Budget Message
October 2, 2009
Livingston City Commission:
This document is the Approved Operating and Capital Budget for the City of Livingston, Montana for the fiscal year ending June 30, 2010 (FY 10). A summary of the Final Budget follows.
Overview of Budgeted Resources
The following table depicts the projected beginning balances, estimated revenues, recommended budgeted expenditures, and projected ending balances for FY 10. All city funds are included in the foregoing budget. The table reflects estimated revenues of $13,958,523, budgeted expenditures of $13,948,394, resulting in a projected ending balance of $2,935,560 for all funds. An explanation of the significant changes in fund and working capital balances (those greater than 10%) is provided on the following page.
SUMMARY OF MAJOR REVENUES, EXPENDITURES
AND OTHER FINANCING SOURCES/USES
July 1, 2009 through June 30,2010 (FY 10)
Page 1
Explanation of Changes in Fund and Working Capital Balances in Excess of 10%
Listed below are explanations of the changes in fund balance/working capital, for each of the major fund groups, which exceed 10%.
General Fund
• The General Fund balance is projected to increase from a projected beginning balance of $236,349 to $271,778 as of June 30, 2010, for an increase of 15%. As shown by a ten-year graph of the city's General Fund balance toward the end of this Budget Message, we have experienced substantial declines in the city's General Fund balance. The primary contributing factors accounting for this decline was a transfer out of the General Fund of $293,551 to the Building Inspection fund to eliminate a deficit that occurred in that fund. A second primary contributing factor accounting for the decline were General Fund costs associated with a floodway mapping study. Both of these were one-time items. After experiencing these substantial declines, the city is committed to rebuilding its General Fund reserves. While modest by comparison, the increase from $236,349 to $271,778 does in fact represent an increase of 15% in the city's reserve level. A concerted effort will be made in subsequent years to continue building our General Fund balance.
Capital Projects Fund
• Fund balance in the Capital Projects fund group is projected to decrease from $220,015 to $102,343 for a decrease of 54%. While appearing like a drastic decline in fund balance, this item is easily explained. City of Livingston voters approved a special mill levy for the purpose of assisting with the construction of a new Railroad Underpass. Fiscal year 2010 represents the second year of the five year mill levy. The current year budget includes spending authority for all of the accumulated fund balance, together with the anticipated revenue for the year. Thus, fund balance in the Railroad Crossing levy fund is projected to decrease from a projected balance of $100,000 down to $0. We are continuing to examine all funding options, including federal, state, and local funds, which will allow us to construct the new underpass with the least financial impact on the local community. The projected drop in fund balance is planned and will not cause financial problems going forward.
Enterprise Funds
• Working capital levels in the Enterprise Funds is projected to increase from $934,552 to $1,083,343, for an increase of 16%. This increase is attributable to rate increases in the water and wastewater funds. Due to the city's low utility rate structure, a three-year rate increase plan was developed which allowed us to take advantage of state grant programs. This rate increase plan consisted of increases in the water fund of 14% and increases in the wastewater fund of 19% each year for three years. Fiscal year 2010 represents the second year of the three-year plan. These rate increases account for the projected increase in working capital levels in the city's Enterprise Funds.
Operational Budget Changes
The preceding information described the projected changes in fund and working capital balances in excess of 10%. The forgoing information is more operational in nature. This information provides an explanation of the more routine changes in the current year budget as compared to prior years.
General Fund
• General Fund Balance – The projected beginning balance for the General Fund was made prior to the city receiving the second half FY 09 property tax collections. In addition, property tax collections which will be received in July and August of 2009 will be reflected in these balances, once the collections have been made and the amounts are known. Thus, the actual beginning balance for the coming year is still largely an unknown. Our estimate was based on historical property tax collections, however, we found that these vary widely.
• All City Departments - A $75 per month charge per computer has been built into the budget. The funds will be transferred to the county to support a joint City/County Information Technology department.
• City Commission - Professional Services of $94,000 is included in the City Commission's budget.
