The URL can be used to link to this page

Home My WebLink AboutSECTION 4-FINANCIAL PLAN 2004 Final Budaet Section IV: Financial Plan SECTION IV: FINANCIAL PLAN Introduction A budget is a plan that develops and allocates the City's financial resources to meet community needs in both the present and future. The development and allocation of these resources is accomplished on the basis of the foregoing policies, goals and objectives addressing the requirements and needs of the City of Auburn. While the other sections of this document will present the budget in detail, this section provides an overview of the budget as a Financial Plan. As such, this section will particularly focus on the City's strategies to maintain its financial strength and the basis for the expectation for future revenues. Since any financial plan has a structure, this section also describes the financial structure of the City as a full service City. An important part of a financial plan is the City's Capital Improvement Program. While the City of Auburn's Capital Facilities Plan is discussed in some detail under Capital Planning, section VIII, this section does discuss the City's debt capacity. This section describes the fund structure of the City, analyzes the 2004 revenues and expenditures, Citywide, and explains the revenue sources and trends for the different fund types of the City. A six-year forecast and analysis of General Fund revenue, expenditure, and fund balance is presented along with the current debt capacity. This section concludes with an analysis of working capital balances in the City's proprietary funds. Financial Structure Auburn's accounting and budget structure is based upon Governmental Fund Accounting to ensure legal compliance and financial management for various restricted revenues and program expenditures. Fund accounting segregates certain functions and activities into separate self-balancing 'funds' created and maintained for specific purposes, (as described below). Resources from one fund used to offset expenditures in a different fund are budgeted as either a 'transfer to' or 'transfer from'. The following describes the types of funds used as part of the City's accounting and budget structure: Governmental Fund Types: This group of funds accounts for the activities of the City, which are of a governmental character. These funds are budgeted on the modified accrual basis of accounting. Briefly, this means that obligations of the City are budgeted as expenditures and revenues are recognized when they are susceptible to accrual; i.e., both measurable and available within the current period or soon enough thereafter to pay current liabilities. . General Fund - is the general operating fund of the City. The General Fund exists to account for resources devoted to finance the services traditionally associated with local government. Included in these services are police and fire protection, parks and recreation, planning and economic development, general administration of the City, and any other activity for which a special fund has not been created. . Special Revenue Funds - are used to account for the proceeds of specific revenue sources that are legally restricted to expenditures for specified purposes. Examples of restricted revenues that must be spent on specific purposes are gas tax revenues, federal and state grants for transportation, community development block grants, Page 49 2004 Final Budaet Section IV: Financial Plan forfeited drug funds, business improvement assessments, recreation trails, hotel/motel tax and mitigation fees. · Debt Service Funds - are used to account for the accumulation of resources for, and the payment of, general long-term debt principal and interest not serviced by the enterprise funds. These funds do not include contractual obligations accounted for in the individual funds. · Capital Project Funds - are used to account for the financial resources to be used for the acquisition or construction of major capital facilities, except those financed by enterprise funds. · Permanent Funds - are a new classification of fund type per the GASB 34 reporting structure. These funds report resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the programs. The City has one permanent fund, the Cemetery Endowed Care. Proprietary Fund Types: These funds account for activities of the City that are of a proprietary or "business" type in nature. These funds are budgeted on an accrual basis. Under the accrual basis, revenues are recognized when earned and expenses are recorded when incurred. · Enterprise Funds - are used to account for operations, including debt service, which are financed and operated similar to private businesses where the intent is that costs of services are entirely or predominantly supported by user charges. The City maintains eight Enterprise funds to account for Water, Sewer, Storm, Solid Waste, Airport, Cemetery, Commercial Retail and Golf Course operations. · Internal Service Funds - are used to account for the financing, on a cost reimbursement basis, of commodities or services provided by one department for the benefit of other departments within the City. The City maintains two Internal Services funds to account for fleet management and self-insurance activities. Fiduciary Funds: These funds are used to report assets held in a trustee or agency capacity for others and therefore cannot be used to support the City's own programs. These include pension trust, investment trust, private-purpose trust, and agency funds. The City's pension trust fund is the Fire Relief and Pension Fund and is budgeted on the accrual basis of accounting where revenues are recognized when earned and expenses are recorded when incurred. The City's agency fund is custodial in nature and is not budgeted. The City does not have any investment trust funds or private purpose trust funds. Page 50 2004 Final Budaet Summary of Financial Structure Section IV: Financial Plan Mayor & Council Human Resources Mayor Human Resources Director Finance Director City Attorney Planning Director Finance City Attorney Planning Police Fire Public Works Parks & Rec. Police Chief Fire Chief Public Works Director Parks Director street Public Works Director Non-Departmental Finance Director Special Revenue Funds 101 City street Public Works Director 102 Arterial street Public Works Director 104 Hotel Motel Tax Finance Director 117 Drug Forfeiture Police Chief 118 Local Law Enf. Blk. Grnt Finance Director 119 CDBG Planning Director 120 Recreational Trails Parks Director 121 Business Improvmnt Area Planning Director 122 Cumulative Reserve Finance Director 123 1986 Prks & strt Impr Finance Director 124 Mitigation/Impact Fees Finance Director 125 Special Parks Finance Director Debt Service/Capital Project Funds 229 Library GO Bond Finance Director 249 LID Guarantee Finance Director 321 Municipal Park Const Parks Director 328 Capital Improvements Finance Director Budgets Mayor & Council expenditures Budgets general government employment and safety Budgets general government finance and admin Budgets general government legal costs Budgets planning, social service, building permits, and City building maintenance costs Budgets direct police costs Budgets direct fire and EMS costs Budgets general government engineering costs Budgets park maintenance, senior programs, arts and recreation programs Budgets street maintenance costs and street construction funded by general taxes Budgets fund transfers, fund balance and one time expenditures Gas tax maintenance; transferred to General Fund Gas tax for Arterial St., including grants Lodging tax for promotion of tourism Forfeited drug money for drug enforcement Police Overtime Budgets Community Development Block Grants Dedicated funds for recreational trails Budgets rev and exp of downtown area Governmental Reserves Tax for Park & Street Improvement Collects Mitigation/Impact Fees To account for donations and related expenses To pay principal and interest on 1998 bonds Reserves for security of LIDs Funds specifically for park capital improvements Funds capital improvements 430 Water 431 Sewer 432 Storm Drainage 434 Solid Waste 435 Airport 436 Cemetery 437 Golf Course 438 Commercial Retail Fund Internal Service Funds 501 Insurance 550 Equipment Rental Fiduciary Fund 611 Fire Pensions Permanent Fund 701 Cemetery Endowment Public Works Director Public Works Director Public Works Director Public Works Director Planning Director Parks Director Parks Director Planning Director Finance Director Public Works Director Finance Director Finance Director Page 51 Operating fund for water utility Operating fund for sewer utility Operating fund for storm drainage utility Operating fund for solid waste utility Operating fund for City airport Operating fund for City cemetery Operating fund for City golf course Operating fund for commercial retail space Self-insurance reserves Operating fund for equipment rental Pension fund for old retirement system Long-term reserves for cemetery operation 2004 Final Budaet Section IV: Financial Plan Analysis of 2004 Revenues by Source for All Funds The opposite page presents an analysis of total new revenues (excluding fund balances and revenue received during previous years) that are anticipated to be available to support City programs during 2004. The table also details the revenue by fund. The revenues received by the City are derived from a diverse range of sources, and the types of revenues received by each fund vary significantly. The largest source of revenue to the City is taxes and represents 40% of all revenue. Almost all of these funds are received in the General Fund. Other tax receipts are in funds that are restricted for defined construction and infrastructure improvements. The City does not have any excess tax levies at this time. The next largest source of funding is service revenue, or user fees from services, at 38%. Most of this revenue consists of fees for services in the City's four utilities. Federal and State grants, along with other governmental contributions, are 8% of total revenue and largely fund the scheduled construction of street projects. Other