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3a - Budget Overview – Revenue Forecast & Economic Assumptions2023-24 Budget WHAT • Achieve a balanced budget in every fund • Assure delivery of essential city services and infrastructure • Provide for the city's fiscal strength and sustainability • Deliver a transparent and accountable budget for the publi We Budget WHAT HOW • We forecast revenue carefully • We get input from all departments and public • We have staff do a lot of math • We discuss it all in public meetings, on city website and publish a comprehensive budget book We Budget WHAT HOW WHY • We genuinely care that our taxpayers, voters, residents, citizens, and businesses thrive • We genuinely want every penny in our budget to demonstrate the highest priorities to make Federal Way increasingly better We Budget Study Session 1 • Budget 101 — The Process • Budget tools for Council members • Economic Assumptions • Revenue forecast Budget Calendar 1. Council determines priorities, goals 2. Staff forecasts revenue 3. Staff calculates existing obligation expenses (payroll and benefits the largest by far) 4. Mayor and staff prepare proposed budget 5. Council briefings, review, study 6. Prioritize proposed services to funding 7. Adoption — legal authority to deliver services Budget Calendar During 2022 Jan �Mar I Apr May Jun Jul Aug Sep Oct Nov Dec Revenue forecasting Jan. 1 IFinance ------------------------------------------- ---------------------- Council Financial Reports Monthly Finance Strategic Planning Feb. 26 City Council ----- ----- ----- ----- ------ ----- ----- ----- ----- ----- ----- 2021 roll-fwd appropriation Apr. 6 Finance Senior Staff Budget Kickoff Jul. 1 Finance 2022 MidYear Report Jul. 20 Finance ---------------------------------------------------------------- 2022 Course Corrections Jul. 20 Finance ----- ----- ----- ---- ---- --- ---- ---- ---- --- - ---- ---- Dept Staffing Review Jul __Aug All Depts Policy/Project identification Aug -Oct All Depts Mayor's Proposed Budget Sep Mayor --------------------------------------------------------- Council meetings on budget Sep City Council County Assessed Value Sep. 25 Co. Assessor --- -- ----- I--- --- _ ---- ----- --- -- ----- ----- ----- ----- ----- ----- ----- ----- --- - Revenue forecast final I Oct.1 Finance Set dates for Nov. Hearings Oct. 5 Finance ----------------------------------------------------------------- City Council Study Sessions Oct. All Depts ----- ----- ----- ----- ----- ----- ----- ----- ----- -------- Ad Valorem Rate Hearing Nov. 1 Finance Budget Hearings Nov. 1,15 Finance Budget adoption Dec. 6 Finance Budget Briefings 1. Tonight: ✓ Finance: Economy, Revenue &Budget Process ✓ Mayor: The preliminary 2023-24 Balanced Budget 2. Next Monday: o Brian Davis o Judge Larson o Thomas Fichtner o John Hutton 3. Next Thursday o Chief Hwang o EJ Walsh o Assessed Valuation, Debt, Capital 4. Oct. 4th and Oct. 18th are TBD Council Budget Process Staff started January 1st 1. Delivering 2022 services 2. Been diligent to manage current year I Getting reports on current actual -to -budget 4. Used 2021 and 2022 to predict 2023-24 • Delivered city services faithfully • Found deficiencies • Discovered surprises 5. Communicated to Mayor, Council and Public Council Budget Tools Budget Book orientation 1. Timeline (p 2) 2. Budget message (p. 7) 3. Budget by Fund (pp. 17-18) 4. Staff Budget (p. 26) 5. What's in / what's out (p 27) 6. Budget by Department (pp. 34-49) 7. Debt (p 52) 8. Capital Plan (pp. 56-60) 9. All funds' reserve minimums (pp. 64-65) Council Budget Tools Budget Message 1. Overall City Budget (p 7) 2. Budget Goals (p. 8) 