FY14 Operational Overview and FY15 Budget Preview

Tuesday, February 18, 2014

Mission

The City of Sedalia is committed to meeting the needs of our community through professional leadership and

operational excellence.

We deliver efficient, quality municipal services, create opportunities for growth and protect the quality of life

that makes our community a desirable place to live.

Our priority: S.E.R.V.I.C.E.

Strong Budget - The City of Sedalia will provide a strong annual budget that meets citizen service needs as well as enforcing the requirements of the fund balance ordinance and assuring the community’s economic stability.

Economic Growth - Sedalia will promote all areas of economic development, including industrial/manufacturing and retail. A strong infrastructure system must be an integral part of Sedalia’s economic development.

Residential Neighborhoods - Residential areas throughout Sedalia will be safe, diverse, and sanitary for all of our citizens and will have well-maintained neighborhoods that instill a sense of pride and community. The City will strive to constantly maintain and improve our city’s appearance.

Vibrant Downtown - The City will support efforts for an historic and well maintained downtown with a permanent combination of professional, commercial, residential and public uses. The city supports efforts to address building safety in the downtown area. Ideas for the Future - The City will provide and regularly update long-term and short-term strategic planning decisions that benefit Sedalia’s quality-of-life. Citizen Health and Safety - The City of Sedalia will provide for the health and safety of its citizens and visitors in the areas of police and fire protection and within all services offered. Employee Excellence - The City of Sedalia honors its employees as both the greatest asset of the City and the foundation for the quality of our organization. The City supports employee development so that city services remain strong and state-of-the-art.

Purpose of today’s session

Today’s session serves as a preview for the upcoming FY2015 budget. A goal is to clearly tell the city’s financial story without becoming too technical. Today we will look at the budget from an altitude of about 2,500 feet.

Again this year it will be important to look closely at sales tax issues and projections.

We will review the financial status of fund 15, a fund that has a revenue stream of a ¼ cent sales tax, but is carrying a full load.

You will be provided with an awareness of major decisions that the council and staff will be facing in FY15.

Service Provided to Sedalians in 2013 (previous year) Airport

• 13,500 aircraft landings / take-offs (13,000) • 100,000 gallons of fuel sold (125,000)

70,000 jet fuel/30,000 av gas • 90 catered meals (100)

Finance Department • Issued 1,449 business licenses (1,379) • Issued 78 liquor licenses (84) • Issued 124 pet tags (623)

Municipal Court • 1,686 traffic tickets (1,567) • 940 civil cases (915)

Police Department • 9,960 traffic stops (8,968) • 36,113 dispatched calls • 40 search warrants • 2,412 arrests

Fire Department

• 2,502 Emergency incidents: - 1,695 emergency medical calls (1,742) - 807 fire/rescue (864)

Sanitation • Collected 20,380,620 lbs of refuse (21,432,840) • Serviced 7,507 refuse accounts (7,560)

Personnel

• 591 job applications (841) • 24 positions filled (24)

Street

• Patched 3,730 potholes (3,408) • Swept 3,840.5 miles of curb (3,470.50) • 26 miles of streets resurfaced (17.5) • Revised snow removal procedures allowing removal of 8” of snow in less than 15 hours

Cemetery • 58 gravesites sold; (142) 11 columbarium niches

sold (4) • 124 burials; (135) 4 disinterments (5) • Asphalted 4,000 feet of roads using 699.74 tons

of asphalt (0)

City Clerk • Issued 1,390 garage sale permits (156 of that

total done on line) (1,476) • Answered 30,000 phone calls (36,000) • Digitized 2,098 resolutions (10,041 ordinances)

Community Development • Issued 930 permits (486) • Construction valuation $24,144,800

Parks

• 95 Adult Rec League Teams (190) • 1,500 youth in parks and rec sports leagues (750) • 35,000 Admissions to Park Pools (38,762)

