2017/03/31 - Walter's Blog: Budget 101 (Revenue)
March 31, 2017
I previously wrote about how our annual budget is structured. This time I will discuss our revenue situation. Local revenue sources are improving and this budget does not contain any major cuts in programs or expenditures. 95% of residents believe O’Fallon is a great place to live and this budget will continue to provide high quality services to the community.
We are required by state law to have a balanced budget. Our total budget for FY2017-18 of $81,266,735, equally balanced by revenues. which means we have $81 million in revenues to equal $81 million in expenses. This represents an increase of approximately 20% compared to the previous year. The reason for the large increase is due to the Destination O’Fallon capital projects, which is an economic development initiative including a new Downtown Plaza and expansion of the Family Sports Park.
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 4%, mainly due to the additional monies we expect to receive from the Special Census conducted in 2017 and partnership with Fairview Heights for a combined 911 dispatch center. The revenue for the General Fund is proposed to be derived as follows:
Source | Proposed Budget FY2018 |
% of Total | Amended Budget FY2017 |
FY18 vs FY17 Budget |
Sales Tax | $7,824,945 | 42% | $7,753,580 | 1% |
State Income Tax | 2,958,500 | 16% | 2,825,000 | 5% |
Utility Tax | 711,995 | 4% | 714,360 | 0% |
Phone Franchise | 120,000 | 1% | 130,000 | (8)% |
Food & Beverage | 850,000 | 5% | 780,000 | 8% |
Fee in Lieu of Taxes | 694,440 | 4% | 688,840 | 1% |
Cable Franchise | 500,000 | 3% | 500,000 | 0% |
State Use Tax | 719,800 | 4% | 582,000 | 19% |
Property Tax | 255,000 | 1% | 249,560 | 2% |
Ameren Franchise | 245,000 | 1% | 245,000 | 0% |
Road & Bridge | 260,000 | 1% | 260,000 | 0% |
Building Permit | 250,000 | 1% | 250,000 | 0% |
Crime Free Housing | 165,000 | 1% | 175,000 | (6)% |
Administrative Tow Fees | 60,000 | 0% | 95,000 | (58%) |
Circuit Court Fines | 55,000 | 0% | 85,000 | (55)% |
Combined Dispatch - FVH and Shiloh | 673,000 |
4% | 109,000 |
617% |
Transfer from Other Funds | 1,719,300 | 9% | 1,529,410 | 11% |
Other | 692,150 | 4% | 1,080,525 | (38)% |
TOTAL | $18,754,130 |
| $18,052,275 | 4% |
Sales tax comprises the largest part of the General Fund (42%). Sales tax revenues for FY2017-18 are 1% above the FY2016-17 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 5% increase in the State Income Tax revenue. The State Income Tax is estimated at $97.00 per person (which is our 10% share of the state’s income tax revenue). Our current population is over 31,000 due to the Special Census conducted in early 2017, and will bring higher State Income Tax revenues compared to the previous population of 28,000 from the 2010 Census. 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. However, the City will carry these funds due (up to $2.5 million) as a receivable and use cash reserves to cover the shortfall.
There are no formal proposals to reduce the municipal share of the state income tax but the state’s continued fiscal problems make the future uncertain. Since this is the second highest revenue source for the General Fund, any significant cuts in the State Income Tax would require the City Council to revisit the budget.
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 years. 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 FY2017-18 to capture the costs for the combined 911 dispatch center for O’Fallon, Shiloh and Fairview Heights. This is a result of the state mandate to reduce the number of Public Safety Answering Points (PSAP). Shiloh was already part of O’Fallon’s PSAP service. Fairview Heights consolidated with O’Fallon beginning January 1, 2017.
Utility Tax revenues continue to decline and are 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 Telecommunications Tax also is declining due to reduction of phone lines in homes.
The Food & Beverage tax is anticipated to increase due to the growth of eating establishments and the influx of visitors from the opening of St. Elizabeth’s Hospital and the Destination O’Fallon projects.
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.
In summary, the City’s revenue situation is stable and growing. As long as the State Income Tax revenues remain, O’Fallon is in a strong position for continued growth and high quality of life.