These consist of:
o Tri-County Network $5,000
o Nittany Grantworks 36,000
o Missouri River Drug Task Force 10,000
o Tree Board 3,000
o FEMA Flood Map Process 15,000
o Unspecified 25,000
________
Total $94,000
• City Court - The City Court Clerk's time has been expanded from .75 FTE to full-time (1.00 FTE).
• City Court - The City Court Judge salary was increased by $1.50 per hour.
• City Court - $1,700 of capital expenditures have been included in the budget for new chairs.
• Finance Department - The Finance Director position has been reduced from 1.00 FTE to .46 FTE.
• Finance Department: A $5,000 Capital Improvement Planning Grant from the Department of Natural Resources & Conservation is included in the budget. We have been notified of our award for this grant.
• Planning Department - City support of the county Geographical Information System (GIS) has been continued in the proposed budget. The budget includes $31,131 for this purpose.
• Facilities Administration - City support for a building janitor (County employee) is continued in the proposed budget in the amount of $13,850. In early FY 2010, the Administration expects to complete the sale/donation of the East Side School to Crazy Mountain Productions for the purpose of rehabilitation/reuse of the building as a theatre and community arts center. Although the City will not receive direct cash payments for this arrangement, CMP will be obligated to make a minimum $420,000 investment over a three year period.
• Facilities Administration - Debt service on the HVAC system has been paid off.
• Central Stores - Software maintenance on our Black Mountain Software is continued in the proposed budget in the amount of $8,006.
• Police Department - One additional COPS grant funded police officer is included in the budget.
• Police Department - A Justice Assistance Grant (JAG) equipment grant in the amount of $18,606 is included. We have been notified of our award of this grant.
• Police Department - A school resource officer is continued in the proposed budget. One-half of the officer is paid by the school district.
• Police/Dispatch - $3,500 is included in both police and dispatch for the transfer of old records to the computer system.
• Police Department - One new police car is included in the proposed budget. (Two new cars were requested.) The new car is financed with cash.
• Police/Dispatch - In lieu of a 3.5% salary increase, a 2.5% increase was negotiated with the Police/Dispatch bargaining unit in addition to an additional $27 city contribution for health insurance.
• Police Department - A $10 per month stipend was negotiated for officers who wish to use their own cell phone for city business. $1,440 has been budgeted for this purpose.
• Police Department - Debt service for the lease/purchase of two vehicles was completed in FY 09. Debt service on a third police vehicle will be completed in FY 10. We will be exercising our purchase option for all of these vehicles. It is our goal to finance future purchases of police vehicles with available cash.
• Fire Department - A transfer from the general fund to the Capital Improvement Fund has been discontinued.
• Fire/Ambulance - Transfers of personnel were made between Fire and Ambulance to better reflect their actual time on each function. The net effect of the transfer was to increase the Ambulance budget by 1.00 FTE with a corresponding reduction in the Fire Department.
• Fire Department - We currently have a full complement of reserves (15)-requiring an increase in the reserves' compensation.
• Cemetery Department - An automated water sprayer was purchased in FY 09 and another one is included in the FY 10 budget ($4,000). These will allow us to water the cemetery more efficiently, and with less labor.
• Parks Department - A tree grant in the amount of $5,000, for a Tree Intern, is included in the proposed budget. We have been notified of award of this grant.
• Animal Control - In an attempt to clearly present the costs associated with Animal Control, a new cost center within the General Fund has been added. Most of the costs, previously included in different areas of the budget, have been consolidated in this Animal Control budget.
• Recreation Department - The pool is budgeted to remain open for the coming year, despite on-going physical plant difficulties. Requests to the County Commission, for direct budgetary support of the pool, were rejected during the FY 2010 budget prep phase. Instead, the County Commission encouraged the Administration to develop differential pool charges for city/county residents; for implementation in May 2010.
Special Revenue Fund
• The city has several funds within the property tax mill levy limitation. These funds include: the General Fund, Liability Insurance Fund, Public Employees' Retirement Fund, Police Retirement Fund, Fire Retirement Fund, Sanitarian, and Ambulance. The fund balance (reserve level) in these funds varied widely. The proposed budget modifies these levies in an effort to even out the reserve levels to a more consistent level.
