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EXECUTIVE DEPARTMENT Robert W. Farrar, Interim City Manager
April 12, 2010
Honorable Council Chair and Members of the City Council:
The attached budget is submitted to you in accordance with the applicable provisions of the Charter of the City of Bangor and under the tax levy limitations of State law. While it represents a complete spending plan for the coming year and may be adopted as presented, it should be seen as a starting point for Council review and deliberation and as a vehicle for the presentation and discussion of numerous issues. To that end, significant changes to the current year's budget are highlighted in this discussion as are some of the departmental requests that have not been included for funding.
With any municipal budget there are three key components; expenditures, revenues and assessed value. The only component that the City has any significant level of control over is expenditures. The majority of non-tax revenues are highly dependent upon the economic climate as well as the budgetary decisions made by the State of Maine. Assessed value, which is established as of April 1st of each year, is also directly related to the local economic climate.
In general, proposed expenditures are fairly well defined, however certain costs may be subject to further refinement due to changing market conditions (i.e. fuel costs). While reductions proposed at the staff level will have some impact on service levels, the Council directed reductions in three specific areas amounting to $960,000, may result in significant impacts on services. At this time, the levels of service or programs that may be impacted are unknown. Department heads are developing plans to meet this direction and will present the Council with the specific proposals during the upcoming budget workshops.
All State revenues are anticipated to decrease in FY2011. The City's proposed budget is based on the current state budget proposal, and we do not anticipate any further adjustments will be made at the State level. However, we will continue to monitor the overall State economic forecast, as any significant revisions could impact these estimates. In addition, auto excise is anticipated to fall, and its monthly performance has been exceptionally erratic over the last few months requiring close monitoring as we approach July 1.
73 Harlow Street. Bangor, Maine 04401
Finally in recent memory, this is the first time the City has been faced with the prospect of an overall reduction in assessed value. This decrease is comprised of an approximately 25% downward adjustment in commercial real estate value, a estimated 1 %-5% reduction in multi-family home values, as well as the annual depreciation of personal property, which approximates 8% per year. Based on the completed sales ratio analysis, the City's residential property owner's value will remain unchanged.
Major Budget Factors
Taken together salary and related benefits continue to represent the majority of total budgeted expenditures. The proposed budget includes cost of living adjustments only for employees within the three bargaining units (Fire, Airport Ramp and Dispatch) with continuing contracts. The City has been notified that due to its positive group experience over the first two years with CIGNA, a credit exists that will likely negate any potential increase on January 1, 2011. Therefore, there is no increase in health insurance premiums included. Lastly, we have been notified by the Maine Public Employees Retirement System (PERS formerly Maine State Retirement System) that the employer contribution rates will increase 25% effective July 1, 2010. This will represent the first such increase since the consolidation of local districts into one plan. While the City has closed this benefit to new employees, a number of employees elected to remain members of PERS. We continue to see overall reductions in energy costs. Building and vehicle fuel and electricity accounts are dropping due to less volatile pricing and various energy conservation efforts implemented over the last two years.
The General Fund budget is composed of two parts - the base budget, which historically has been based upon providing funding to maintain existing programs and services at their current level, and the new program and capital budget, which covers capital expenditures as well as such items as new equipment, programs, or personnel that will add to or enhance our municipal services.
The base City operating budget is proposed to decrease by 3.8%. For all practical purposes, no new programs or new capital requests have been recommended for funding in the coming year's operating budget. Debt service expenditures are projected to increase by $330,906 or 10.9% due to a recent bond issue. On a combined basis, total City operating and debt service expenses are projected to decrease by 2.8%.
City revenues are projected to decrease $1,170,000 or 4.9%. The majority of the decrease is attributed to reductions in state revenue sharing ($957,000) and state exemption reimbursements ($239,000). While it is normally not our practice to include recommended fee increases in the operating budget until they have been formally
adopted by the City Council, we have included proposed increases in BAT fares and permit fees. The proposed increases coupled with limited use of reserves, allows us to partially offset an estimated $60,000 reduction in auto excise tax and a $150,000 reduction in interest earnings.
