Finance Advisory Committee

Regular Meeting

DeKalb, IL · May 2, 2017

Agenda

AGENDA Finance Advisory Committee Meeting Tuesday May 2, 2017 5:30 p.m. City Hall Council Chambers (Second Floor) A. Call to Order B. Roll Call for Attendance C. Public Participation D. Approval of Minutes 1. Finance Advisory Committee July 12, 2016 E. Five-Year Financial Plan sample document F. Adjournment The Finance Advisory Committee’s role (as listed in Chapter 54-11) is to provide well- reasoned, financially sound recommendations to the Council. Meetings and reporting shall be on a project-by-project basis or as otherwise assigned by the City Council. The Finance Advisory Committee shall work in cooperation with the City Council and the City Manager to analyze the City’s financial policies, long term financial stability, options for greater efficiencies and possible revenue and expenditure modifications. MINUTES FINANCE ADVISORY COMMITTEE CITY OF DEKALB JULY 12, 2016 A. CALL TO ORDER The Finance Advisory Committee meeting of July 12, 2016, was called to order at 5:31 p.m. by Chair Peddle. B. ROLL CALL Committee members present were Connie Golden, Lynn Neeley, Mike Verbic, David Conlin, Ron Partch, and Chairman Mike Peddle. Others present: City Manager Anne Marie Gaura, Finance Director Cathy Haley, Interim Fire Chief Jeff McMaster, Police Chief Eugene Lowery, Assistant City Manager Patty Hoppenstedt, Public Works Director Tim Holdeman, Community Development Director Ellen Divita (arrived at 5:32 p.m.), and Deputy City Clerk Carri Parker. Committee member not present was Tom Teresinski. Chair Peddle made a statement to the Committee, Executive Team and the Public concerning the Open Meetings Act (see Attachment A). C. PUBLIC PARTICIPATION Mr. Dwayne Brown made comments on previous meetings. He stated that he liked maintaining the staffing levels of 2015, freeze on hiring, and lowering the sales tax 1%, discussed in the FY16.5 budget meetings. He did not like that none of these suggestions were approved. He claimed that there are three things that Staff does not want to admit: the Police Station was unaffordable; do not want a hiring freeze and do not want to make any budget cuts. Mr. Brown stated that raising fees are only going to hurt the individuals that cannot afford it. D. APPROVAL OF MINUTES 1. Minutes of the Finance Advisory Committee Meeting of April 5, 2016. 2. Minutes of the Joint City Council and Finance Advisory Committee Meeting of May 11, 2016. 3. Minutes of the Joint City Council and Finance Advisory Committee Meeting of May 25, 2016. Finance Advisory Committee Meeting July 12, 2016 Page 2 of 4 4. Minutes of the Joint City Council and Finance Advisory Committee Meeting of June 1, 2016. MOTION Committee Member Golden moved to approve the minutes; seconded by Committee Partch. VOTE Motion carried on an omnibus vote. Chair Peddle declared motion passed. Chair Peddle requested that when looking at the next three items that discussion be at a high level. He suggested providing guidance on how we should choose comparable municipalities and benchmarks. E. COMPREHENSIVE COMPARATIVE ANALYSIS (Including Comparable Municipalities and Benchmarking Criteria) Finance Director Haley provided an overview of the Comprehensive Comparative Analysis based on recommendations from the Finance Advisory Committee. She added that there are two parts: comparable communities and the criteria and metrics to be used. She introduced Dr. Greg Kuhn and Dr. Shannon Sol from the Northern Illinois University (NIU) Center for Governmental Studies. Dr. Greg Kuhn explained the main points of the comparables is to locate who looks most like DeKalb. He added that it needs to be determined what you are aiming to do with the data. He mentioned that the City would use empirical data and apply it to that source, and decide which communities are similar to the City of DeKalb. He suggested looking at the comparables and applying distinguishing characteristic when defining a university/college. He explained the steps taken to eliminate cities that do not compare to DeKalb. He suggested that staff takes the list and compare it over time. Dr. Shannon Sohl added that when you are capturing this information (data point) that you need to take into consideration, the costs/services may vary between communities. Chair Peddle stated that there are concerns on how the City of DeKalb compares to other University towns (Large Public Universities). He stated that the Evanston’s of the world would not be a comparable. He added that Macomb and Charleston would not pass, but Champaign-Urbana, Bloomington-Normal, and Carbondale are more likely a better comparable. He suggested having a consistent set of communities to be benchmarked would be helpful to see how things are changing over time. The Finance Advisory Committee and Staff discussed the information provided about the financial impact, how it would be used, and how it would affect the community. Finance Advisory Committee Meeting July 12, 2016 Page 3 of 4 Public Works Director Holdeman out 6:45 p.m. Public Works Director Holdeman in 6:47 p.m. F. FIVE-YEAR FINANCIAL FORECAST ASSUMPTIONS Chair Peddle stated that the assumptions are not something the Committee wants to debate tonight. He added that the information provided are conservative assumptions. G. FIVE-YEAR FINANCIAL PLAN Chair Peddle stated that the Five-Year Financial Plan is a response to the Five-Year Financial Forecast. He questioned how Staff would combine the strategic plan with the financial plan. Police Chief Lowery out 7:12 p.m. Chair Peddle questioned what we are trying to do. He added that the goal is to be transparent and to have taxpayers have faith in the fiscal process, understanding there is a direction the City is going and that each year is moving forward in the Five-Year Plan. Committee Member Neeley stated that the Five-Year Financial Plan would be one of the means that would be used to put the Strategic Plan in action. City Manager Gaura asked the Committee to find examples of a Five-Year Financial Plan that they would like us to model after. She added that from the research done it’s hard to find Five-Year Financial Plan within other municipalities. Police Chief Lowery in 7:15 p.m. Chair Peddle agreed that finding another Five-Year Financial Plan from another Municipality is feasible. He added that this would assure the community that the City and elected/appointed officials are all moving in the same direction in a responsible and accountable way. H. ACCOUNTING STATUS OF THE BALANCE OF THE WATER CAPITAL FUND Chair Peddle requested the status of the segregation of the Water rate increase. He explained that those funds were to be segregated and not to be used for operational use. Finance Director Haley explained that there are two separate funds now: Operational and Capital. Chair Peddle acknowledged the two funds, and he wanted to make sure that Staff did do a segregation and chose a timeline for the water improvements. Finance Director Haley stated that a revenue line item showing this revenue has been incorporated in to the Water Capital Fund. Finance Advisory Committee Meeting July 12, 2016 Page 4 of 4 I. APPROVAL OF RECOMMENDATIONS REGARDING E, F, G AND H Chair Peddle stated that the Committee is not at the point to make any recommendations. J. OTHER ITEMS Chair Peddle asked if the Library had received their funds from the State of Illinois. Finance Director Haley added that the stop gap budget was not enough to release those funds. Assistant City Manager Hoppenstedt stated that the library was assured by the State the money was there, but the money will not be released until a budget is passed. Chair Peddled discussed the Library levy stating the levy would need to be passed in late December. He added that there could be an abatement up to one month before the property taxes are mailed. K. ADJOURNMENT Chair Peddle requested a motion to adjourn, moved by Committee Member Verbic and seconded by Alderman Noreiko. The motion passed by an omnibus vote. Meeting adjourned at 8:54 p.m. __________________________________________ CARRI PARKER, Deputy City Clerk RETURN TO AGENDA DATE: April 28, 2017 TO: Finance Advisory Committee FROM: Anne Marie Gaura, City Manager Cathy Haley, Finance Director SUBJECT: Five Year Financial Plan After a meeting with the Finance Advisory Committee (FAC) last July, staff asked committee members to send examples of what they were looking for in a 5-year financial plan document to City staff. Two members of the committee responded and staff reviewed those samples. The attached document was put together using two of the sample plans. In two separate meetings in February and March of this year, this sample document was reviewed with Chair Peddle, City Manager Gaura and Finance Director Haley. City staff is looking for feedback from the FAC on whether this document format is sufficient for the 5-year financial plan for the City of DeKalb. FIVE YEAR FINANCIAL PLAN Table of Contents ________ ___________________________________________________________________ INTRODUCTION ........................................................................................................................................ # EXECUTIVE SUMMARY .......................................................................................................................... # ECONOMIC POSITION ............................................................................................................................. # REVENUE EXPENDITURE FORECASTS AND TRENDS ................................................................... # INDIVIDUAL POLICY OPTIONS ............................................................................................................ # REVENUE EXPENDITURE FORECASTS AND TRENDS ................................................................... # SPECIAL REVENUE FUNDS .................................................................................................................... # INTRODUCTION Introduc on The Five‐Year Financial Plan A Tool for Making Tough Choices Like many ci es and coun es in the region and The plan was developed in response to City Coun‐ across the country, Alexandria faces a challenging financial cil’s October 2013 request for a be er means for evalu‐ future due to structural imbalances caused by increasing a ng the future financial performance of the City. costs, demand for services, and stagnant revenue growth It is based on a dynamic financial model that u liz‐ since the Great Recession. es data to illustrate the eﬀects of specific policy decisions The City is commi ed to ensuring fiscal strength on the City’s financial forecast. This model is an invaluable and accountability while delivering results that the com‐ tool that will help Council, City staﬀ and ci zens clearly munity values; and yet it currently forecasts budget evaluate the long‐term eﬀects of pursuing specific poli‐ shor alls for the foreseeable future. cies. The City’s financial management is sound, but the The plan is intended to help create synergy be‐ supply of revenue in the current economic climate is not tween the new strategic approach to budge ng ushered suﬃcient to meet the demand for services at current tax in by Results Alexandria and the recently reformed budget and fee rates. There are decisions that must be made that process. can either change the trajectory of Alexandria’s fiscal out‐ To achieve results that the community values in a look or con nue the current trend of annual budget cut‐ constrained economic environment, resources must be backs. The choices include growing the tax base, repriori‐ strategically realigned to reflect community values, but zing expenditures (including capital investments), ad‐ this process of realignment cannot be completed in only a jus ng tax and fee rates, elimina ng services, or some single budget cycle. This need for mul ‐year realignment combina on. is addressed through long‐term planning. In order to end the trend of budge ng each year The Five‐Year Financial Plan does not include spe‐ from a star ng shor all, and to replace short‐term deficit cific decisions on how to bring the City’s five‐year reve‐ reduc on with long term strategic financial planning, the nues and expenditures in balance; rather it presents the City must be able to evaluate the long term financial impli‐ causes of the projected imbalance and provides a tool for ca ons of the op ons it faces in order to choose the path examining various policy op ons and facilita ng a commu‐ to long‐term sustainability that best suits our community. nity dialogue about those choices. For this purpose, we have developed the Five‐Year Finan‐ cial Plan. Through the Five‐Year Financial plan, we will com‐ municate the City’s financial challenges, help stakeholders have a be er understanding of the trade‐oﬀs necessary to achieve financial balance, and assist in making financially sustainable decisions in the budget process. A Process for Financial Planning The Five‐Year Financial Plan is more than just the document that follows. It is a process and strategy for long ‐term strategic financial planning that starts with a mul ‐ year projec on of revenues and expenditures based on current policies and services and then allows us to add the individual or compounded eﬀects of various policy choices to demonstrate their impact on our financial future. This informa on enables City Council and the community to discuss policy decisions with greater aware‐ ness of their long‐term financial implica ons. Through this process and strategy, we can seek to achieve the balance of fiscal strength, accountability, and results that the com‐ munity values. Five Year Financial Plan FY 2016‐FY 2020 2.1 Introduc on Our Strategic Goals development, economic forecas ng, City personnel costs, the Alexandria City Public Schools, the Capital Improve‐ ment Program, and other cost drivers to make a be er The Five‐Year Financial Plan is aligned with the forecast. This method is new to the City and preferred strategic budgetary and management goals of the City: over a sta c trend line forecast which predicts revenue ensure the fiscal strength of the City Government, and and expenditures based predominately on historical data. achieve results that the community values. The ability to highlight revenues and expenditures To ensure fiscal strength, we must keep an eye for mul ple years is an invaluable planning tool. The Five‐ towards long‐term sustainability, which requires this mul Year Financial Plan diﬀers from the revenue and forecast ‐year perspec ve. scenarios currently included in the opera ng budget in two par cular respects: Elements of the Plan 1) Dynamic Forecas ng – It does not simply u lize histor‐ Elements of the Five‐Year Financial Plan include: ical data trends to predict future financial condi ons. 1) A review of the City’s current economic posi‐ It creates budget scenarios which reflect actual condi‐ on; ons such as future capital project costs, associated 2) A forecast of future revenues and expendi‐ funding and changes in opera ng costs tures based both on historical trends and planned or considered policy ini a ves; 2) Mul ‐Year Planning – It is a tool and process for long‐ 3) Individual policy op ons to be examined for er term financial planning as opposed to an actual ap‐ their financial impact, such as business tax propria on of funds. reform and increased investment in the storm water infrastructure; and 4) A forecast of some of the City’s major special revenue fund five‐year revenues, expendi‐ tures and fund balances. Economic