revenue sources are 7% of total revenue. Almost all of this type of revenue is in the Utility Funds and consists of system development charges. Other revenue sources in the General, Street, Debt Service, Capital Improvement Projects, and proprietary funds are interfund operating transfers. The City's interfund revenue is primarily payments to the Insurance and Equipment Rental Funds and is included in the miscellaneous category. Interest is the largest component of miscellaneous revenue. Total New Revenue: 2004 other Sources 7% Taxes 40% Inter Gov 8% Page 52 2004 Final Budaet Section IV: Financial Plan 2004 Revenues by Source for all Funds (in Thousands) Lie. & Inter- other Total % # Fund Taxes Permits gov't Services Fines Mise Sources Revenue Share 001 General $ 32,638 $ 940 $ 1,798 $ 1,673 $ 761 $ 760 $ 760 $ 39,330 45.88% 101 Street 600 150 750 0.87% 102 Arterial Street 3,403 80 15 994 4,492 5.24% 104 Hotel Motel Tax 45 45 0.05% 117 Drug Forfeiture 51 51 0.06% 118 LLEBG 45 5 50 0.06% 119 CDBG 483 483 0.56% 120 Recreational Trails 2 2 0.00% 121 Business Impr Area 51 2 53 0.06% 122 Cumulative Reserve 70 70 0.08% 123 Parks & Street Imprv 0.00% 124 Mitigation Fees 349 6 50 405 0.47% 125 Special Parks 10 10 0.01% 229 Library GO Bond 307 307 0.36% 249 LID Guarantee 20 20 0.02% 321 Municipal Park Const 22 1 23 0.03% 328 Capitallmpr Projects 1,400 159 500 2,059 2.40% 430 Water 6,474 85 536 7,095 8.28% 431 Sewer 10,000 80 2,362 12,442 14.51% 432 Storm Drainage 2,800 45 300 3,145 3.67% 434 Solid Waste 51 8,497 40 8,588 10.02% 435 Airport 810 300 528 1,638 1.91% 436 Cemetery 664 4 668 0.78% 437 Golf Course 1,030 8 1,038 1.21% 438 Commercial Retail 58 58 0.07% 501 Insurance 20 20 0.02% 550 Equipment Rental 200 2,495 2,695 3.14% 611 Fire Pensions 45 100 145 0.17% 701 Cemetery Endow 40 3 43 0.05% TOTAL $ 34,134 $ 940 $ 7,237 $ 32,129 $ 761 $ 4,558 $ 5,963 $ 85,721 100.00% Page 53 2004 Final Budaet Section IV: Financial Plan Analysis of 2004 Budgeted Expenditures by Fund and Type The page opposite presents an analysis of the 2004 budgeted expenditures of the City by fund and type. The largest expenditure categories in the 2004 budget are Salaries and Benefits at $37.9 million or 38%. Approximately 79.1% of these costs are in the General Fund, while 20.9% are in other funds. $18.7 million, or 19%, is allocated for capital improvement and projects. Most of the projects planned are in the Arterial Street Fund. The Capital projects fund is funding the last of three $700,000 payments to Sound Transit for the downtown parking garage and retail space. The balance of capital expenditures is primarily in the utility funds. This category fluctuates from year to year and is dependent on available funding from grants, loans, one-time revenues, and service fees. As an example, in 2004 the capital funding for the Airport includes an $810,000 FAA grant. Supplies and services make up approximately 24.2% of the budget. A contractual service for the disposal of solid waste is the largest service charge for the City. The largest single such intergovernmental charge is the contractual cost for sewerage to Metro, who provides sewage treatment for Auburn and much of the region. In 2004, the cost of the sewerage treatment is not expected to increase except for additional costs due to new customers coming on line. Metro had a large rate increase in 2002, which will sustain the system for the next couple of years. Debt service accounts for 3.4% of budgeted expenditures. Most debt service is in the City's utilities, primarily to retire recently issued bonds and loans to finance projects identified in the City's Comprehensive Water and Storm Drainage Plans. 2004 Expenditures by Object-All Funds Capital 19% Salaries 29% Intergov 13% Benefits 8% Services 22% Page 54 2004 Final Budaet Section IV: Financial Plan 2004 Expenditures by Object-All Funds (in Thousands) 10 20 30 40 50 60 70 80 90 Total % # Fund Name Salaries Benefits Supplies Services Intergov Capital Prin Int I nterfd Exp Share 001 General $ 23,405 $ 6,553 $ 1,545 $ 8,155 $ 3,346 $ 1,773 $ 139 $ 111 $ 1,510 $ 46,536 46.7% 101 Street 750 750 0.8% 102 Arterial Street 212 62 50 5,808 6,132 6.1% 104 Hotel Motel Tax 60 60 0.1% 117 Drug Forfeiture 36 29 65 0.1% 118 LLEBG 50 50 0.1% 119 CDBG 47 14 422 483 0.5% 120 Recreational Trails 0.0% 121 Business Impr Area 10 82 92 0.1% 122 Cumulative Reserve 0.0% 123 Parks & Street Imprv. 6 6 0.0% 124 Mitigation Fees 250 250 0.3% 125 Special Parks 7 20 27 0.0% 229 Library GO Bond 160 147 307 0.3% 249 LID Guarantee 10 1 11 0.0% 321 Municipal Const. 10 10 0.0% 328 Capitol Impr Projects 19 824 1,607 677 25 3,152 3.2% 430 Water 1,640 468 167 2,141 1,961 1,166 385 437 8,364 8.4% 431 Sewer 1,059 302 41 1,113 7,390 3,218 277 13,400 13.4% 432 Storm Drainage 1,183 335 39 764 10 1,872 315 137 386 5,040 5.1% 434 Solid Waste 393 113 22 8,027 215 69 76 8,915 8.9% 435 Airport 181 53 245 164 900 35 86 29 1,693 1.7% 436 Cemetery 370 107 121 60 35 15 707 0.7% 437 Golf Course 347 97 108 237 261 12 1,061 1.1% 438 Commercial Retail 5 50 55 0.1% 501 Insurance 70 8 78 0.1% 550 Equipment Rental 453 132 291 438 808 46 2,168 2.2% 611 Fire Pensions 113 129 44 286 0.3% 701 Cemetery Endow 30 30 0.0% Total $ 29,454 $ 8,435 $ 2,634 $ 21,461 $ 12,825 $ 18,749 $ 2,492 $ 892 $ 2,786 $ 99,728 100.0% Page 55 2004 Final Budaet Section IV: Financial Plan Budget Allocations by Fund The opposite page presents the budget of the City as it is allocated to the various funds. The amounts listed in the table are the total allocation to each fund or sub-category, including reserves. Consequently, the total budget exceeds the amount of money that will be spent by the City (as presented on the previous page). In the City Operations Section, two other perspectives on how the operations of the City can be viewed are presented: by its administrative structure and by the services it provides. These alternate views of the budget separate reserves from the actual expenditure of funds. While budgets fluctuate for a variety of reasons, one of the main influences is that of capital projects. These projects increase expenses while they are under construction, although the construction expenses subside as the capital project is completed. However, completed projects often result in additional ongoing maintenance and operating expenses. 2004 Budget Allocations by Fund Type utilities 34% Internal Service 6% Fiduciary 2% other Enterprise 3% General Fund 36% other Gov Funds 9% Construction 8% Debt Service 1% Page 56 2004 Final Budaet Section IV: Financial Plan Budget Allocations by Fund 2001 2002 2003 2003 2004 % Actual Actual Adj Budget Est Actual Budget Share General $ 55,355,795 $ 55,303,866 $ 55,097,872 $ 55,279,869 $ 53,243,500 35.6% Departments: Mayor & Council 258,280 355,111 596,147 590,147 638,000 0.4% Human Resources 1,420,595 1,708,938 2,1 76,340 2,135,940 2,314,700 1.5% Finance 1,1 73,708 1 ,51 6,863 2,698,750 2,225,750 1,944,900 1.3% City Attorney 878,373 822,355 1,087,450 995,850 1,171,100 0.8% Planning 1,240,495 1,624,874 3,646,806 3,385,506 3,754,600 2.5% Police 11 ,286,023 12,197,293 13,915,589 12,912,489 15,309,000 10.2% Fire 7,309,648 7,863,376 8,301,503 8,173,203 8,844,300 5.9% Public Works 3,185,137 3,467,472 2,501 ,800 2,434,300 2,363,700 1.6% Parks & Recreation 3,404,447 3,589,493 4,642,400 4,359,000 4,677,300 3.1% Street 1,501,269 1 ,688,709 1,923,300 1,923,300 2,205,300 1.5% Non-Departmental 23,697,820 20,469,382 13,607,787 16,144,384 10,020,600 6.7% City Streets 635,783 654,861 839,000 824,000 750,000 0.5% Arterial Street 18,877,247 9,584,610 8,808,971 7,731,171 6,331,071 4.2% Hotel Motel Tax 2,521 51,954 91,479 91,479 66,479 0.0% Drug Forfeiture 107,527 122,052 110,998 110,998 70,798 0.0% Local Low Enforcement Blk Grnt 106,497 110,925 60,155 60,155 52,269 0.0% CDBG 547,703 421,445 488,931 488,931 488,931 0.3% Recreational Trails 20,128 12,662 14,262 14,262 15,862 0.0% Business Improvement Area 174,079 163,000 146,904 146,904 119,104 0.1% Cumulative Reserve 4,166,354 4,261,214 4,361,213 4,361,214 4,431,213 3.0% Park & Street Improvement 59,176 60,395 58,329 58,329 5,629 0.0% Mitigation Fees 1,066,816 1 ,604,259 1,331,618 1,331,618 1,495,618 1.0% Parks & Rec Special Projects 104,392 83,770 69,348 48,890 32,390 0.0% 1998 G.O Library Bond 370,450 311,233 309,043 309,043 311,603 0.2% LI D Guarantee 1,797,259 1,814,517 1 ,836,839 1 ,836,839 1,845,839 1.2% Municipal Park Const 2,471,752 252,073 61,506 61,506 84,006 0.1% Capitallmpr Projects 13,084,140 19,629,608 18,807,678 17,043,278 11,256,690 7.5% Water 16,868,987 6,802,540 12,425,114 12,425,115 12,316,875 8.2% Sewer 17,345,960 18,991,733 19,280,431 19,250,432 20,840,857 13.9% Storm Drainage 8,610,934 7,385,493 7,585,975 7,585,975 6,513,900 4.4% Solid Waste 12,100,069 11,360,941 12,074,001 12,074,002 11,676,020 7.8% Airport 1,247,150 1,050,018 1,584,852 1,110,353 1,904,063 1.3% Cemetery 970,117 967,336 958,886 958,886 960,634 0.6% Golf Course 1,174,738 1,279,107 1,316,305 1,314,505 1,229,405 0.8% Commercial Retail 1,197,400 1,152,900 91,300 0.1% Insurance 2,948,830 2,965,051 2,957,440 2,926,040 2,723,040 1.8% Equipment Rental 5,397,672 5,552,670 5,806,658 5,752,658 5,965,758 4.0% Cemetery Endowed 1,185,832 1,300,551 1,308,855 1,296,855 1 ,309,855 0.9% Fire Pensions 3,898,434 3,827,415 3,777,973 3,698,000 3,556,700 2.4% Total All Funds $ 170,696,342 $ 155,925,298 $ 162,768,041 $ 159,344,205 $ 149,689,409 100% Expenditure figures include fund balances. Page 57 2004 Final Budaet Section IV: Financial Plan REVENUE ANALYSIS GENERAL FUND: The City's General Fund receives a wide variety of revenue. This section of the budget will discuss the key factors that affect revenue for the next year. General Fund Revenue By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est A ctua I Budget Beginning Fund Balances: Reserved $ 15,637 $ 17,978 $ 17,978 $ $ $ Designated for Retirements 814,000 668,672 574,315 593,058 587,600 593,625 U ndesi gnated 10,311,752 10,916,143 14,696,059 16,686,269 15,088,952 13,319,675 Total Fund Balances 11,141,389 11,602,793 15,288,352 1 7,279,327 15,676,552 13,913,300 Taxes: Property Taxes 9,222,439 10,209,181 11,016,171 11,673,805 11 ,700,000 