City expenditures are proposed to decrease $1,610,000 or 3.8%, which includes the Council directed reductions of $960,000. Without the additional Council reduction, operating expenditures are proposed to drop $650,000 or 1.5%. The major budget factors noted above contributed to this overall reduction. In addition, the proposed budget anticlpates eliminating approximately 7.5 full-time equivalent positions. These positions are currently vacant, and while their elimination will require the redirection of existing resources, it does not result in the loss of programs. Lastly, funding for outside aqencies, including the Bangor Public Library and the Cultural Commission is proposed to be reduced by $141,400, which does not include the additional Council directed reduction of $141,000 for the Library.
Currently, 100% of the increased tax revenue generated within the Downtown Development Tax Increment Financing District (DDD) is used to fund projects that were approved as part of the City's application (i.e. local share of waterfront improvements, downtown sidewalks, Penobscot River cleanup, parking structure improvements, barns at Bass Park, etc) and therefore is not available to support general fund operations. A significant portion of DDD TIF value is generated by commercial taxpayers. By proposing to decrease the percentage of value captured, the City could offset a portion of the overall reduction in commercial tax value and mitigate the tax shift from commercial properties to residential properties. The proposed budget assumes that the captured value percent for FY2011, is reduced to 75%. This reduction would allow approximately $27.6 million of assessed value to return to the General Fund and be used to lower the overall tax rate. This will generate approximately $800,000 of property tax revenue. At 75% capture rate, the DDD TIF would still generate approximately $1.63 million to fund approved TIF projects. (final DDD TIF value will not be available until May 15th).
General Fund New Programs
New program expenditures in excess of $375,000 have been requested by General Fund departments. None of these requests are recommended for funding. Among the new program requests which are not recommended for funding are: a citywide records management system ($40,000); extension of transit service to Hammond Street extension ($136,000); an economic development position ($80,000); an electrical technician at Public Works ($61,000); and a landscape position in Forestry ($56,OOO).In general, the City's various departments were exceptionally cautious this year in making requests for new programs.
General Fund Capital Requests
General Fund Departments have also requested approximately $6.6 million in capital items/ of which approximately $2.9 million is recommended for your approval. These will be funded from a variety of sources including the General Fund Operating budget/ the Capital Reserve/ and the downtown Tax Increment Financing District. Among the recommended projects:
Street paving ($320/000)/ and stormwater expenses ($22/500) funded from the operating budget; approximately $1.3 million in expenditures from the downtown TIF including partial funding for barn replacement at Bass Park/ funding of the Penobscot River Coal Tar project/ major maintenance at the Pickering Square garage/ and providing match funds in anticipation of federal grants for the next phase of the waterfront park project. The capital reserve is projected to provide $206/000 to fund a variety of projects including: new voting machines/ painting the exterior of windows at City Hall/ replacement of air conditioning units in the Council chambers/ citywide computer replacement/ replacing the cabinets at Central Fire/ conversion of city facilities to dual fuel burners/ replacing the Park Department's articulating brush mower/ and paving the Public Works yard. The proposed General Fund bond projects include; vehicle replacement ($386/000)/ replacing the roof on the salt dome ($75/000) and providing the local share of BACTS transportation projects ($200/000). A number of other projects are proposed for funding from existing or other sources including seizure funds/ the workers compensation budget/ and the Fire Equipment Reserve (ambulance and power cot in the amount of $130/000).
Please note that funding of our street and sidewalk programs continue to decline. While asphalt prices have recently fallen due to economic conditions/ the significant price increases of the last several years reduced the amount of work that could be supported. We will undoubtedly see the effects of this price spike for a number of years as we struggle to keep up with paving needs and sidewalk rehabilitation requests.
A number of capital requests have not been funded or are recommending for partial funding only. A complete listing of new programs and capital requests/ including both funded and unfunded requests/ is attached.
The proposed School Department operating budget is estimated to essentially remain flat. School debt service will decrease by 12.8% due savings achieved by reftnanclnq existing obligations. The net school budget decrease is 1.7%/ or approximately $235 thousand. While the proposed budget maintains current programs/ it does take advantage of attrition and reduction in staffing where enrollment allows. The reduction in staffing over the biennium is 10.6 positions.
School revenues are projected to decrease 2.6%, largely due to reductions in tuition, Medicaid reimbursement and a decline in stimulus funding. With that said, Bangor continues to perform well under the Essential Programs and Services funding formula. The overall reduction in State funding is minimal compared to other school districts. As a result, the total School Department request for support from the local property tax is projected to increase by $350,333, or 1.7%.
