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HomeMy WebLinkAbout08-01-11 Finance Com of Whole Minutes - 2nd Qtr ReportDUBLIN CITY COUNCIL FINANCE COMMITTEE OF THE WHOLE Monday, August 1, 2011 – 6:00 p.m. Council Chambers Minutes Present were: Mr. Gerber (Chair); Ms. Chinnici-Zuercher, Mr. Keenan, Mrs. Boring, Mayor Lecklider and Vice Mayor Salay. Mr. Reiner was absent (excused). Staff present: Ms. Grigsby, Mr. Thurman. Mr. Gerber stated that the purpose of this meeting is for review of the Second Quarter 2011 Financial Update. Mr. Thurman presented a brief overview, noting the revenues this year have improved overall. Income Tax Revenues Through the second quarter of 2011, Income Tax Revenues were up 4.33%, approximately $1.5 million as compared to the first quarter 2010. In analyzing this, the City is up 7.49% in withholding tax revenues, which comprises approximately 80% of the income tax revenue. No refunds are connected to withholding tax revenues. This is an indication of a positive trend. The City’s employment tax base is therefore doing well. Withholding revenue was spread across all withholders consistently, and was up 5.3% through July; however, it is not yet apparent whether that could include payments that were received last year in August. Mr. Gerber inquired why Net Profit accounts are off. Mr. Thurman stated that it is difficult to rely upon Net Profit payments, because the reason for the payments is not always known – perhaps it includes additional money to make up an amount owed or an estimated additional amount owed due to better performance than anticipated. General Fund Balance The General Fund balance remains strong. At the end of 2010, the balance was $39.926 million. At the end of June, the General Fund balance was $43.744 million. Although some Operating Fund transfers were made at the end of July, it decreased the amount only slightly – to $43.5 million. In addition, the 2011 year-to-date General Fund expenditures were also down one percent. Property Tax Revenues The final breakdowns of property tax revenue and second half service payments (due this week) have not yet been received. The Franklin County real estate sexennial reappraisal is due this year, which could impact TIF revenues. A potential decrease in the value of some TIF district properties is anticipated. Mrs. Boring inquired if TIF values decrease, does that result in a longer payback period for TIFs? Finance Committee of the Whole August 2, 2011 Page 2 Ms. Grigsby responded that the City’s TIFs are typically set up for the City to advance money from either the General or Capital Fund, and then as the service payments are received, the City reimburses those funds. A reduction in property value could delay the anticipated payback schedule. In instances where the City has issued, debt was issued to make sure there was coverage of 1.25 to 1.5%, so that if revenues were to drop, the City would not be short on debt service payments. There is sufficient cushion, but it could delay some of the repayment timeframes. Mrs. Boring inquired if the money had already been advanced. Ms. Grigsby responded that the funds were advanced initially when the project was constructed. These were projects that were already scheduled, and income tax funds had been allocated toward the projects. By setting up TIF districts, the City created a future revenue stream to reimburse the General and Capital Funds. Ms. Chinnici-Zuercher stated that the City has a substantial reserve. Why, then, is the debt not paid down more quickly than originally scheduled? Ms. Grigsby responded that is an option considered with refinancings. The City pays upfront for project design and any right-of-way acquisitions – a “pay as you go” financing. Over the last 10-15 years, approximately 50 percent of the City’s capital projects have been cash funded, so the City’s debt levels are relatively low in terms of ability to fund those. Typically, debt is issued for projects that serve the community for a long period of time, so revenues in future years are committed to fund those projects. For accounting purposes, the goal is to match revenues to expenditures. She commented that at the federal government level there has been concern about the nation’s reaching its debt ceiling. Statements have been made that a potential Federal credit downgrade could result in downgrades to other governments. On Friday, however, Dublin received a notice from Moody’s that even if Congress did not increase the nation’s debt ceiling, Dublin’s credit rating would remain at its current triple A level. In the statistical section of the City’s Comprehensive Annual Financial Report (CAFR), there is information about the City’s debt – amounts and amounts by type. In the 10- year period of 2001-2010, the City’s per capita debt decreased from $3,300 per capita to $1,500 per capita, which means the City has been paying down its debt. Mr. Gerber noted that paying off public debt financing can have some unintended consequences. Ms. Grigsby stated that it is similar to paying off a mortgage early. Even if it can be done, sometimes that is not the wisest decision. It may be preferable to maintain cash on hand for other projects. There is information in the packets concerning the State budget impacts, short-term and long-term. Traditionally, review is made of major upcoming public investments. With the Bridge Street Corridor, substantial public investment will be necessary. There is also the future I-270/33 interchange project. The goal has always been to ensure there are sufficient funds to take advantage of opportunities, and not become “cash poor.” Finance Committee of the Whole August 2, 2011 Page 3 Hotel/Motel Tax Revenues Mr. Thurman noted that staff’s memo has provided detail on hotel-motel tax revenues, reflecting that revenue has steadily improved from 2009 and first quarter 2010. Year-to- date, hotel-motel tax revenue is up 11.86%. State Budget Impacts Mr. Thurman stated that three revenue sources were impacted by the State budget – the local government fund (LGF), estate tax, and the personal property tax phase-out. • Local Government Funding For July 2011, the formula remained the same as the previous year, but beginning in August 2011 through July 2013, the base funding for LGF will be reduced as follows: from August 2011- through June 2012 period, the budget provides base funding of the LGF at an amount equal to 75 percent of the amount received during August 2010 through June 2011. For the July 2012 – June 2013 period, the base