MEMORANDUM 09-157
TO: Mayor and City Council
FROM: Walt Wrede
DATE: December 6, 2009
SUBJECT: Budget Update
This memorandum is written to provide an update on two items that may have a significant impact on the Council’s upcoming budget deliberations.
The Sales Tax receipts for the Third Quarter of 2009 came in significantly higher than we had projected. This is reflected primarily in the November receipts which were $585,625 higher than projected. We estimated at mid-year based upon trends and what we were hearing about the economy, that November receipts would be $1,059,182. They turned out to be $1,644,807.
We are not sure exactly what the reason for this might be. It does appear that sales tax collectors may have reported and remitted taxes a bit differently this year. It also looks possible that we were pretty close in estimating the impact of the tax exemption for unprepared foods but might have been overly conservative with respect to the economic downturn generally. But before we get too excited, we need to keep this in perspective. The Third Quarter returns are still less than in 2008 and they are still less than the adopted FY 2009 budget. It is simply that they are much better than we estimated several months ago.
So, why is this important? Several reasons. The first reason, you may recall, is that based upon our mid-year revenue projections, the administration made a number of emergency budget reductions which saved around $500,000. These cuts included leaving some positions vacant. We estimated at the time that the savings we achieved would compensate for the projected revenue shortfall and that we could minimize cost overruns in 2009. It now looks possible that we will finish the year with a slight budget surplus; good news indeed for the Fund Balance.
Second, it now appears that the sales tax revenue projections in the Draft FY 2010 Budget are more conservative than they need to be. The sales tax revenue numbers in the Draft FY 2010 Budget were based upon the mid-year projections referred to above. Based upon what we know now, we are very comfortable adjusting the revenue projections upward for next year. We are now recommending that the Council increase budgeted Sales Tax Revenue by $262,607 in 2010. Regina took what I believe to be a reasonable and conservative approach to coming up with this number. She used actual revenue numbers for 2009 (the only month we don’t have is December). She then adjusted the January and February receipts downward to reflect the fact that the sales tax exemption on unprepared foods was not in effect in November and December of 2008. She also deducted 3% from the 2009 actual revenue numbers to allow for further deterioration of the economy next year. If you subtract out the portion of this revenue that goes to HARP and HAWSP, the additional money allocated to the General Fund is $175,827.
Third, we have also concluded that the “Manager’s Budget” was overly conservative in another way. If you look at Page B-3, you will see that Total Revenues and Transfers equal $10,066,280 and that Total Expenditures and Transfers equals $9,976,765. This means that Revenues exceed Expenditures by $89,515. We also did this to be conservative and give the Council some margin of error in the event that revenues really plummeted. We did not want to spend every penny available. Based upon what we know now, we are comfortable in recommending that this money be made available for appropriation as well.
What does this all mean? If the City Council wants to amend the proposed budget by adding some things back in, it is the administration’s opinion that it could do so, up to $265,515 ($175, 827 + $89,515) without dipping into the fund reserves. Any additions over $265,515 would require using reserves.
The University Lease
The University has accepted the Council’s latest lease amendment counter proposal. A Resolution approving the lease amendment will be before Council at the December 14 meeting. Assuming that this resolution passes, Council can then decide how it wants to handle the Boys and Girls Club.
To refresh your memory, the proposal was a term of 16 months commencing on October 1, 2009 and terminating on Jan. 31, 2011. The term may be renewed on a month to month basis from January 31, 2011 through July 31, 2011. The lease rate is $6,571.67 per month for the months October 1, 2009 through June 30, 2010. The lease rate increases to $7,170.83 for the months July 1, 2010 through January 31, 2011. The lease rate includes all utilities (water, sewer, electric, fuel) up to $2,500 per month. Anything over $2,500 per month will be paid by the University.
If the Council approves this lease amendment, what does that mean for the 2010 Budget? If this lease amendment is approved, the rent will increase from the current annual amount of $57,000 to $82,455. This is an annual revenue increase of $25,455. In addition to that, we plan to do our best to hold expenses down. It is estimated that fuel costs will decrease by 20 to 30 percent if we install the high efficiency boiler. We have already installed timers on the parking lot lights and the heat/air exchange fans in the buildings so that they are in operation only when the building is occupied. We also intend to work closely with the Boys and Girls Club and the College to be sure all staff and occupants are familiar with the Sustainability Handbook.
By meeting time we plan to have a more precise estimate of what the cost to the General Fund will be if the new lease is approved and the building remains open. Following is a quick estimate. We initially estimated that approximately $140,239 could be saved by closing the building. That number included eliminating $24,000 in contributions to the building depreciation fund. Setting that aside, the real number in terms of annual operations and maintenance is about $116,239. If this lease amendment is approved, revenues generated increase by $25,455. Perhaps the Boys and Girls Club will kick in some as well. In addition, we estimate that $20,000 to $25,000 could be saved on the expenditure side by implementing the conservation measures mentioned above. So, a rough estimate at this time is that keeping the building open in 2010 might cost the General Fund somewhere in the neighborhood of $65,000 (Expenditures minus Revenues).
I hope this information is helpful. Please do not hesitate to contact me if you have any questions or comments. We will have more data and information at the meeting.