Posi on City Council and Alexandria ci zens need to be well‐informed of the current economic climate and what it means to the City’s long‐term financial health. The Five‐Year Financial Plan begins with an analy‐ sis of the strengths and weaknesses of the City’s current and projected economic posi on, including its strong de‐ mographic indicators and its geographic loca on in prox‐ imity to the na on’s capital, but also its dependence on the residen al real estate taxes and suscep bility to eco‐ nomic stagna on. This provides context for the need to carefully consider future policy choices for their long‐term financial impact. Revenue and Expenditure Forecast Following the Economic Posi on is a five‐year forecast of revenues and expenditures based on the pre‐ ceding economic analysis, recent historical spending trends, and planned or an cipated future expenditure changes. The City is using real data to create a dynamic forecas ng model which u lizes informa on on planned Five Year Financial Plan FY 2016‐FY 2020 2.2 Introduc on Individual Policy Analysis Specific policy op ons are communicated clearly and illustrate the long‐term revenue or expenditure out‐ comes of certain ac ons in numerical as well as narra ve form. The use of mul ple scenarios is a common trait of long‐term financial planning. These plans usually feature baseline, op mis c, and pessimis c outcomes. The ac‐ companying policy op ons describe the eﬀects of diﬀer‐ ent ac on taken, usually these op ons are to maintain funding and service, or to increase or decrease by certain increments. A good forecast should leave ci zens and de‐ cision makers with clear and concise informa on from which to form an opinion or ac vely pursue a course of ac on. Financial Balance Analysis Another new ini a ve being undertaken is the task of analyzing the balances of City funds. Through this analysis, we will evaluate the strength of the City’s Gen‐ eral Fund and other special revenue and enterprise funds, their ability to maintain adequate reserves, and if possi‐ ble, whether surpluses exist that could be u lized for oth‐ er cri cal needs. Going Forward The Five‐Year Financial Plan is intended to assist City Council and the community to reallocate our con‐ strained resources to provide services and results that are more in line with the community’s expecta ons while achieving long‐term financial balance and accountability. The Five‐Year Financial plan can assist by providing the tool for evalua ng the fiscal implica ons of policy deci‐ sions and the process for publicly delibera ng and making those choices. Through its development, we will com‐ municate the City’s financial challenges, be er understand the trade‐oﬀs necessary to achieve financial balance, and assist in making financially sustainable decisions in the budget process. Five Year Financial Plan FY 2016‐FY 2020 2.3 EXECUTIVE SUMMARY Execu ve Summary Execu ve Summary unfunded demands for addi onal resources and poten al funding op ons for some of those needs. They include Alexandria is in a sound financial posi on. In- storm water infrastructure needs along with some op ons comes and property values are higher than the na onal on how to fund them and a set of business tax reform pro- average. It’s proximity to the na on’s capital, popular posals. tourist a rac ons, an airport and other Northern Virginia Most of the emphasis of the plan is on the Gen- economic hubs makes it an a rac ve des na on for eral Fund, the City’s primary source of funding, however homebuyers and renters; businesses and employees; and the plan includes a summary of some of the City’s other shoppers, diners, and tourists. New development oppor- special revenue funds in recogni on of the fact they too tuni es such as those in Potomac Yard, the Beauregard represent a por on of the City’s overall spending and in corridor, and the along the Waterfront are expected to many changes, contribute to the overall tax and fee bur- grow the City’s tax base. den. The City is financially well-managed. It annually In light of the current financial situa on, stake- adopts a balanced budget and ten-year Capital Improve- holders in the upcoming FY 2016 budget process will need ment Program (CIP), maintains a healthy financial reserve, to consider trade-oﬀs. However, it is unlikely that the City is highly rated by credit agencies, and adheres to self im- will be able to achieve a long-term structural balance and posed financial policy guidelines regarding the debt. address the addi onal unfunded demands iden fied in Nonetheless, it faces a number of financial chal- this report in a single year. The purpose of this plan is to lenges that will strain its resources. The economy has stag- begin to iden fy and examine some of the major issues nated since the recession. This has limited local revenue leading up to the budget process and provide a tool for growth and aid from the Commonwealth, making it diﬃ- planning to address those issues over a mul -year cult for revenues to maintain the rate of growth of the meframe. City’s base level of services. In the five-year forecast pre- sented in this plan, revenues are projected to grow by three percent annually while the cost of con nuing cur- rent services and policies is projected to grow by four per- cent, resul ng in a budgetary shor all of $16 million in FY 2016 that grows to $33 million in FY 2020. Since the City adopts a balanced budget each year, these shor alls would never actually occur. Instead, the diﬀerence in each year would have to be eliminated through spending re- duc ons, tax and fee increases, or a combina on of both. Included in the expenditure growth is the cost of increasing Alexandria City Public Schools (ACPS) enroll- ment, which grows from 14,156 students in FY 2015 to 17,291 in FY 2020; increased General Fund support for the Capital Improvements Fund (CIP), which grows from $79.9 million in FY 2015 to $112.9 million in FY 2020 due in part to an aging infrastructure and increasing regulatory re- quirements; increased subsidies to local and regional transit agencies such as Metro and DASH, which grow at 4.6% annually; and the cost of City programs, which are driven largely by employee salaries and benefits that grow at 3.4% annually. According to the forecast, without increased eco- nomic growth or any changes in current services and poli- cies, real estate property tax increases would be required in future years in order to achieve a balanced budget, in- cluding 4.4 cents in FY 2016. In addi on to this baseline structural imbalance, there are addi onal needs presented in the policy op ons sec on of this report that highlight some of the currently Five Year Financial Plan FY 2016‐FY 2020 3.1 ECONOMIC POSITION City’s Economic Posi on Alexandria’s strengths The Patent and Trademark Oﬃce, the Department of De‐ fense, the City of Alexandria, and Inova Alexandria Hospi‐ tal, all of which are stable employers. For many years, Alexandria has been a prosperous, successful city that benefits from its proximity to Wash‐ The City has a thriving tourism industry based ington, DC, the Pentagon, Reagan Na onal Airport, and its around Old Town Alexandria and its proximity to Washing‐ loca on at the intersec on of I‐495, I‐95, and I‐395. As the ton, DC and Mount Vernon. Development and redevelop‐ chart indicates, except for a period in the 1970’s, the City’s ment at Potomac Yard, the Beauregard corridor, and the popula on has grown steadily for the last hundred years. Waterfront posi on the City economically well in the fu‐ In 2012, the Census Bureau es mates the City’s popula on ture, however within the five‐year meframe of this plan, as 146,294. much of the revenue growth an cipated to be generated by this ac vity will be used to fund the infrastructure in‐ Alexandria's Population vestments necessary to support it and will oﬀer li le im‐ 160,000 mediate relief to the general tax base. 140,000 139,966 120,000 128,283 In short, the City’s local economy is stable and 100,000 110,927 111,183 prospering, but slow economic growth described in the 103,217 80,000 91,023 following pages limits the supply of revenue available at 60,000 current tax rates from keeping up with increasing costs 61,787 40,000 and demand for services. 20,000 33,523 24,149 ‐ 15,329 18,060 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 On many sta s cal measures the City fares well compared to the rest of the country. The City of Alexandria has the 16th highest per capita personal income in the country. The City’s average household income is about 60% above the na onal average. The City also has a very low unemployment rate and a high percentage of its resi‐ dents with a college degree. According to Amazon.com, based on sales of book, magazine, and newspaper sales, the City of Alexandria was the “most well‐read city in America” in 2014 for the third year in a row. A large percentage of the City’s workforce is in the professional and technical services (20%) and public ad‐ ministra on (16%) fields, which include well paid and high‐ ly educated professionals. The City’s largest employers are Alexandria Comparative Statistics Alexandria United States Mean household income, 2008‐2012 $114,286 $71,317 Median household income, 2008‐2012 $83,996 $51,371 Unemployment rate (April 2014) 3.6% 6.3% Median Home Sales Price (May 2014) $517,000 $213,400 Families below poverty level, 2008‐2012 5.8% 11.8% Percentage of population with college degree, 2008‐2012 60.5% 18.2% Retail sales per capita, 2007 $16,785 $12,990 Five Year Financial Plan FY 2016‐FY 2020 4.1 City’s Economic Posi on The City’s Slow Growth Economy The slow growth in the City’s economy is also re‐ flected in the number of private sector jobs. The chart be‐ In 2008, the United States sustained the worst low shows the number of private sector and public sector economic downturn since the 1930’s. Alexandria’s econo‐ jobs in Alexandria as of the end of each fiscal year. my, in part because of its close proximity to Washington, DC, and in part because of increases in federal spending Alexandria Employment to combat the worst eﬀects of the recession, fared rela‐ Public Sector vs. Private Sector vely well compared to much of the rest of the country. 120 Employment (Thousands) However, recovery from the recession has been slow, 100 and the City’s private economy is about the same size it 80 was before the 2008 recession. 60 40 One of the best proxies for economic ac vity in 20 the City is the revenue collec ons from business license ‐ taxes, which are based on the total gross receipts of the 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 City’s businesses. This is akin to measuring Gross Domes‐ Private Sector Public Sector c Product (GDP) for the na on, but on the City level. The chart below shows the City’s Business License tax collec ons from 2004 un l 2013. The City has had success a rac ng government jobs. The Patent and Trademark Oﬃce was relocated into The chart shows that Business License Tax collec‐ Alexandria in 2004, kicking oﬀ a building boom in the Car‐ lyle area of the City. During the ten years between 2004 Business License Tax Collections and 2013, the number of public sector jobs nearly dou‐ 40.0 FY 2004 ‐ FY 2013 bled, while the number of private sector jobs in Alexandria Millions of Dollars shrunk by around 5%. Several years from now, the Na on‐ 30.0 al Science Founda on will move to Alexandria, bringing several thousand more federal jobs with it. 20.0 10.0 The chart above illustrates the City’s increased reliance on government employment to fuel the City’s 0.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 economy. Increases in government employment and the Fiscal Year growth of IT firms have translated into addi onal private Business License Tax Inflation Adjusted Business License Tax sector jobs in Professional and Technical Service areas, which are rela vely high paying jobs. However, the num‐ ons rose steadily through FY 2007, decreased from 2008 ber of new private sector jobs in this area has been oﬀset to 2011, and began to increase again in 2012. However, by the declining number of jobs in the retail, such as Land‐ when adjusted for infla on, business license tax collec‐ mark Mall, and hospitality sectors. The result is less overall ons remain lower than they were in 2004, sugges ng that private employment. the City’s private economy shrank between 2004 and 2013. It is worth no ng that most government agencies, trade associa ons and other non‐profit organiza ons are exempt from the business license tax. Five Year Financial Plan FY 2016‐FY 2020 4.2 City’s Economic Posi on Oﬃce vacancy rates have increased since the re‐ teliers have reported that the deadlocked Congress, cession. There have been 3.5 million square feet of addi‐ which now passes far less legisla on, has nega vely im‐ onal oﬃce space built since the beginning of 2004, while pacted business travel and hotel stays in the City. The the amount of occupied oﬃce space has increased by 1.7 slowly growing na onal economy and the probability of million square feet. New space tends to fill at a high rate, divided government over the next several years makes it but older stock has a greater vacancy rate. unlikely that federal government spending will accelerate any me soon. In the 4th quarter of 2008, there were 17.8 mil‐ lion square feet of occupied oﬃce space and 1.9 million square feet of unoccupied oﬃce space, for a total of 19.7 Federal Outlays 4,000 million square feet. By the first quarter of 2014, the num‐ 3,500 3,000 Millions of Dollars 2,500 2,000 1,500 1,000 500 ‐ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fiscal Year As the number of jobs in the City has declined, the ra o of jobs to popula on has increased. The table below shows the ra o of popula on to employment for four local comparators for the last three decennial censuses. ber of occupied square feet had declined to 16.7 million, and the number of unoccupied square feet had increased to 3.2 million out of a total inventory of 19.6 million square feet. It should be noted that approximately 0.6 million square feet of unoccupied oﬃce space is a ribut‐ able to the vacant Victory Center on Eisenhower Avenue. This and other formerly federally occupied oﬃce space have not been released in part because the design of this oﬃce space (floor plans, ceiling heights, etc.) are outdat‐ ed and not in sync with current oﬃce market demands. Slow or flat growth in federal spending is likely to impact the City’s economy for the foreseeable future. The chart below highlights the steep increase in federal spending from 2002 to 2008, which generally coincided with a period of growth in the City’s economy. Much of this federal spending increase from 2002 forward is relat‐ ed to post 9‐11 spending, as well as increased Depart‐ ment of Defense budget outlays. In 2009, federal spending spiked as a policy re‐ sponse to the recession. Since 2009, federal spending has been flat. In 2013 and 2014, a er the period shown on the chart, federal spending has been constrained by se‐ questra on, which went into eﬀect in early 2013, and by the federal government shutdown in October 2013. Ho‐ Five Year Financial Plan FY 2016‐FY 2020 4.3 City’s Economic Posi on Over the past 20 years, Alexandria has maintained The Eﬀect of Slow Economic Growth on its rela ve posi on within the region, however the ra o in Arlington and Alexandria has shi ed slightly toward resi‐ the City’s Revenue Stream den al while Fairfax and Prince William Coun es have increased their ra o of jobs to residents. If this trend con‐ As real estate property values have grown since nues in the future, the City could transi on into more of FY 2013 at a rate higher than other sources of revenue, a bedroom community. the City’s General Fund has become more reliant on reve‐ nues from real estate tax assessments. The chart below Population to Employment Ratio 1990 2000 2010 shows the ra o of real estate tax collec ons to other tax Alexandria 1.37 1.40 1.46 collec ons from FY 2003 to FY 2014. Arlington 1.13 1.20 1.28 Fairfax 2.16 1.80 1.89 Loudoun 2.18 1.94 2.36 Real Estate Revenues vs. Other Revenues Prince William 3.91 3.60 3.87 400.0 Millions of Dollars 350.0 On a posi ve note, there is poten al development 300.0 coming online which may provide some improvement to 250.0 the City’s economy. 