[bouldercouncilhotline] Hotline: Budget questions

[kohls at bouldercolorado.gov]

Sender: Nickell, Eric

Council Member Appelbaum:

Please see responses to your questions inserted into your original e-mail text below. You may contact me in the Budget Division for any followup you would like to have.



Eric Nickell
Budget Director
City of Boulder Finance Department
(303) 441-3040    direct: (303) 441-3007   fax: (303) 441-4381
nickelle at bouldercolorado.gov

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From: Appelbaum, Matt
Sent: Monday, September 26, 2011 2:35 PM
To: HOTLINE
Subject: Budget questions

This is a follow-up to some of the questions I asked at the study session, and also to the recent information packet memo we received from staff that responded to a number of the study session questions.

-- I had asked about programs that were not able to be funded, and there is a response in the IP memo.  Given how few items are listed (and which all seem to be about capital expenditures), perhaps I should have worded my question differently: which are the highest priority, non-capital items that could not get "full" funding because they just missed the cut?

This year, nearly all department requests were affirmatively funded from newly available funding or from reallocations. The small number of requests that were not funded appeared on the list distributed in the information packet:

 http://www.bouldercolorado.gov/files/City%20Council/IP/2011/09_21_2011_IP/Final_IP.pdf

The ballot-related requests listed in the information packet are largely the "soft" costs representing implementation of new programs. In the case of municipalization, the costs are not capital-related in early years of implementation. For the remainder of unfunded requests, none are one-time capital items. Department utility costs are related to variable energy and water use. For fleet and minor equipment, the city appropriates funds as part of the operating budget each year.

Overall, the City believes that, given the economic conditions that were the backdrop to the budget process in 2011, departments were selective about their 2012 requests and did not submit new programs or major increases in current programs. The Priority Based Budgeting process also requires departments to be judicious in their requests and to first look to internal reallocations instead of asking for new funds. As the economy improves and if the capital improvement programs moves forward in the future it is expected that there will be increased requests.

-- Along the same lines, the IP memo notes that unfunded high-priority needs included fleet budgets.  The fleet replacement shows an ending balance of $8 - 9M for each of the next six years - so I don't quite get this.  Perhaps this is just another example of the difficulties of understanding large fund balances without detailed explanations, but since this fund balance (like several others) continues for years to come, some brief explanation might help.

The Fleet Replacement Fund balance exists for two reasons:

 *   The Fleet Replacement Fund maintains a 10% reserve of the total fleet replacement cost, comprising $3 million of the total reserve. This is to cover emergency situations and to bridge the transition time that would be needed if revenues fell to such a degree that needed annual contributions could not be made
 *   The Fleet Replacement Fund is tracking a normal fleet replacement cycle. Where the 2012 Budget only shows projections through 2017, in the year 2025, give or take a few years, the fund balance is expected to drop to around $4 million as a large percentage of our fleet vehicles will be replaced during that period. The fund balance does grow as funds are accumulated to purchase vehicles and drops as large purchases are made for replacement. This fund is reviewed annually to monitor fund balance levels and rates charged to the departments. Replacement does not occur if the useful life of a vehicle can be extended.

Within the Fleet Replacement Fund, each department has a designated portion. As an example, the Police Department's fleet replacement budget is tracked separately from the Parks and Recreation Department's fleet replacement budget. Some departments have been able to contribute more to their full share of fleet replacement costs than others.  One of the departments with lower fleet funding was noted in the information packet:

http://www.bouldercolorado.gov/files/City%20Council/IP/2011/09_21_2011_IP/Final_IP.pdf

-- HHS has increased support for Family Resource Schools by > 50% over the past two years.  Although this doesn't show up in the "significant changes" section (and there is considerable inconsistency about what does show up in that section; perhaps this could be fixed next year?), I'd like a brief explanation about why FRS's budget has increased so much while other programs haven't.

With regard to the Family Resource Schools (FRS) budget, a closer evaluation of  the program costing step in this year's Priority Based Budgeting process revealed an error in methodology. The city proposes to correct this item for the 2012 Approved Budget. The proposed change would result in different costs for the Prevention & Intervention and FRS programs. The revised numbers, if approved by Council, would be:

FRS = $664,225
Prevention & Intervention = $439,240

These revisions include an actual increase in Boulder Valley School District grant funding for the FRS program.



-- Perhaps I'm just confused, but I don't quite get why for the library, the dedicated mill levy doesn't show an additional line/amount for the de-Bruced property tax, although such a line is shown for the dedicated property taxes for the permanent parks fund and for CHAP.

The dedicated mill levy property tax item can be included in the 2012 Approved Budget.  In future years, no de-Bruced line items will be shown, since the city will no longer have a mill levy credit after 2011. The credit prompted the city to split up the base property tax and the de-Bruced property tax in the budget to better explain property tax sources.


-- The ballfield maintenance has moved from Park & Rec to the .25 fund.  No doubt this frees up a lot of P&R money, but obviously puts more ongoing costs into the soon-to-expire .25 fund.  Could we get a quick take on the .25 fund, how much of it now goes to ongoing expenses, and the impact of its expiration?

In 2012, the total proposed expenditures for the .25 Cent Sales Tax Fund are $7.2 million. Approximately $4 million of that total is allocated to operations, $2.2 million to debt, and $600K to the department's Capital Improvement Program (CIP).

The .25 Cent Sales Tax Fund represents about 29 percent of the Parks and Recreation Department's total budget of $24.4 million. This fund provides 35 percent of the total $6 million for park land operations, planning and construction; 20 percent of the department's $2.9 million CIP funding; and 73 percent of the department's administration budget.