• Liability Insurance - Our base liability rates increased 7%. Due to increased awareness and mitigation efforts by all departments, the modification factor for 2010 is 1.16. The modification factor for FY 09 was 1.22. The net result is an increase in the current year of 2% overall. There were no changes on insurance for buildings, vehicles, or boiler insurance.
• Library Department - We are continuing to rely on a 5 mill levy from the county in support of the library.
• Dispatch Department - We found that in prior years we were only allocating a portion of this funds' health insurance costs to the Health Fund. Beginning in FY 2010, all of the health costs of this fund were allocated to the Health Insurance Fund.
• Tax Increment District – Downtown – Spending authority of $100,000 (nearly all available funds) is included in the budget. A request has been made to the Tax Increment Board to provide a detailed budget for the coming year. We do not expect to expend any funds until a detailed budget is received and presented to the Commission.
• Health Insurance – The city's contribution toward employees' health insurance was increased from $540 per month to $560 per month. The police & dispatch bargaining unit agreed to 1% less salary increase in return for a $587 per month health insurance contribution. The same change was made to non-collectively bargained employees.
• Impact Fees – (transportation, fire, parks, police). No expenditures are budgeted for the coming year. If expenditures come up during the year, a budget amendment will be presented to the Commission.
• Street Maintenance District – We expect to end FY 09 with a deficit of approximately $150,000. If we realize our revenue estimates, we expect to end FY 10 with a positive balance.
• Park Improvement Trust – Spending authority of $43,500 is included for a portion of the balance in this fund for Sacajawea Park, the Sacajawea Statute, and other restricted revenues. It is unlikely we will spend this full amount.
• Stimulus Funds – Spending authority of $134,601 is included for the city's portion of federal Stimulus funds that were distributed by the Montana Legislature (HB 645), as well as the associated revenue estimate. At this time, the City Commission has identified the following projects for use of the HB 645 funds:
o Installation of Sprinklers in Sacajawea Park
o Resurfacing of Tennis Courts in Sacajawea Park
o New Vehicle Barriers at Webb and Sacajawea Park
o Montana/Gallatin Walkway
o New Bathroom at West End Sacajawea Park
o Sprinklers at Webb Park
o Mobile Speed Alert Sign
• Soccer Field Project – Spending authority and associated revenue estimate of $1,000,000 is included in the proposed budget. At this point, the project is on hold, but spending authority and the revenue estimate is maintained in the budget should the project materialize later in the year.
Debt Service Funds
• SID Funds – Additional spending authority is included for debt service funds to allow us to call bonds whenever we have available cash to do so, as required by the bond covenants.
Capital Project Funds
• Capital Improvement Fund - $10,000 is included for the kitchen remodel in the Fire Department.
• Library Capital Improvement Fund - $12,000 of appropriation authority is included in the proposed budget, consistent with the Library's request. This is essentially a contingency appropriation.
• Railroad Crossing Levy – Spending authority of $217,537 is included for the projected balance in the fund, plus anticipated FY 10 revenue (from the 11.25 mill levy for FY 10). The Administration's goal would be to expend federally appropriated funds first, prior to the expenditure of any local tax revenues. Prior to expending any funds, the City Commission will be presented with the Administration's plan for project financing.
Enterprise Funds
• Water Fund - The budget reflects the 14% increase in water rates, which were effective July 1, 2009.
• Water Fund – Capital Outlay – A new 1-ton utility truck and box are included in the proposed budget amounting to $50,000. This new vehicle will replace an old one that is being removed from the fleet due to high mileage and repair costs.
• Water Fund – Capital Outlay – The following water projects are included in the proposed budget:
o B Street Water Line $176,216
o Front Street Water Line 109,274
o Associated Engineering Costs 18,000
________
Total $303,490
The cost of the projects are financed by: System development fees ($109,274); INTERCAP loan ($131,037); and the water fund ($63,179).
• Water Fund – Debt Service – Principal and interest payments on the city's water revenue bonds and the new INTERCAP loan are budgeted. There are 10 years remaining on the water revenue bonds and the INTERCAP loan was also set at 10 years. Although the INTERCAP loan makes it possible for the City to complete several Water and Sewer projects in FY 2010, during difficult economic times, our future goal would be to accomplish recurring annual projects of this nature with cash, rather than debt financing.