12,400,000 Soles Tax 12,262,818 13,208,764 13,264,608 13,568,518 12,500,000 13,300,000 Other Tax 5,337,038 6,695,195 8,531,898 6,053,394 7,877,900 6,938,000 Licenses & Permits 879,343 1,183,990 1,120,433 973,410 1 ,053,300 940,000 Intergovernmental 2,152,169 1,743,071 2,059,441 2,046,809 1,937,867 1,798,400 Charges for Service 1,658,507 1,770,058 1 ,502,1 99 1,409,783 1 ,890,600 1 ,673,000 Fines 535,106 578,838 623,427 763,839 828,900 760,800 Miscellaneous 933,172 1,096,931 1,101,953 682,470 679,750 760,000 Other 671,972 1,246,763 847,313 852,511 1,135,000 760,000 Total General Fund $ 44,793,953 $ 49,335,584 $ 55,355,795 $ 55,303,867 $ 55,279,869 $ 53,243,500 Page 58 2004 Final Budaet Section IV: Financial Plan Tax Revenue Current estimates indicate that the City will receive approximately $32.1 million in tax revenue during 2003. This is 2.4% above the $31.3 million received in 2002. Revenues from taxes are anticipated to increase in 2004 to an estimated $32.6 million. The increase from the previous years has been due to a moderate increase in sales tax revenue, mostly from continued auto and home sales due to low interest rates. It is expected that economic growth will continue at a slow pace. Low interest rates have sustained the housing market in the region. New construction is ongoing, but a slowdown is expected as interest rates edge up. The higher cost of borrowing will have a negative impact on new home sales. The City Council also elected to increase utility taxes on the City owned utilities in 2003, contributing to a small part of the increase. The terrorist attacks on September 11. 2001 and the economic slowdown, and voter initiatives have had a significant financial impact on General Fund revenue. Revenues budgeted for 2004 are based on the assumption that the economy will continue to grow. If growth does not occur revenues may have to be adjusted downward during 2004. Property Taxes: Over the past several years' voters of the State of Washington have changed the property tax levying process through referenda and initiatives. Referendum 47, passed in 1997, changed the 106% limit to the lesser of six percent or inflation. There was a provision, however, that with a finding of substantial need, a majority plus one vote of the city council could raise revenue to the 106% limit. In 2001, the citizens voted on and passed Initiate 747, which limits the increase in property taxes to the lesser of 1 % or inflation. New construction, annexations and refund levies are additional. This 2004 budget allows for an increase of the regular levy at the rate of 1 % and an estimated levy rate of $2.90. This legislation has significantly impacted the City as labor contracts increase at CPI and the tax authority that assists in the payment of those contracts is limited to 1 %. The 2003 assessed property values for 2004 collection are anticipated to increase approximately 4%. The 2004 levy rate is anticipated to be $.04 lower than the 2003 levy rate of $2.94 due to assessed valuations increasing at a greater rate than the dollars levied. Property taxes constitute about 31.5% of total budgeted revenue in 2004. Sales Tax: The City tax rate is 1 % (of which the County receives a 15% share) on all retail sales. This leaves a net rate of .0085% for the City. Sales tax receipts have fluctuated in Auburn because, historically, a large proportion of the receipts have been derived from automobile sales and new construction, two sectors that are particularly sensitive to changes in economic conditions. Sales taxes have generally been budgeted conservatively. In the recession years of 1991 and 1992, sales tax revenue was flat, contrasted with 15% annual growth between 1987 and 1990. 1993 revenues were 13% above 1992 due to a surge in automobile sales, and a one-time audit settlement with the Boeing Co. Revenues in 1994 were up by 11.4% over 1993 because of the continued strong economy and the SuperMall construction. 1995 sales tax was up 11.4% above 1994 due to significant revenues, again, from both the construction of the SuperMall and the initial opening late in 1995 of the SuperMall itself. Sales tax revenue growth decreased in 1996 and 1997 to 3.3% and 5.7% respectively because significant legislation exempting manufacturing activities from sale tax became effective in mid 1995. Exemptions for the retooling of manufacturing equipment and for research and development became effective mid 1996. These exemptions have impacted the City heavily because the City's largest employer, the Boeing Co., has a large manufacturing plant in our community. Without these exemptions, growth would have been significantly higher. 1998 and 1999 revenue growth surged 18% and 23% respectively with 2000 revenue growth slowing to a 7% increase over 1999. Analysis of the large increases in 1998 and 1999 revealed a large utility construction service center and warehouse located in Auburn. The utility had spent the latter half of 1998, 1999 and 2000 recabling the area using supplies and equipment housed in Auburn. 2001 sales tax receipts were flat, increasing less than .5% over 2000. The interest rate decreases over the course of 2001 and 2002 have had a positive effect on sales tax, but not enough to overcome the lack of consumer confidence and climbing unemployment rate. The City expects to see no increase in sales tax revenue in 2003. A moderate increase is projected for 2004 sales tax revenue. Page 59 2004 Final Budaet Section IV: Financial Plan Declining orders for commercial airliners have impacted the Boeing Company who has reduced its workforce to approximately 5,000 at the Auburn plant. Economists expected a short and shallow recession for the Puget Sound region beginning in the fourth quarter of 2001. This was not the case, as the recession has been longer and more severe than originally anticipated. Gross Domestic Product for 2003 has increased less than 2002 but is anticipated to grow in 2004 over both previous years. The regional outlook would be different if not for the improving U.S. economy and the additional hiring by Microsoft. Boeing, however, is still a primary factor in the economy of the region. The region is expected to register positive employment growth next year, after two years of decline, with the assumption that Boeing production and employment stabilize in 2004 in light of the recent increase in air travel and aircraft orders. If this does not occur budgeted revenue may need to be adjusted downward. Sales tax remains the largest single source of General Fund revenue for the City and in 2004 will constitute 40% of tax revenue and 34% of total budgeted revenue. Other Taxes: This category includes utility taxes, which are taxes applied to utilities providing services in the City, including City-owned and private utilities. 29% of this tax revenue is derived from electric services. Utility taxes, as a whole, have been considered to be very stable from year-to-year, not only in the amount received, but also in terms of consistent growth rates. During 1996, Federal legislation was passed deregulating the electric industry, allowing companies to seek power out of the area instead of relying on existing local providers. During 2001 tax received from electric services rose significantly. The increase was from commercial customers who did not have long-term contracts with Puget Sound Energy and were forced to pay spot prices on the open market. The subsequent decrease in electric utility taxes in late 2001 and early 2002 is attributed to declining energy costs and out of state brokering of energy by some larger industries in Auburn. In late 2002 the City Council passed an ordinance raising the utility taxes on the four major City utilities: Water, Sewer, Storm, and Solid Waste. No tax increase is projected for 2004. In the Other Taxes category, an overall increase of 1.7% is anticipated for 2004 due to an increase in customers served. General Fund Tax Revenue $1 6,000,000 $1 2,000,000 $8,000,000 $4,000,000 $- 1999 2000 2001 2002 2003 2004 I--+- Property Taxes - Sales Tax -.- Other Tax I Page 60 2004 Final Budaet Section IV: Financial Plan Other General Fund Revenue Licenses and Permits: License and permit activities are user fees that are derived from various regulatory activities of the City. The bulk of this revenue is derived from building permit activities. Since this activity is dependent on new construction, it can fluctuate greatly depending on the economy, interest rates and available land. One of the City's large housing developments was put on hold in early 1999. After several months of negotiation, the project was sold and building resumed at a brisk rate late in 1999 and through 2001. 2002 permit revenue was 13% less than 2001. 2003 permit revenue is anticipated to be 15% more than budgeted. New construction and development are anticipated to continue, but at a slower rate. Interest rates hit a 30-year low in the spring of 2003 and have edged upwards since then. 2004 revenue is estimated to be approximately the same as 2002 actual. Licenses and permits constitute 2.4% of 2004 estimated revenue. Intergovernmental: Various state-shared tax revenues, including liquor taxes and liquor profits, dominate this category. All of these revenues are provided on the basis of a state prescribed formula that is based on population. As such, these revenues tend to be rather predictable. However, since grants are also included in this category, the total amount is variable. State shared revenues have been flat in recent years, largely due to lower revenue from liquor, a change in sharing of revenue based on crime rates, and city incorporation's. The revenue the City receives from the Muckleshoot Casino has been reclassified from general taxes to this area because this revenue is received from another local agency and also, to comply with federal audit requirements. This revenue is based on the profits from the Casino. Every year the City negotiates with Muckleshoot Tribe for the amount to be received. 