200.0 150.0 Major Investments Potentially Coming On Line 100.0 WMATA Bus Barn housing 50.0 0.0 Waterfront Development housing, hotels, retail 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Metro/Potomac Yard public transit, housing retail, office Fiscal Year Beauregard housing, retail Real Estate Other Landmark Redevelopment housing, retail, hotel, office Carlyle office, housing, retail In FY 2003, collec ons from real estate taxes were The City has incorporated assump ons regarding approximately the same as total collec ons from all other economic growth generated from the new projects into sources, but by FY 2013, collec ons from real estate taxes its long‐range revenue projec ons. The new projects can were approximately $90 million more than collec ons be expected to generate addi onal real estate taxes, sales from all other sources combined despite increases in the taxes, transient lodging (hotel) taxes, and business license hotel tax rate, the meals tax rate, and many fees. The taxes. However, in some cases, such as that of Potomac chart reinforces what the data in other charts indicate; Yard, much of the expected new tax revenues in the short the City’s economic base has not increased in size since to medium term will be dedicated to paying oﬀ principal 2007 and that the City has become more reliant in recent and interest on bond issues to cover the cost of building years on the real estate market to balance the budget. the proposed Potomac Yard Metrorail sta on, which in the short term, will do less to help the City’s overall Gen‐ eral Fund Revenue picture. However, over the long term the Potomac Yard Metrorail sta on represents a major capital investment that will generate significant new tax revenue for the city. Five Year Financial Plan FY 2016‐FY 2020 4.4 City’s Economic Posi on Even while the City’s non‐real estate tax revenues have stagnated, the City has become increasingly reliant Average Alexandria rent 1st quarter 2004 ‐ 1st quarter 2014 upon residen al real estate compared to commercial real 2,500 estate. As the chart below indicates, the share of residen‐ 2,000 al real estate assessments compared to commercial real 1,500 estate assessments has risen steadily. This trend is likely to con nue at least over the next several years due to 1,000 weakness in the commercial real estate market. 500 Share of Assessments ‐ 2002 2008 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Residential including apartments 67.5% 69.5% 73.7% Commercial 32.5% 30.5% 26.3% The chart above demonstrates the con nued strength in Alexandria’s residen al rental market. The As a result, without any significant policy or de‐ chart shows that the average rent for an apartment in‐ velopment changes, the residen al tax base will con nue creased from $1,646 in 2004 to $2,203 in 2014. Again, to pay an increasing share of the cost of services. that’s an increase of approximately 3% annually. Howev‐ er, the rate of increase in real estate values may not con‐ nue in the future. By historic standards, interest rates The Real Estate Market have been extremely low, which has allowed buyers to purchase larger homes with smaller monthly mortgage The recent bright spot in the City’s economy has payments. been residen al real estate. The chart below shows the average assessed value over the ten years from 2004 to If interest rates rise, then it may put downward 2014. pressure on single family housing prices. Over me, home prices in the City or generally have tended to parallel in‐ Average Assessed Residential Value creases in personal income. A slowly growing regional 2004‐2014 600,000 economy and constrained federal spending may aﬀect 500,000 the housing market which would then aﬀect real estate 524,812 509,923 500,234 471,164 469,381 490,422 revenues, which are such an important part of the City’s 400,000 440,991 447,873 453,210 458,422 revenue stream. 364,240 300,000 200,000 While the growth in real estate property value 100,000 has help to support the City’s revenues, it has also creat‐ 0 ed pressure on the availability of the aﬀordable housing. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 The challenge of providing aﬀordable units is discussed in Calendar Year the policy op on sec on of this report. The first years of the chart show the final stages of the residen al real estate boom that ran through 2006; the eﬀects of the real estate decline are apparent from 2007 to 2010; and the chart also shows the par al recov‐ ery in the real estate market from 2010 to 2014. Howev‐ er, the average assessed value is s ll less than its peak in 2006 and is about equal to its level in 2008. Overall, dur‐ ing the ten year period shown on the chart, the average assessment increased by an average rate of approximate‐ ly 3% annually. Five Year Financial Plan FY 2016‐FY 2020 4.5 City’s Economic Posi on Conclusion The City’s economy has many strengths, including high per capita income, low unemployment, and a relatively high ratio of jobs to residents. Alexandria remains a very desirable place to live and work. However, the City’s fiscal position depends on a robust, growing economy, which is challenging in the current economic environment, and makes spending at the current projected rate increase unsustainable without increasing the real es‐ tate tax rate. The five‐year revenue and ex‐ penditure forecast in the next section will demonstrate the impact on the City’s finances. Five Year Financial Plan FY 2016‐FY 2020 4.6 REVENUE EXPENDITURE FORECASTS AND TRENDS Revenue and Expenditure Forecast The Revenue and Expenditure Forecast While the new tax revenues from Potomac Yard will be set aside into a special fund to pay the principal and interest on debt that is projected in The Oﬃce of Management and Budget has long the CIP to be issued for the building of the included es mates of the City’s future revenues and proposed Potomac Yard Metrorail sta on, a expenditures and corresponding surpluses and shor alls in percentage of the revenue resul ng from Potomac its annual opera ng budget. As part of the FY 2015 budget Yard apprecia on will be applied to the General process, staﬀ presented to City Council a more robust Fund to cover the costs of City services for the forecast model in order to improve projec ons of the new development. City’s long‐term financial health. The new model presented in this sec on combines projec ons of future The following are the results of the baseline revenues and expenditures based on historical analysis projec on based on the model’s latest update. and economic indicators with planned or expected changes such as approved Capital Improvement Program The Baseline Forecast (CIP) out‐year funding, the Alexandria City Public Schools (ACPS) five‐year financial forecast, the expira on of grants, Over the next five years, the City’s revenues and and future changes in programmed service delivery. The expenditures are forecasted to be structurally out of new model also includes the ability to layer various policy balance. The City’s revenues are not expected to keep up op ons under considera on on top of the baseline with the cost of current service expenditures, resul ng in a forecast in order to examine their individual and collec ve fiscal imbalance. impact on the City’s financial future. The structural imbalance is es mated to be $16.1 There is a considerable number of inputs and assump ons that comprise the five‐year forecast, but $ (Millions) FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Revenues $636.8 $654.0 $674.2 $694.9 $716.5 $739.1 there are six primary drivers of the City’s future surpluses Expenditures $636.8 $670.1 $693.4 $719.8 $751.0 $772.9 or shor alls. On the revenue side, these are real estate Annual Deficit $ (0.0) ($16.1) ($19.2) ($24.9) ($34.5) ($33.8) property values, new development and redevelopment, Cumulative Deficit $ (0.0) ($16.1) ($35.3) ($60.2) ($94.7) ($128.5) and the real estate tax rate. On the expenditure side, these are ACPS funding, capital projects funding, and the million in FY 2016, or 2.4%, of expenditures, growing to personnel costs associated with delivering City services. $33.8 million by FY 2020, or 4.4%, of expenditures. Over the period FY 2015 to FY 2020, the cumula ve deficit is During the FY 2015 budget process, the forecast expected to total over $128.0 million. model was improved over previous es mates by including the opera ng budget impact of CIP projects, the opera ng The follow pages demonstrate that if the economy budget impact of policy decisions made during the FY 2015 con nues to grow slowly as it has for the past six years, budget process, and a more detailed es mate of future development con nues at its normal pace over the next economic growth based on specific land use development five years, and the City con nues to fund its opera ons, plans underway or under considera on. Since the end of ACPS, and the CIP as planned, then revenues will not be the FY 2015 budget process, the forecast model has been able to cover the cost of expenditures without real estate updated as outlined below. tax rate increases, or increases in other taxes and fees in combina on with real estate tax increases. 1. It has been extended an extra year through FY 2020. While this is a six year me frame, the model drives the financial plan that will be used as part of the FY 2016 budget process, which will incorporate FY 2020. 2. The model has been updated to reflect the experience of the FY 2014 budget year, which is now complete. As a result, some of the assump ons have changed. 3. The model now takes into account Potomac Yard’s growth and its eﬀect on the General Fund budget. Five Year Financial Plan FY 2016‐FY 2020 5.1 Revenue and Expenditure Forecast The chart below shows the annual and cumula ve history. The baseline projec on does not include shor all over five years, with no adjustment to revenues. major planned development projects currently in discussion, such as the Waterfront, Beauregard, and Landmark, however the Five‐Year Financial Plan does Projected Fiscal Imbalance include the impact of those projects on revenues as a $0 separate layer in the model. $(0.0) ‐$20 ($16.1)  The next largest category, revenue from the Millions of Dollars ‐$40 ($35.3) ‐$60 Cumulative Deficit Commonwealth and the federal government, is less ($60.2) than 10% of total revenues. It is assumed to decline as ‐$80 Annual Deficit ‐$100 a percent of total revenues over the next five years. ($94.7) ‐$120  Revenues other than real estate taxes are an cipated ‐$140 ($128.5) FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 to con nue to grow at a slow and steady rate reflec ve of recent history. The baseline forecast does not an cipate any sudden economic boom to The City is required to adopt a balanced budget materialize in the five‐year meframe. annually, so none of the shor alls projected for the out‐ years would actually occur. The shor alls would be  The baseline forecast also assumes for forecast eliminated through a combina on of expenditure purposes that City programs and services will con nue reduc ons, revenue increases (through increased taxes or mostly unchanged over the next five years. City fees), or a combina on of the two. If the projected annual opera ons excluding the ACPS transfer, CIP funding budget gap were to be addressed solely through the use of and transit subsidies comprise 53% of the FY 2015 real estate taxes, the average tax per household would General Fund budget and are largely driven by increase from approximately $5,100 in 2015 to personnel costs. The baseline forecast assumes the approximately $6,200 in 2020. City workforce is unchanged in the next five years, and that salaries and benefit costs will con nue to grow at The Model’s Assump ons a rate consistent with recent history. Average Real Estate Tax Per Household  It includes cash capital and debt service funding for Necessary to Sustain Current Policies 6,225 capital projects, as approved by City Council in the FY 6,109 ($1,119) 6,400 2015—FY 2024 CIP. ($1.123) 6,200 5,856 ($1.101) RE Tax Per Household 6,000 5,656 5,800 5,496 ($1.088)  Assumes the ACPS transfer is closely ed to the rate of ($1.082) 5,600 projected enrollment growth. 5,091 5,400 ($1.038) 5,200  In addi on to these fundamental assump ons, the 5,000 4,800 baseline projec on also includes a number of 4,600 adjustments to future revenues and expenditures 2015 2016 2017 2018 2019 2020 based on informa on about specific sources and uses. The most significant of these is the opera ng cost of The following are the major revenue and planned capital projects being completed in future expenditure assump ons used to construct this forecast. years, which grows to over $8 million in FY 2019 and FY 2020. It also includes other planned or expected  Real estate taxes comprise 58% of the City’s General changes such as the expira on of a Police Department Fund revenue budget in FY 2015. The remaining COPS grant in FY 2016, increased Registrar costs revenues are distributed across 19 other categories. associated with the presiden al elec on in FY 2017, The baseline model assumes that real estate property and the full‐year costs in FY 2016 of par al year costs values will grow at a rate consistent with income budgeted in FY 2015. growth. It includes an increase in the tax base due to new construc on at a rate consistent with recent Five Year Financial Plan FY 2016‐FY 2020 5.2 Revenue and Expenditure Forecast Under this set of assump ons, it is expected that revenues will increase by approximately 3% annually, while expenditures will increase by approximately 4% annually. The diﬀerence of 1% between those two num‐ bers is the structural deficit. The structural deficit will decrease if either the rate of growth in revenues increas‐ es, or the rate of growth in expenditures decreases, or some combina on of the two. (Without economic growth or policy changes, the City’s budget will have to be balanced on rising real estate assessments and in‐ creasing the real estate tax rate.) Five Year Financial Plan FY 2016‐FY 2020 5.3 Revenue and Expenditure Forecast Revenues Even small changes to assump ons about real estate assessment growth can make a large diﬀerence in revenue growth. For example, it is expected that some The City’s revenues are mainly driven by real significant development projects will be completed over estate, which produces approximately 58% of General the life of the five year financial plan. If all of the Fund revenues. The following chart illustrates the City’s development projects currently in planning and review General Fund revenue distribu on in the FY 2015 budget. stages are completed in the next five years, they would increase real estate tax revenues by approximately $15 million in FY 2020, the equivalent of more than three cents on the real estate tax rate, as well as improve sales, business license, transient lodging and meals tax collec ons. The categories of revenue, other than real estate, are an cipated to grow slowly over the next five years. Perhaps the best proxy for the City’s economic growth rate is Business License Tax collec ons. The Business License Tax is based on a percentage of revenues generated by Alexandria businesses. Business License Tax revenues are expected to increase rela vely slowly at 2.7% annually over the dura on the Five‐Year Financial Plan. Increased business ac vity would have a The following chart illustrates the rate of growth significant impact on revenues. A one percent increase in projected for the major categories of revenue with and economic growth above the baseline forecast in without the new development. conjunc on with growth from development would reduce the five‐year financial gap by more than half by FY 2020. The following three scenarios show the budget imbalance Expected Annual Increases by Major Revenue Category 5.0% in the baseline forecast, the baseline forecast with new 5.0% 3.8% 4.0% 4.3% 4.1% 4.3% development added, and a one‐percent increase in 4.0% 3.3% 3.6% 3.0% 3.3% 3.0% 2.7%2.9% 2.1% economic ac vity with new development included. 