• Sewer Fund – Financing for the Anerobic Digester Improvements & Composting Facility consists of:
o TSEP $500,000
o DNRC Grant 100,000
o SRF Loan 850,000
________
Total 1,450,000
We originally planned on the possibility of 50% forgiveness on the SRF Loan. During May 2009 we found out this was not an option. However, if the state loans out all their money, there is still a possibility we could receive some forgiveness of these funds.
• Sewer Fund – Revenue estimates reflect the 19% rate change that became effective July 1, 2009.
• Sewer Fund – Administration - $36,000 is included for Nittany Grant Works for administration of the Digester Project.
• Sewer Fund – Capital Outlay – The following water projects are included in the proposed budget:
o Sewer Main Replacement 7th & 8th Street $115,428
o T-Alley Sewer Main Replacement 108,710
o Associated Engineering Costs 18,000
________
Total $242,138
The cost of the projects are financed by: System development fees ($115,428); and INTERCAP loan ($126,710).
• Sewer Fund – Debt Service – Principal and interest payments on the city's sewer revenue bonds, a sewer vac lease, a dump truck, and the new INTERCAP loan are budgeted. The sewer revenue bonds continue through July 1, 2026; sewer vac lease has 1 year remaining, the dump truck has 2 years remaining, and the new INTERCAP loan was set at 10 years.
• Solid Waste Fund – The budget includes $70,000 for a new Scale house and $20,000 for a cardboard compactor.
• Solid Waste – Debt Service – Funds are included for repayment of the Solid Waste Automation project (4 years remaining); and repayment of the Transfer Station Loan (originally $600,000).
• Ambulance – Levies – Financing of the Ambulance fund includes two city levies: (one voted 2 mill levy and a levy within the city's property tax limitation, which is 2.72 mills in FY 10). The budget is also financed by two county levies: (one is county wide which is fixed at $185,891 and one is county only excluding the city. In FY 09, the county only levy, excluding the city was 2.22 mills).
• Ambulance – Capital Outlay – The budget includes $147,233 for a new ambulance, financed with cash from the ambulance fund.
Ambulance – Debt Service – The budget includes $106,154 for debt service. This amount represents funds which will allow us to pay off the debt associated with defibrillators that were purchased in 2007 for $93,668. Payments were scheduled to continue through 2011, but because the interest rate was 8%, we chose to pay the debt off early.
Planning Processes
The City of Livingston conducts various planning processes (long-term, mid-term and short-term), to help guide the government and to insure that decisions are made in the context of the organization as a whole and with a long-term perspective. Diligent efforts are made to insure each of these component planning processes are in concert with one another. This so called "Linkage" is paramount to insure short-term decisions are consistent with the overriding values embodied in the mid-term and long-term planning processes adopted by the City Commission.
Each element of the City's planning process has a different purpose and timeframe. The City's Mission, Long-term Goals and Growth Policy are the most far-reaching in nature-20 to 25 years. The Capital Improvement Program is mid-term in nature-5 years. The Annual Budget and the Capital Budget are short-term-covering a 1 year timeframe. The most important requisite is that they are coordinated efforts.
Shown on the following page is a hierarchy of the City of Livingston's layered planning processes, all which support one another and are designed with a common goal. The chart depicts how the Annual Operating Budget and the Capital Budget fit within the City's planning process hierarchy.
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Priorities & Issues for the New Budget Year
As part of the city's planning processes, the Commission develops a series of priorities and issues to guide the development of the new budget. Listed below are the Commission's priorities and issues followed by the budgetary response. The budgetary response also includes a statement as to how these priorities and issues deviate from prior years and also the factors that led to those changes.
1. The general fund balance will be budgeted to increase over its projected FY 09 level, with a target of 15% - 20% of expenditure levels. It is recognized that because of the past trends of the decline in general fund balance, it may take several years to restore this level of reserves. Nevertheless, the primary goal is to reverse the current trend and begin moving toward the stated goal.
