have
made investments in needed economic development and infrastructure initiatives, current conditions
do not support additional initiatives at this time. As we identify and fund our top priorities, our City
will continue to provide essential, outstanding cost effective service and capital improvements to our
residents and businesses.
Page 1 16
REVENUE PROJECTIONS
Sales Tax
2014
2015
2015'
2016
2017
2018 ,
X2019
X2020..
Growth Forecast %
Actual ;
Y E Est
Actual
New Est
Forecast
Forecast
Forecast
Forecast.i.
Property Tax
$16,016,029
$16,376,215
$16,444,894
$16,653,030
$17,036,050
$17,427,879
$17,863,576
$18,310,165
Growth Forecast %
2.0%
2.2%
2.7%
1.3%
2.3%
2.3%
2.5%
2.5%
Sales Tax
$18,565,014
$19,236,800
$18,998,098
$19,632,522
$20,375,733
$21,147,148
$21,947,842
$22,778,927
Growth Forecast %
6.8%
3.6%
r
2.3%
3.3%
3.8%
3.8%
3.8%
3.8%
Utility Tax
$15,848,483
$15,821,650
$15,714,506
$16,135,100
$16,573,413
$17,023,732
$17,486,388
$17,961,723
Growth Forecast %
7.7%
-0.2%
r -0.8%
2.7%
2.7%
2.7%
2.7%
2.7%
Other Taxes, Lic, Pern
$2,318,561
$2,361,550
$2,427,004
$2,451,470
$2,519,514
$2,589,490
$2,661,452
$2,735,459
Growth Forecast %
1.3%
1.9%
r 4.7%
1.0%
2.8%
2.8%
2.8%
2.8%
Governmental Payme
$4,261,688
$4,781,863
$4,774,417
$4,905,937
$4,815,614
$4,909,810
$5,006,031
$5,104,325
Growth
Growth Forecast %
4.7%
12.2%
1 -
12.0%
2.8%
-1.8%
2.0%
2.0%
2.0%
Chgs f/Svcs - Interfun
$6,461,983
$7,938,341
$7,821 568
58,307,799
$8.S05.102
$8,708,340
$8,916,457
$9,129,570
Growth Forecast %
7 4%
22.8%
r
21.0%
6.2%
2.4°4
2.4%
2.4%
2.4%
Fines, Forfeitures & M
$3,910,921
$4,354,180
$3,932,892
$4,371,186
$4,466,960
$4,164,995
$4,263,923
I $4,369,962
Growth Forecast %
16.9%
11.3%
r 0.6%
11.1%
2.2%
-6.8%
2.4%
2.5%
Total Revenue
$67,382,678
$70,870,599
$70,113,379
$72,457,044
$74,292,386
$75,971,394
$78,145,669
$80,390,131
Growth Forecast %
6.1%
5.2%
v
4.1%
3.3%
2.5%
2.3%
2.9%
2.9%
Page 1 17
EXPENDITURE PROJECTIONS
2o14• .'
'20115
Y E Est
. 2015
Actual
,2016 2017
•
Very Est Forecast
2018 2019.
Forecast Forecast::
Salaries & Wages
$35,836,813
$37,436,681
$37,660,489
$37,984,418
$38,937,076
$39,913,659
$40,914,767
$41,731,161
Growth Forecast %
9 1%
4.5%
r 5.1%
0.9%
2.5%
2.5%
2.5%
2.0%
Personnel Bene fits
$10,233,271
$11,239,439
$11,201,569
$11,959,794
$12,479,153
$13,021,882
$13,589,034
$14,181,709
Growth Forecast %
-2.5%
9.8%
y 9.5%
r 6.8%
4.3%
4.3%
4.4%
4.4%
Supplies
$2,664,790
$2,477,088
$2,488,821
$2,528,980
$2,579,560
$2,631,151
$2,683,774
$2,737,449
Growth Forecast %
-3.5%
-7.0%
-.-6.6%
r 1.6%
2.0%
2.0%
2.0%
2.0%
Services & Charges
$10,138,393
$10,808,092
$11,337,595
$11,252,619
$11,123,959
$11,315,779
$11,737,834
$11,993,791
Growth Forecast %
8.3%
6.6% sr
11.8%
r -0.7%
-1.1%
1.7%
3.7%
2.2%
Intergoval Services
$2,185,948
$2,019,143
$2,218,676
$2,124,327
$2,228,354
$2,272,921
$2,318,379
$2,364,747
Growth Forecast %
(14.2%)
-7.6%
v $0
r -4.3%
4.9%
2.0%
2.0%
2.0%
Capital Outlays
$1,184,002
$118,412
$120,194
$76,500
$76,500
$76,500
$76,500
$76,500
Growth Forecast %
(49.0%)
-90.0%
sr -89.8%
r -36.4%
0.0%
0.0%
0.0%
0.0%
Debt Se rvice - committe d
$3,805,036
$3,321,824
$3,321,824
$3,627,774
$3,822,173
$3,822,173
$4,182,173
$4,095,275
(w/ SOZO & Aquatics)
94.8%
-12.7%
-12.7%
9.2%
5.4%
0.0%
9 4%
/.1%
Transfers
$2,807,059
$3,937,242
$3,949,607
$3,653,687
$3,754,528
$3,877,680
$3,643,210
$3,766,988
Growth Forecast %
98.5%
40.3%
r 40.7%
-7.5%
2.8%
3.3%
-6.0%
3.4%
Total Expenditures
$68,855,312
$71,357,921
$72,298,775
$73,208,099
$75.(101,303
$76,931,745
$79,145,673
$80,947,619
Growth Forecast %
10.9%
3.6%
1.3%
1.3%
2.4%
2.6%
2.9%
2.3%
Page 1 18