Operating BudgetFiscal Year 2017-18City of Chesapeake

Council Work Session – March 28, 2017

Topics for Review

• City Council’s Guiding Principles

• Budget Process

• Major Cost Drivers

• Revenue Trends and Projections

• Reserve Requirements

• Budget recommendations

• Remaining Action

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

2

City Council’s Guiding Principles

• No increase in the real estate tax rate

• No new fees

• No supplanting of losses in state or federal funds with local revenue

• Review all vacant positions for possible elimination

• Identify operating efficiencies and reduce spending accordingly

• Identify non-core services for possible consolidation, curtailment or elimination

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

3

Budget Process

• Revenue projections completed by budget office

• 3 year budget plans prepared by departments

• Analytical inquiry and review by budget office

• Budget Review CommitteeIncludes City Manager, Deputy City Managers, Chief Information Officer, Purchasing Officer, and Directors of Budget, Finance, and Human Resources

Rotating Members for 2018: Directors of Planning and Social Services

• Reconcile budget plans with available resources

• City Manager Recommendation

• Council Appropriations

Cit

y o

f C

he

sap

eak

e

4

03

/28

/20

17

Major cost drivers

• Employee recruitment and retention

• Rapidly rising costs of employee health care

• Community mental health services

• Emergency dispatch services

• Savings in solid waste disposal

• City jail expansion

• Completion of Dominion Boulevard

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

5

Revenue Trends ( in millions)

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

6

Fiscal Year

2009 518.8$ 940.1$

2010 509.0$ -1.9% 925.3$ -1.6%

2011 499.0$ -2.0% 902.8$ -2.4%

2012 502.2$ 0.6% 910.2$ 0.8%

2013 501.9$ 0.0% 896.0$ -1.6%

2014 507.6$ 1.1% 913.5$ 2.0%

2015 523.9$ 3.2% 937.5$ 2.6%

2016 534.1$ 1.9% 954.3$ 1.8%

2017* 543.7$ 1.8% 1,003.3$ 5.1%

2018* 559.1$ 2.8% 1,039.5$ 3.6%

2019** 570.7$ 2.1%

2020** 583.8$ 2.3%

General Fund All Funds

*Budgeted Revenue

**Revenue Projections

Inflation Adjusted Revenue ( in millions)

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

7

Fiscal Year

2009 518.8$ 940.1$

2010 501.5$ -3.3% 911.6$ -3.0%

2011 477.5$ -4.8% 863.9$ -5.2%

2012 472.3$ -1.1% 856.1$ -0.9%

2013 465.1$ -1.5% 830.2$ -3.0%

2014 466.8$ 0.4% 840.1$ 1.2%

2015 478.3$ 2.5% 855.9$ 1.9%

2016 477.7$ -0.1% 853.6$ -0.3%

2017* 476.8$ -0.2% 879.8$ 3.1%

2018* 479.7$ 0.6% 891.9$ 1.4%

2019** 478.2$ -0.3%

2020** 476.8$ -0.3%

General Fund All Funds

*Budgeted Revenue

**Revenue Projections

Inflation Adjusted (2009 Dollars)

New Construction Activity

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

8

Current Real Estate Taxes

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

9

Current Real Estate Taxes Inflation Adjusted

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

10

Improvements in Revenue

• Entity wide revenue increases by $36.1 million (3.6%)

• General Fund revenue increases by $15.4 million (2.8%)

• Property tax revenues increase by $12.7 million (4.5%) No change in tax rates Real estate assessments up 2.14%

Net new construction adds 2.45% Personal property taxes up 3.2%

• Other local tax revenues are nearly flat (+0.2%)Strength in recordation, bank stock, admissions, and lodging

Slower growth in restaurant taxes (+3.0%)

Sales taxes and BPOL especially weak

No changes recommended in tax rates

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

11

Improvements in Revenue, continued

• Permits up 14.6%

• Relatively small source of revenue ($2.9 million in FY 2018)

• Most of the increases are related to construction activity

• Charges for services up 6.7%

• General Fund – slight decline (0.6%)