1.6% 2.0% 1.0% 0.0% Forecast Shortfall Under Various Revenue Scenarios $0.0 FY15 FY16 FY17 FY18 FY19 FY20 ‐$5.0 $0.0 ‐$10.0 ‐$15.5 ‐$16.2 ‐$14.9 ‐$15.2 ‐$15.0 ‐$18.1 ‐$20.0 ‐$16.1 Base Assumption Includes development ‐$19.1 ‐$25.0 ‐$30.0 ‐$24.9 ‐$35.0 ‐$33.8 Prior to the recession and due largely to over‐ ‐$40.0 ‐$34.5 inflated housing prices, City real estate taxes experienced Baseline Baseline + New Development Baseline + New Development & Increased Economic Activity significant growth in the last decade. When the bubble burst, the City responded quickly by implemen ng mid‐ year FY 2009 budget rescissions. Since the real estate market correc on, real estate values have grown by an average of 3.2% percent including assessments of exis ng proper es and new construc on. In the baseline forecast model, real estate property values are forecast to grow at the rate of income growth, which is expected to be 2.3% annually, plus an addi onal 1.0% for new construc on. Five Year Financial Plan FY 2016‐FY 2020 5.4 Revenue and Expenditure Forecast In early 2013, the City Manager appointed a Business Tax Reform Task Force to develop recommenda ons to make the City more business friendly. The Task Force issued its recommenda ons in April 2014. These include increased City expenditures on business a rac on, assistance, and reten on and reduced business license tax rates by approximately $4.5 million annually. The net result would be an increase in the projected shor all that would require an oﬀse ng increase in business ac vity of approximately three percent. If the recommenda ons were to improve business ac vity by more than 2.0% to 2.5%, they would reduce the projected shor all. If they were unable to expand business ac vity by at least that amount, they would add to the City’s shor all. A more thorough discussion of the Task Force recommenda ons is included in the policy op ons sec on of this plan. Five Year Financial Plan FY 2016‐FY 2020 5.5 Revenue and Expenditure Forecast Expenditures Looking at expenditure growth in terms of dollars, instead of percentages, presents a diﬀerent picture. In the preceding graph, health insurance is the second‐most sig‐ The following chart illustrates the rate of growth nificant cost increase behind the CIP. However, in dollar projected for the major categories of expenditures in the terms, increases in health care costs make up a rela vely baseline forecast. small por on of the long‐term fiscal imbalance. Changes to health insurance and re rement contribu ons have Expected Annual Increases by Major Expenditure been made in recent years to contain the growth of costs Category in those areas and prevent them for contribu ng more FY 15 ‐ FY 20 7.2% significantly to the future shor alls, but the greatest con‐ 8.0% 6.0% tributors to the overall budgetary imbalance are the City 6.0% 4.6% contribu on to ACPS, CIP related spending in the General 3.6% 4.0% 3.0% 3.4% 4.0% 2.1% Fund opera ng budget, and employee salary costs. 1.8% 2.0% Salary & 0.0% Projected Expenditure Increases by Category Benefits FY 2015‐FY 2020 ($ millions) (excluding Health Insurance & Retirement), $29.3 CIP related, Health Overall, expenditures are projected to increase $35.6 Insurance , $4.9 by an average of 4% annually over the next five years. For comparison purposes, the expected increase in rev‐ Retirement, Schools, $36.9 Transit, $5.1 $3.1 enues over the me frame of the financial plan is ex‐ Non‐Personnel, pected to be approximately 3%, so categories of ex‐ $9.5 penditures increasing by more than 3% contribute to the long‐term fiscal imbalance. These include salary and benefits excluding re rement and health insurance, the City share of employee health insurance costs, the trans‐ fer to the Schools, transit subsidies, and CIP related ex‐ penditures including cash capital, debt service and the opera ng cost of capital projects completed in the next five years. Expenditures are expected to increase by 1% faster than revenues, leaving the City with a budgetary imbalance. Five Year Financial Plan FY 2016‐FY 2020 5.6 Revenue and Expenditure Forecast Personnel Costs increase the employee share of pension contribu ons by five percent over five years and to increase salaries at the same rate through FY 2017. The City has also funded pay The biggest single driver of City opera ng increases to reduce compression in public safety scales expenditures is personnel costs and par cularly and career ladder promo ons for both general and public employee salaries. Municipal government is mostly safety employees. Under the current compensa on service based and labor intensive. In large departments system, most employees are eligible to receive an annual such as the Police and Fire Departments, personnel costs pay step increase of 2.3%, 3.0% or 5.0% depending on make up over 80% of opera ng budget expenditures. their loca on on the pay scale. The mid‐grade op on of 3.0% is equivalent to the baseline forecast revenue Since FY 2007, the City’s workforce has been growth rate. A recently created execu ve pay band reduced by approximately 4.5%. There have been several allows for variable pay increases for department heads reduc ons in force since FY 2007, and there were fewer and the City Manager’s senior staﬀ. There is a proposal City posi ons budgeted in FY 2015 than there were in FY coming forward to expand that pay band to include 2007, however total personnel costs have grown over this deputy and assistant directors. period by 22%, or 2.5% per year on average. Total personnel costs are forecast to grow by approximately $9 Over the past four years, total employee salary million in FY 2016. Revenues are forecast to grow by costs have increased by 3.5% on average. This includes approximately $17 million. the eﬀect of employee step and pay band increases, the 1% annual increase for Virginia Re rement System (VRS) par cipants, career ladder advancement and Size of City's Workforce reclassifica ons, public safety pay compression funding, 2,680 and turnover, which can result in vacancy savings but also Number of Budgeted City Employees 2,660 2,640 the hiring of a new employee at a poten ally higher or 2,620 2,600 lower salary than the previous employee. 2,580 2,560 2,540 In the five‐year baseline forecast, employee 2,520 2,500 salaries are projected to increase by 3.6% per year in the 2,480 2,460 next two years as the VRS 1% increase concludes and 2007 2008 2009 2010 2011 2012 2013 2014 2015 then drop to 3.1% each year therea er. At either growth Fiscal Year rate, salary cost increases outpace forecast revenue growth. Salary costs are expected to grow by approximately $5.5 million in FY 2016. Employee Salaries As the City considers the trade‐oﬀs required to In order to a ract and retain the quality work achieve a sustainable financial balance, it will be force necessary for delivering quality services, the City important to remember that the majority of City program seeks to remain compe ve with neighboring and service costs are posi on‐related. jurisdic ons and the labor market in general. Despite the economic downturn and subsequent slow revenue growth, the City has funded pay step increases in each of the past five years. The City has not funded any automa c Market Rate Adjustment (MRA) pay increases since 2007, choosing to focus its resources on more performance‐ based pay increases. However, since FY 2013, the City has funded a one‐percent annual pay increase for general (non‐public safety) employees in addi on to merit pay increases. This is due to a State‐mandated employee pension cost sharing increase that requires the City to Five Year Financial Plan FY 2016‐FY 2020 5.7 Revenue and Expenditure Forecast Re rement Costs In FY 2015, the City entered the third year of a five year phased increase in employee contribu ons for The next largest personnel expense other than exis ng VRS par cipants. By state law, the City has salaries is re rement benefits. By order of magnitude, increased the pay scale concurrently with the increase in re rement benefit costs are slightly less than one‐quarter pension contribu ons; thus, the benefit cost savings from of the cost of salaries. There are several diﬀerent the increased employee contribu ons has been mostly categories of re rement plans, including a plan for oﬀset by salary increases, however all new VRS General Schedule (non‐public safety) employees, a par cipants star ng in FY 2013 have contributed the full supplemental plan for General Schedule employees, and 5% of salary, for which there is a City savings. a separate plan for Police and Fire employees. This category also includes funding for post‐re rement benefits. The assump ons included in the expenditure forecasts are taken from the es mates provided to the City by the Virginia Re rement System (VRS). Because of increased stock market values and other asset prices over the last several years, and because the employees share of VRS pension contribu ons, by state law, will increase to 4% in FY 2015 and 5% in FY 2017, cost increases to fund the City’s pensions are expected to remain contained over the dura on of the five year plan. A new decline in the stock market could change this projec on, par cularly in the out years. Five Year Financial Plan FY 2016‐FY 2020 5.8 Revenue and Expenditure Forecast Health Insurance Costs Rela ve to salaries, employee health insurance is a significantly smaller driver of City costs. However, it has been an area of significant growth, and is expected to con‐ nue to grow at a greater rate than revenues in the base‐ line forecast. If not for some recent policy changes, the impact of health insurance on the City’s shor all would be greater. Beginning in FY 2007, the City began to incremen‐ tally phase in employee contribu ons to health care pre‐ miums un l employees were paying a minimum 20% share of health insurance premiums by FY 2013. In FY 2009, the City established a self‐insured health care plan to further reduce insurance premiums, and in FY 2014, the health insurance plan introduced de‐ duc bles and increased the costs for certain copays. The result is that the cost of health care premiums to the City was about the same in FY 2014 as it was in FY 2010. Without addi onal policy changes, it is projected that the cost of health insurance premiums would have increase approximately 6% annually over the dura on of the five year plan. There remains considerable uncertainty about the eﬀects of the Aﬀordable Care Act on the City’s health insurance costs. Since revenues are projected to increase at only around 3%, the increase in the cost of health insurance is a contributor to the fiscal imbalance, although on a limited scale. Five Year Financial Plan FY 2016‐FY 2020 5.9 Revenue and Expenditure Forecast Alexandria City Public Schools Capital Projects Enrollment Growth The Five‐Year Financial Plan includes City CIP funding for ACPS capital projects in the amounts of $88.9 million over the next five years for capacity projects and The City’s Five‐Year Plan includes an Alexandria $60.2 million for non‐capacity‐related renova ons, City Public Schools (ACPS) General Fund opera ng replacements and upgrades. While non‐capacity transfer increase of 4.9%, which is based on 3.5% construc on is funded at nearly the level requested by enrollment growth plus a fund balance set‐aside in FY ACPS, there are significant diﬀerences between the 2016 only to address forthcoming increases in re rement amounts requested by ACPS for capacity projects ($49.9 costs in years FY 2017 and FY 2019. The ACPS transfer is million) and the amounts included in the FY 2015‐2024 forecast to grow by approximately $9.4 million in FY 2016 City CIP and the Five‐Year Financial Plan. The with the fund balance set‐aside included. The enrollment‐ conversa on between the City and ACPS is s ll ongoing only por on of that increase is $6.5 million. Over the next regarding the funding levels and years in which to five years, the ACPS transfer is forecast to grow at an appropriate funding for the following capacity related annual average rate of 3.6% with the fund balance set‐ projects: Patrick Henry Elementary School, T.C. Williams aside included or 3.4% without it. Minnie Howard Campus, the replacement of the exis ng building at Cora Kelly Elementary, and the development Actual and Projected Enrollment of a new elementary school at a yet to be determined FY 2010 ‐ FY 2020 loca on. 18,000 16,000 14,000 Opera ng Impact of Capital Improvements 12,000 10,000 8,000 Addi onal opera ng costs for new ACPS 6,000 construc on are not included in the Five‐Year Financial 4,000 2,000 plan’s baseline forecast. It assumes that non‐capacity ‐ improvements would have a neutral impact on opera ng 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fiscal Year costs and that the increased cost of capacity projects included within the City’s CIP would be funded within the enrollment‐based transfer increases. Even with the increased General Fund transfer, the ACPS five‐year forecast includes a projected budget shor all of $5.0 million in FY 2016 when considering only current services and enrollment‐driven increases. This deficit grows to approximately $32.0 million by FY 2019 if enhancements, such as compensa on increases, are considered each year. The primary drivers of the shor all include overall enrollment growth, increases in compensa on and pension costs, aging facili es, and student needs. In addi on, State revenue is projected to remain rela vely flat. The City’s Five‐Year Financial plan does not assume the City’s General Fund would make up the ACPS forecast deficits. If it did, the overall City Five‐ Year Financial Plan forecast shor all would increase by those amounts. Five Year Financial Plan FY 2016‐FY 2020 5.10 Revenue and Expenditure Forecast FY15 Final ACPS FY15 estimated FY15 City Appropri- CPP for Average All WABE CPP for ation/Enrollment Students Alexandria Operating Fund CPP State Funds - $35,319,779 $35,319,779 $35,319,779 Local Funds - $1,150,329 $1,150,329 $1,150,329 Federal Funds - $90,000 $90,000 $90,000 City Appropriation $191,811,472 $191,811,472 $191,811,472 $191,811,472 Other Sources - $3,645,949 $3,645,949 $3,645,949 Other Uses - ($1,290,871) ($1,290,871) ($1,290,871) Use of Fund Balance - $4,565,941 $4,565,941 $4,565,941 Operating Revenue Fund Total - $235,292,599 $235,292,599 $235,292,599 Subtract Adult Education - ($668,347) ($668,347) - Subtract Health Services - - ($2,369,869) - Subtract Food Services - - ($420,969) - Total - ($668,347) ($3,459,185) $0 Add Federal Entitlement Grants - $6,640,231 $8,637,074 - Add Special Ed Transportation/Public Carriers Costs - - - - Add ELL portion of Summer School cost - - - - Total - $6,640,231 $8,637,074 $0 Combined Total $191,811,472 $241,264,483 $240,470,488 $235,292,599 Divided by FY15 Enrollment 14,171 14,171 14,171 14,171 Total Cost Per Pupil by Type $13,535 $17,025 $16,969 $16,604 ACPS Cost Per Pupil ACPS Transfer Over the period of the Five‐Year Financial Plan, The ACPS opera ng transfer makes up 30.1% of the City’s General Fund appropria on per pupil remains the FY 2015 General Fund budget. In the past 15 constant at the FY 2015 level of $13,535, however there fiscal years, the ACPS budgeted opera ng transfer has are a variety of methods for calcula ng the total cost per remained within the range of 29.7% to 31.1% of the City’s pupil. The table on the following page illustrates four cost total General Fund budget, and in 10 of the 15 years, it per pupil methodologies, including the City’s General was within the range of 30.1% to 30.9%. In the City’s Five‐ Fund cost per pupil, the ACPS method for calcula ng cost Year Financial Plan, the opera ng transfer is 29.8% of to‐ per pupil, the Washington Area Boards of Educa on tal expenditures. With City funding for ACPS capital pro‐ (WABE) regional benchmark, and the ACPS total opera ng jects included, total ACPS opera ng and capital funding funds divided by total K‐12 enrollment. The primary represents 34.1% of the City’s Five‐Year Plan expendi‐ diﬀerences between each of these methods is the inclu‐ tures. sion or exclusion of federal grants, adult educa on, and preschool costs. Five Year Financial Plan FY 2016‐FY 2020 5.11 Revenue and Expenditure Forecast Capital Improvement Program (CIP) Current Ten‐Year CIP Projects The current ten‐year CIP totals $1.459 billion and Each year as part of the annual budget process, represents capital investments in the areas shown in the City Council adopts both an Opera ng Budget as well as a chart to the le , including capital investments for ACPS. Capital Improvement Program (CIP). The CIP is diﬀerent The first year of the CIP is formally adopted by City than the opera ng budget, as it is a published ten‐year Council, while the remaining nine years serve as a plan. The City Council Approved CIP in FY 2015 spans planning tool to guide the development of future CIPs. from FY 2015—2024 and provides comprehensive details regarding planned capital infrastructure improvements. Details on specific projects over the life of the ten The adop on of the CIP by City Council is an indica on of ‐year plan can be found in the City Council Approved FY its support of both the capital projects that the City 2015‐2024 CIP. Significant investments over the ten year intends to pursue and a plan for the an cipated levels of plan include but are not limited to: the construc on of a financing needed to fund these capital projects over the Potomac Yard Metrorail Sta on, $279.1 million for ACPS 10‐year period. capacity and non‐capacity projects, an annual street resurfacing program, four rebuilt and one new fire The adop on of the 10‐year CIP is neither a firm sta on, and infrastructure improvements at City Hall. commitment to a par cular project nor a limita on to a These projects are funded by a diverse source of par cular cost. As a basic tool for priori zing and revenues, with the funding plan being detailed on the scheduling an cipated capital projects and capital next page. financing, the CIP is a key element in planning and managing future debt service requirements. Only the first year of the CIP (FY 2015) represents a funding commitment for the project to proceed to the next stage, or to be implemented, depending on the level of funding provided. As the CIP is already a mul ‐year budget, including both projected expenditures and financing sources, the details of the current ten‐ year plan will be presented in summary format. The current City Council Approved CIP can be found at www.alexandriava.gov/budget. For the Five‐Year Financial Plan, however, the focus on the CIP will relate to the impact of decisions which directly impact the General Fund. These direct impacts include: the recurring General Fund Cash Capital transfer, debt service paid on previously issued and planned General Obliga on Bonds for both City and Alexandria City Public Schools (ACPS) projects, and addi onal opera ng impacts associated with the construc on of new capital projects. Addi onal opera ng impacts associated with the CIP, and the ACPS CIP impact, will be discussed later in this sec on. Five Year Financial Plan FY 2016‐FY 2020 5.12 Revenue and Expenditure Forecast Current Ten‐Year CIP Funding Plan Addi onal Opera ng Impacts Associated with CIP The funding makeup of the City’s capital program Projects is growing increasingly diverse each year. To help In addi on to the General Fund impacts of both organize this complexity (which brings new opportuni es the Cash Capital transfer and debt service payments, the as well), the Approved FY 2015 – 2024 CIP divides CIP also has opera ng impacts based on the actual revenue sources into three diﬀerent types: Unrestricted projects implemented. These costs can be as simple as City funds include general cash sources and General addi onal opera ng funding to maintain new Complete Obliga on (G.O.) Bond revenues for the base CIP Streets infrastructure, to addi onal staﬃng required to program. Restricted City funds include both cash and G.O. operate a new Computer Aided Dispatch System, to Bond revenues associated with the Sanitary Sewer Fund, u lity costs associated with opening a new City facility. Stormwater Management Fund, Transporta on In some cases, there are special revenues that Improvement Program, Potomac Yard Metrorail Sta on, support the opera ng costs of these new investments. and other targeted sources. Because these restricted For example, there are special tax districts to support the revenues all have legal restric ons on their available uses, WMATA opera ng subsidy for the proposed Potomac it is beneficial to discuss financing issues with them Yard Metrorail sta on. Thus, the General Fund will not separately. Non‐City funds generally include State and have to absorb those impacts. There are projects, Federal grants (including NVTA funding) and earmarks as however, that will impact the General Fund, and those well as private capital contribu ons and revenues from costs are a part of the five‐year expenditure projec ons. the City’s telecommunica on financial agreement with The graph on the next page shows the impact of the Comcast. These revenues are also restricted in their use. addi onal opera ng costs associated with CIP projects. The two pie charts above show the planned General Fund costs are specifically noted. funding sources for the ten‐year CIP. The chart on the le breaks project funding into the restricted, unrestricted and non‐City categories. The chart on the right provides more specific details about the type of funding. A considera on in the development of the ten‐ year CIP financing plan is the amount of cash to borrowing used to finance the plan. Five Year Financial Plan FY 2016‐FY 2020 5.13 Revenue and Expenditure Forecast As the Five‐Year Financial Plan provides details on a number of future policy decisions and their fiscal impacts, it is important to communicate the addi onal impact that the CIP will have on the General Fund to operate the facili es planned to be constructed. The table to the right shows the impact of three of the projects that are currently included in the ten‐year CIP and their impact to the General Fund in FY 2020. In each of these cases, there are policy op ons and other considera ons that can lessen the General Fund impact. For example, a new Fire Sta on 203 will have the capacity to support a new medic unit. Considera on of funding the medic unit will not need to be made un l the FY 2016 budget development process. City Council can consider several policy op ons in regard to this, including not adding the medic unit or transferring a medic unit to limit the impact to the General Fund. In regard to both the Chinquapin aqua cs projects and Fire Sta on 211 (Beauregard), there is an opportunity for other revenue sources to oﬀset the General Fund impact, including user fees at Chinquapin and SAFER grants for Fire Sta on 211. Five Year Financial Plan FY 2016‐FY 2020 5.14 Revenue and Expenditure Forecast Alexandria City Public Schools (ACPS) CIP Impact to Through the Five‐Year Financial Plan, there are a the City’s General Fund number of other sec ons that are directly related to the CIP. These sec ons provide a mul ‐year look at available revenues and expenditures, and in some cases discuss ACPS capital infrastructure needs are budgeted policy op ons for considera on to create a sustainable, as part of the ten‐year CIP. These infrastructure needs are long‐term CIP. These sec ons include: supported by the City’s General Fund through annual  Page 5.16—Transit (Including WMATA 2025 Cash Capital contribu ons and the debt service paid on Impacts) behalf of ACPS through the issuance of General Obliga on Bonds. Neither the Cash Capital and debt  Page 6.4—Stormwater Analysis service expenditures are part of the annual transfer to  Page 7.5—Sanitary Sewer Fund ACPS for opera ng.  Page 7.6—Stormwater Fund The table below provides details on both planned  Page 7.7—Northern Virginia Transporta on Cash Capital and debt service contribu ons an cipated to Authority (NVTA) 30% Fund be made on behalf of ACPS through FY 2020. ACPS capital  Page 7.8—Transporta on Improvement infrastructure expenditures are reviewed and priori zed Program (TIP) Fund on an annual basis in rela on to the overall CIP. The base debt service in FY 2015 is es mated at $21.0 million and includes all bond issuances on behalf of ACPS through FY 2015. Over the life of the Five‐Year Financial Plan, the ACPS opera ng budget transfer is 30% of the total expenditures and capital‐related funding, including Cash Capital, debt service and project opera ng costs for both the City government and ACPS, is 15% of total expenditures. When adjusted to include ACPS CIP costs as part of ACPS funding, ACPS costs are 34% of expenditures and City CIP costs are 11% of expenditures. ACPS Planned Debt Service and Cash Capital Contributions Tax Rate Equivalent Fiscal Year Debt Service Cash Capital Total G/F Support (in cents) FY 2015 $ 21,000,000 $ 4,933,617 $ 25,933,617 7.3 FY 2016 $ 23,617,140 $ 2,576,329 $ 26,193,469 7.3 FY 2017 $ 25,249,838 $ 5,820,635 $ 31,070,473 8.7 FY 2018 $ 28,398,875 $ 5,669,393 $ 34,068,268 9.5 FY 2019 $ 29,856,014 $ 3,266,466 $ 33,122,480 9.3 FY 2020 $ 28,954,071 $ 3,325,392 $ 32,279,463 9.0 Other CIP Discussion Items and Policy Op ons Five Year Financial Plan FY 2016‐FY 2020 5.15 Revenue and Expenditure Forecast Transit Subsidies WMATA Capital Contribu ons The City contributes opera ng and capital In addi on, WMATA's Strategic Plan for 2013 subsdies to fund the por on of transit services costs not through 2025 includes "Metro 2025" proposed new capi‐ covered by fare revenues and other sources. The services tal investments, which are not currently included in the include the Washington Metropolitan Area Transit Au‐ City's FY 2015 ‐ 2024 CIP or the five‐year baseline forecast. thority (WMATA) Metrorail, Metrobus and Metro Access If included in the next CIP, these investments could signifi‐ paratransit service; the local DASH bus system and King cantly increase the City’s contribu on to WMATA through Street Trolley; the Virginia Railway Express (VRE) commut‐ the CIP. These increased costs to the CIP would need to be er rail service; and local DOT paratransit service. weighed against all other CIP needs over the next 5 year. The graph below FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 indicates the cur‐ DASH 11,699,100 12,284,055 12,898,258 13,543,171 14,220,329 rent City contribu‐ WMATA (Metro) 6,693,914 7,028,609 7,380,040 7,749,042 8,136,494 on for WMATA DOT/Paratransit/VRE/Trolley 2,539,006 2,589,787 2,641,582 2,694,414 2,748,302 capital through the CIP, as well as the TOTAL 20,932,020 21,902,451 22,919,880 23,986,627 25,105,125 four diﬀerent op‐ Annual Percent Increase 4.6% 4.6% 4.7% 4.7% ons that have been presented by WMATA to‐date. It is important to The City’s transit subsidies are funded by a combi‐ note that as of October 30, 2014, that the par cipa ng na on of General Fund, State transporta on aid, and re‐ jurisdic ons have not agreed to an updated funding plan, gional add‐on taxes administered by the Northern Virginia and nego a ons over future levels of capital investment Transporta on Authority (NVTA) and Northern Virginia are on‐going. Transporta on Commission (NVTC). The Five‐Year Finan‐ cial Plan includes the FY 2015 General Fund transit opera ng subsidies project‐ ed from FY 2016 to FY 2020. The five‐year capital contri‐ bu ons are included in the CIP cash capital and debt service por ons of the fore‐ cast model. The following table shows the five‐year forecasted General Fund transit opera ng subsidies. Since revenues are projected to grow by 3% annually over the next five years, transit subsidy growth is a contributor to the forecasted shor alls. Five Year Financial Plan FY 2016‐FY 2020 5.16 INDIVIDUAL POLICY OPTIONS Individual Policy Analysis Five‐Year Financial Plan cial impacts of each of the following policy op ons:  Aﬀordable Housing Needs Individual Policy Op ons  Beauregard development In addi on to the baseline forecast of revenues  City‐wide and department‐specific master plans and expenditures over the next five year, the Five‐Year Financial Plan includes a separate analysis of individual  Employee compensa on op ons policy op ons that the City faces or can reasonably expect  Employee turnover and baby boomer re rements to face within the next five years.  Fire Department facili es and staﬃng needs Each individual policy choice is presented with a  Payment‐in‐lieu‐of‐tax (PILOT) policy for non‐profit background of the issue, an explana on of why it is rele‐ organiza ons vant and per nent to the City’s financial planning, a sum‐ mary of the poten al op ons for addressing it, and its fi‐  Potomac Yard development nancial implica ons to the City’s five‐year finances.  Waterfront Plan Funding for the policy op ons is not built into the baseline forecast presented in the previous sec on. The op ons are presented separately to illustrate the impact each choice could be expected to have on the City’s five‐ year financial outlook if they were implemented. The re‐ sul ng surplus or shor all of each ac on should be consid‐ ered in addi on to the baseline projec on. The ini al individual policies examined within this report are Business Tax Reform and Storm Water Capital Infrastructure Financing. These policy issues have been selected based on their immediacy and their poten ally significant impact on the City’s five‐year financial forecast. They all represent policy ques ons that are currently being examined and are expected to need to be addressed within the FY 2016 budget or the five‐year meframe of this plan. They are presented in the context of the impact they would have on the balance of revenues and expenditures over the next five years with the implica on that any ac ons taken on these issues would require an aﬃrma ve financial decision about how to fund them without adding to the baseline scenario’s current imbalance. These represent only a couple of many policy choices that will be faced outside of the baseline forecast. Addi onal policies are being studied and will be added to this sec on of future five‐year plans. Even though they have not been included in this report, the five‐year fore‐ cast model could be used to examine the poten al finan‐ Five Year Financial Plan FY 2016‐FY 2020 6. 