Please keep in mind that a school budget ratification referendum will be required this June after approval of a school budget by the City Council. In order to hold this election in conjunction with the June primary, the school budget will have to be reviewed and approved on an expedited basis. Accordingly, first reading for the School budget is planned for May io". and final action and passage is scheduled for May 24th.
Tax Levy Limitations (L.D. 1)
Under L.D. 1, the City can increase its property tax levy, after certain adjustments, by two major factors: the ten year statewide average growth in real personal income and the growth in our property tax base due to new value. The state has set the income growth factor for next year at 1.78%, a reduction from the current year's 2.28%. The property growth factor, based on new property added to our tax rolls for FYl0 (the prior tax year is used for this purpose), is 5.34% compared to this year's 5.29%. In total, therefore, the City's property tax levy could increase by 7.12%, down from last year's 7.57%. In total, L.D. 1 allows us to increase our tax levy for FYll by $3,157,023. As proposed, the levy decrease is $129,308. As a result, the proposed budget is $3,187,465 below the L.D. 1 limit.
The County tax is proposed to increase 2.3% to $2,661,688. This is an automatic pass through to the property tax. The County has informed us that their budget was adopted within the County's LD 1 limit.
At this time, the Assessing Department has provided a preliminary estimate that our assessed value for the coming year will decrease in the range of $42,000,000, or 1.8%. At the current tax rate, this is a loss of $800 thousand in tax revenue. The Assessing process is expected to conclude mid May, at which time the City's assessed valuation will be finalized.
While it is generally premature to project a tax rate for the coming year, it has been our practice to do so to provide a benchmark as the budget process moves forward. The
proposed budget projects an increase in the total City/School/County tax rate from the current $19.05 to $19.30, an increase of 1.3%. In detail, the City tax rate remains unchanged, schools increase by 20 cents (2.3%), and the county increase is 5 cents (5.1 %). In order to evaluate the proposed tax rate, the following chart provides a tenyear history of the tax rates required for City operations, excluding the County and schools.
TEN YEAR COMPARISON - crrv TAX RATE
Fiscal Year City Rate $ Change % Change
02 10.54 (.11) (1.0)
03 10.25 (.29) (2.8)
04 10.22 (.03) (0.3)
05 10.05 (.17) (1.7)
06 9.11 (.94) (9.4)
07 8.97 (.16) (1.5)
08 8.87 (.10) (1.1)
09 9.28 .41 4.6
10 9.28 .00 0.0
11 (Proposed) 9.28 .00 0.0 The overall City-side tax rate has declined by $1.26 cents over the last ten years. Please note that the projected tax rate for FYll is a preliminary estimate and subject to change as assessed value figures are finalized and as the budget process moves forward.
The projected revenues, expenditures, and net operating results of the City's various enterprise funds are summarized below. Please note that depreciation, which is included in these funds as a non-operating expense, is not shown in this summary.
Fund Revenue Expenditure Net Subsidy
Park Woods $418,657 $418,657 0 0
Airport 14,453,857 14,319,857 133,913 0
Sewer 7,510,650 7,117,251 393,399 0
Bass Park 1,579,490 1,875,290 (295,800) 295,800
Parking 1,081,446 1,296,896 (215,450) 215,450
Golf 626,000 626,000 0 0
Econ Development 707,092 707,092 0 0
6 Park Woods
The Park Woods expenditure budget remains relatively unchanged from the current year with the exception of an estimated reduction of $30,000 in energy costs due to the decline in prices and energy efficiency improvements. This fund does not impact the General Fund since any shortfall is funded from the Park Woods Trust Fund established by the City with the net proceeds associated with the sale of the single family residences in the Randolph Drive neighborhood. The trust fund balance is decreasing at rate which will likely not be able to support operations beyond fiscal year 2013.
White overall activity at Bangor International Airport has generally stabilized, Airport revenues are anticipated to decrease by about $230,000 due to the institution of a customer loyalty program and a projected rental decrease related to Telford Aviation. International flights are expected to decline slightly and domestic activity remains steady. Expenditures are expected to decrease $580,000, in part reflecting a lower investment in capital improvements ($380,000) and lower overall utility costs. The transition to an open fuel farm system has been financially positive to the overall operation. Capital expenditures of approximately $500,000 are included in the proposed budget. The most significant are: lAB boiler stacks ($60,000); bi-fotd door for Hangar 1 ($75,000); local share of AlP grant funds ($125,000); and a number of smaller projects.