Budgetary Response: The current year budget projects an increase in general fund balance of $35,429, from a projected beginning balance of $236,349 to $271,778 at June 30, 2010. The current year budget contains very few discretionary costs. New or expanded positions are almost non-existent. Operating costs were held in check. And finally, the capital costs in the general fund were held to a minimum.
2. Revenues in the water and sewer funds will be increased to allow the city to qualify for state and federal grants and to enable the city to complete scheduled infrastructure repair projects.
Budgetary Response: The current year budget includes a 14% water rate increase and ad 19% sewer rate increase. This represents the second year of a three year rate increase plan. The rate increases will enable us to complete the following infrastructure projects in the new budget year: B Street water main replacement, Front Street water main replacement, 7th & 8th Street sewer main replacement, and T-Alley sewer main replacement.
3. Staffing in Public Safety areas will be maintained and expanded, if at all possible.
Budgetary Response: The current year budget maintains staffing in the Police, Fire and Ambulance departments at current level. The Police Department includes the addition of a COPS funded position and the School Resource Officer has been maintained.
4. Street Maintenance District budget will be held in check so as to eliminate the projected deficit incurred in fiscal year 2009.
Budgetary Response: The Street Maintenance District budget has been reduced from the prior year and a positive fund balance of $79,159 is projected as of June 30, 2010.
5. The budget will include funds to complete the Anerobic Digester Project in the Sewer Fund.
Budgetary Response: The sewer fund budget includes $1,450,000 of appropriation authority to complete the Anerobic Digester Project. Details of the project and proposed funding is included in the Sewer Department budget.
Capital Improvement Plan
The City is in the process of developing a Capital Improvement Program (CIP). The CIP will be summarized within the Annual Operating Budget. The CIP is a multi-year capital improvement plan that forecasts, but does not obligate, future spending for all anticipated capital projects. The CIP will be developed and updated periodically. The proposed five-year CIP will conservative financial forecasts and reflect only those projects with the highest priority and most realistic expectation for completion during the next five years. This approach will avoid raising expectations for projects that are not well defined or that the operating budget will not support.
The Annual Budget Process includes a re-evaluation of the capital projects included in the CIP for the coming year as well as the anticipated funding sources for the projects. If approved in the Annual Budget Process, the capital items appear in the Annual Operating Budget, which constitutes the formal spending authority. The capital items included in the Annual Operating Budget, represent the "Capital Budget".
A summary of the significant capital projects included in the FY 10 Operating Budget is included in the Appendix of the budget on page I-1.
STAFFING CHANGES
The final budget includes a net overall increase of .88 full-time equivalent employees (FTE). The chart on the following page shows the change in FTE for the budget year for each department. Also included in the appendix on page J-1, is a chart that shows the city's FTE over the last four years.
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BUDGETARY TRENDS
Shown below are a series of key financial indicators and budgetary trends that affect the ability of the city to sustain current service levels, while maintaining financial stability.
Fund balance measures the net financial resources available to finance expenditures of future periods. Rating agencies examine fund balance when considering the credit quality of the City. The general fund balance represents the best indicator of the city's overall financial health. Shown by the graph on the left is the city's actual general fund balance from FY 01 – FY 08. The FY 09 balance is a projection of the year that just ended. The FY 10 is the budgeted fund balance for the coming year.
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The large reduction in FY 08 resulted from a transfer of $293,551 from the city's general fund to the building inspection fund to eliminate a deficit in the building inspection fund. Also contributing to this decline are one-time costs associated with floodway mapping. Following the substantial decline we are committed to re-build the general fund balance up to its previous level; with a future target range of 15 – 20%.
As a general rule, all real and personal property in the State of Montana is subject to taxation by the State and its counties, municipalities and other political subdivisions. This rule is subject to exceptions in the case of specified classes of exempt property. Property is classified according to its use and character, and the different classes of property are taxed at different percentages of their market valuation.