If the .25 cent sales tax were not renewed, a significant portion of all areas of the department's funding would be affected. This topic will be discussed in 2012 when potential ballot items are brought forward for Council discussion.


-- The .15 fund has - thankfully! - largely disappeared as it should, since it is no longer earmarked.  Unfortunately, however, the .15 allocation is still shown (p. 96), and the effect is to "hide" GF contributions (or at least make them very hard to find).  It may be too late for this year, but - please! - next year, get rid of the .15 completely.

In the 2012 Recommended Budget, the .15 Cent Sales Tax debt is shown as a separate line in the General Fund. The revenue is shown in this manner to provide bondholders with continuing information and assurance that while the .15 fund is no longer restricted, it will continue to be used for debt service in accordance with the bond convenants that were part of the bond issue.

In 2012, the city will make its final .15 Cent Sales Tax debt service payment. As a result, within the next three budget years, this line item will no longer be necessary as historical data is replaced by more recent budget year data.

Because of historical budgeting practices, the city is also showing past year data for the .15 Cent Sales Tax Fund. As shown in the 2012 Recommended Budget, in 2010 and 2011 the .15 Cent Sales Tax Fund was tracked separately from the General Fund.  Similar to the debt service line item, the City will need to present operating budget allocations within the .15 Cent Sales Tax Fund until the 2014 budget.


-- As a heads-up, I think council needs to discuss the Chamber membership - or any membership in a group that takes positions on local issues/candidates.  To be clear, the BEC/BCVB are fine (so far as I know), attending meetings/dinners is fine, etc.  But membership seems quite inappropriate.

Staff is collecting information to fully inform discussion on this topic at the October 4 Council meeting.

-- I'd like to see the Council budget broken out in more detail (actually, there is no detail at all currently).  Although it's a small amount, I think it would be useful to see how council spends its budget.  In addition, I think we need to - once again - consider the very small travel/conference budgets given to each councilmember.   In particular, I think members should be encouraged to use their allowances, not "save" them for those of us (and I am no doubt the biggest spender here) who travel for external meetings (CML/NLC).  So, I think we should explicitly set aside some funds for those external meetings, as well as special travel by the mayor - and just carry that over from year to year if it's not used.  But let's be more explicit about this, and recognize where we are spending money and for what purposes.

Staff is collecting information to fully inform discussion on this topic at the October 4 Council meeting.

-- Perhaps this isn't really a budget issue but more suited to a discussion with Open Space, but the huge fund balance stands out.  No doubt most/all of this will eventually be spent on acquisition, but I'd like a much clearer picture of how that will happen, how much is really needed, etc.  And I've been assured several times that the ongoing .4% sales tax will be sufficient for OS O&M - but the budget suggests otherwise, something I think we also need to better understand.

Future year  Open Space Fund balances are a result of three factors: (1) increasing revenue (as projected by the Budget Division), (2) increasing expenses at a smaller rate than revenues, and (3) decreasing debt service. The projected revenue increase ranges from 4.25 percent in 2012 to 3.14 percent in 2017. OSMP has utilized a three percent increase for operating expenditures; capital expenditures remain constant after 2012; and debt service is decreasing over time. Based on these assumptions, the Open Space Fund balance will increase.

Deviation from these assumptions would very likely cause the fund balance to increase slower or to decrease. Should revenue not increase at the rate projected, operating expenses increase at greater than three percent, new debt is assumed or capital expenditures increasing would all cause the fund balance to decrease.

Because OSMP is highly reliant on sales and use tax revenue, the Department in the last decade has been cautious in evaluating new expenditures. Due to the high reliance on volatile sales and use tax revenues (over 90 percent) and the amount of debt service that is currently outstanding, the Open Space Fund maintains a higher amount of reserves than other funds in the city. The Department has identified three possible scenarios for utilizing increasing fund balance.

1)    Fund balance may be used for real estate acquisitions. The allocation of the CIP to real estate acquisitions is $3.4 million each year.  As experienced this year, real estate acquisition opportunities arose that exceeded the appropriation; supplemental and emergency appropriations were utilized to make fund balance available to acquire these properties. The fund balance had accrued over recent years due to revenue coming to the Department in excess of expenditures and unexpended funds returning to the fund balance because of conservative spending during the most recent economic downturn. The Department is at a stage in its acquisition plan where it is more selective; it is unknown when a desired property may become available.

2)    Fund balance will be utilized for a reserve for Department asset replacement. At present, OSMP does not participate in the FAM replacement program and may be at risk should city assets sustain major damage or need replacement. OSMP maintains six buildings: two at Cherryvale, two at the operations facility on 75th street, the Ranger Cottage at Chautauqua and the Foothills Nature Center. Being self insured, the Department is responsible for repairing or replacing the facilities. Department staff is exploring possible means to fund the replacement. One way is to fund a reserve with fund balance.

3)    With two of OSMP's sales taxes sunsetting in 2018 and 2019, the fund balance could be used to smooth the transition for 0.88 cents per dollar revenue to 0.40 cents per dollar. Under the present Fund Financial modeling with the above assumptions, the Open Space Fund balance does begin to decrease in 2020. The fund balance could be used to reduce the impact of the sales tax reduction.

The Open Space Fund Financial is a model utilizing the assumptions identified above. Should any of the assumptions change, the model will change accordingly. OSMP constantly monitors revenue and expenditures with the long range funding of the program as its goal. While all projected revenues are carefully crafted, volatility in the national economy can make these numbers unreliable for any long range financial planning or modeling. Recent experience indicates that projection accuracy is generally limited to only several years.

Thanks -- Matt
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