10-01-2019 Quarterly Finance ReportMajor Revenues—10 Year History
This issue
Major Revenues P.1
2018 Audit P.2
Future Challenges P.3
Savings From SCORE P.3
Upcoming Events P.4
CITY’S FINANCIAL HEALTH
Just as we check a person’s blood
pressure, sugar level in the blood
and other items to determine how
healthy the individual is, we can also
measure a city’s financial condition
by the growth in its revenue source
compared to its spending. The City
of Federal Way is exploring many
other options to have adequate sus-
tainable revenues to fund its opera-
tions and the community needs. The
City is spending within its revenue
sources and maintaining Council’s
required minimum fund balance.
The city currently spends more than
it brings in for Prop !.
OTHER REVENUE SOURCES
In addition to the major revenues dis-
cussed above the city has:
Admission tax that grew from
$547k in 2017 to $867k in 2018, a
growth of 56% due to the council
removing the cap on the tax.
Traffic Safety that grew from
$2.03 million in 2017 to $2.10
million in 2018 resulting a modest
growth of 3.4%.
Quarterly Financial Report
For the Quarter Ending June 30, 2019
JUNE 2019
Sales tax increased by 39.2% over a
10-year period which is average of
3.92% per year. There was a sales tax
slight decrease in 2017 due to end of
major constructions reducing sales tax
on construction activities. There was a
modest increase on services and retail
sales tax, and the PAEC came online at
the end of 2017. THIS REVENUE HAS
GROWN OVER THE YEARS BUT NOT AS
WELL AS OTHER CITIES.
Utility tax had a 13.51% decrease over
the same period resulting in annual aver-
age decrease of 1.35%. The major de-
creases were in regular land phone and
cellular phone. Regular land phone de-
creased from $1.18 million in 2009 to
$0.74 million in 2018, that is 37.3% de-
crease over a ten-year period. Cellular
phone decreased by 57.83% over the
same time. Gas had a similar decrease of
32.8% due to gas prices and climate
change. Prop 1 expenses have grown
during this same period.
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sales tax
Utility tax
Property tax
REET tax
Property tax had a 14.36% in-
crease over the same period re-
sulting in a 1.44% average annual
growth. According to the state law,
city’s annual property tax growth
other than new construction is
capped at 1%. The excess of 1% is
due to the new construction. Oth-
er communities in the area saw
significant property Tax revenue
growth during these periods, and
the City of Federal Way had high
number of nontaxable property
construction during this time like
schools, affordable housing, and
the PAEC.
REET tax had a good run of
196.8% over the period and gave
the City about 20% annual growth
from the low of the recession time
to the high of economic boom.
Things are cooling off now.
ABOUT THE AUDIT
Audit is an independent examination of city’s operation which involves
performing procedures to obtain evidence about the City’s uses of pub-
lic resources, compliance with state laws and regulations in accordance
with general auditing practices, audit does not examine every transac-
tion, activity, or area. Management is responsible for ensuring compli-
ance and adequate safeguarding of public resources, compliance with
state laws and regulations and its own policies and procedures and
internal controls over such matters.
Audit of 2018 Financial
Report of the City.
Washington State Auditor’s Office (SAO)
has completed the audit of City of Federal
Way’s financial report in accordance with
RCW 43.09.230 and issued unmodified
opinion.