3. Challenges (p.9) 4. Accomplishments gyp. 10> 5. Revenue (pp.11-13) 6. Debt (p.14) 7. Cash Position (p.14) Council Budget Tools Policy -level Facts 1. Total Revenue $145-170 million (p. 7 18-19) 2. Total Expenses $150-175 million 3. Total Fund Balances $56 - $72 million 4. General Fund's ending Fund Bal. $9 million 5. Total staff 396 Full -Time Equivalents (p. 26) 6. Property Tax Rate $0.78 (less than half of $1.60 cap) (p. 12) 7. City % of overlapping property tax 8%(p. 13) CITY OF FEDERAL WAY 2023-24 BUL OR] AN ORDINANCE of the City 4 finance, adop WHEREAS, the tax estimates and b fiscal biennium have been prepared and filet the Revised Code of Washington; and WHEREAS, the budget was printed of Federal Way setting the time and place fc can be obtained on-line and at the Office of 1 WHEREAS, the City Council of the October 4, 18, and November 1, 2022, and h NOW, THEREFORE, THE CIT) WASHINGTON, DO ORDAIN AS FOL Section 1. 2023-24 Biennial Budget the amounts and for the purposes as shown c Section 2. Administration. The May( adjustments to the extent that they are consis Section 3. Severability. Should any ordinance, or its application to any person 4 such decision shall not affect the validity of d person or situation. The City Council of the ordinance and each section, subsection, sent, any one or more sections, subsections, unconstitutional. EXR]B1T A 21123 -2 04 Proposed ttudge1 2023 2424 Beginning Fund Beginning Fund Fnding Fund Fund Balance Revenue Expenditure Balance Rewnue Expenditure Balance General Fund $ 12,415,532 $ 56,445,231 5 9,173,609 $ 60,649,378 605824,985 59,685,154 $ 9,Oot20o2 Special Rewenue Funds: i9(i 0[i0 Street 2105983 5,00,475 5,401,458 500," 5,495,163 55495,163 IOOt101 Arterial Street 1005001 1,563,OW 1,563,000 100,W1 1,563,000 1,563,OOU I ot2 000 Utility Tax 4,5795047 11,830,%5 11,619,868 4,789,743 11,792,564 15,072,30E 140,702 Sales/Use Tax -AMd. &Supprt. Housing 1405702 125,OW 125,000 140,702 1255000 125,000 Solid Waste/Recycling 3115052 722,200 641,647 391,604 722,2M 654,343 459,462 Special Contract/Studies 4625890 462,8% 462,89D HoteVMotel Lodging Tax 1,7205995 293,OW 65,000 1,948,995 308,000 65,6W �Jow Cnnminity Center 990,517 2,799,376 2,279,893 1,500,0W 2,3 957 2,306,857 Traffic Safety Fund 3,1095153 3,000,006 3,786,735 2,322♦419 3,000,000 4,122,419 Isomow Utility Tax Proposition I 1,612,395 3,859,478 4,471,873 15000,0W 4,6035704 4,603,704 222,5M Performing Arts & Event Center 5415702 2 387,767 2,483 359 446,111 =95757 25483,359 Soild Waste I0°f.Utility Tax 1325012 2,200,006 2,200,000 1-9,012 2,3005000 2,300,000 15ZO12 Conwunity Developntem Block Grant 28,26E 958,193 858,193 A269 7605717 7%717 28,268 Paths and Trails 118955150 1701600 loo,o00 1,%5,750 172216 600,0W 1,5371966 Technology 2355910 149XG 385,W 149,250 534,310 rail Service 1&I,2_i2 2,335,748 21500,oi10 (0) 2,7%ffiO 257CgOO11 0 3,OK001 Strategic Reserve 310005001 3,0M M] 1,13Q891 Parks Reserve 1,1205991 5,000 1,125,891 5,000 3,118,184 Debt Service Fund 3,1185184 2.446.30 2,446Y368 3,118,184 2.WiA54 25446,459 Capital Project Funds: Real atateExciseTax 4,11059M 5.521,t111i1 7,064,343 M71,557 5,5;6,000 55788,245 2,359,312 Downtown Redevelopment 3,496,123 205,000 3,291,123 - 100,000 3,191,123 Municipal Facilities 1755185 175,185 175,185 Parks 1,4975896 367,000 367,oi10 1,497,8% 767,000 767,0W 1,49718% Surface Water Management 1,744,296 2,_04312 3,351)s6 8 429,000 1,556,230 l5W5,273 179,957 Transportation 1,1255725 19,179.00t1 19,$22,000 482,725 39,975,649 385455,0W 1,903,373 Capital Project Reserve 3695963 369,963 - 369,963 Enterprise Fuu& 797,654 Surfacc Water Management 2,897,393 15226,871 5,450,608 2,673,656 