funding level for the LGF will be 50 percent of the amount received during July 2010 – June 2011. The funding for LGF is scheduled to return to the pre-existing formula in July 2013. During the two-year adjusted funding period, the City will lose approximately $828,000 -- $108,000 in 2011, $418,000 in 2012, and $302,000 in 2013. However, due to the increase in the State’s General Revenue Fund, the estimated amount the City will receive in 2011 with the enacted changes is approximately $1,040,000, which is slightly greater than the $1,032,230 budgeted for revenue in the City’s four LGF accounts in 2011. Consequently, the City will receive revenues from the LGF exceeding the amount the City has budgeted for 2011. • Personal Property Phase-Out Personal property tax replacement funds were to gradually decline until the phase-out was completed in 2018. However, as a result of the State’s biennial budget, the test to determine whether a municipality continues to receive phase-out reimbursements is based on whether a municipality’s reimbursement exceeds two percent of calculated resources. Based on these calculations, the City will no longer receive personal property tax reimbursements. Over the course of the phase-out period (2011–2018), the City’s revenues will be reduced by approximately $563,000 in the Parkland Acquisition Fund and approximately $387,000 in the Police Fund. • Estate Tax As part of the biennial budget, the estate tax will be repealed for those individuals who are deceased on or after January 1, 2013. Although the City does not rely on the estate tax as a primary source of revenue, over the last ten years the City has averaged nearly $728,000 annually in estate tax revenues; that revenue will no longer exist. Mayor Lecklider asked if the combined impact on Dublin from the State budget from 2013 on will be approximately $2 million. Finance Committee of the Whole August 2, 2011 Page 4 Mr. Thurman responded that in LGF funds, the City will lose $500,000 annually in a worst-case scenario. In the Estate Tax fund, the City will lose $728,000. Eventually, the property tax phase-out funds would have gone away, regardless. Mr. Gerber noted that the tangible property tax funds were being phased out since the 1990s, so the City has been aware of that for some time. Mr. Thurman stated that the tangible property tax funds have actually been gone. It is simply the phase-out funds that the City will no longer receive. Mayor Lecklider inquired if the gap would then be closer to $1.25 million. Mr. Thurman stated that is more accurate. Mr. Keenan stated that the City has never relied upon the Estate Tax funds in terms of budgeting. Ms. Grigsby responded that, actually, $25,000 was budgeted per year from this source. Mr. Keenan stated that for Dublin, that is insignificant. Mayor Lecklider responded that although not much was budgeted, the figures indicate that $728,000 has been received annually. He was simply trying to calculate the net amount of the gap in funding as a result of state budget impacts. Ms. Chinnici-Zuercher stated that the Mayor was not indicating that the estate tax loss was a problem, but point out that the total amount lost will be over $1.25 million, and funding will need to be found elsewhere. Mr. Keenan stated that there is other funding that the City should not be receiving, as he has pointed out previously -- the Police levy that has been collected since 1976. There are ample funds in the General Fund to replace that, and it should not continue to be collected. This matter can be addressed next year. Ms. Grigsby stated that although the City will no longer receive estate tax funds, the City has recognized that revenue has been unpredictable and has often discussed by state legislators for a potential cut. Therefore, the City has never been operationally dependent upon those funds. Those funds were instead used for additional capital projects. In the past, transfers were often made from the General Fund to a Capital Fund. Mr. Keenan noted that the City has made other adjustments that were not pointed out in the news today. For instance, the City put a moratorium on employee wage increases in early 2010. Other entities are just now doing that. Mr. Gerber noted that, fortunately, the impact to the City by the state budget will be a small percentage of the City budget. Ms. Chinnici-Zuercher responded that, nevertheless, $1 million is money the City will no longer receive from the state. Vice Mayor Salay agreed. Finance Committee of the Whole August 2, 2011 Page 5 Mr. Gerber acknowledged that is true, but with a $140 million budget, the overall impact is not great. Mrs. Boring stated that it would be preferable to focus on replacing that revenue by bringing in new businesses. The net effect of the state budget impacts on the City is minor. Mr. Keenan stated that the City has a great story to tell, and he is proud of it. Mr. Gerber agreed. Ms. Chinnici-Zuercher asked if the City has received any phone calls from the public in response to the recent news article about the level of the City’s reserve funds. Ms. Grigsby responded that she is not aware of any phone calls on the matter. She noted that the article made a reference to “if residents knew.” The City regularly informs its residents of its financial status through the State of the City address, the Annual Report, and other updates and reports. The City has always attempted to make its residents aware that the City is financially responsible and prudent in its financial decisions. The City’s financial picture is very positive, and the City should be proud of the financial status. Mr. Thurman agreed. The City’s financial health has been achieved through careful planning. Ms. Chinnici-Zuercher stated that is the City’s story. The City has traditionally been prudent with sound financial policies and managed its resources effectively. Perhaps in the future that connection should be made with some of the big projects that occur. Those projects are possible due to that type of financial planning and stewardship. Mr. Keenan noted that one of those projects is the I-270/US 33 interchange. Having the money available for local matching funds results in the higher prioritization of that project’s funding. Mr. Gerber stated that in regard to public awareness -- the City’s CIP process in August is well advertised and the public’s attendance encouraged, as are the City’s Operating Budget meetings in November. The meeting was adjourned at 6:30 p.m. _____________________________ Clerk of Council