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Council Chambers Thursday, February 11, 2021 | 4:30 p.m. FY 2021-22 Budget Workshop #1 Agenda • Financial Outlook • FY 2021-22 Budget Outlook • FY 2020-21 National, State, and Local Economic Quarterly Update • FY 2021-22 Preliminary Budget • 5-Year Ongoing General Fund Forecast • Public Safety Personnel Retirement System (PSPRS) • Capital Improvement Plan (CIP) • Property Tax • Key Budget Dates • Closing remarks Financial Outlook FY 2021-22 Budget Theme “Moving Forward Together” Our Vision We are a world-class City that provides an exceptional quality of life FY 2021-22 Financial Outlook • Economy is in extended recovery mode from COVID-19 impacts • Growth of sustainable (ongoing) revenues potentially resetting based on new demand/trends • Development revenues continue contributing to one-time General Fund, but at a slower rate • Cautious that potential State legislative and Federal actions may threaten City revenues • Maintains AAA Bond Ratings from Moody’s, Fitch, and S&P rating agencies • Continue adherence to all fiscal policies • Continue pay-down of pension obligations • Structurally balanced • Ongoing revenues support ongoing expenditures • One-time revenues support one-time expenditures • Maintain strong reserves • 15% General Fund contingency reserve • Budget Stabilization Reserve at a minimum of $10M • Manage expenditure growth • Maintain existing services • Maintain infrastructure Sound Budgeting Practices Support Financially Sustainable Goal Strong Fiscal Foundations Move Us Forward •Operating Management •Capital Management •Reserves (Jan. 26, 2017) (Mar. 22, 2018) •Debt Management •Long-Range Financial Planning •Grant Management •Investment •Accounting, Auditing, and Financial Reporting •Pension Funding (June 11, 2020) Financial Policies (Revised and adopted by Council January 14, 2016) National and State Economic Update Construction Spend: +3.8% above November 2019 Economic Indicators Business Formation Statistics: just over 1.1M new businesses added in Q4 Advance Monthly Sales for Retail & Food Service: +0.6% from prior month Manufacturing & Trade Inventories: +1.32% from prior month https://www.census.gov/economic-indicators/ National, State and local Unemployment Economic Forecast Bureau of Labor Statistics: bls.gov/eag/eag.us.htm & bls.gov/eag/eag.az.htm & azcommerce.com/oeo/labor-market/unemployment/ 2020 4th Quarter Base Forecast Economic Forecast https://www.azeconomy.org/data/forecast-data/ City of Chandler “Quarterly” Update Building Permit Trend Analysis • Permit numbers remain strong • Adding to one-time Business Opening/Closing Analysis Metrics gathered from Business Registration data Businesses continue to register in the new online portal: Closed from Mar. to Dec. : 213 Registered from Mar. to Dec. : 597 Net newly registered Businesses: 384* * Renewal process helps distinguish between brand new businesses, and those that are just newly registered, providing a better picture as to new business starts Past Due Residential Utility Trend Analysis Delinquent utility accounts/balances that meet turn-off criteria has increased through Dec. 2020 Continue working with Neighborhood Resources and non-profit partners on outreach for utility assistance • Soft account notices began 10/19/20 and continue, but still no disconnections or late fees • Anticipate resuming disconnects Monday, May 3, 2021 FY 2020-21 Revenue Update General Fund Year-to-Date Revenues FY 2020-21 Results through December 2020 Actual revenue $133M 5.6% or $7M above same period prior year COVID reduced Budget prorated based on historical trend $114M Actuals above COVID reduced budget: $19M or 16.6% Chandler maintains a strong financial position “I take the task of making sure we come in under budget very seriously, and to everyone’s point, we will meet the budget according to the revenues we receive.” Marsha Reed, City Manager, April 24, 2020 FY 2020-21 Results through December 2020 Actual spending $119K lower