2003 revenue was higher than anticipated, and 2004 revenue is estimated to increase due to expansion of the casino and promotional events sponsored by the casino. State shared revenues are budgeted at the same level, except for vehicle excise tax. In November 1999, the voters of Washington State passed Initiative 695, reducing the motor vehicle excise tax to a flat $30 fee. The estimated impact on the City's general fund is approximately $675,000 per year. Furthermore, the State had provided backfill funding to partially make up for the excise tax revenue loss. Due to significant budget constraints at the State level, this funding is no longer being provided. The City received approximately $200,000 in 2001 and 2002. Intergovernmental, other than Muckleshoot tribal revenue, have been held at 2003 levels. Charges for Services: This category consists of user fees that are derived from a variety of activities. Revenue from recreational services tends to gradually increase with community growth and demand. Recreational fees support about 50% of the costs of the related services. Arts revenue is similar to grants, and additional revenue may be received, but expenses would offset such revenue. Another relatively large type of fee category is a plan check fee derived from the review of private construction plans. Plan checks are likely to remained constant in 2004 as they follow the new construction and permitting activity. Charges for services constitute 4.3% of total 2004 revenue. Page 61 2004 Final Budaet Section IV: Financial Plan General Fund Revenue Licenses, Permits, Intergov't, Service $2,500,000 $2,000,000 $1.500,000 $1.000,000 $500,000 $- 1999 2000 2001 2002 2003 2004 -+- Licenses & Permits -.It-Intergovernmental --'JIE- Charges for Service Fines and Forfeits: Fines and forfeits consist mainly of fines from law enforcement related activities. In recent years this has been a fairly consistent source of revenue and has not increased significantly. It is budgeted to reflect modest growth for 2004 due to an increase in population. Miscellaneous and Other Sources: Miscellaneous revenue consists primarily of interest revenue on idle treasurers' cash and investments. The 2003 estimate for interest was decreased to reflect current interest rate earnings and the decreased balance available for short-term investment. Interest rates on investments have decreased over 60% in the past three years. Other revenue is the unrestricted portion of gas tax transferred from the Street Fund for street operations funded out of the General Fund. In 2003 the City began transferring interest earnings from the capital projects fund to be used for street preservation projects. These sources of revenue constitute 3.9% of total revenue for 2004. General Fund Revenue Fines, Misc., Other $1,500,000 $500,000 $1,000,000 $- 1999 2000 2001 2002 2003 2004 I-+- Fines -ä-Miscellaneous -!lE-Other I Page 62 2004 Final Budaet Section IV: Financial Plan SPECIAL REVENUE FUNDS: The City has 12 special revenue funds presented in this budget. These funds account for the proceeds of specific revenue sources and are legally restricted to expenditures for specific purposes. Special Revenue Funds Revenue By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beginning Fund Balances $ 5,273,584 $ 4,440,699 $ 7,627,062 $ 7,975,267 $ 7,7 49,7 45 $ 7,448,464 Taxes 86,254 78,384 47,271 103,781 96,200 96,000 Intergovernmental 6,517,070 12,556,080 15,085,566 7,1 75,004 5,573,500 4,532,400 Charges for Services 73,106 391,727 785,971 580,221 501,600 429,000 Miscellaneous 212,7 69 281.215 469,896 222,111 149,000 155,000 Other Sources 452,224 2,705,859 1 ,852,454 1.074,762 1,197,905 1,198,500 Total Resources $ 12,615,007 $ 20,453,964 $ 25,868,220 $ 17,131,146 $ 15,267,950 $ 13,859,364 Special Revenue Funds Intergovernmental not Included $900,000 $300,000 $600,000 $- 1999 2000 2001 2002 2003 2004 --+-Taxes _Charges for Services -'-Miscellaneous Special Revenue Funds Intergovernm ental only $16,000,000 $8,000,000 $12,000,000 $4,000,000 $- 1999 2000 2001 2002 2003 2004 -+-lntergOvernm ental I Page 63 2004 Final Budaet Section IV: Financial Plan Taxes: The City levies a tax on all business within the downtown core area. Retail businesses are levied $0.15 per square foot and service businesses are levied $0.05 per square foot, up to a maximum of one thousand square feet. These funds are then administered by the Auburn Downtown Association to promote the central business area. There are approximately 288,800 square feet of service businesses and 238,100 square feet of retail space assessed annually. 2004 revenues have been budgeted to reflect anticipated collections. Intergovernmental: This funding source has traditionally been the largest of all categories in the Special Revenue Funds. The Arterial Street fund is anticipating approximately $3.1 million of state, federal, and local funding. Major projects include Auburn Way South safety improvements and the 3rd Street SE/Cross Street SE project. Two large projects that have been ongoing at the City for several years were completed in 2002. The 3rd Street overpass project was completed in the summer of 2002. The 277th project had been transferred to a neighboring jurisdiction for the construction phase and was completed in the fall of 2002. Other intergovernmental revenues include the Local Option Motor Vehicle Excise Tax (through 2002), the Motor Vehicle Fuel Tax, the Local Law Enforcement grant (received since 1997), and Community Development Block Grant Funds. Block Grant revenue is a direct pass through. The 2004 budget provides the funding for several programs for low income, including community service programs, urban renewal and housing repair projects. Voters approved Initiative 1-776 in November 2002 repealing Local Option Motor Vehicle Tax that was voted on locally and adopted by three counties in the state. The constitutionality of the initiative was challenged in court and King County continued to collect and hold the funds until the case was settled. In October 2003 the Supreme Court upheld the initiative. The City will lose approximately $400,000 annually. This revenue was used for street and road construction projects. Intergovernmental Revenue 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est A ctua I Budget street Grants $ 4,895,207 $ 10,469,598 $ 13,165,914 $ 5,364,394 $ 4,159,100 $ 3,113,000 County MV Tax 344,699 370,739 388,510 398,559 9,000 Motor Vehicle Fuel Tax 845,754 897,215 933,054 952,403 915,400 891 ,400 Local Law Enforcement 40,000 109,882 51 ,434 44,135 7,000 45,000 Block Grant 391 ,4 10 708,646 546,655 415,513 483,000 483,000 Total Resources $ 6,517,070 $ 12,556,080 $ 15,085,566 $ 7,175,004 $ 5,573,500 $ 4,532,400 Charges for Service: This revenue is miscellaneous service fees and mitigation fees paid by developers. The increase for 2001 reflects the transportation impact fee adopted on July 1. 2001. The revenue decreased in 2002 and is projected to decrease more in 2003 as developers are delaying projects until the economy strengthens. The City continues to receive mitigation fees for transportation and fire on each building permit issued for a large housing community development on the southern edge of the City. It is anticipated the development will be completed by 2006. These fees have decreased in 2003 and are projected to decrease more in 2004 as building slows down. Miscellaneous: Miscellaneous revenues consist primarily of interest income. Fluctuation of revenue is a direct result of the current interest rate and idle fund resources available for investment. Investment revenue showed a decrease in 2002. The upswing in 2003 is the additional interest income earned in the Page 64 2004 Final Budaet Section IV: Financial Plan Capital Project Fund and transferred to the City Street Fund for pavement preservation projects. In 2002, the average interest rate on investments was lower than 2001. There is no projected interest rate increase for 2004. Other Sources: This category is interfund operating transfers from the general fund to the arterial street fund. Transfers in 2002 and 2003 have decreased as large street construction projects were completed. Budgeted transfers for 2004 will be for continued support of street projects identified in the Transportation Improvement Plan and are from the Capital Projects fund (Real Estate Excise Tax) and Mitigation Fee fund. CAPITAL PROJECT FUNDS: The City budgets for major non-proprietary capital acquisitions and construction separately from operations in the Capital Project funds. Capital Project Funds Revenue By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beginning Fund Balance $ 8,062,428 $ 8,725,482 $ 10,070,705 $ 11,949,159 $ 14,932,648 $ 9,259,196 Taxes 1,278,645 1,787,325 1,483,368 2,340,706 1,600,000 1,400,000 Intergovernmental 97,908 637,565 93,326 110,149 39,900 Charges for Service 19,525 19,534 25,320 20,765 22,000 22,000 Miscellaneous 418,713 765,706 575,170 298,464 210,236 159,500 Other Sources 3,350,000 3,514,200 3,308,000 5,162,440 300,000 500,000 $ 13,227,219 $ 15,449,812 $ 15,555,889 $ 19,881,683 $ 17,104,784 $ 11,340,696 Capital Project Funds Revenue $6,000,000 $- $4,000,000 $2,000,000 1999 2000 2001 2002 2003 2004 --+-Taxes ~Miscellaneous Intergovernmental -'-Charges for Service -;¡f-Other Sources Page 65 2004 Final Budaet Section IV: Financial Plan Taxes: The City is authorized to levy Real Estate Excise Tax (REET) up to lJ2% on all real property sales transactions within the City. The tax is divided into quarter of percents; the City levied the first lj,¡% several years ago. Early in 1997 the City levied the additionaI1j,¡%, raising the levy to the allowable lJ2%. Revenues from this tax must be used for financing capital facilities specified in the City's Capital Facility Plan. Both the first and second lj,¡% may be used for: Streets; Sidewalks; Street lighting systems; Traffic signals; Bridges; Domestic water systems; and storm and sanitary sewer systems. In addition, the first lj,¡% may be used to purchase park and recreational facilities; law enforcement facilities; fire protection facilities; trails; libraries; and administrative and judicial facilities. Due to strong construction activity and low interest rates, this revenue source has increased each year. In