1 Business Tax Reform Task Force Review Objec ve To measure the long‐term fiscal impact of the Business Tax Reform Task Force’s recommenda ons. Execu ve Summary The City’s Business Tax Reform Task Force was created to develop op ons for promo ng economic growth and pro‐ duced recommenda ons for reducing Business License Tax rates, adding addi onal customer service support, crea ng a new online portal for paying taxes, and implemen ng a communica ons campaign. The recommenda ons are intended to grow the business tax base and increase business tax revenues by making the City more business‐friendly, however the implementa on costs and tax rate reduc ons would consume some of the new revenue growth. Staﬀ es mates that an increase of 2.0% to 2.5% in revenue from new business ac vity would be required each year to completely oﬀset the tax rate reduc on by FY 2020. Background, Discussion, and Policy Op ons In August, 2013, the City Manager appointed a Business Tax Reform Task Force to look at ways of promo ng economic growth in Alexandria. The group’s goals were to provide recommenda ons on changes to tax rates that would promote business growth in the City and suggest changes to the administra on of any revenue stream that could assist small businesses. On February 19, 2014, the Task Force issued a final report which is available at the following URL: h p:// alexandriava.gov/uploadedFiles/finance/info/BTRTFFinalReport.pdf. The report included some recommenda ons that have fiscal impact as es mated below: 1. Retain a public communica ons consultant to develop a broad communica ons campaign to inform our ci zens, City staﬀ and businesses in the region about the City’s commitment to business development as well as successes in a rac ng and maintaining quality businesses. FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Public communications consultant 250,000 190,000 2. Make City policies easy to understand by revamping online documenta on, assigning Department of Finance cus‐ tomer service representa ves, and assis ng customers via online chat phone and e‐mail. FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Assigning customer service representative 68,343 70,325 72,364 74,463 76,622 3. Make paying taxes easier by crea ng a new Business Tax Web portal that allows business taxpayers to log in, sub‐ mit tax returns and payments, view previous payments and returns, provide friendly e‐mail reminders about up‐ FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Business Tax Web portal (capital budget) 100,000 Business Tax Web portal (maintenance) 10,000 10,200 10,404 10,612 coming tax deadlines, and confirm filings and payments in a friendly manner. 4. Reduce Alexandria’s Business, Professional, & Occupa onal (BPOL) tax across all business sector categories to at least one cent below Arlington County’s. The Task Force suggested several alterna ves for reducing the tax rate below Arlington’s. The primary recommenda on was to reduce rates over a two year period, beginning with reduc‐ ing the rate on the Professional Services’ category to one cent below Arlington’s in the first year, then the remain‐ ing categories in the subsequent year. The table below shows the eﬀect of diﬀerent alterna ves on tax collec ons, Alternative FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 A. Base Projection ‐ ‐ ‐ ‐ ‐ ‐ B. Reduce rates in a single year ‐ (4,500,000) (4,500,000) (4,600,000) (4,700,000) (4,800,000) C. Reduce rates over a two year period ‐ (2,400,000) (4,500,000) (4,600,000) (4,700,000) (4,800,000) Five Year Financial Plan FY 2016‐FY 2020 6.2 Business Tax Reform Task Force Review While it is not possible to project the specific eﬀect of Business License Tax reduc ons on economic ac vity in the City of Alexandria, if the tax cuts succeed in genera ng economic growth, Business License Tax reduc ons will produce ad‐ di onal revenue. There is a real ques on as to whether or not lowering business license tax rates will have a commen‐ surate impact on the City’s economic growth, as most businesses in the Washington, DC area do not make loca on or growth decisions based on tax rate variability among local jurisdic ons. The chart shows the revenue that could be gen‐ erated under three diﬀerent scenarios. The base scenario reflects no change to the current tax rate and a baseline rate of revenue growth. The tax cuts/no extra growth scenario shows what would happen if the tax rate was reduced in a two year phased approach and no addi onal revenue growth beyond the baseline projec on occurred. The tax cuts/+ extra growth shows an addi onal annual 2.0% to 2.5% revenue growth (i.e. growth in Alexandria’s GDP) would be re‐ quired con nuously in each of the five years of the plan in order to achieve the FY 2020 revenues projected in the base scenario. Effect of Business License Tax Cuts on Revenues Under Different Growth Assumptions Millions Of Dollars 45.0 40.0 35.0 30.0 25.0 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Base Tax Cuts/no extra growth Tax Cuts/+ extra growth Conclusion Council could decide to adopt none, some, or all of the Tax Reform Task Force’s recommenda ons which are summa‐ rized below. Council could also decide to request a review of a poten al range of tax incen ves that may more likely trigger business growth in the City. Option FY 16 FY 17 FY 18 FY 19 FY 20 Public communications consultant 250,000 190,000 Assigning customer service representative 68,343 70,325 72,364 74,463 76,622 Business Tax Web portal (capital budget) 100,000 Business Tax Web portal (maintenance) 10,000 10,200 10,404 10,612 Reduce Business License tax rates in a single year (4,500,000) (4,500,000) (4,600,000) (4,700,000) (4,800,000) Reduce Business License tax rates over two years (2,400,000) (4,500,000) (4,600,000) (4,700,000) (4,800,000) Five Year Financial Plan FY 2016‐FY 2020 6.3 Stormwater Analysis Objec ve To provide op ons to fund future mandated stormwater capital infrastructure improvements and the on‐going cost of monitoring and maintaining those improvements. Execu ve Summary The Virginia Department of Conserva on and Recrea on (DCR) has imposed City‐specific stormwater nutrient and sediment reduc on targets for the Chesapeake Bay (C‐Bay) Total Maximum Daily Load (TMDL) through the City's next Municipal Separate Storm Sewer System (MS4) Permit. DCR has issued new stormwater regula ons that apply to all Virginia jurisdic ons in the Cheaspeake Bay watershed. Accordingly, the new MS4 permit requires the City to imple‐ ment prac ces suﬃcient to achieve 5% of the reduc on targets during the first 5‐year permit and 40% of reduc on tar‐ gets by the end of 10 years. Total cost of compliance and mi ga on over 15 years ranges from $65‐$100 million, which only includes capital infrastructure improvement costs and does not include the on‐going costs to monitor and main‐ tain the improvements. It is an cipated that the most significant capital infrastructure improvements will occur begin‐ ning FY 2021. The City has engaged its fiscal advisors to begin looking at long‐term, sustainable solu ons to address these future mandated stormwater costs. The Policy Op ons sec on addresses the op ons that are available to the City. Background In FY 2010, in recogni on of the increased costs associated with stormwater management, City Council added a 0.5 cent dedica on to the real estate property tax rate exclusively for stormwater management opera ng and capital costs. At the me, City staﬀ presented to City Council an op on to create a stormwater u lity which would provide ad‐ di onal funding for stormwater management needs. Ul mately, the u lity was not enacted by City Council and dedica‐ on to the tax rate was added. In the FY 2015 budget, total stormwater management costs in the opera ng budget were $3.3 million and $3.65 million in the capital budget. Capital funding was provided from Cash Capital ($0.875 million), General Obliga on Bonds ($1.225 million) and a grant ($1.2 million). One‐half cent on the tax rate is expected to yield approximately $1.78 million, leaving the General Fund to ac‐ count for the addi onal opera ng costs, as well as the Cash Capital and debt service payments on the issuance of bonds to support stormwater capital infrastructure improvements. Due to the mandated improvements, opera ng and capital costs are both expected to grow significantly over the next five years. Under the current policy dedica ng fund‐ ing for stormwater management, the General Fund contribu on to stormwater (exclusive of the dedicated tax rate) will con nue to take up a larger share of all General Fund expenditures. Alterna ve funding sources are now being ex‐ plored by City staﬀ to ease the burden on the General Fund and provide a long‐term sustainable solu on for the City’s stormwater management program Discussion Current Dedicated Tax Rate and Capital Improvement Program Funding The first table on the next page provides a projec on of stormwater opera ng budget expenditures at the cur‐ rent 0.5 cent tax rate dedica on. The funding gap in tax rate equivalent illustrates how the tax rate would need to in‐ crease to cover the gap in funding used to support stormwater opera ng ac vi es over and above the 0.5 cent dedi‐ cated tax rate. As part of the Approved FY 2015 Opera ng Budget, City Council authorized 7.0 full‐ me equivalent po‐ si ons to be added to the budget for on‐going stormwater maintenance. These annual costs are included in the projec‐ ons on the next page. Five Year Financial Plan FY 2016‐FY 2020 6.4 Stormwater Analysis Stormwater Management Operating Budget ($ in millions) Revenue/Expenditures FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 0.5 Cent Tax Rate Dedication for Stormwater Management $ 1.78 $ 1.83 $ 1.87 $ 1.91 $ 1.95 $ 2.00 Stormwater Operating Expenditures $ 3.27 $ 3.89 $ 4.24 $ 4.58 $ 5.04 $ 5.40 Funding Gap $ (1.49) $ (2.06) $ (2.37) $ (2.67) $ (3.09) $ (3.40) Funding Gap Tax Rate Equivalent (in Cents) 0.42 0.57 0.64 0.70 0.79 0.85 The table above shows the impact of projected stormwater expenditures to the General Fund through FY 2020. The funding gap noted above is the por on of the General Fund that is over and above what is provided by the 0.5 cents. The 0.5 cents provides support only for the opera ng budget, it does not support funding the stormwater capital infrastructure investments. The table below shows the projected capital infrastructure costs and planned funding sources through FY 2020. Except where grant money has been awarded, the City’s General Fund also supports these expenditures by contrib‐ u ng Cash Capital or debt service on the bonds issued for stormwater improvements. It is important to note that budg‐ eted capital infrastructure expenditures increase significantly beginning FY 2021. The funding gap tax rate equivalent is equal to the amount of planned cash capital for stormwater infrastructure in the Approved FY 2015‐2024 CIP plus debt service on the planned General Obliga on Bond issuance. This amount could be adjusted if the City elected to increase General Obliga on Bonds and decrease Cash Capital for stormwater infrastructure improvements. Stormwater Management Capital Improvement Program ($ in millions) Expenditures/Revenues FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Total Stormwater CIP Expenditures $ 3.30 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ Cash Capital $ 0.88 $ 0.80 $ 1.55 $ 1.83 $ 1.23 $ 1.70 GO Bonds $ 1.23 $ 1.35 $ 1.95 $ 1.53 $ 3.38 $ 3.80 State and Federal Grants $ 1.20 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ Total Funding $ 3.30 $ 2.15 $ 3.50 $ 3.35 $ 4.60 $ 5.50 Cash Capital + Debt Service on Bonds $ 0.96 $ 0.98 $ 1.87 $ 2.26 $ 1.90 $ 2.64 Tax Rate Equivalent in Cents of Cash Capital and Debt Service 0.27 0.27 0.50 0.59 0.48 0.66 In the two projected scenarios above, the amount of investment need to construct, monitor and maintain storm‐ water capital infrastructure significantly exceeds the current 0.5 cent dedica on on the tax rate. The table below shows the funding gap in terms of the tax rate equivalent, based on the current projec ons for both the opera ng and capital budgets. By FY 2020, it is projected an addi onal 1.51 cents over the current dedica on of 0.5 cents will be required to monitor and maintain our exis ng stormwater infrastructure. Stormwater Management Operating and Capital Budgets (amounts in cents on the tax rate) Revenue/Expenditures FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Current Tax Rate Dedication 0.50 0.50 0.50 0.50 0.50 0.50 Total Stormater Operating in Tax Rate Equivalent 0.92 1.07 1.14 1.20 1.29 1.35 Total Stormater Capital in Tax Rate Equivalent 0.27 0.27 0.50 0.59 0.48 0.66 Funding Gap Tax Rate Equivalent (in Cents) (0.69) (0.84) (1.14) (1.29) (1.27) (1.51) Five Year Financial Plan FY 2016‐FY 2020 6.5 Stormwater Analysis Policy Analysis City staﬀ, primarily Transporta on & Environmental Services (T&ES) and the Oﬃce of Management and Budget (OMB) along with the City’s financial advisors, have begun to look at op ons to fund mandated stormwater improve‐ ments, as well as the on‐going monitoring and maintenance of those improvements. There are three primary op ons available to City Council to consider if it desires to increase the level of investment for the City’s stormwater. If Council elects to keep the status quo and not consider one of the op ons in the future, stormwater expenditures will con nue to take up an increasingly larger por on of the City’s General Fund in addi on to the already dedicated 0.5 cents on the tax rate. Increase to the Tax Rate Dedica on or Crea on of a Special Tax District The first op on for City Council to consider in order to provide addi onal resources for future stormwater ex‐ penditures is to increase the tax rate dedica on, which can also include moving the tax rate dedica on to a Special Tax District. The assump on for the crea on of the Special Tax District would be that it would encompass the en re City limits, and would be applied to the same popula on to which the real estate tax rate is applied. The analysis that fol‐ lows can be applied to both the increase of the current tax rate dedica on, or to the crea on of a Special Tax District. The table below shows the amount of dedicated taxes (as expressed by the tax rate equivalent in cents) to fully fund projected stormwater needs through FY 2020. From FY 2021 to FY 2025, stormwater costs are projected to in‐ crease at an even faster pace, as that five year period begins the implementa on of significant capital infrastructure improvements that will contribute to increased opera ng costs. Tax Rate Dedication (amounts in cents on the tax rate) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 *Projected Tax Rate Dedication 1.19 1.34 1.64 1.79 1.77 2.01 Current Rate Dedication 0.50 0.50 0.50 0.50 0.50 0.50 Difference 0.69 0.84 1.14 1.29 1.27 1.51 *Assumes a 2.3% growth in the real estate tax base annually In order to evaluate each of the op ons, City staﬀ has compiled a list of pros and cons associated with each of the policy op ons. The pros and cons of an increase to the tax rate dedica on are as follows: Pros Cons Easy to administer and collect Competes against all other poten al tax rate increases Does not