2016/03/28 - Walter's Blog: City Budget Revenue Highlights
Revenue Highlights in the FY2016-17 Proposed Annual Budget
March 28, 2016
I previously wrote about how our annual budget is structured. This time I will discuss our revenue situation. We are required by state law to have a balanced budget. Our total budget for FY2016-17 is $67,712,710, which means we have $67 million in revenues to equal $67 million in expenses. This represents a decrease of approximately 11% compared to the previous year. The reason for the large decrease is due to the reduced spending in the TIF fund, in particular the $10 million allocated for the St. Elizabeth’s Hospital mine remediation project.
Where possible, we have included the priorities listed in the City Council’s Strategic Plan to guide our budget decisions. This budget was programmed around the goals of the Mayor and City Council as expressed through direct input of the Mayor and Council, staff input, and refinement through City Council Committee review and the public hearing process. While the budget is based on the assumption that the same high levels and types of municipal service should be continued in all departments, the continued revenue instability will challenge our ability to provide services in the same manner as previous years.
The General Fund is the main fund for the City and it provides the budgets for Administration, Police, Community Development, Streets, Facilities, Police and Fire Commission, Economic Development, Cemetery, and IT departments. The General Fund revenue is estimated to increase approximately 13%, mainly due to the allocation of IT costs that are reimbursed from other funds. This is not an actual increase, but a change in how departments are charged for IT services. If the new IT allocation is removed, the General Fund increase would be 3%. The revenue for the General Fund is proposed to be derived as follows:
Source | Proposed Budget FY2017 |
% of Total | Amended Budget FY2016 | % Change From FY2016 Budget |
Sales Tax | $7,753,580 | 44% | $7,500,000 | 3% |
State Income Tax | 2,825,000 | 16% | 2,669,225 | 6% |
Utility Tax | 714,360 | 4% | 754,190 | (5%) |
Phone Franchise | 130,000 | 1% | 140,000 | (7)% |
Food & Beverage | 780,000 | 4% | 720,000 | 8% |
Fee in Lieu of Taxes | 688,840 | 4% | 644,475 | 7% |
Cable Franchise | 500,000 | 3% | 475,000 | 5% |
State Use Tax | 582,000 | 3% | 504,050 | 15% |
Property Tax | 249,560 | 1% | 248,300 | 0% |
Ameren Franchise | 245,000 | 1% | 245,000 | 0% |
Road & Bridge | 260,000 | 1% | 260,000 | 0% |
Building Permit | 250,000 | 1% | 300,000 | (17)% |
Crime Free Housing | 175,000 | 1% | 173,400 | 1% |
Administrative Tow Fees | 95,000 | 1% | 100,000 | (5%) |
Circuit Court Fines | 85,000 | 1% | 135,000 | (37)% |
Combined Dispatch | 109,000 | 1% | 104,000 | 5% |
Transfer from Other Funds | 1,529,410 | 9% | 0 | 100% |
Other | 830,525 | 5% | 791,025 | 5% |
TOTAL | $17,802,275 |
| $15,763,665 | 13% |
Sales tax comprises the largest part of the General Fund (44%). Sales tax revenues for FY2017 are 3% above the FY2016 budget. We estimate this increase in Sales Tax revenues based on our current year revenues which are 3% above prior year and a projected general increase of 1.5%.
We anticipate a 6% increase in the State Income Tax revenue. The State Income Tax is estimated at $99.50 per person (which is our 10% share of the state’s income tax revenue). Our current number of residents totals 28,396. The state is currently one month behind in paying the City’s share of the state income tax and we anticipate the delinquency will continue. There are proposals at the state government to reduce the City’s share of the income tax, but it is unknown what (if any) reductions will be made. Since this is the second highest revenue source for the General Fund, any significant cuts in the State Income Tax will require the City Council to revisit the budget.
Contrary to popular belief, the City of O’Fallon does not receive much revenue from property tax. Out of your entire property tax bill, the City’s portion is about 10%. The vast majority of your property tax (72%) goes to schools (School District 90, OTHS District 203, and SWIC). Property tax comprises only 1% of the City’s budget and is ranked tenth among City General Fund revenue generators. Property tax revenues remain even with prior year. The property tax levy supports General Fund programs such as Police, street maintenance and construction, and general administrative functions. Property taxes are also levied for Special Revenue Funds such as the Public Library, Parks and Recreation, Emergency Medical Services, Fire Department, and employee pension funds.
A new department was created for FY2017 to capture all Information Technology (IT) costs such as personnel, operating, and capital. Total IT costs are allocated to each department. The General Fund is reimbursed through the transfer from other funds.
Local revenue sources are improving and this budget does not contain any major cuts in programs or expenditures. We would be more optimistic but the budget crisis in the state government has the potential to significantly affect this budget and the City’s services.
We estimate a 17% decrease in Building Permits, due to the fact that FY2015-16 included the addition of large commercial projects such as Gander Mountain and the Plocher office building. Although the market is still slow, new construction is anticipated in FY2016-17.
Utility Tax revenues continue to decline and is dependent on weather conditions. The Utility Tax is a tariff that is based on consumption and not the actual rate. Warm winters and cool summers can significantly affect Utility Tax. A large portion of the Utility Tax is committed to paying off the $7 million Public Safety Facility that was completed in 2004. The remainder is used to fund the Parks and Recreation Department.
The “Fee in Lieu of Taxes” represents the portion of administrative salaries and benefits that were originally reflected in the Enterprise Funds (Water and Sewer). State law requires that municipal utilities charge an administrative fee so they are similar to private sector utilities that must pay property taxes and utility taxes. Until recently, the City satisfied this requirement by charging some administrative personnel costs to the Enterprise Funds because the City Council and management staff devote time to managing the Enterprise Funds. Now the Administration budget more closely reflects actual personnel costs, and the “Fee in Lieu of Taxes” line item was created as a transfer from the Enterprise Funds that satisfies the state requirement.
Many of the priorities in the Strategic Plan are addressed in this budget and the City continues to implement projects listed in the Plan. However, there are significant infrastructure priorities in the Strategic Plan that have no funding identified and decisions will need to be made to determine whether they are still priorities and if they are, how they will be funded in the future.
Local revenue sources are improving and this budget does not contain any major cuts in programs or expenditures. We would be more optimistic but the budget crisis in the state government has the potential to significantly affect this budget and the City’s services. As noted above, 16% of our General Fund revenues come from the State Income Tax. If any reductions are made, the City Council will need to revisit this budget to consider additional spending cuts. Despite the uncertainty, the budget is balanced and meets the needs, goals and demands of the City in all service areas.