Water Pollution Control • Treated 1.97 B gallons of wastewater (1.577 B) • 23 miles of sewer pipe cleaned/10 miles televised. • Produced 4,830 tons of compost (4,500) • Sold 3,092 cubic yards of compost (3,600)

IT Department

• 500 helpdesk tickets in 12 months = 521 hours • Stored 736,980 emails, 124.3 Gigabytes • Implemented a 10 Terabyte Storage Area

Network and filled it to over 80% capacity

Goals from the February 9, 2013 Planning Session taken from the minutes of the session as adopted

1. Show Me Green Sales Tax Holiday Staff recommends that the City not participate. Completed 2. Phase III Streetscape – Funding located to address an additional city block from Broadway to 7th including the arch; Phase IV City Hall – Partial funding located. Design under consideration 3. Provide support to Park Department in determining how to achieve a community center. Ongoing. Parks aggressively pursued this project in 2013. In 2014 city staff began funding research and recommended a funding source in place of, or in addition to the parks sales tax. 4. Continue efforts to maintain and build a vibrant downtown – Building inspection ordinance approved. 5. Continue Clean-up efforts including demolitions. Significant progress. 6. More retail accomplishments– Steak and Shake approved and under construction. Kohl’s purchased property near Menards. AT&T building facility. CVS built and opened store. Advance Auto Parts constructed and opened. Casey’s on south Limit was constructed and is open. 7. Pursue Use Tax as directed by state legislation from 2013. This did not go to the April ballot because we initially anticipated that the community center would be on the April ballot. 8. Address animal control and Humane Society issues. Work began in 2013. Anticipate significant developments in calendar years 2014 and 2015. 9. Increase staff for police and fire. Police approved to hire two additional officers. 10. Begin to address police retirement fund unfunded liability. Completed in 2014 budget. Amount proposed to be increased in 2015 budget. 11. Review and update comprehensive plan and zoning. Underway 12. Improve cemetery roads. Addressed in 2014 budget. Additional improvements proposed for 2015 budget. 13. Continue support of Economic Development. Increased funding to $122,000. Staff will be suggesting that this figure be increased in the FY15 budget to $125,000.

From 2013 Planning Session Continued

New fire station occupied and about 98% complete. Delivery of a new fire truck. $30 million dollar sewer project. Continues to show progress. Stormwater ordinance and policy. Council approved; Stormwater projects prioritized.

Worked with the state legislature and the State Fair to improve stormwater system at the State Fair. Approved . Work underway. Washington Street Bridge. Completed under budget. Open. A proposal for painting the bridge at less cost is in this budget.

Carnegie Library was on the verge of collapse. Renovation complete. Voters approved funding source.

Downtown building inspection process approved by the City Council.

A fund balance policy was approved by the City Council.

City can now accept credit cards for payment. Cemetery office completed. Two narcotic K-9’s this past year. Inmate workers program is a significant success in Public Works, Cemetery and the Airport.

Steak and shake, CVS, Kohl purchased land, AT&T building, CVS, Casey’s, Advance auto Bidding moving forward for downtown arch and street work.

Safe routes to school sidewalk project completed. City sidewalk projects completed, for the second year in a row. Clean Sedalia Committee completed phase I and II of its work .

Rick Ball Ford under Construction McCarthy Toyota under Construction 14 new homes constructed Replaced central fire station roof and HVAC Kindle demolition completed Hired new code enforcement officer at direction of council and approved in FY14 budget. Implemented a Health Savings Account (HSA). First year savings about $20,000. An ordinance adopted that allows for the sale of surplus property. The City received $67,000 in proceeds. City Clerk scanned 2,098 resolutions this past year. Now all ordinances and resolutions are digitized for easy access.

Drug/alcohol testing is now being done on all employees who have medical treatment for workers comp injuries and all employees involved in a city vehicle accident that occurs on a city roadway. Two additional police offers hired, as directed by the current FY14 budget. Additional IT person hired as directed by the current FY14 budget.