6228,298 85104,300 IM3,510 DurmasBay Cenue 1,1325949 1,155,1146 7b4,097 1,524,599 7925696 773,7E84 Internal Serdee Fonds: Risk Management 11158,255 2,307,763 2,657,763 808,255 2,120,977 2,329,131 bi10001 Infbnmtion Technology 3,734,945 3243,945 3,&M,229 3,332,561 3,7M,845 3,393,541 3,2.27,8t55 Mail & Duplication 255,919 135,947 154,901 234965 135,947 161,901 211,011 Fleet & Equipment 7,621,966 2,425,039 1256,067 6,790,83E 2,399,475 1,711,734 7,478,590 f 2,037,906 Buildings & Fumishiigs 2,161,252 728,099 -99,772 2,099,579 603,099 664,772 297 433 HeahhInsurance 3,579,985 4,956,000 ;.-156,726 3279,159 4,956,000 5,256,726 105,846 Unernploynwnt lnsumnce 245,9M 70,0i10 175,846 7Q0()0 Grand TnrafAlf Funds S 71,207.136 5 145,171,974 S 154,087,665 5 62,292,146 S 169,649392 5 175,SM4,72-f 1 S 56,436,905 Revenues Service Infra - Delivery structure Genera Capital Funds Police Fund (Downtown, facilities, Streets parks, Surface Water, Codes/Planning Transportation, PAEC) Parks Administrative Reserve Debt Service Funds Internal Service Funds Other Funds Restricted Special Revenue Funds (Risk Management, Info Systems, Mail, Fleet, Buildings, Health & Unemployment Insurance) Mo mom Economic Assumptions US CPI Inflation 5.0% Source: US Bureau of Labor Statistics 5.4% 0% 10. 5.4% 9.1% 5.3% 9.0% 8.5% 8.3% 8.6% 8.5% 8.3% 7.9% 5.4% 8.0% 7.5% 6.2% 7.0% 6.2% 6.8% 7.0% 6.8% 6.0% 5.4/0 5.4/0 ° 5.4/0 7.0% 5.0 ° ° 5.3/° ° 5.0% 7. 5% 7.9% 4.0% 8.5% 3.00 8.3% 2.0% 8. 6% 1.0% 9.1% 0.0% 8.5% titi titi .1ti titi titi ,1ti ,1ti ,1ti �ti ,11. �ti titi �ti titi �ti �ti titi 8.3% Economic Assumptions National economic modeling from WFOA conference last week: Inflation expectations remain well anchored 4.8 4.3 3.8 3.3 2.8 2.3 1.8 1.3 0 3/5/2022 Inflation expectations (%) (derived from zero coupon inflation swaps) The price of all fiscal stimulus Current (9/29/2022) �60hp i Pre cOVID (2/03/2020) 5 10 15 20 25 30 35 Maturity (Years) S-9 Blo b,+9. Hper Sandler PIPER SANDLER i 9 Economic Assumptions Historical Trend • Sales Tax revenues dipped 2 months in 2020 (April and May • 2022 over 2021 — first 6 months — up 6.9% • 2021 over 2020 — 12 months — up 8.5% • 2020 (year of COVID) over 2019 — up 1.4% • 2019 over 2018 — up 8.0% Economic Assumptions Forecasting model • Recessionary factors suggest sluggish growth if any • Inflation raises base prices underlying tax • Some of 2021 and 2022 "bumps" caused by decreased travel and leisure, expected to revert • Resulting most cautious but probable forecast ends up being a moderate 5.7% increase, driven mostly by inflation Forecasting Revenue Sales Tax - Actual and Forecast 25,000,00O . % 5.7% 5.7% 20,000,000 . % 8.0% 1. % 8.5% 15,000,000 M 5,000,000 2016 Act 2017 Act 2018 Act 2019 Act 2020 Act 2021 Act Sales Tax 14,222, 14,199, 14,731, 15,908, 16,127, 17,494, 2022 Est 2023 2024 forecast forecast 18,591, 19,654, 20,777, Forecasting Revenue 235 individual revenue lines to be forecasted Line byline each one was forecasted using trend analysis combined with discernment • Some were one-time, zeroed out. • Some were grants, some continued • Some trends decline, such as telephone UT • Some tied to volumes likely to stay flat • Some tied to inflation likely to increase Forecasting Revenue Major Revenue Forecasting discussions • Sales Tax (p 28) trend, seasonal, economics • Property Tax (p 29) 1evy, AV projection (new) • Utility Taxes (p, 30) trend analyses • REET (p. 31) trend, economics, spikes removed • LodgingTax(p. 32) 2%2 year recovery model Forecasting Revenue Budget Philosophy • Budget should be attainable • Services rely on reasonable forecasts • Under -estimating withholds services • Over -estimating