• Public Utilities – 4.9% increase in water and sewer rates

• Opening of Dominion Boulevard (full year)

• Increased service billings – CIBH

• Chesapeake Public Schools increases 3.3%

• Primarily state revenue

• Lottery allocation

• State share of increasing teacher retirement costs

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

12

Revenue Summary– All Funds

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

13

Revenue (in millions)

FY 2015

Actual

FY 2016

Actual

FY 2017

Budget

FY 2018

Budget

Local Revenue

General Property Taxes 307.21$ 313.61$ 321.66$ 336.07$ 14.41$ 4.5%

Other Local Taxes 132.71 135.52 138.81 139.10 0.29 0.2%

Charges for Services 116.27 122.16 134.74 143.77 9.03 6.7%

Other Local Revenue 20.51 20.75 21.73 23.49 1.76 8.1%

Local Revenue 576.70$ 592.04$ 616.94$ 642.43$ 25.49$ 4.1%

State Revenue 317.59 322.40 344.43 354.02 9.59 2.8%

Federal Revenue 43.23 39.84 41.98 43.02 1.04 2.5%

Total Revenue 937.52$ 954.28$ 1,003.35$ 1,039.47$ 36.12$ 3.6%

Increase

from FY 2017

Reserve Requirements

• Charter and Policy Reserve – add $1.57 million

• Add $436,500 of GF revenue to reserve required by Charter (6%)

• Add $872,600 of GF revenue to unassigned fund balance by policy (12%)

• Add $260,700 of TIF revenue to reserves (18%)

• Locked Revenue for Capital

• Schools – $26.7 million of locked revenue

• Includes $1 million annual transfer from SN TIF

• Debt service and cash funding of capital – $24.5 million

• City – $20.5 million of locked revenue

• Debt service and cash funding of capital – $19.4 million

• Includes estimate for City’s Spring 2017 debt issuances

• Excess locked revenue is added to Fund Balance as a commitment ($3.3 Million)

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

14

BUDGET RECOMMENDATIONSFY 2017-2018

03

/28

/20

17

Cit

yo

f C

he

sap

eak

e

15

Expenditures and Transfers – All Funds

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

16

Anticipate savings from employee attrition of between $8.5 and $8.7 million annually

Expenditures (in millions)