The Airport continues to be conscious of the volatile nature of the air industry and our reliance on military charter flights. By investing significantly in infrastructure and equipment upgrades, we are positioned to adapt to changes in the industry in coming years while retaining the necessary equipment and facllities to meet our diverse market needs.
The financial performance of the sewer fund has improved as a result of a planned series of sewer rate increases that began in FY08. As we near the end of our combined sewer overflow capital program, we can anticipate a reduced need for sewer fund borrowing in coming years. At the same time, our secondary treatment plant is nearing twenty years in age and a number of its major components will require either additional maintenance or replacement in coming years. In addition, areas of the City are still served by aging sewer infrastructure that was not replaced through the CSO program. With some major lines over 100 years in age, sections of the collection system will require attention soon. As a result of these concerns, we are proposing $720 thousand in capital projects to address sewer lines that are at or beyond their expected life and installation of monitors necessary to complete our sewer overflow program. The only other capital item of significance is upgrading the HVAC system at the plant at an
estimated cost of $800,000. It appears we will not need to increase rates in the coming year, due to a significant reduction in debt service of $374 thousand and an uptick in billable flow.
We are projecting a decrease in both revenues and expenditures over the coming year. The proposed budget antlopates appropriating $150,390 in Arena Funds to cover the cost of debt service associated with the facility, which is an allowable use under the City's Arena Fund policy. This results in a reduction in the General Fund's subsidy to Bass Park of $171,450. Based on the success of the pricing changes implemented with the 2009 fair, the budget assumes the 2010 event will also use the POP (pay one price) scenario.
The overall General Fund subsidy to the Parking Fund will decrease by about $25,000 primarily due to a proposed increase in overtime parking fines and the implementation of a handicap ticket waiver fee. Council will need to take action on these two separate proposals this spring.
During the coming year, we will undertake phase four of the renovations of the Pickering Square Parking Garage. We also antlclpate smaller equipment upgrades at Pickering Square Garage as well as acquiring two pay by space machines. These improvements will be financed through the Downtown Tax Increment Financing District.
The proposed Golf Course budget continues to reflect a stable, but not growing, demand for golf in the region. The level of competition among courses will likely remain high over the coming year. To address this, Parks and Golf Course staff are continuing to evaluate and improve our advertising and marketing efforts and increase our emphasis on customer service. Antlclpated capital expenses at the course include replacing a walk behind greens mower ($6,000) and replacing golf carts ($6,000).
Economic Development Fund
The Economic Development Fund continues to be used by the City for development projects and purposes. This fund is home to various Airport area properties owned by the City as well as to certain other properties that the City has acquired over time. In general, this fund tends to be property rich and cash poor.
The revenues generated by many of the fund's properties are increasing due to higher usage or occupancy. With the recently completed infrastructure extension to other
areas of the Maine Business Enterprise Park, we hope to see greater interest in the purchase/lease and development of these properties.
Anticipated capital expenditures include replacing the heating system at 110 Hildreth Street ($79,411).
Enterprise Fund Capitall New Programs
The attachment outlining new programs and capital items also includes similar information for our enterprise funds.
Possible Additional Reductions and Adjustments
Recognizing current economic concerns, I anticipate that additional changes will likely be discussed during the budget process. While some additional positive adjustment to expenditure and revenue estimates are possible, any significant changes will likely require cutting or reducing programs and personnel. We are prepared to provide the Council with information and alternatives as the budget process moves forward.
The annual budget is the primary policy document produced by the City each year. Our attention during the review process must focus on issues of significant concern that are directly affected by raising and allocating resources. This proposed budget addresses these issues within the framework of existing services and needs and attempts to balance these against the ability of our taxpayers to provide the needed resources. These issues and needs must be closely reviewed by the Council in the months to come.
Throughout the coming budget process, the issues that have been outlined above, as well as others which may arise during presentations and discussions, will be addressed in greater detail. As is normally the case, needs exist and requests have been made that are not included in this proposed spending plan.
I look forward to the coming Council review process and to working with you to adopt a FYll budget which meets the current and future needs of our community. As always, your staff and I stand prepared to assist you in this effort.
Robert W. Farrar Interim City Manager
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