than prior year 47.9% of COVID reduced budget spent vs. 44.9% of prior year budget spent (less PSPRS payment) Expenditures continue to be tracked closely Excludes Reserves and Non-Departmental Contingencies FY 2020-21 Expenditure Update Preliminary 5-Year Ongoing General Fund Forecast Annual General Fund Revenues and Expenditures Annual Inflows Annual Outflows 85% Local taxes and licenses and State shared revenues 6% Charges for services (i.e., parks, rec., building, planning, library) 3% Misc. Receipts (i.e., Interest Inc., fines, leases, surplus sales) 6% Property tax and Indirect costs 77% Personnel (Wages/Benefits) Ongoing Base Budget (i.e., Ops./maint., supplies, utilities) One-time decision package needs (i.e., consultants, pilot programs) Transfers to replacement funds If Revenues exceed Expenditures, General Fund Balance increases Preliminary 5-Year Ongoing General Fund Forecast Chandler continues to be Structurally Balanced The ongoing forecast reflects expenditures that are supported by sustainable revenue growth Preliminary Ongoing General Fund Forecast - Revenues FY 2021-22 preliminary revenues are $267.9M Over 86% is vulnerable to economic volatility FY 2020- 21 FY 2021- 22 Ongoing One-time Increases by 2.6% ($5.6M) over prior year ongoing Higher one-time revenue results in lower ongoing % Local Sales Tax support 54% and State shared supports 29% of total 18% ($47.9M) of total revenues considered one-time Forecasting gradual ongoing growth of 1.8% to 2.6% Continued development/retail affecting sales tax collections and permit revenue Revenues based on actuals through December 2020 Addl’ data from League & County on next update 82% 85% Ongoing and One-Time Sales Tax Revenues Ongoing sales tax revenues reflect growth over time One-time sales tax revenues fluctuate due to economic volatility Preliminary 5-Year Ongoing General Fund Forecast Personnel Expenditures Carefully Tracked Largest ongoing expenditure (77% of total exp. & 0.4% over prior year personnel) Position counts unchanged: Total all funds 1,694 FTE (81.5% General Fund) Cost Adjustments Included Benefits changes: Health, Retirement (ASRS and PSPRS), & Workers Comp FY 2021-22 MOU chgs: Police/Fire Merit (5%) Fire Market (0.75%) Police Shift diff (+$.10) Cost Adjustments Excluded No FY 2021-22 General Employee merits & markets (No market given to Generals in FY 2020-21) No merits or markets included FY 2022-23 & beyond for any employee Major Impacts Increased General Fund vacancies from 59 to 85 (+44%) (Vacancy savings rate under review) 10 add’l Public Safety sworn entered DROP (reduced PSPRS employer contrib.) Preliminary 5-Year Ongoing General Fund Forecast Expenditures FY 2021-22 Department General Fund decision packages under review • $6.0M ongoing requests • $8.1M one-time requests • Includes 22 positions requests Other Expenditure Projections Unchanged from Prior Year Forecast • Department ongoing base budgets unchanged • Reestablished Council Contingency ($75K ongoing and $325K one-time) • O&M on projected capital projects based on current CIP • Self Insurance fund contribution projections unchanged Remaining Ongoing Surplus of $2.1M Uses • Change general employee wages/benefit (impacts hiring & retention) • Maintain, enhance, or add to existing service levels (utilities, service contracts, supplies, staffing) Prioritize Ongoing Demands (Maintain > Enhance > New) Determine Priorities for One-Time Dollars Reduction of Pension Debt Replenish Reserves Operations & Maintenance Maintain Existing Capital New Capital Public Safety Personnel Retirement System Update PSPRS Net Unfunded Liability Balances Update Jun-19 Jun-20 Difference % Change Chandler $180M $171M -$9M -5.0% Gilbert $61M $42M -$19M -31.1% Glendale $272M $290M $18M 6.6% Mesa $654M $691M $37M 5.6% Peoria $103M $109M $6M 5.8% Phoenix $3,154M $3,381M $227M 7.1% Scottsdale $190M $216M $26M 13.6% Tempe $319M $343M $24M 7.5% PSPRS Actuarial Report Results 6/30/20 Normal portion of contribution 28% Unfunded portion of