Assumption by staff is that the priorities and objectives will continue during the coming year.

1. Maintain strong budget with strong General Fund Balance

while monitoring expenditures and revenues. 2. Emphasize customer service 3. Continue infrastructure improvements 4. Continue focus on City Personnel 5. Continue focus on Downtown and community-wide

Improvements 6. Continue focus on planned growth and development 7. Continued support for economic development and jobs

Priorities and objectives are reflected through projects and programs outlined in the budget.

SALES TAX REVIEW

CURRENT SALES TAX PERFORMANCE Using the 1% General Fund as a Barometer – the FY14 Year-to-Date sales tax revenue is virtually flush with FY13. More specifically, as of the February report, it is $7,302 below last year or a decline of 0.18%. By comparison, last year at this time we were showing a decline of 10.86% from the previous year. In other words, our sales tax projection of “no growth” for this year is right on target. That’s the good news. The bad news is by comparing our current sales tax figures to last year, we are comparing to a weak year. BUT....we are anticipating that last year and this year probably are the “new normal” in sales tax. See month-by-month, multi-year 1% sales tax comparison chart:

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April May June July Aug Sept Oct Nov Dec Jan Feb

FY 10/11

FY 11/12

FY 12/13

FY 13/14

ACTUAL SALES TAX PERFORMANCE When comparing total ACTUAL sales tax performance for an 8 year period, a fairly clear picture is presented. The FY12 sales tax explosion was an anomaly and it was followed in FY13 and probably FY14 with lower sales tax numbers that may be the new normal. This trend helps confirm that FY13 may be “new normal” because we have to go back to FY06 (and FY05) to find similarly low sales tax numbers.

See all funds ACTUAL charts in following slides:

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FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

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FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

For FY15, the City of Sedalia is projecting:

1% Growth

This compares to the FY14 projection of “no growth” (this is an accurate prediction and could even be slightly higher than “no growth”) and the FY13 projection of 1 ½% growth.

Because Sedalia/Pettis County are more self-contained and insulated from nearby large metro areas, local jobs have a direct impact on local sales tax revenue. If there are no jobs people don’t purchase goods and fewer sales tax dollars are created. The local Economic Development office predicts no decline in the number of Sedalia/Pettis County jobs. There is the possibility of some added jobs.

IN SUM, LOCAL JOB PROJECTIONS ARE STABLE WITH A CHANCE FOR SOME GROWTH

Pettis County sales tax revenues were down 1.3% ($81,841) in 2013 when compared to 2012. In 2012 Pettis county sales tax revenue was down 5.3% ($330,163) compared to 2011. The new 2014 Pettis county budget projects that sales tax revenues will be down 2.5% (approx. $200,000). This compares to last year’s projection of a 5.7% ($430,000) decrease.

IN SUM, THE PETTIS COUNTY BUDGET STILL IS PROJECTING A SALES TAX DECREASE, ALTHOUGH IT IS SMALLER THIS YEAR.

For FY15 the State of Missouri is projecting a 4.2% increase in General Fund sales taxes. Last year they predicted 2.7% increase in General Fund sales tax revenue. For FY15, the State of Missouri is projecting a total General Fund increase of 4.8%. Last year that projected increase was 2.2% increase. During the annual MML Legislative Day conference on February 11th of this year, it was pointed out that the 4.2% sales tax projection and the 4.8% General Fund projection might be optimistic and the state could be looking at increases more in the 2% to 3% range.

IN SUM, THE STATE PREDICTED AN INCREASE IN SALES TAX REVENUE IN FY14 AND IT IS PROJECTING A POSSIBLE LARGER INCREASE IN FY15. HOWEVER, NOT EVERYONE IN JEFFERSON CITY AGREES WITH THE HIGHER OPTIMISTIC INCREASE.