RCW 43.09.230 states: “The state auditor
shall require from every local government
financial reports covering the full period of
each fiscal year, in accordance with the
forms and methods prescribed by the state
auditor, which shall be uniform for all ac-
counts of the same class. Such reports
shall be prepared, certified, and filed with
the state auditor within one hundred fifty
days after the close of each fiscal year. The
reports shall contain accurate statements,
in summarized form, of all collections
made, or receipts received, by the officers
from all sources, all accounts due the pub-
lic treasury, but not collected; and all ex-
penditures for every purpose, and by what
authority authorized; and also :
(1) A statement of all costs of
ownership and operation,
and of all income, of each
and every public service
industry owned and oper-
ated by a local govern-
ment;
(2) a statement of the entire
public debt of every local
government service indus-
try owned and operated
by a local government;
(3) classified statement of all
receipts and expenditures
by any public institution;
and
(4) a statement of all expend-
itures for labor relations
consultants, with the
identification of each con-
sultant, compensation,
and the terms and condi-
tions of each agreement;
together with such other
information as may be
required by the state au-
ditor. The reports shall be
certified as to their cor-
rectness by the state audi-
tor, the state auditor’s
deputies, or other person
authorized to make such cer-
tification. Their substance
shall be published in an annu-
al volume of comparative sta-
tistics at the expense of the
state as public document.”
Washington State Auditor’s
Office conducts three differ-
ent audits of City’s operations
annually and they are:
1) Financial reports—audits
the financial report to
determines its accuracy,
and compliance to the
established reporting
standards.
2) Single audit-audits all ma-
jor grants during the year.
OMB Circular A-133 pre-
scribed a threshold of
$300,000 to distinguish
between Type A and Type
B programs.
3) Accountability-audits the
city’s compliance with
state laws and regula-
tions, and its own policies
and procedures.
Future Challenges
The city will realize $2.1 million in
savings by leaving SCORE. The $2.1
million is the difference between
the SCORE cost in 2018 and what
the cost will be in 2020. As Mayor
Ferrell promised he will spend a
substantial amount to bring em-
ployees’ salaries up to market rate
and increase the staff level in some
areas to handle the workload level.
He also mentioned that we need to
know how far off we are and devel-
op a plan to bring it to where it
needs to be. We may not be able to
get there in one year but he is com-
mitted to start working toward it.
With the approval of the Council,
he awarded the contract to do sala-
ry study and workload study with
the hope of having the results
around January 2020.
A portion of the savings will be set
aside for the annual COLA.
A budget amendment will be re-
quired to implement Mayor’s rec-
ommendation and he plans to im-
plement the results of the study
based on the following golden
rules: (1) understanding the total
cost, (2) determine the salary per-
centile the city of Federal Way
needs to be, (3) establish path to
get there (1 to 3 years), and (4)
maintain adequate fund to pay for
COLA while implementing the sala-
ry study result.
Sustainable revenue. As shown on
the first page, our utility tax on land
phone and cellular phone have de-
creased drastically over the past
ten years. Decrease in these areas
are also affecting Prop 1 funding.
Prop 1 fund is exclusively for fund-
ing salaries in police, court, law,
and community development. Un-
fortunately, despite the decrease
our salary and benefit expenses
have grown more than 5% over the
past 5 years. As the economy gets
better, the cost will keep increasing
and we need to ensure that the
city’s unrestricted revenue contin-
ues to grow with it.
Manage expenses. Effective gov-
ernment is not just about increas-
ing revenue to provide the needed
services, we should con-
tinue to look for efficien-
cy in how we provide our
services. We need to
constantly evaluate the
priority of the communi-
ty and provide the ser-
vices they want at rea-
sonable costs. On manag-
ing costs, the City of Fed-
eral Way has less staff,
and pay our employees less com-
pared to comparable cities.
Citizens/Legislative impact on
city’s ability to generate adequate
revenue to fund its service.
*Marijuana revenue sharing. State is
currently paying 30% instead of 40%.
* Property tax cap at 1%. The cost is
rising faster than 1%
* Pension cost. State removed $300 m
from LEOFF 2 pension fund in 2019
the employers will have to pay more
when the pension fund is short.
*License tab. Initiative limiting the
license tab fee will limit city’s power
to use Transportation Benefit District
to fund transportation program.
Utility tax extension to water
and sewer. The City extended
utility tax to water and sewer ser-
vices on March 20, 2018 to take
effect on March 28, 2018. The
authority of the city to levy this
tax is currently being challenged
in court and we are awaiting the
supreme court decision. The city
expects about $1 m in revenue
from this source and expects a
decision with a year or two.