capture all parcels that contribute to storm‐ No addi onal staﬀ required for collec on water run‐oﬀ Revenue fluctua ons based on real estate assessed value do not present stable long‐term solu on Debt issued will s ll count against debt ra os as the debt would not be considered “double‐barreled” With all of the other policy issues presented in the five‐year financial forecast, this op on to fund future man‐ dated improvements and opera ng costs competes directly for the same funding source—and addi on to the tax rate—as many of the other policy issues. While this op on could conceivably be implemented and collected beginning in FY 2016, the dependence of the value of the tax rate base increasing over me provides uncertainty about future revenue collec ons. Five Year Financial Plan FY 2016‐FY 2020 6.6 Stormwater Analysis Policy Analysis (con nued) Implementa on of a Stormwater U lity The second policy op on for considera on would be the implementa on of a stormwater u lity. It is important to note that this op on could not be implemented un l FY 2017. There is significant community outreach that would need to be conducted, and administra ve procedures including collec on of the u lity and staﬀ to administer the u li‐ ty would need to be considered. A stormwater u lity would likely be calculated on the basis of an Equivalent Residen al Unit, or ERU. The ERU is based how much impervious area is on a parcel, so the u lity is more like a user fee. Very early projec ons of the implementa on of the stormwater u lity would indicate a monthly rate per ERU in the area of $7.00‐$9.00 per month from FY 2017‐2020. These calcula ons would be refined if staﬀ were directed to move forward with this policy op on for a FY 2017 implementa on date. At the es mated rate of $7.00‐$9.00 a month, all stormwater expenditures, includ‐ ing opera ng, capital and debt service could be financed at current projec ons of expenditure growth. Addi onal in‐ creases from FY 2021 to FY 2025 are probable, as stormwater costs are projected due to the implementa on of signifi‐ cant capital infrastructure improvements that will contribute to increased opera ng costs.The pros and cons of a stormwater u lity are listed below. Pros Cons Captures more—but not all—parcels that contribute to Requires more me to implement stormwater run‐oﬀ Long‐term sustainability—amount of land in Alexandria Requires addi onal staﬀ to administer is not going to change; rate based oﬀ of parcels Helps General Fund—Amount of funding for storm‐ Stormwater U lity Fee is not tax deduc ble for State water could be taken oﬀ tax rate or put towards other and local income tax purposes as it is not an ad val‐ City priori es orem tax. Helps Capital Fund—Allows double barreled‐bonds to be issued, which do not count against exis ng debt ra os; debt service paid by u lity One of the posi ve aspects of this policy op on is the long‐term relief it would provide to the City’s General Fund. All future stormwater expenditures—similar to the City’s Sanitary Sewer Fund—would be captured in this u lity. The amount of General Fund resources allocated to stormwater would now be captured within the u lity, including the debt service issued on bonds associated with stormwater improvements. Using the table below, in FY 2017, 1.64 cents on the tax rate could be reduced—or used for other City priori es—with the implementa on of the stormwater u lity. Tax Rate Dedication (amounts in cents on the tax rate) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 *Projected Tax Rate Dedication 1.19 1.34 1.64 1.79 1.77 2.01 Current Rate Dedication 0.50 0.50 0.50 0.50 0.50 0.50 Difference 0.69 0.84 1.14 1.29 1.27 1.51 *Assumes a 2.3% growth in the real estate tax base annually While the u lity is s ll a cost to the taxpayer in Alexandria, the implementa on of the u lity is a more equitable way to share the costs among all Alexandria property owners by making it more of a user‐based fee. Five Year Financial Plan FY 2016‐FY 2020 6.7 Stormwater Analysis Policy Analysis (con nued) Implementa on of a Flat Fee for Stormwater The final policy op on for considera on would be the implementa on of a flat fee for stormwater, likely added to land/homeowner’s property tax bill. While easier to implement than a stormwater u lity, a reasonable me frame for implementa on would be FY 2017, as significant community outreach would be needed. This op on would require review by the City A orney’s Oﬃce to ensure a flat fee could be applied to both residen al and non‐residen al proper‐ es. The basis for revenue from a flat fee would be calculated by using the revenue generated through the tax rate equivalent. As the fee would likely be included on a property tax bill, the same people paying property taxes would pay this fee. The fee would need to be calculated to account for opera ng, capital, and debt service expenditures associat‐ ed with stormwater. A solid calcula on of the fee is not available at this me, although a very rough es mate would be approximately $150—$200 (annually) from FY 2017 to FY 2020, with addi onal increases from FY 2021 to FY 2025 as stormwater costs are projected to increase, due to the implementa on of significant capital infrastructure improve‐ ments that will contribute to increased opera ng costs. The pros and cons of a flat fee are listed below. Pros Cons Does not capture all parcels that contribute to No addi onal staﬀ required for collec on stormwater run‐oﬀ if included on only property tax bills; separate billing structure would be implement Helps General Fund—Amount of funding for storm‐ Debt issued will s ll count against debt ra os as the water could be taken oﬀ tax rate or put towards oth‐ debt would not be considered “double‐barreled” er City priori es Stormwater U lity Fee is not tax deduc ble for State Helps Capital Fund providing addi onal funding; and local income tax purposes as it is not an ad val‐ bonds would s ll be counted against debt limits orem tax. Separate u lity user fee bill could be sent to tax‐ exempt proper es, similar to refuse collec on fees Fee can be adjusted, as needed, to ensure all storm‐ water costs are captured While a flat fee would provide a dedicated funding source for stormwater, the flat fee would not be user‐based. Tax‐ payers would all pay the same rate, regardless of parcel size. A posi ve aspect is similar to the u lity; an es mated 1.64 cents on the tax rate in FY 2017 could be reduced—or used for other City priori es—with the implementa on of the flat fee for stormwater. Conclusion Addi onal resources for mandated stormwater improvements and on‐going opera ng costs are going to be required. The three policy op ons presented all require the addi on of new revenue. A fourth op on, not detailed, would be to reduce the “base” tax rate at the same amount required for addi onal stormwater expenses. While this is an op on for considera on, it does not provide the equity in sharing costs as a stormwater u lity would. The storm‐ water u lity would be more user‐based, so those parcels with more impervious area would pay accordingly. Further‐ more, a u lity could be applied to more proper es than just those receiving a tax bill. While a u lity would require more me to set up, and more resources to administer (which would be paid for by the fee), a u lity would provide a stable, long‐term funding solu on for the mandated stormwater improvements and opera ng costs. Five Year Financial Plan FY 2016‐FY 2020 6.8 SPECIAL REVENUE FUNDS Special Revenue Funds Five‐Year Financial Plan Even though they are outside of the General Fund, most of these sources contribute to the overall tax burden Special Revenue Funds of City residents. The combined 3.2 cents on the real es- tate tax rate for transporta on, storm water and aﬀorda- The purpose of this sec on is to provide a forecast ble housing costs the average residen al taxpayer $157 in of revenues and expenditures in a number of dedicated calendar year 2014. The sanitary sewer line maintenance and reserved special revenue funds over the next five fee of $1.25 per 1,000 gallons of water used costs a typical years. While most of the City’s annual opera ng expendi- household $61 per year. Regional transporta on taxes for tures are funded by General Fund tax and fee revenue, NVTA add 0.7% to the sales tax in Alexandria. Several of federal and state revenues, and grants, there are several these funds are expected to require significant increases in funding sources that are designated for specific uses and funding in the next five years, as discussed in the following are set aside in a separate fund for budge ng and ac- pages. coun ng purposes. Some of these sources include:  2.2 cents on the real estate tax rate for transporta on opera ng and capital costs1  0.5 cents of the real estate tax rate for aﬀordable housing  0.5 cents of the real estate tax rate for storm water management  Permit fees to fund development review  Sewer fees to fund infrastructure maintenance and improvements  Potomac Yard special tax district revenues for Metro- rail sta on planning, construc on and opera ons  State-designated transporta on funding received from the Northern Virginia Transporta on Authority (NVTA) These sources comprise a rela vely small por on of the City’s overall expenditures. For FY 2015, their budg- eted revenues and expenditures for these sources total $35.3 million, or 4.4%, of all opera ng expenditures. How- ever, some of these funds are an cipated grow considera- bly in the future, par cularly the Potomac Yard fund as development con nues and the Metrorail sta on bonds are issued and the sanitary and storm water sewer funds as the infrastructure con nues to age and regulatory re- quirements increase. 1 Unlike the other revenues in this sec on, the transporta on tax incre- ment is included in the General Fund, however it is reserved for trans- porta on uses and is budgeted and accounted for separate from other General Fund revenues and expenditures. Five Year Financial Plan FY 2016‐FY 2020 7.1 Fund Analysis Housing Fund Fund Descrip on: The Housing Fund was established to address the crea on and reten on of housing in Alexandria. Housing funds are ongoing revenue streams that can only be spent on aﬀordable housing ini a ves. These ini a ves include new construc on, preserva on, home repairs, housing related services, debt service for exis ng aﬀordable housing bonds, and non‐profit organiza onal support. The Housing Fund’s revenue stream consists of developer contribu ons to the Housing Trust Fund, aﬀordable housing bonds, and a dedicated revenue stream from real estate assessments. Beginning in 2005, City Council began to set aside one penny of the real estate tax for aﬀordable housing. In 2009, the aﬀordable housing designa on was reduced to 0.7 cents. It was further reduced to 0.6 cents in 2010. The aﬀordable housing designa on is currently approximately $2.1 million annually including debt service (approximately $1.3 million in FY 2015), based on CY 2014 real estate val‐ ues. Developer contribu ons are received upon project comple on. The balance in the Housing Fund builds up un l such me as a project is funded, at which me the fund is spent down. As of start of FY 2015, the balance in the Housing Trust Fund was $5.7 million, of which $3.5 million has been previously earmarked by Council for projects such as Beauregard. An example of a non‐profit developer project that is being re‐ viewed for funding in FY 2015 is a new construc on project on the west end of Alexandria which would have 92 units. In order to accumulate enough funds to provide gap financing, more than one years’ worth of funds may be needed. Not included in this fund analysis are the Oﬃce of Housing City general funds and the federal programs CDBG and HOME. These funds are used for exis ng programs and the opera on of the Oﬃce of Housing. Housing Fund FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Revenues 4,673,000 4,145,060 4,687,961 5,731,720 6,276,355 6,321,882 Expenditures 6,284,280 2,425,800 3,269,601 2,944,909 2,454,092 3,463,142 Project Expenditures 4,000,000 0 3,000,000 3,000,000 3,000,000 3,500,000 Estimated End of Year Fund Balance 5,711,010 99,730 1,818,990 237,350 24,161 846,424 205,165 Estimated End of Year Fund Balance Housing Fund 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 ‐ FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Five Year Financial Plan FY 2016‐FY 2020 7.2 Fund Analysis Code Administra on Special Revenue Fund Fund Descrip on: In FY 2011, the Code Administra on Special Revenue Fund was established to improve customer service and cover costs of new construc on building permits, mul ‐departmental plan reviews, and inspec ons. With the agreement of the development community, Code Administra on adjusted its fee schedule such that all related ac vi es would become fee supported, and the costs of permi ng and inspec on ac vi es related to the Permit Center would be paid for solely by fees collected. The development community agreed given the following s pula ons: 1. The funds not be used for other purposes (i.e. placed in the General Fund), 2. The funds be used to improve services and access to services, 3. The funds be used to provide be er trained and cer fied staﬀ, and 4. A er other considera ons, fees be reduced or stabilized when possible. By Virginia regula ons, fees must be used to oﬀset the cost to administer the Virginia Statewide Building Code (VUSBC Sec on 107.1 Authority for Charging Fees). This includes all the costs and overhead associated with permit intake, plan review, expedited services, permit issuance, inspec ons, cer ficates of occupancy and maintenance/nuisance programs. Since FY 2011, any revenues collected in excess of expenditures have accrued as fund balance. With the recent upswing in development within the City, fund revenues have grown, and fund balance has increased every year since its crea on. The fund’s revenue stream has allowed the Code department to improve services related to development and permi ng. This fund pays the cost of Permit Center team members in other departments, including Transporta on and Environmental Services, Planning and Zoning, Informa on Technology, Finance, and Historic Alexandria. In FY 2014, these personnel costs were approximately $1.3 million. The fund has also been able to absorb costs of func ons that were previously City funded. In the FY 2015 budget, the maintenance code program was shi ed to the special revenue fund, and permit fees collected now support this non‐revenue genera ng program. In addi on, Code Administra on con nues to waive all permit related fees on City, Schools and ARHA owned projects, as required by City Ordinance. The value of waived fees since FY 2010 is $3.9 million. The level of fund balance should be weighed against the needs and uses of the Code Administra on Special Revenue Fund moving forward. The table below projects Code Special Revenue account expenditures, revenues and es mated fund balance over the next five years. Code Administration's Special Revenue Account FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Revenues 8,300,000 8,100,000 9,000,000 9,000,000 8,100,000 8,100,000 Expenditures 7,558,956 8,179,725 8,425,116 8,677,870 8,938,206 9,206,352 IT‐Permit Sys Replacement‐Capital 1,700,000 1,707,600 Estimated End of Year Balance 9,038,987 8,080,031 6,292,706 6,867,590 7,189,720 6,351,514 5,245,162 The table shows that the FY 2014 year‐end fund balance was $9.0 million. Expenditures included in this projec on include an increase in personnel funded by the Code fund and the full cost of a capital