The International Council of Shopping Centers is predicting an increase in retail sales for 2014. All of the various retail components (food, furniture, building materials, etc.) were projected to rise in 2013 and 2014. TOTAL retail sales were projected to rise 4.8% in 2013. The actual gain was 4.4%. The projected increase in 2014 is 4.9%. The Federal Government is predicting that the nation’s total economy in 2014 is expected to climb to a 3.1% rate. On the other hand, in 2013 the Federal Government predicted a 2.1% increase, but it only amounted to a 1.6% increase.

IN SUM, NATIONAL RETAIL SALES ARE PROJECTED TO RISE IN CALENDAR YEAR 2014. HOWEVER, FOR THE TOTAL NATIONAL ECONOMY, THE FEDERAL GOVERNMENT IS PREDICTING A MUCH SMALLER INCREASE.

The “New Normal” sales tax - For the foreseeable future, we can probably anticipate that Sedalia’s sales tax revenue will be lower than the recent “boom years”. This is the “new normal”. This “new normal” also refers to the relatively low sales tax amounts received by the City in FY2013. You will recall that changes at a local business were a major reason for the slide. The state also says this issue with the local business will not change and this is our “new normal”. We are measuring FY2014 revenues against the much lower FY2013 revenues and, as of this date, FY14 may be only somewhat higher. Out-of-State Auto Purchases - Following state legislation last year, Missouri cities, including Sedalia, are once again receiving sales tax dollars for out of state auto purchases, but this will stop in 2016. National Economy - High unemployment nationally and huge deficits; continue to threaten national, state and local economies. The issue of the Build America Bonds (BAB’s) is not yet resolved. It has only been delayed. Although the federal government predicted a 2.1% increase in 2013, it only reached 1.6%.

Sedalia, and all Missouri cities, have until 2016 to approve a Use Tax or we will lose all out-of-state auto sales tax revenues. Over 15 years ago, the City and County had the use tax on the ballot. The County approved it, while the City did not approve it. A Use Tax would help local merchants be more competitive against some internet sales. Would like to look at putting this issue on the April 2015 ballot, if Council agrees.

Local job growth is strong. The Pettis County unemployment rate is 5.4%. This is below the state rate of 5.9%. State Forecast. The State of Missouri is cautiously optimistic about predicting a stronger sales tax revenue increase than last year’s prediction. Local jobs. The local economic development office is not predicting any job decreases with a chance for some growth in jobs National Retailers. National retailers are projecting an increase in sales. This has been the case for several years. The actual sales, when compared to the projected sales support this anticipated increase. SUMMARY: All of these positive points point to the chance for stronger sales tax projections in Sedalia’s Fiscal Year 15 period. However, several potential problem areas present a very real threat to local sales tax revenue and require a cautious and conservative projection.

Once Again, during FY15 the City is projecting a sales tax increase of:

1%

This is slightly higher than last year’s accurate “no growth” projection. Lower than state and federal projections, but higher than the county projection.

FY13

Actual

FY14

Adopted

FY14

Projected

Actual FY13

vs

Adopted FY14

Actual FY13

vs

Projected FY14

FY15

Proposed

General Fund

Operating $4,551,609 $4,600,000 $4,548,384 ($48,391) ($3,225) $4,593,870

General Fund

Transportation $2,194,238 $2,200,000 $2,185,594 ($5,762)

($8,644)

$2,207,450

15 - Capital

Improvements $1,137,338 $1,100,000 $1,136,732 ($37,338) ($606) $1,148,100

23 - Park Fund $1,644,883 1,675,000 $1,638,350 ($30,117) ($6,533) $1,654,750

61 - Capital

Improvements

(wpc)

$874,614 $910,000 $868,255 ($35,386) ($6,359) $876,950

Sales Tax Revenue for City Fund Operations

Fund 15 Performance

• The Washington Street viaduct came in significantly under budget.

• Any excess funds can only be used for work connected to this Certificates of Participation (COPS) project.