FY 2015

Actual

FY 2016

Actual

FY 2017

Budget

FY 2018

Budget

Governance/Management 23.78$ 23.70$ 26.57$ 27.95$ 1.38$ 5.2%

Quality Community of Life 78.71 80.75 89.87 95.19 5.32 5.9%

Economic/Environmental

Vitality 139.60 145.11 171.92 178.39 6.47 3.8%

Public Safety and Justice 137.81 139.47 150.98 159.68 8.70 5.8%

Education 446.37 430.73 469.73 487.38 17.65 3.8%

Debt Service Fund 52.93 39.46 42.30 41.94 (0.36) -0.9%

Non-Departmental 13.91 14.66 23.47 22.13 (1.34) -5.7%

Total Expenditures 893.11$ 873.88$ 974.84$ 1,012.66$ 37.82$ 3.9%

Capital/Grant Transfers 46.92 29.76 46.59 53.34 6.75 14.5%

Expenditures + Transfers 940.03$ 903.64$ 1,021.43$ 1,066.00$ 44.57$ 4.4%

Increase

from FY 2017

City Portion of Operating BudgetChanges in Budget from FY 2017 Part 1

• Chesapeake Public Schools add $8.1 million

• Revenue sharing formula adds $6.9; remainder from prior year true-up

• Employee compensation add $6.8 million

• Across board general wage increase – 2.5% $5.1 million

• Recognition of superior performance $0.5 million

• Market pay adjustments for competitiveness $1.0 million

• Estimates include adjusting all pay scales by 2.5%

• New positions added (63.72 FTE net) add $4.7 million

• Employee health care add $5.3 million

• Payroll efficiencies – remove one-time provision subtract $3.6 million

• Savings from attrition (employee turnover) subtract $1.8 million

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

17

City Portion of Operating BudgetChanges in Budget from FY 2017 Part 2

• One-time adjustment for fleet replacements add $1.5 million

• Chesapeake Transportation System add $5.4 million

• Debt Service add $3.4 million • Other operating costs add $2.0 million

• Technology licenses and maintenance costs add $0.9 million

• Sheriff – regional jail, medical contract, new facility add $1.0 million

• Police – operating costs add $0.8 million

• Equipment replacements, record scanning, materials, and repairs

• SPSA savings – new use and support agreement subtract $2.5 million

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

18

New Positions Recommended

• Citywide

• Requests of 111.6 positions costing $8.43 million

• Recommend 63.72 positions costing $4.72 million

• Police Department

• Added staff to maintain Virginia Criminal Information Network

• Relieves dispatch staff of task to better focus on emergency dispatch

• Add 2 police officers (second year of three-year plan)

• 11.63 positions costing $659,000

• Sheriff – Jail Expansion

• 11 supervisory positions for new annex plus 1 library specialist

• Estimated cost of $1.16 million; new State Comp Board payments to cover

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

19

New Positions, continued

• Chesapeake Integrated Behavioral Healthcare

• Expansion of mental health and school-based services

• 16 positions with funding primarily from Medicaid and private insurance ($1.0 million)

• Public Utilities

• 13.75 positions recommended ($721,000)

• Construction inspection, replace water meters, crew supervision, customer service, lab tech, pro-rata administration, and utility locator (Miss Utility)

• Remaining positions:

• Central Fleet (3), Planning CDBG (2), Planning (1), Fire (2), Public Works (1.83), • Technology (1), Library (1), Commonwealth’s Attorney (0.75), and Parks (0.39)

• Juvenile Services – eliminated 3 positions with outsourcing of healthcare (Dec 2016)

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

20

Employee Benefits

• Employee healthcare increases $5.33 million

• Approximately $550,000 attributed to new positions

• Remainder attributable to participant utilization and health care inflation

• Significant increase in employer subsidy as of December 2016 – 21%

• Budget based on December 2016 employee selections with 8% increase starting December 2017

• 8% of Employer’s annual subsidy = $2.6 million

• Other benefits – increased costs consistent with pay raises and added positions

• Social Security and Medicare

• Virginia Retirement System – retirement, disability, and group life insurance

• Worker and unemployment compensation

• Other Post-Employment Benefits (OPEB)

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

21

Dominion Boulevard Completion

• Capital project is substantially complete with tolls starting last month

• CTS Budget Increased for Dominion Boulevard:

• Dominion Boulevard toll revenue (partial year in FY 17) increases $3.0 million

• Interest expenses on outstanding debt increases $3.4 million * • Toll system expense and service contract increases $1.5 million

• CTS Administration and Chesapeake Expressway:

• Toll revenue based on traffic volume increase $ 920,000

• Administrative and operational expense increases $653,000

* Includes interest accruals on outstanding loans that will be paid in future years.

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

22

Public Utilities

• Revenue History and Projections:

• Recommended increases (decreases) in spending:• Wages and Benefits $ 1.60 million

• Pay and benefit changes - $832,000• 13.75 new positions - $770,000

• Contract services, materials, other expenses $ 1.52 million • Water contracts with neighboring localities $(0.91 million)

• Capital outlays $(2.14 million)

• Increase transfers to Capital Projects Fund $ 2.38 million

03

/28

/20

17

23

Cit

y o

f C

he

sap

eak

e

Fiscal Year FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Revenue in Millions $67.42 $70.20 $73.05 $76.50 $78.92

Change from prior year 10.2% 4.1% 4.1% 4.7% 3.2%

Policy recommendations

• Battlefield Visitor’s Center

• Responsibilities for landscape maintenance - $32,500 annual contract

• Higher standards than normal municipal facilities

• Recommend funding of contractor services through Conference Center and Tourism Fund

• Community Clinic

• Current contract with Southeastern Virginia Health Systems ends June 2017

• Clinic operating as planned

• Fewer patients have insurance than planned at start of contract

• Recommend continued funding for FY 2018 of $250,000

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

24

3-YEAR PROJECTION

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

25

3-Year Revenue Plan (EXCLUDING SCHOOL REVENUE)