the 2003 budget, REET revenue was presented at the same budget level as 2002. Actual 2002 revenue was higher than originally anticipated, as several large commercial transactions occurred during the year. 2003 tax revenue should meet expectations but is budgeted lower in 2004 due to limitations in General Fund revenues. Intergovernmental: The 2002 budget included $100,000 funding from the 1989 King County Open Space Bond to complete construction of the White River Trail. There is no intergovernmental revenue anticipated for 2004. Charges for Services: Portions of all adult team sport fees are put into the capital facility program. These funds are then used to construct facilities at City parks to benefit the users of the parks and fields. This revenue is fairly consistent from year to year as class fees have not increased. Miscellaneous: Miscellaneous revenue is interest earnings on idle fund resources. Decreases in 2002 through 2004 reflect the low interest rates in the market. Other Funding Sources: Other funding sources are interfund operating transfers in from the general fund. These transfers are used to fund the purchase of capital, such as fire engines, computer systems and other capital projects to be determined by Council. In previous years, one-time revenues were transferred to this fund from the General Fund. In 2004 there are limited transfers. These revenues will be required in the General Fund for continued operation. ENTERPRISE FUNDS: The City has eight enterprise funds presented in this budget used for the purpose of accounting for the revenues derived from services provided. The City enterprise funds include the following services: Water, Sanitary Sewer, Storm Drainage, Solid Waste, Golf Course, Airport, and Cemetery. The graph presented below depicts the amount of revenues received by source. Enterprise Funds Revenue By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beg. Fund Balance $ 12,125,398 $ 21,626,384 $ 19,835,205 $ 19,177,466 $ 23,441,317 $ 20,862,754 Charges for Services 26,039,325 26,941,117 28,119,311 29,219,291 29,011,789 29,764,700 Other Sources 12,814,822 3,688,256 8,415,062 (1,658,780) 2,520,600 3,197,200 Miscellaneous 717,293 1,488,854 1,350,993 1,003,363 898,462 847,100 Intergovernmental 906,092 187,405 137,493 95,828 861 ,300 Total Resources $ 52,602,930 $ 53,932,016 $ 57,858,064 $ 47,837,168 $ 55,872, 168 $ 55,533,054 Page 66 2004 Final Budaet Section IV: Financial Plan Enterprise Funds Charges for Services $40,000,000 $30,000,000 . . . . . . $20,000,000 $10,000,000 $- 1999 2000 2001 2002 2003 2004 I-+-charges for Services I Charges for Services: This revenue source represents fees charged by the City's enterprise funds in return for a public service. 62% of the City's charges for services are collected in the sewer and solid waste funds. Approximately 80% of the sewer revenues are related to pass through charges from King County for Metro services, which is for the treatment and disposal of the City of Auburn's sewage. The Solid Waste collection is contracted through Waste Management Disposal Company. The City started curbside recycling in 2002. Garbage rates are structured in a way that encourages participation in the recycling program. All of the above funds account for city-operated utilities provided to citizens of Auburn and the outlying areas. The utility revenues are directly affected by growth factors and rate increases. The Sewer utility increased the City's portion of the rate by approximately 3% on January 1, 2003. The City normally reviews the fees charged for utilities on a yearly basis to ensure the fees charged cover the costs associated with providing the services. The Storm Water fund implemented a one-time rate increase late in 2000. All fees and charges are adopted through the public process of an ordinance. The Golf Course charges for services consist of green fees for the 18-hole championship course. Over the last several years the city has done major renovations to many of the holes. Golf course revenue has risen slightly over the past few years. The City projects fees to continue in the same trend in 2003 and 2004. Revenues are also dependent on seasonal weather trends. The Airport charges for services consist of fuel sales and hangar rentals. In 2001. the City installed a new card fueling system that allows patrons of the airport to self-service their airplanes at any time during the day. The Airport completed new hangar buildings that provided 49 new enclosed spaces in 2002. The City also entered into several ground leases with developers who in turn will build hangars and other facitlities. With the completion of new hangars, the new ground leases and the 24-hour fueling station; the airport revenues increased by 14.2% in 2001. fuel sales declined slightly in 2002 bringing down overall revenue. Total revenues are expected to remain steady in 2003. A minor increase is anticipated in 2004, but this revenue will be closely monitored. The City of Auburn Cemetery is one of the most beautiful in the county, over-looking the Auburn valley and majestic Mount Rainier. Charges for services in the Cemetery fund are for lot sales and retail sales for burial related products. In 2002 the City aggressively marketed the cemetery to sustain revenue growth. Charges for services have been decreasing slightly each year since 2001. The new Veterans Cemetery in Maple Valley has had a negative impact on lot sales and burial services. Page 67 2004 Final Budaet Section IV: Financial Plan Enterprise Fund Revenue $15,000,000 $5,000,000 $10,000,000 $- $(5,000,000) 1999 2000 2001 2002 2003 2004 --+- Miscellaneous other Financing Sources -'-Intergovernmental Revenue Other Financing Sources: This revenue source represents the resources available from Public Works Trust Fund loans (PWTF) and developer contributions. Developer contributions will be used for capital purposes. Section VIII of this budget describes the capital projects along with their prospective budget, time frame, and impact on operations. Miscellaneous Revenues: The majority of miscellaneous revenues are comprised of investment income earned on idle cash. Steady decreases in interest rates have eroded this income source. Intergovernmental Revenue: This revenue represents grants received in the Airport Fund from the FAA for airport improvements to the runways and hangars. The City expects to receive an $810,000 FAA grant for airport improvements in 2004. INTERNAL SERVICE FUNDS: The City's Internal Service Funds are used to budget for the financing of goods and services provided by one department of operation to other funds and departments on a cost reimbursement basis. The City has two internal service funds: Insurance and Equipment Rental. Internal Service Funds By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beginning Fund Balance $ 5,314,232 $ 5,906,400 $ 6,210,703 $ 6,778,205 $ 6,574,228 $ 5,973,998 Charges for Service 1,681,184 1,812,787 1,631,113 1,445,049 2,019,470 2,657,300 Miscellaneous 283,249 378,125 280,375 130,378 69,600 57,500 Other Sources 44,313 450,386 224,311 164,087 15,400 Total Revenue $ 7,322,978 $ 8,547,698 $ 8,346,502 $ 8,517,719 $ 8,678,698 $ 8,688,798 Page 68 2004 Final Budaet Section IV: Financial Plan Internal Service Fund Revenue $3,000,000 $2,500,000 $2,000,000 $1 ,500,000 $1 ,000,000 $500,000 . $- 1999 2000 2001 2002 2003 2004 Charges for Service -¡.- Miscellaneous ~ Other Sources Charges for Service: This revenue is in the Equipment Rental Fund and consists of interfund fuels sales and rental rates of equipment and other assets. Equipment rental rates were increased in 2003 for all funds. A study was performed on the fund in 2002 and capital replacement was under funded by $900,000. To replenish the funding, rates have been increased over the next 3 years to bring balances back in line with requirements. Miscellaneous Revenue: This is investment income on idle cash and investments. This revenue has decreased from prior years due to declining interest rates. Other Sources: This is the gain on the sale of surplused equipment and contributed capital from other funds for equipment purchases and other improvements at the facility. FIDUCIARY FUNDS: In the past the City budgeted three trust funds: the Cemetery Endowed Care Fund; the Fire Relief and Pension Fund; and the Special Parks and Recreation Trust Fund. With the implementation of Governmental Accounting Standards Board (GASB) Statement 34, the reporting type and structure of these funds has been changed. The Cemetery Endowed Care fund is now classified as a "Permanent Fund" which is a new fund type under GASB 34. The Special Parks and Recreation Trust Fund has been reclassified and will be reported as a special revenue fund. That leaves the City with two fiduciary type funds, the Fire Relief and Pension Fund and one Agency Fund. The balances reflected below for 2000 and beyond do not include the Cemetery Endowed Care or the Special Parks and Recreation funds. Fiduciary Funds By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beginning Fund Balance $ 4,797,277 $ 3,542,500 $ 3,631,870 $ 3,668,268 $ 3,553,000 $ 3,411,700 Charges for Service 42,192 Miscellaneous 218,240 175,000 229,283 118,278 100,000 100,000 Intergovernmental 52,738 43,000 37,281 40,869 45,000 45,000 Total Revenue $ 5,110,447 $ 3,760,500 $ 3,898,434 $ 3,827,415 $ 3,698,000 $ 3,556,700 Page 69 2004 Final Budaet $250,000 $200,000 $150,000 $100,000 $50,000 Section IV: Financial Plan F i due i a ry Fun d Rev e n u e $- 2001 2002 2003 2004 1999 2000 Mis cello n e 0 U s ---..