risks deficit spending • Continuous monitoring and course -correcting is essential post -adoption $12,000,000 $10,000, Oo0 $8,000,000 $6,000,000 $4,oaa,oaa $2,o0o,0a0 Forecasting Revenue Property Value or sev\ds PASsess apt - Z5 AN °n s _ 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total Annual Levy 196 296 396 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 W21 Forecasting Property Tax City does not set the Property Tax rate: 1. Assessor estimates Value 2. Assessor estimates New Property Value added 3. Levy on existing value increases 1% 4. New construction added at existing rate ($0.81) 5. 2023 Tax Rate is the result of the math ($0.78) 6. We can request less if we don't need it 7. Increased property value reduces tax rate 8. Individual properties tax by formula 9. Voter process to change is "Levy Lid Lift" Capped Property Tax Revenue (1 %) forces us to have conversations to prioritize expenditures every year 1-bear Forecast 1 2 3 4 5 'Revenue Opp 400 ago 6 7 8 9 10 — —Expense Forecasting Revenues Taxes — fairly predictable • We budget as probable as possible • Underbudgeting fails to deliver services • Overbudgeting delivers unfunded services Fees — we're forecasting volume • Generally, less material in total Grants • We don't budget until they are certain • We don't budget grants applied for Forecasting Revenue Lodging Tax 350,000 300,000 250,000 200,000 150,000 100,000 50,000 2016 Act 2017 Act 2018 Act 2019 Act 2020 Act 2021 Act Lodgi ng Tax 283,220 301,603 285,725 292,986 133,773 195,720 Lodging Tax ✓ RCW process followed `Kith LTAC committee 2022 forecast 270,834 2023 forecast 293,000 2024 forecast 308,000 Budget in a Nutshell Will the Increase in forecasted revenues Minus the Increase in personnel costs Be a positive number? $6801000 Yes ... But .. ! $598,000 Jail cost increase nce cost increase $460,000 Citywide Inso�n camera increase 350�000 increase $ 000 pO Body w reserve 330, Required self-insurance cost increase $308,000 m 911 system valleVCom lacement increase 281,000 PO Vehicle rep support cost increase $105,000 Lak,haven hydrant line with historical usage $100,000 Rsalt in oad er contract $100,000 election tract cost increase Increased Public defend Service Delivery Police Streets Code Enforcement Planning Parks Court Administrative Revenues Infrastructure 74 ---. Downtown Facilities Parks Streets Surface Water Systems Vehicles Infrastructure (Capital Budget) Long-term assets are an obligation: • Streets • Vehicles • IT infrastructure • Buildings Budgeting for Infrastructure • Save up • Debt • Pay as we go Infrastructure (Use Caution) 1. Deferring has a compounding cost 2. Cutting Infrastructure spending is a short-sighted strategy 3. Must have along-term plan for capital budget funding Vehicle Replacement Challenge 1. Finance formula no longer serves well 2. Replacement backInn 3. Inflation is a serious hurdle 4. Time for a methodology change 5. Quantitative perpetual replacement 6. Biennial replacement budgeting Budget Help Best Practices in Municipal Budgeting 1. Every penny is spoken for 2. No such thing as "free" 3. Money will fix everything but not enough money 4. We are forced to prioritize 5. Budgets aren't about money, they're about priorities 6. Existing obligations come before new things 7. Infrastructure must be replaced perpetually 8. Debt is not a funding source 9. Services and Infrastructure are both obligations 10. "You and me vs. the problem," not "you vs. me" Questions & Discussion Identification of follow-up items and future priority list items tC 04727 792 0472.792 G7 : [G7 r 7 6741-4 73 Z i-,'32 Ir.. 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