Property valuations are based on comprehensive appraisals of all taxable property performed by the Department of Revenue each year. The Department of Revenue is supposed to certify market and taxable values to each county on or before the 1st Monday in August. We do not expect this information until September of this year. The trend of the City of Livingston market value is shown by the graph on the left. As shown by the graph, the City's market value has increased from $220 million in fiscal year 2000-2001 to $310 million in fiscal year 2008-2009, for a 41% increase over this period. The market value of property in the City reflects the steady growth the City is experiencing.
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The graph of taxable values that follows, reflects the City's ability to raise general tax revenue necessary to support the growing demand for government services. The taxable value for property is determined by applying a statutorily established percentage ratio to the market value of the property, according to its property classification. The applicable ratio for most commercial and residential real properties is currently 3.01%. Shown on the left is a history of the City's actual taxable value since 2001. The increase in taxable values does not coincide with the increase in market values because of adjustments to the percentage ratio by the Montana Legislature and by changes in tax policy implemented through property tax amendments. The adjustments by the Legislature were designed to prevent local taxes from increasing at the same rate as property values. As shown in the graph, Livingston had a taxable value of $8.4 million in FY 01. The taxable value has since increased each year, reaching the current taxable value of $10.1 million in FY 09, a 20.2% increase.
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ECONOMIC FACTORS
The Bureau of Business and Economic Research (BBER) is the research and public service branch of the University of Montana's School of Business Administration. The Bureau is regularly involved in a wide variety of activities, including economic analysis and forecasting. The Bureau only provides detailed research on the state's largest cities and counties. Excerpts from the Bureau's forecasts contained in the Spring 2009 issue of the Montana Business Quarterly relating to Gallatin County are restated below. Gallatin County is adjacent to Park County and due to its proximity influences our local economy.
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As the result of the recent severe financial crisis, the Bureau of Business and Economic Research (BBER) has revised its economic forecasts from this past Spring. Some excerpts from the revised forecasts are restated below:
A University of Montana economist, Patrick Barkey, has scaled back his forecast of the state's economic performance for 2008 and 2009 – from 4 percent annual growth to 3.3 percent.
The state-level employment and personal income data are encouraging, he said. Montana's year-over-year payroll employment growth of 1.3 percent over the last 12 months was better than all but four of the 50 states, Barkey said. Non-farm labor income grew at an annual rate of 4.6 percent during the first quarter of 2008 and 4.5 percent during the second quarter. These figures were down from where they were at this same time last year – 5.7 percent to 6.5 percent, respectively, which is consistent with the modest slowing BBER is predicting. Other news on the state's important industries is more mixed. The era of robust growth in construction ended in Montana in mid-2007, and employment trends are now stable, which is better than the rest of the country where steep declines are the norm, Barkey said.
A more severe than expected U.S. recession is always a risk to BBER's forecast for the Montana economy, Barkey said. The impacts of the last two recessions (in 2001-02 and 1990-91) have been milder in Montana than the national average.
Closing
We had many goals in mind when we decided to create this new performance budget-the most important of which were improved financial planning and the improvement of city services through Performance Budgeting. It takes most governments several years to develop a true Performance Budget. Thanks to the efforts of our department managers, we created a very good Performance Budget in one year. Department managers did an outstanding job of describing their programs, laying out goals and objectives for their departments, establishing quantifiable performance measures and identifying and quantifying workload indicators. The focus of this budget is not the traditional approach of describing of how the city intends to spend taxpayer dollars, but rather the more progressive approach using a Performance Budget which describes what the city departments intend to accomplish and what services will be provided to Livingston citizens. Furthermore, our focus will be on continual improvement and efficiency in the provision of these public services. There are obvious improvements we can make in this document and we are challenging ourselves to do just that as it continues to develop in future years.
It is my honor and privilege to serve the great citizens of Livingston. In compiling the approved budget document in this new format one of the goals was to be transparent and make it easier for the reader to understand City operations and finances. To this end, my belief is that we have achieved some measure of success. My pledge is to strive for continual improvement in the future. Feel free to contact my office with feedback regarding this document or any of the figures, or processes described herein.
Respectfully,
Edwin Meece
City Manager
NOTE: Where page numbers are identified please see the charts on the whole budget document to the right.