-In te rg 0 ve rn men to I Miscellaneous: Consists of investment income on idle cash investments that have decreased due to falling interest rates. -+-C horges for Service Intergovernmental: This revenue is from the fire insurance premium tax that goes into the Fire Relief and Pension Fund. The City receives this revenue from the State and it is allocated based on the number of firefighters employed by the City. The 2000 State Legislature reduced the fire insurance premium tax. An actuarial study of the Fire Relief and Pension Fund was updated early 2001. The fund is fully funded and does not require additional contributions. The fund is scheduled for another actuarial evaluation during 2003. PERMANENT FUND: The City has one permanent fund, the Cemetery Endowed Care fund. This fund is used to account for resources that are legally restricted to the extent that only earnings, and not principal, may be used to support cemetery capital improvements. Permanent Fund By Funding Source 1999 2000 2001 2002 2003 2004 Actual Actual Actual Actual Est Actual Budget Beginning Fund Balance $ $ 1,038,477 $ 1,081,180 $ 1,185,832 $ 1,253,855 $ 1,266,855 Charges for Service 43,246 39,432 39,025 40,000 40,000 Miscellaneous 74,456 65,220 75,694 3,000 3,000 Intergovernmental Total Revenue $ $ 1,156,179 $ 1,185,832 $ 1,300,551 $ 1,296,855 $ 1 ,309,855 $80,000 $60,000 $40,000 $20,000 $- 1999 Permanent Fund Revenue 2000 2001 2002 2003 I-+- Charges for Service - Miscellaneous ~ 2004 Page 70 2004 Final Budaet Section IV: Financial Plan General Fund Six-Year Forecast A six-year forecast of the City's General Fund follows this summary. The purpose of the forecast is to highlight issues associated with financial policies and budgetary decisions. It is not intended to be a multi- year budget. Revenues and expenditures are projected on the basis of assumed econometric relationships. Revenues are forecast on the basis of future economic and demographic factors with little dependence on past trends. Expenditures are forecast based on past trends modified by present and future conditions. Future conditions are based upon a series of complex assumptions. This model has been used to test a large range of assumptions and policy options in the course of developing the budget recommendations. The assumption regarding "real economic growth" is a factor that reflects the approximate rate of tax generation above the rate of inflation. The following General Fund Revenue and Expenditure table reflects a moderate set of assumptions regarding revenues and expenditures. The Auburn economy is cyclical and the City has enjoyed a strong economy for many years from low unemployment coupled with significant retail and housing development. Some revenue losses from the recent legislative exemptions have been offset by the gains of economic development. However, the strength of the prior years began to erode as the region slipped into recession. Decreases in the stock market, higher unemployment rates, and unfunded mandates by state and federal government for criminal justice, human services and the war on terrorism have all had a significant impact on the General Fund budget. Economists expected the regional recession to be short and turn around by the fourth quarter of 2002. However the recovery has not been as strong as the economists predicted. It is now estimated that the region will not begin see sustained economic recovery until late 2003. This is reflected in the revenue forecasts through 2009. Property assessed values have increased steadily during the past 10 years at an average of 6.3%. 2004 increase in assessed valuation is anticipated to be approximately 3.5%. In the past, the forecast has relied on increases in assessed value for forecasting. However, with recent legislation and initiative activity, this forecast is relying on a 1 % increase for property taxes plus an average factor for new construction. While estimated revenue growth has decreased over the past years, expenditures involving public safety and public services are expected to increase at a greater rate. New commercial development, several large residential developments, and new annexations are a few of the areas expected to increase the demand for public services. Based on the current trends, it is anticipated that fund balances will continue to decrease over the next few years as revenues subside and expenditures increase. It is necessary to reflect non-departmental costs in 2004, so estimated ending fund balances are not overstated. Expenditures in this area generally represent one-time payments or transfers for capital projects, employee retirements or debt service. The Finance Department will continue to study revenue options and enhancements to offset the decline in future revenues. Residual budget is unused budget rolled forward to be utilized in the subsequent year. Forecasting models have been used to assist in fiscal planning since 1989. Models have allowed analysis of alternative actions in funding programs during the development of the budget. The model accents the continuing need to control the per capita rate of expenditures reflected in the preceding pages. It is this model that created cautious funding decisions in spite of an apparent high rate of economic growth in the late 1990's. Continued caution will be required to anticipate and manage the effects of a slowing economy or additional legislative actions to avoid service reductions for budgetary reasons should economic growth continue to be slow. The following graph reflects the six-year planning forecast on the subsequent page. If current trends continue, fund balance will decrease to 4.48% by the end of 2006. Revenue has been estimated Page 71 2004 Final Budaet Section IV: Financial Plan realistically based on an anticipated economic growth, planned annexations, and considering the affects of voter initiatives. Should growth remain slow, as expected by some economists, the adverse affect on fund balance may be greater than anticipated. Revenues from property taxes are increased at 1 % plus the addition of new construction and annexations. Initiative 747 went before the voters in November 2001 and passed. The initiative limits the increase in property taxes to the lesser of 1 % or inflation. Assessed valuation for the City is expected to grow by the rate of 4% in the model presented. However, since the City may not increase property taxes greater than 1 %, it is anticipated that the levy rate will decrease as assessed value increases. $60,000,000 Six Year Planning Forecast 2004-2009 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $- $( 1 0,000,000) 2004 2005 2006 2007 2008 2009 I11III Total New Revenues II Total Expenditures** [J Revised Fund Bal.*** This analysis reflects the position of the City if no adjustments are made on the expenditure side and other revenue does not grow at a rate necessary to offset the slower growth rate from property taxes. The City is addressing the long-term revenue short fall through concerted efforts with other jurisdictions. At this time, however, the exact adjustments that will be necessary are unknown. As mentioned, the City has taken into account the recent statewide initiative in forecasting property taxes. The issue that develops when property tax increases are held to 1 % is that other costs are not. Costs such as employee benefits, negotiated labor contracts, services and supplies continue to increase at a greater rate. Fuel, professional services, and healthcare costs are good examples. The shortfall then has to be made up by increases in sales tax collection and population growth. In this economy, the City has been able to maintain the existing level of service, in light of legislative action in the mid 1990's, because the economy was strong and growing at rates that astounded economists. Sales tax revenue growth for 2004 is budgeted equal to the 2003 anticipated collection. Sales tax revenue needs to grow at a rate that will make up the revenues lost from property tax declines. If not, the City will then have to make some different choices in the delivery of basic levels of services. Page 72 2004 Final Budaet Section IV: Financial Plan General Fund Revenue and Expenditure Forecast 2004 - 2009 2004 2005 2006 2007 2008 2009 Total Taxes $ 32,638,000 $ 33,839,800 $ 34,852,600 $ 35,852,800 $ 36,834,200 $ 37,852,600 Total Lic & Per 940,000 973,000 1,012,400 1,059,400 1,115,400 1,182,300 Totallntergovt 1,798,400 1,925,100 2,077,100 2,215,500 2,365,400 2,559,000 Total Chg/Serv 1,673,000 1,757,100 1,849,100 1,928,300 1,966,800 2,114,300 Total Fines 760,800 772,800 807,000 842,800 880,100 919,700 Total Misc Rev 760,000 832,300 955,300 979,200 1,004,300 1,030,400 Total Other Rev 760,000 798,000 832,900 869,300 907,300 970,500 Total New Revenues $ 39,330,200 $ 40,898,100 $ 42,386,400 $ 43,747,300 $ 45,073,500 $ 46,628,800 Mayor & Council $ 639,000 $ 671,100 $ 690,800 $ 710,900 $ 731,800 $ 753,000 Human Resources 2,314,700 2,382,200 2,451,800 2,523,300 2,597,000 2,672,600 Finance 1,944,900 2,001,300 2,059,500 2,119,300 2,180,600 2,243,700 City Attorney 1,171,100 1,205,400 1,240,900 1,277,400 1,315,000 1,353,700 Planning 3,754,600 3,863,100 3,975,000 4,090,CXX) 4,208,500 4,330,400 Police 15,309,CXX) 15,805,900 16,385,200 16,987,600 17,614,700 18,266,900 Fire 8,844,300 9,227,200 9,626,200 10,042,600 10,477,000 10,930,100 Public Works 2,363,700 2,429,400 2,500,000 2,572,800 2,647,600 2,724,500 Parks & Rec 4,677,300 4,809,000 4,949,400 5,093,700 5,242,200 5,395,100 street 2,205,300 2,263,600 2,328,500 2,395,500 2,464,300 2,534,900 Non-Departmental 3,313,200 1,720,500 1,724,000 1,727,600 1,731,300 1,735,100 Total Expenditures** $46,537,100 $46,378,700 $47,931,300 $49,540,700 $51,210,000 $52,940,000 New Rev. Balance Residual/Unused Budget Revised Fund Bal.