contribution 72% Unfunded Liability decreased $9.4M from Prior Year’s total of $180.5M Police $114.4M Fire $ 56.7M $171.1M Employer Contribution decreased $340K from Prior Year’s total of $19.4M Police $ 12.8M Fire $ 6.3M $ 19.1M FY 2020-21 Pay-Down Plan Benefits (point in time in 2019 modeler) Assumed all actuarial corrections made Making additional payments up front: • The annual Employer Contributions are reduced $113.4M over 17 years • Unfunded Liability is $20M less by year 17 Total Savings $133.4M for an investment of $67.7M ______________________________________________________ _ New 2020 PSPRS modeler received beginning of February 2021 with actuarial updates PSPRS Contributions in FY 2020-21 One-Time Forecast Recommend continuing planned commitment of additional annual one-time payments to reduce PSPRS pension liability Increase when possible of offset investment losses Results are Slow but Effective • Pay-down plan formulated 2015 • Overpayments began FY 2016-17 with $38.2M reflected thru 6/30/20 actuarial report, and $15M FY 2020-21 overpayment reflected in next report • Unfunded liability and rates are going down by staying the course • Chandlers funded levels have increased Police lowest 52.9%, now 62.7% Fire lowest 61%, now 68.6% 6/30/20 Assumptions • Assumed investment rate of return of 7.3% unchanged • Actual only 5.4% smoothed over 7 years • Payroll growth assumption of 3.5% too high • Beginning FY 2022-23: 7 year plan to reduce 0.5%/year • Started layered amortization approach for investment gains/losses Preliminary Capital Improvement Plan (CIP) Fiscal Foundations – Moving Us Forward Current 10-Year CIP Council Guidelines • Council CIP guidance • Minimize increase in property taxes • Maintain existing infrastructure • Finish planned construction of streets and parks • Limit new projects adding ongoing operations & maintenance • Address public needs Continue Focus on Chandler’s Aging Infrastructure Maintaining high quality of life for our 266,800 residents +Sustainable plans for fleet, equipment & technology 65 square miles 2,090 miles of streets 30,000 streetlights 225 signalized intersections 1,228 miles of potable water lines 941 miles of sanitary sewer 67 developed parks (1,281 acres) 48 lighted fields 51 municipal buildings 781 fleet vehicles/trucks 31 operating wells Capital Projects Under Review in the 10-Year Plan • Various community/regional park improvements • Remaining arterial street projects, Alma School, Ocotillo Road and Chandler Heights Road projects • Existing street, park, facility and utility infrastructure maint. • Technology and fiber projects • Public Safety projects and maintenance of replacement of capitalized equipment • Fire station 2 construction • Critical Airport needs, including Cooper Road collector • Utility infrastructure rehab/replacements Leaving secondary tax rate flat at $0.87 with a 4% estimated increase in assessed value, generates $1.1M for debt service on bonds A bond election will be needed to support all the projects in the CIP Preliminary Property Tax Update Assessed Values Not Yet Received Property Tax Rate Comparison FY 2020-21 (per $100 of Assessed Valuation) 0.9896 1.0415 1.1171 1.1201 1.4400 1.8012 2.1296 2.3959 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Gilbert* Scottsdale Mesa* Chandler Peoria Glendale Phoenix Tempe Dollars * Do not have a primary property tax rate, only secondary rate 38 Impact of FY 2020-21 Tax Rate Reduction on Median Value Homeowner Increases on Primary property tax rate are capped at 5% Anticipate Assessed Values for FY 2021-22 by 2nd week in February Breakdown of $1 of Typical Chandler Property Tax Bill Typical Tax Bill Cents from Every Dollar Taxed City of Chandler 9.8 cents Public Schools and Community College Districts 67.5 cents Maricopa County & Special Districts 22.7 cents Based on 2019 Tax Bill information. Exact split will vary depending on the school district and any other special taxing districts on the bill. Key Budget Dates Questions?