improvement project. As of FY 2016, this fund will pay an addi onal 4 FTEs of staﬃng related to permit review and code inspec on. The fund is also bearing the full costs of an enterprise‐wide land use permi ng system; the es mated cost of the permi ng system is currently $4.2 million (of which $1.0 million has already been appropriated). The actual cost of the system will not be known un l the system is bid and the contract awarded, which will occur by the end of the second quarter in this fiscal year. The Code Administra on Special Revenue Fund will pay for this en re project. Revenue projec ons assume some variability in permit ac vity from year to year. They also take into considera on a small fee adjustment in FY 2015 that is expected to reduce revenues by $250,000. However, there is some uncertainty about future construc on ac vity. Several projects that were expected to move ahead are now repor ng delays due to the current rental market and business ac vi es related to federal cut backs and the downsized federal contractor base. This may impact FY 2015 revenues and revenues in future years, but it is currently not included in this revenue projec on. Beginning in FY 2019, the surplus in fund balance is expected to diminish as revenues from the increased Five Year Financial Plan FY 2016‐FY 2020 7.3 Fund Analysis development ac vity in Potomac Yard, the Na onal Science Founda on, Beauregard redevelopment and other small area re‐developments begin to decrease, while expenses related to addi onal salaries from suppor ng departments and related opera onal expenses of the new permi ng system con nue to increase. Projec ng revenues and expenditures of the fund for the next five years allows the Permit Center Mul ‐department Steering Commi ee and Department of Code Administra on to best recommend how to manage this special revenue fund. At this point in me, Code recognizes that fund balance should:  Ensure that the Department of Code Administra on and the Permit Center have the needed resources to pay administra on, permit issuance, inspec on and Virginia Building Code enforcement related expenses in slow development years— Typically, new permit revenue decreases but inspec on work con nues for up to twenty‐four months during recessionary periods, and property maintenance enforcement rises as property owners have more diﬃculty maintaining their property. As noted when originally proposed in FY 2011, fund balance allows Code Administra on to con nue opera ons in lower revenue‐producing years. Moving forward, the Code Administra on Special Revenue fund could be used to:  Acquire an oﬀ‐site permit center — As with the permi ng system replacement project, the Special Revenue Fund may be able to pay the costs of projects that otherwise would require General Fund funding. The Department of Code Administra on has interest in u lizing surplus funds to lease or purchase an oﬀ‐site facility to house permi ng and inspec on func ons. Currently, the permit center is located on the fourth floor of City Hall. An oﬀ‐site permit center would provide easier access for customers including free parking with no me limita ons, and would also provide adequate space for staﬀ. It could also create necessary needed swing space for the future City Hall renova on. A facility to support the opera on should contain approximately twelve thousand square feet and would cost an es mated $4 million dollars in acquisi on and renova on costs. This project is not proposed or part of the City’s current Capital Improvement Program.  Depreciate the permi ng system underway— If the new permi ng system is expected to last 15 years, Code could budget an addi onal $250,000 each year in the Special Revenue Fund, beginning in FY 2016, to ensure that it has the needed funds to replace the permi ng system in the future. This is similar to the way the City funds its vehicle replacement program as well as Police in‐cruiser lap top replacements. However, at this point in me, un l the revenue picture becomes clearer, the acquisi on of the new permi ng system is complete, and the City further evaluates Code’s capital needs moving forward, the Code Administra on suggests maintaining fund balance. City staﬀ will be developing a fund balance policy to establish an appropriate level of fund balance based on future revenue and expenditure projec ons. Five Year Financial Plan FY 2016‐FY 2020 7.4 Fund Analysis Sanitary Sewer Fund Fund Descrip on: The Sanitary Sewer Fund was created to account for all opera ng, capital and debt service requirements to maintain and improve the City’s Sanitary Sewer infrastructure. All Sanitary Sewer expenditures are supported through the sewer line maintenance fee. The fee in FY 2015 is $1.25/1,000 gallons (with the fee included on resident’s water bills). Pro‐ jected costs associated with the federally mandated separa on of the City’s Combined Sewer System (CSS) will most likely necessitate an increase in the sewer line maintenance fee in FY 2016, as the City begins to incur the costs for the required capital infrastructure improvements. The projected increase is detailed in the graph below. Addi onally, sewer line connec on fees (tap fees) are collected and deposited into the Sanitary Sewer fund, details of which can be found at: h p://alexandriava.gov/uploadedFiles/tes/Memo01‐15.pdf. Sewer line connec on fees can vary significantly from year to year, depending on the pace of development in the City. Once all actual revenue is post‐ ed and the fiscal year is closed, the fund is reconciled and if revenues from connec on fees exceeds budgeted amounts, that addi onal revenue is assumed to be used to cash fund capital infrastructure needs instead of issuing addi onal General Obliga on Bonds. Debt Service is paid on General Obliga on Bonds issued by the City for sanitary sewer infrastructure improvements. The fund does not issue Revenue Bonds for the u lity as the City has historically received a be er interest rate through General Obliga on Bonds. As part of the table below, the an cipated increase in the Sanitary Sewer Maintenance Fee is provided. The projected increase was calculated as part of the development of the FY 2015‐2024 Sanitary Sewer opera ng and capital budgets, and is shown in detail on page 12‐4 of the Approved FY 2015‐2024 Capital Improvement Program document. Staﬀ is currently upda ng projected opera ng costs and the ming of capital improvements to determine if the projected rate increase in FY 2016 will be required. Projected Sewer Line Maintenance Fee Rate FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Sewer Line Maintenance Fee $ 1.25 $ 1.50 $ 1.74 $ 2.02 $ 2.02 $ 2.32 Sanitary Sewer Fund FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Sewer Line Maintenance Fee 6,100,000 7,374,900 8,619,046 10,073,079 10,148,627 11,758,453 Sewer Connection Fees 1,603,945 1,652,063 1,701,625 1,752,674 1,985,780 2,249,888 Prior Year Balances 791,000 34,449 167,286 1,023,698 2,099,057 1,944,269 General Obligation Bonds 2,425,000 6,600,000 3,575,000 13,115,000 14,445,000 16,070,000 Subtotal, Revenues 10,919,945 15,661,412 14,062,957 25,964,451 28,678,464 32,022,610 Operating Expenditures 5,232,100 5,472,313 5,633,482 5,799,487 5,970,471 6,455,586 Capital Expenditures (Cash & Borrowing) 3,100,000 6,900,000 3,775,000 13,625,000 15,100,000 17,745,000 Debt Service 2,553,396 3,121,813 3,630,777 4,440,907 5,663,724 7,005,462 Subtotal, Expenditures 10,885,496 15,494,126 13,039,259 23,865,394 26,734,195 31,206,048 Reserved for Future Year Expenditures 34,449 167,286 1,023,698 2,099,057 1,944,269 816,562 Projected Sew er Line M aintenance Fee $2.50 $2.02 $2.02 $2.32 $2.00 $1.74 $1.50 $1.50 $1.25 $1.00 $0.50 $‐ FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Five Year Financial Plan FY 2016‐FY 2020 7.5 Fund Analysis Storm Water Fund Fund Descrip on: The Stormwater Fund was created by City Council in FY 2011 to account for stormwwater planning, maintenance and capital needs City‐wide. The revenues from the fund are derived from a dedicated 0.5 cents on the base real estate tax rate. The 0.5 cents funds only a por on of City storm water opera ng and capital needs, with the City’s General Fund also providing support. In FY 2015, total stormwater opera ng expenditures (excluding any debt service on prior General Obliga on Bonds is‐ sued for storm water capital projects) total $4.3 million, with the 0.5 cents in dedicated revenue yielding $1.78 million. All capital costs are currently funded through the City’s General Fund Cash Capital transfer (included in total storm wa‐ ter expenditures) or the issuance of General Obliga on Bonds, of which the City’s General Fund pays the debt service. Amounts in FY 2016—2020 represent projec ons of storm water funding requirements, and may vary based on the federally mandated regulatory requirements that will necessitate significant upgrades to the City’s stormwater capital infrastructure as well as increased regular maintenance on stormwater facili es. The table and graph below provides an analysis on the real estate tax rate required to fully fund projected stormwater expenditures. There are several op ons that City Council may consider in the future to increase the investment re‐ quired to maintain the City’s stormwater infrastructure including user fees, a storm water u lity, or decreasing other General Fund expenditures to oﬀset increase storm water regulatory requirement costs. These op ons are discussed in detail in the Individual Policy Analysis Page 6.4. Storm W ater Fund FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Dedicated 0.5 Cents on Tax Rate 1,784,213 1,825,250 1,867,231 1,910,177 1,954,111 1,999,056 All Storm W ater Operating Expenditures 3,268,567 3,894,030 4,239,142 4,584,024 5,038,152 5,399,920 Planned Cash Capital Contributions 875,000 800,000 1,550,000 1,825,000 1,225,000 1,700,000 Debt Service on New Debt Issuances 87,248 183,291 321,902 430,610 670,541 940,728 Total, Storm W ater Expenditures 4,230,815 4,877,321 6,111,044 6,839,634 6,933,693 8,040,648 Additonal Storm W ater Expenditures Supported by the General Fund 2,446,602 3,052,071 4,243,813 4,929,457 4,979,582 6,041,592 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Current Tax Rate 0.50 0.50 0.50 0.50 0.50 0.50 Additional Tax Rate Needed to Support All Stormwater Expenditures 0.69 0.84 1.14 1.29 1.27 1.51 Tax Rate Required to Fund All Storm W ater Expenditures 1.19 1.34 1.64 1.79 1.77 2.01 Planned GO Bond Issuance 1,225,000 1,350,000 1,950,000 1,525,000 3,375,000 3,800,000 Five Year Financial Plan FY 2016‐FY 2020 7.6 Fund Analysis Northern Virginia Transporta on Authority (NVTA) Fund (NVTA 30%) Fund Descrip on: In FY 2014, the State General Assembly enacted HB 2313 to increase the Statewide Retail and Sales Use Tax, impose an addi onal State Retail Sales and Use Tax in the Northern Virginia and Hampton Roads regions, and impose a State Tran- sient Occupancy Tax in the Northern Virginia region to provide for transporta on and transit improvements. Revenues are divided into NVTA 70% funds, distributed by NVTA to locali es for regional transporta on projects; and NVTA 30% funds, distributed by NVTA to locali es for local (and regional if necessary) transporta on projects. NVTA 30% funds are used for both transporta on infrastructure improvements as well as opera ng expenditures associated with expanded transporta on or transit services. In order to con nue to receive a full share of NVTA 30% funds, the City must meet an annual maintenance of eﬀort investment in transporta on expenditures through both the opera ng and capital budget. Part of this maintenance of eﬀort funding is captured in the Transporta on Improvement Program (TIP), which is discussed in detail on the following page. The table below contains an analysis on NVTA 30% funds only, as those funds are distributed directly to the City. NVTA 70% funds are held by NVTA and distributed to locali es as regional projects are approved. As of September 2014, City staﬀ has observed that actual revenues were unlikely to hit the budgeted target amount of $6.5 million. As part of the FY 2016 budget process, staﬀ will be refining budget es mates and priori zing capital projects based on the data from actual revenue collec ons. NVTA 30% Fund FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 Revenues (Current Year) 6,500,000 6,500,000 6,565,000 6,630,650 6,696,957 6,763,926 Revenues (Prior Year) 495,000 495,000 375,000 159,360 9,370 625,687 Operating Expenditures 2,420,000 2,420,000 1,573,000 1,573,000 2,173,000 3,973,000 Captial Expenditures 4,080,000 4,200,000 5,207,640 5,207,640 3,907,640 2,600,000 Reserved for Future Years 495,000 375,000 159,360 9,370 625,687 816,613 Five Year Financial Plan FY 2016‐FY 2020 7.7 Fund Analysis Transporta on Improvement Program (TIP) Fund Fund Descrip on: The Transporta on Improvement Program (TIP) Fund was established by City Council as part of the FY 2012 Adopted Opera ng and Capital Budgets. The TIP is technically part of the City’s General Fund, as it is funded through a reserved 2.2 cents on the real estate tax rate. The revenues and expenditures for the TIP are detailed on page 13.97 of the FY 2015 Approved Opera ng Budget document. Revenues and expenditures are balanced annually in this fund, with any year end balance (noted as reserved for future years in the table below) assumed to fund future year capital projects. Prior to FY 2015, TIP funds were used to support expanded transporta on and transit infrastructure and services in both the opera ng and capital budgets. During the FY 2015 budget approval process, City Council expanded the defini- on of the TIP to include any transporta on related expenditures in either the opera ng or capital budgets. This ex- panded defini on was made possible as legisla on passed by the State General Assembly in FY 2014 provided addi on- al transporta on funding through the Northern Virginia Transporta on Authority (NVTA) for the purpose of providing expanded transporta on and transit infrastructure and services. It is important to note that the en rety of the 2.2 cents will s ll be used to support transporta on projects and services and to help meet the City’s maintenance of eﬀort needs related to NVTA funding. Addi onal informa on on NVTA funding can be found on the previous page. Addi onal debt is not required to be issued and supported by the TIP with the new transporta on funding received through NVTA, however the TIP helps meet the transporta on funding maintenance of eﬀort required to receive the NVTA revenue. Debt service expenditures below reflect previous General Obliga on Bond debt issued prior to FY 2015. No addi onal debt issuances are planned to be backed with TIP funding. TIP projec ons below from FY 2016-2020 have been updated since the approval of the ten-year CIP to account for an annual 2.3% growth in the tax base, and will be factored into the development of next year’s CIP. Transportation Improvement Program (TIP) FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 *Revenues (Current Year) 7,761,063 7,939,567 8,122,178 8,308,988 8,500,094 8,695,596 Revenues (Prior Year) 3,550,000 125,215 919,054 375,005 425,001 (0) Operating Expenditures 4,020,436 4,589,421 5,411,761 5,627,035 5,720,646 6,932,652 Captial Expenditures 6,600,000 2,000,000 2,655,000 2,050,000 2,640,000 650,000 Debt Service Expenditures 565,412 556,307 599,466 581,957 564,449 546,940 Reserved for Future Years 125,215 919,054 375,005 425,001 (0) 566,004 *Revenue growth based on a 2.3% increase in the tax base annually RETURN TO AGENDA Five Year Financial Plan FY 2016‐FY 2020 7.8