*** % Fund Balance (7,206,900) 7,092,800 13.23% (5,480,600) 3,000,000 4,612,200 9.05% (5,544,900) 3,000,000 2,067,300 4.13% (5,793,400) 3,000,CXX) (726,100) -1 .49% (6,136,500) 3,CXX),000 (3,862,600) -8.16% (6,311,200) 3,CXX),000 (7,173,800) -15.67% Total $ 53,629,900 $ 50,990,900 $ 49,998,600 $ 48,814,600 $ 47,347,400 $ 45,766,200 Kev Assumptions: Inflation Rate Population Growth Rate Personnel Increases Property T ox Increase 2.80% 4.00% 3'1a-5% 1 % + new construction ** Excludes estimated ending fund balance *** Includes Designated Fund Balance of $4,248,600 for cash flow purposes and funding employee leave balances at retirement. Page 73 2004 Final Budaet Section IV: Financial Plan Current and Potential Legislative Action As previously mentioned, there have been several legislative actions at the state level that have permanently reduced sales tax revenues for the City of Auburn. This legislation and other pending legislation, including federal legislation, are summarized below, along with potential impacts on Auburn's revenue. Sales Tax Exemption on Purchase and Lease of Manufacturing Equipment, Retooling of Manufacturing Equipment, and General Research and Development: During the 1995 legislative session, legislation was passed to exempt the purchase and lease of manufacturing equipment from state and local sales taxes. In the 1996 session, further legislation was enacted exempting sales taxes on research and development and on the retooling of manufacturing equipment. The impact of this legislation had been offset by the strong economy and low unemployment rates. Sales tax revenues are anticipated to grow in spite of the legislative effects. It is anticipated these revenues will grow at 4% 2004 through the year 2009. Initiative 695: In November 1999, the voters of Washington State approved Initiative 695, which repeals the state's long standing motor vehicle excise tax (MVET) and requires future voter approval of tax and fee increases proposed by state, county and local governments. The State Legislature responded to this initiative during the 2000 legislative session and repealed the MVET. The initiative has been challenged in court and was found to be unconstitutional and void. The ruling was upheld on appeal at the Washington State Supreme Court. The loss of the MVET eliminated a $750 million annual funding source for local governments, transit systems and state transportation projects. The City of Auburn lost an estimated $600,000 in 2000 and $725,000 in subsequent years of MVET. The loss of MVET revenues was approximately 2% of total General Fund revenues. During the 2000 State Legislature, state funding was provided to assist in the revenue losses. The City of Auburn received approximately $200,000 in 2001 and 2002. Due to the State's fiscal problems, this funding has been eliminated. Initiative 747: This initiative went before the voters of the state in November of 2001 and was approved. Property tax increases are now limited to the lesser of one percent or inflation. The impact of this initiative on the City was estimated to be approximately $100,000 in 2002 and accelerates each year to have an annual impact of well over $1 million by 2009. Endangered Species Act: On March 24, 1999 National Marine Fisheries Service (NMFS) published the listing of the Puget Sound Chinook as "threatened." On January 3, 2000 NMFS published in the Federal Register the draft proposed rule: Governing "Take" of Seven Threatened Evolutionary Significant Units (ESU) of West Coast Salmonids. Included in this listing was Puget Sound Chinook. Since the initial listing, Auburn has participated in the Green River Steering Committee to develop a recovery plan for the Green River. There are 16 jurisdictions that participate and intend to share the costs. To date there are estimates of three cost categories; Five Year WRIA Planning Costs (approximately $435,000 in 2003), Green River Ecosystem Restoration Study Costs, and Individual Jurisdictional Costs for 4d Compliance. The total cost of the plan and the compliance are unknown at this time. The best estimates are $100 million total with the federal government picking up an estimated $75 million. The balance will be funded locally over a ten-year period by all the jurisdictions involved. Page 74 2004 Final Budaet Section IV: Financial Plan Long- Term Debt Obligations and Debt Capacity Like private citizens, municipalities must sometimes borrow funds to pay for large purchases like capital equipment and capital projects. As in the private world, the ability to borrow depends upon the borrower's ability to pay the loan back, as indicated by means of credit ratings, potential future earnings, etc. Unlike private citizens and companies, public entities have the additional parameters of statutory limits on borrowing, as measured by set percentages of assessed value and ratios of revenue to operating expense. Debt incurred by a City is generally issued in the form of bonds, similar to promissory notes, which investors buy from the City, with the idea that the City will buy the bonds back at some future date - paying more money than the investor paid for them. There are three types of bonds issued by the City of Auburn, differentiated by the basis of the guarantee of payoff to the investor. General Obligation or "GO" Bonds are based on the tax base or the assessed value of the municipality. When issuing a GO Bond, the City is pledging its future taxing powers to payoff the debt. GO Bonds can also be issued as a voted "levy" when citizens are willing to pay extra taxes to pay for a particular project. Another less common type of GO Bond is one that is secured by the City's tax base, but is actually retired from utility revenues. Revenue Bonds are both guaranteed by and retired from specific future revenues (usually fees for a particular service). These are generally issued for utility capital projects, and guaranteed and retired by utility rate revenues. There is no general tax liability for these obligations. Local Improvement District or "LID" Bonds are issued through the formation of local improvement districts to provide specific capital improvements. The City has a LID Guarantee Fund; a reserve fund that guarantees LID Bonds. The City's outstanding LID Bond debt currently amounts to $347,904. L.I.D. Bonds Year Principal Interest Total 2004 $ 92,436 $ 22,936 $ 115,372 2005 42,436 21,353 63,789 2006 42,436 17,834 60,270 2007 42,436 14,316 56,7 52 2008 42,436 10,798 53,234 2009 4 1 ,795 7,280 49,075 2010+ 43,929 4,401 48,330 Totals $ 347,904 $ 98,919 $ 446,823 Page 75 2004 Final Budaet Section IV: Financial Plan General Obligation Bonds: The total indebtedness for general purposes with or without a vote of the people cannot exceed 2.5% of the value of taxable property. Up to 1.5% may be incurred without a vote; however, any indebtedness available without a vote is proportionately reduced by any indebtedness with a vote in excess of 1 %. The City may also levy, with a vote of the people, up to 5% of taxable property value for utility or open space and park facilities purposes. Any excess will proportionately reduce the margin available for general purposes. Total general obligation debt cannot exceed 7.5% of the value of property. The City debt obligations are well within the statutory limits for debt capacity. The chart below summarizes the City's current debt obligations by type of debt and legal limit. The City issued $4 million of general obligation debt in 1998 to provide funds to pay the cost of constructing a library to be owned and operated by the King County Library System. The City also issued $1.655 million in general obligation debt in 1999 to pay the construction cost of hangars at the Auburn Airport. Additional GO debt includes a bond issue from the Valley Communications Center Development Authority in 2000. The City is contracted to pay 20% of the ValleyCom debt service over a 15-year period. The City currently has an A 1 rating from Moody's. General Obligation Bond Debt (In Thousands) Without With Utility Open Space a Vote a Vote Purposes & Parks 1.50% 1.00% 2.50% 2.50% Total Bonding Capacity $66,315 $44,210 $110,525 $110,525 $331,575 Bonds Outstanding 7,088 - - - 7,088 Net Capacity $59,227 $44,210 $110,525 $110,525 $324,487 Revenue Bonds: The City has approximately $9.23 million of principal in utility revenue bonds outstanding that are being repaid by revenues from utility funds. In 1996, the Water utility changed the rate structure based on the outcome of a rate study. Both the Water and Sewer funds increased rates during 1998 and 2000 to meet revenue needs for operations as well as financing capital improvements. Water and Sewer increased rates again in 2001 and 2002 based on a cost of service study. Only Sewer raised rates in 2003. Storm had a one-time increase in 2000. No utility rate increase is planned for 2004. Rates are reviewed on an annual basis to be sure they provide for operations and capital expenses. All proceeds from the sale of bonds were used to improve and extend the existing municipal water and storm water systems. The water utility has used some of the bond proceeds to assist in the construction of facilities necessary to sell water to several neighboring communities thus increasing revenues. Other facilities constructed include, reservoirs, wells, corrosion control facilities and water lines. The Storm Drainage Fund was created in 1988 and began collecting fees with the intent of creating infrastructure. With the completion of the Storm Water Comprehensive plan, the City began implementing the plan in 1997. The bond proceeds, along with fund reserves, were used for central storm drainage improvements identified in the plan. The City has established a coverage ratio of 1.25 for the utility revenue bonds, where the net utility operating revenues will exceed 1.25 times the maximum annual utility revenue bond debt service cost. Page 76 2004 Final Budaet Section IV: Financial Plan The annual debt service payment is paid from the utility user or system development fees. During 1999, Moody's upgraded utility revenue bonds from A2 to A 1. The following debt payment schedules are for all outstanding debt including utility revenue bonds. Revenue Bonds General Obligation Bonds Year Principal Interest Total Principal Interest Total 2004 $1,010,000 $474,845 $1,484,845 $334,000 $343,897 $677,897 2005 1,065,000 423,320 1,488,320 351,000 327,997 678,997 2006 1,115,000 368,970 1,483,970 373,000 310,812 683,812 2007 1,175,000 312,070 1,487,070 395,000 292,774 687,774 2008 1,235,000 252,095 1,487,095 422,000 273,664 695,664 2009 1,300,000 580,897 1,880,897 445,000 253,065 698,065 2010+ 2,330,000 138,070 2,468,070 4,7 68,000 1,206,198 5,974,198 Total $ 9,230,000 $ 2,550,267 $ 11 ,780,267 $ 7,088,000 $ 3,008,407 $ 10,096,407 Public Works Trust Fund Loan Debt Year Principal Interest Total 2004 $453,468 $60,939 $514,407 2005 455,245 57,817 513,061 2006 455,245 54,339 509,584 2007 455,245 50,862 506,106 2008 455,245 47,384 502,629 2009 455,245 43,906 499,151 2010+ 5,547,703 261,930 5,809,632 Total $8,277,395 $577,176 $8,854,571 Page 77 2004 Final Budaet Section IV: Financial Plan Fiscal Capacity: General Fund The City utilizes a range of strategies to maintain its fiscal security. Several of the financial policies are based on this strategy. First, the City maintains fund balances sufficient to meet the General Fund cash flow needs and estimated employee retirement cash outs for the current year. This amounts to about 7% to 10% of the General Fund. In good economic times, this fund balance can be budgeted higher than when the economy takes a turn for the worse. This balance serves as the first line of defense against a sudden and significant economic downturn. However, revenues are forecast moderately. This not only provides protection from needing to rely on the fund balance, it has provided a higher fund balance than originally budgeted, augmenting reserves. In recent years the City has added a Cumulative Reserve Fund for two purposes. First, it allows the City to build funds for needed capital projects without having to rely exclusively on debt. Secondly, it provides long-term stability to City finances as a counter- cyclical balance. Money is put aside in good years (from higher than budgeted reserves), allowing the City a reserve to draw on in years of economic decline. The City also maintains two special purpose reserve funds to adequately meet specific and significant potential contingencies: 1) an insurance fund to augment regular insurance coverage and to provide for independence and/or stability, and 2) a guarantee fund to adequately secure the City's LID program. Finally, the City has reserved an amount of taxing and other revenue capacities for worse case circumstances. These capacities are: User Fees: There are several categories of user fees that could be increased to capture a larger share of associated costs. B&O Tax: The City can levy a Business and Occupation Tax on gross business receipts. This authority applied conservatively would yield about $1,000,000 per year. At higher rates, as much as $2,000,000 per year could be realistically achieved. Business Licensinq: Some jurisdictions have used business licensing as a means of generating additional revenues. A very aggressive program could yield as much as $750,000 per year. Working Capital Proprietary funds are managed on a different basis than are general governmental services. The amount of expenses required for ongoing operation depends on the amount of activity that will be done next year. Since such activity provides new income to the fund directly in the form of charges for service, there is additional revenue to support those additional expenses. Therefore, the management of these funds is not focused on line items of revenue and expenses, but rather the "bottom line" of whether expenses are supported by revenue. This is measured by the working capital in each fund. In simple terms, "working capital" is similar to fund balance and is the result of all transactions during the year. An increase in working capital indicates that expenses are less than earnings. Since a city cannot make a profit, unlike private sector enterprises, working capital should not grow or decline and expenses and revenues should balance. However, working capital should accumulate to a level sufficient for at least three purposes: 1. Provide a cushion or a contingency for unforeseen needs and emergencies. 2. Provide adequate security for long-term debt. 3. Allow for a capital development program to reduce the need for borrowing. Page 78 2004 Final Budaet Section IV: Financial Plan The trend for working capital in each of the City's proprietary funds is found on the following page. It should be noted that data for 2003 and 2004 are budget figures while the data for previous years are actual figures. The Water Fund continues with an aggressive capital program. The increases in 1997 and 1999 working capital are from bond proceeds received during those years to construct new joint facilities, research water rights and availability, build new pump stations, drill new wells, update worn out facilities, and construct a corrosion control facility. The utility also received Public Works Trust Fund Loans in 2001 and 2002 that will fund 90% of the corrosion control facility. The buildup of working capital in the Strom Drainage Fund between 1991 and 1996 was necessary in order to finance the five-year capital program planned for that utility. Working capital in 1997 and 1998 began to decrease due to an aggressive capital improvement program. The increase in 1999 is from the issuance of revenue bonds late in the year. 2002 and 2003 reflect significant decreases as scheduled projects are completed. The decreased sewer working capital in 1991 was from the temporary investment and backing of a sewer LID. The increase in working capital at the end of 1998 was from the sale of facilities to King County and a rate increase. The fund sold an estimated $3.8 million in facilities. $1.4 million was received in 1997 and the balance will be paid for as customers connect to the system over the next several years. Planned facility improvements in 2001 and 2002 pushed working capital downward. The Sewer Fund increased rates mid 1998 and in January 2000,2001, 2002 and 2003 at 3% each year. Those increases are reflected in the ending working capital. Working capital in the Solid Waste Fund increased in 1992 due to rate restructuring in connection with the recycling program and also to a change to the accrual basis of accounting in this fund. The fund increased service rates in both 1997 and 1998. These estimates are reflected in the ending working capital. The City entered into a new contract for garbage disposal services beginning January 2002. Rates were set to recover the cost of the service and encourage recycling efforts. There is adequate fund balance at this time so rates are not expected to increase in 2004. The increase in Equipment Rental working capital from 1991 through 1996 is due to rate changes and also to the addition of reserves for those Fire and Police vehicles that were placed in the fund at that time. During 1997 and 1998 interfund rental rates were decreased 20% and 15% respectively because reserves were considered to be adequate at that time. Rates were again reduced in 2002 but were raised again in 2003 when an analysis of the fund revealed capital replacement was being under funded. A three- year increase in rates, charged to other City departments, will recoup under funding of the capital replacement component of the equipment rental rates. The Golf Course had suffered attendance losses due to the opening of new courses in the area. However, in 1999, revenues began to increase. Many ongoing course improvements have increased capital costs but improvements to the course are being noted with increased admissions. The Airport has been experiencing a continuing loss from operations over the pasts few years. The Airport completed the fueling facility and re-roofing of the hangars in 1999 in efforts to enhance lease and rental revenues. New hangars were completed in 2000. The large increase in 1999 is from the issuance of General Obligation debt to construct the hangars. Revenue from the new hangars will service the debt as well as increase revenue in future years. Working capital decreased in 2002 due to improvements to older hangars. The Airport entered into several long-term land leases in 2001 that will result in private Page 79 2004 Final Budaet Section IV: Financial Plan development and increased revenue from the leases. This fund will be closely monitored for any sudden downturns in revenue from vacancy or decreased activity. The Cemetery completed several improvements in 1999 and 2000, including an area with over 1,000 ground burial spaces and a Centennial Niche Wall. Landscaping and irrigation improvements are ongoing. However 2003 working capital is projected to decrease due to the opening of a nearby national cemetery. The Commercial Retail fund was established in 2003 for the improvement, leasing and management of approximately 14,000 square feet of commercial space in the Auburn Station. The fund accounts for revenue and expenses to redevelop downtown through the creation of new retail, office and residential space. Two tenant spaces, approximately 5,000 square feet, were leased during 2003 and the balance of improvements will be completed by early 2004. Working Capital 1992-2004 Proprietary Funds Water Sewer Storm Drainage Solid Waste Airport Cemetery Commercial Golf Course Retail Equipment Rental Actual: 1992 $1,162,228 $2,523,666 $2,051,574 $1,030,459 $250,191 $74,577 $118,787 $199,733 1993 1,646,231 2,755.476 3,014,433 1,084,902 252,595 150,757 187,950 767,123 1994 1,781,605 2,403,Œ8 2,894,298 1 ,061 ,252 316,610 234,900 284,683 1 ,109,545 1995 1,878,543 2,621 ,593 3.478,896 1 ,240,084 349,514 249,610 130,804 1 ,560,454 1996 899,727 2,892,891 4,249,043 1 ,565.470 398,953 357,113 210,003 1,956,755 1997 4,1 72,203 4,850,288 3,940,962 1 ,839.422 392,046 316,369 134,278 2,389.468 1998 1,217,715 5,319,247 2,958,986 2,162,067 73,968 275,112 118,303 2,597,764 1999 5,270,987 6,532,437 5,188,879 2,782,048 1 ,342,537 296,208 213,284 2,656,196 2000 3,435,343 7,295,016 4,742,243 3.497,725 357,868 340,948 166,079 3,370,140 2001 2,666,189 8,127,088 4,183,961 3.4 10,540 260,890 329,044 199,754 3,863,699 2002 5.464,1 77 9,081,382 4.410,775 3,675,900 157,253 335,524 316,305 3,671 ,788 Adj Budget: 2003 5,222,374 8.428,856 3,368,900 3,063,019 149,962 292,934 143,705 50,CfJJ 3,324,958 Budget: 2004 $3,952,775 $7,440,457 $1 .473,800 $2,760,720 $210,663 $253,634 $168,905 $36,300 $3,797,958 Page 80 2004 Final Budaet $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Proprietary Funds - Working Capital City of Auburn: 2000-2004 ..... J!} o ~ ..... (]) 5 (]) V) (]) 0) o c: g § .2 V) J!} V) o ~ .þ õ V) ..... è (]) ::::: Õ ..... 0 (]) I::! .Q ..... .f;- ..... ::¡ (]) c: (]) 0 Q:: (]) <:( E () .2 Q:: (]) ~ ..... c: () 0 2 (]) <.::> (]) E E .Q.. E ::¡ 0 g () Page 81 Section IV: Financial Plan [¡¡2000 1112001 [¡¡2002 [¡¡2003 1112004 2004 Final Budaet Section IV: Financial Plan Page 82