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

26

3-Year Spending Plan (EXCLUDING SCHOOL SPENDING)

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

27

Recap of 3-Year Plan WITH FUND BALANCES

03

/28

/20

17

Cit

y o

f C

hes

apea

ke

28

FY 2016

Actual

FY 2017

Budget

FY 2018

Budget

FY 2019

Projection

FY 2020

Projection

Beginning Fund Balances 330,786$ 382,583$ 378,571$ 366,102$ 352,175$

Revenue 704,632 728,779 755,851 768,377 782,765

Other items 1,985 664 (32) (32) (32)

Total Funds Available 1,037,403$ 1,112,026$ 1,134,390$ 1,134,447$ 1,134,908$

City Expenditures plus

transfers to School

Operating Fund 625,061$ 686,863$ 714,947$ 742,598$ 771,799$

Transfers to Capital Funds 29,759 46,592 53,341 39,674 41,216

Total Funds Used 654,820$ 733,455$ 768,288$ 782,272$ 813,015$

Ending Fund Balance 382,583$ 378,571$ 366,102$ 352,175$ 321,893$

Uses of Fund Balances

Purpose Source Amount

• Pre-lockbox debt payments Debt Fund $ 4.00 million

• Human Services – City share Human Svc Funds $ 3.20 million

• CIBH – City share CIBH Fund $ 1.00 million

• CPS – Operations GF Rev Sharing $ 2.88 million

• CPS – Operations School Funds $ 5.35 million

• Dispatch – Operations E911 Fund $ 0.53 million

• Stormwater Operations Stormwater Fund $ 0.66 million

• Toll Road Operations CTS Fund $ 3.45 million .

Subtotal – Use for Operating Costs $21.07 Million

• Capital Improvements GF 1-time Account $ 5.75 million

• TIF Capital Improvements Greenbrier TIF Fund $ 6.88 million

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

29

Chesapeake Public Schools

Note that superintendent’s budget recommendation for annual city funding is $565,000 greater than final revenue sharing formula.

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

30

Amounts in thousands FY 2017 FY 2018 Change

$187,623 $194,522 $6,899

226,630 234,037 7,407

Reliance on fund balances:

From City General Fund 2,704 3,883 1,179

From School Funds 4,838 5,349 511

Federal and state grants 27,547 29,483 1,936

Other Sources 20,391 20,103 (288)

Totals $469,733 $487,377 $17,644

State funding

Lottery funds and state share of retirement costs

City-School revenue sharing formula

School Board Action of School Budget

• Superintendent’s original budget proposal contained $4.9 million deficit

• School Board approved budget proposal on March 13 with several modifications recommended by superintendent:

• Begin transition to full-day kindergarten throughout city increased budget $2.5 million

• Loosened restrictions on lottery funds and financing equipment reduced budget $1.9 M

• Revised revenue to add state and Medicaid funding of $0.67 M

• Updated revenue sharing formula added $1.03 M

• Use of FY 2016 revenue sharing true-up added $2.88 million

• School Board budget proposal is $565,000 greater than target

• Possible resolution: $1.31 million of cash reversion from FY 2016

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

31

Recap of What’s in the Budget

• Continued growth in City revenue with no increase in tax property tax rates

• Address immediate school funding issues and teachers receive raises

• Add police officers – second year of three year plan

• Improve E911 services and state crime reporting

• Expand mental health services

• Open and staff new jail annex

• Strengthen Public Utilities

• Strengthen city’s financial reserves

• Provide 2.5% pay raise to all city employees

• Secure employee healthcare

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

32

Remaining Action

• Council work sessions – April 11, 18 and 25

• As requested by Council

• Public hearings – April 25 and May 9

• Charter requires public hearing at least one public hearing

• Adoption of budget and appropriations ordinances – May 9

• City Charter requires adoption 45 days before year begins

• Technical amendments and corrections – June 13

• First day of new fiscal year – July 1

03

/28

/20

17

Cit

y o

f C

he

sap

eak

e

33