Rising labor cost. The salary and
benefits are growing faster than
our revenue sources and we are
having to compete with our
neighboring cities for staff.
Savings from SCORE
Gas, Phone, and Cell phone decreased
greatly over the past ten years. The gas price continues to come
down compared to the early 2000
resulting in lower utility tax, also
warmer weather resulting in less
use of gas for heating. Revenue from land phone contin-
ue to decrease due to continue
decline in its use. Most people no
longer have land phone when they
have cell phone.
Cell phone revenue is decreasing
because of transient nature of our
residents. Most people pay their
bills electronically without disclos-
ing where they currently reside or
the bill is paid by someone else
living in another city. It may also
be because of Weyerhaeuser
gradually reducing its workforce.
Utility Tax
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
2018
2009
Growth of Property tax and
Sales tax base. City of Federal
Way has more non taxable prop-
erties as a ratio of property value
than most neighboring cities. The
ratio of commercial properties to
the total value is less than our
neighboring cities.
Outstanding Debt
Debt and Debt Capacity
City’s debt capacity as of the end of
2018 were as follows:
No Vote required Capacity $140.58 m
Outstanding Bonds $ 31.50 m
Excess Capacity $109.08 m
With vote Capacity $819.54 m
Balanced Budget means that
operating revenues equal or
exceed operating expenses.
Council’s policy requires the city
to maintain a minimum fund
balance in certain funds. The
city’s budget and the it’s opera-
tion are in line with this policy.
We made our rate presentation to Moody’s Investors Service in San Francisco
on May 17, 2019 with the plan of selling the bond in June in line with SCORE
schedule. As of July 29, 2019 the earliest time SCORE will be able to call the
bonds for refinancing is October 2019. SCORE has to call the bonds before we can
refinance.
2019/2020 Budget Amendment—October 2019
Refinance of SCORE Bonds—Before the end of the year
Starting in October, businesses will be able to renew or register their business
through the state. This is one-stop shopping to be able to renew businesses for
City of Federal Way licenses and other licenses throughout the state. If a busi-
ness is already registered with the state there is no additional cost. For a busi-
ness that is not currently enrolled with the state there will be an annual $11.00
fee. A business will not have to come to City Hall and owners can renew all
their business licenses of multiple cities all at the same location at any time
without any additional fee.
Business Registration through the state—October 2019
Upcoming Events
FINANCE DEPARTMENT
33325 8TH Avenue South
Federal Way, WA 98003
253.835.2527 ph
www.cityoffederalway.com
RCW 34A.34.130 Budget-Mid-biennial review and modification.
The legislative authority of a city having adopted the provisions of this chapter
shall provide by ordinance for a mid-biennial review and modification of the bien-
nial budget. The ordinance shall provide that such review and modification shall
occur no sooner than eight months after the start nor later than conclusion of the
first year of the fiscal biennium. The chief administrative officer shall prepare the
proposed budget modification and shall provide for publication of notice of hear-
ings consistent with publication of notices for adoption of other city ordinances.
City ordinances providing for a mid-biennium review and modification shall es-
tablish procedures for distribution of the proposed modification to members of
the city legislative authority, procedures for making copies available to the public,
and shall provide for public hearings on the proposed budget modification. The
budget modification shall be by ordinance approved in the same manner as are
other ordinances of the city. A complete copy of the budget modification as
adopted shall be transmitted to the state auditor and to the AWC.
Balance Budget
Desc.
O. Amt
(M)
Balance
(M)
Annual
Pay.
Bonds
FWCC 12.42 9.89 0.52
Target 6.00 6.00 0.19
SCORE 15.52 12.89 0.43
HUD 3.03 2.71 0.16
Inter. F
PAEC C. 13.00 6.76
PAEC O. 0.50 0.50
CDBG 0.40 0.22
Transp. 2.50 0.00
HUD Bond annual payment is made
from annual allocation from HUD.