• Most of the excess funds from the Washington Street viaduct are being used for debt service related to the viaduct. The amount being used for viaduct debt service is $475,598. This action provided some assistance in the FY15 budget. Our bonding attorney agreed that this excess can be used for the debt service principal and interest.

• Additionally, $100,000 of those excess funds are being proposed to use to paint the viaduct in the FY15 budget at a cost that is much lower than quoted last year.

• The railroad also contributed to this project, which was needed to assist the current FY14 budget.

FY09 FY10 FY11 FY12 FY13

FY14

(projected)

Adopted

Revenue

$12,705,515

$12,835,740

$13,273,192 $13,847,950 $14,836,500 $15,185,646

Adopted

Expenses

$13,958,454

$14,476,844 $14,511,073 $15,498,316 $16,256,381 $15,707,163

Adopted

Difference

($1,252,939)

($1,641,104)

($1,237,881) ($1,650,366) ($1,419,881) ($521,517)

Actual

Revenue

$14,316,406

$13,273,192 $15,029,927 $14,953,465 $13,400,283 $14,707,546

Actual

Expenses

$13,218,542

$13,114,456 $13,573,180 $14,885,873 $15,148,149 $14,284,833

Actual

Difference $1,097,864 $157,736 $1,456,747 $67,592 ($1,723,102 $422,713

General Fund Performance – Revenue vs. Expenses

General Fund/Fund Balances for the Past Several Years

FY08

Actual

FY09

Actual

FY10

Actual

FY11

Actual

FY12

Actual

FY13

Actual

FY14

Projected

General

Fund $7,585,617 $8,669,890 $8,797,562 $10,270,714 $10,346,306 $8,623,204 $9,045,917

Minimum

Operating

Reserve

(20% - GF Exp)

$2,978,967 $2,895,369 $2,902,214 $2,902,214 $3,099,663 $3,251,276 $2,856,966

During FY14, the City Council approved its first-ever General Fund-Fund Balance written policy. The policy requires that the General Fund-Fund Balance not go below 25% and and not above 50%. During preparation of the FY15 budget, the General Fund-Fund Balance stood at about 52%. It is being proposed that in the FY15 budget, the General Fund-Fund Balance be brought down to 48%. That frees up dollars for the budget, while maintaining a very healthy General Fund-Fund Balance.

Fund

Balance

Policy

48%

10 General Fund 8,623,204$ 9,045,917$ 13,981,870$ 15,854,585$ 7,173,202$ 6,711,298

15 Capital Improvements 2 Fund* 9,483,755$ 5,216,772$ 2,351,185$ 2,351,185$ 5,216,772$

22 Library Fund 729,162$ 816,904$ 665,775$ 665,775$ 816,904$

23 Park Fund 1,777,690$ 1,855,168$ 2,340,450$ 2,340,450$ 1,855,168$

24 Central Business & Cultural Fund 26,411$ 39,661$ 42,470$ 43,530$ 38,601$

40 Capital Improvements Fund 367,890$ 268,021$ 4,264,389$ 1,316,000$ 3,216,410$

50 Midtown Special Allocation Fund 112,445$ 203,548$ 91,100$ 134,000$ 160,648$

61 Water Pollution Control Fund** 33,668,289$ 30,830,787$ 5,286,034$ 11,726,725$ 24,390,096$

81 Cemetery Fund 321,115$ -$ -$ -$ -$

82 Fire Pension Fund 4,835,023$ 6,034,213$ 1,458,375$ 747,000$ 6,745,588$

83 Police Pension Fund 3,020,025$ 3,359,106$ 605,782$ 614,600$ 3,350,288$

61 COP DNR (6,500,000)$

TOTAL ALL FUNDS 62,965,009$ 57,670,097$ 31,087,430$ 29,293,850$ 52,963,677$

Summary of the Budget

Fund Audited

Unrestricted Fund

Balance 3/31/13

Projected Fund

Balance 3/31/14

Anticipated

Revenues

Anticipated

Expenditures

Anticipated Fund

Balance 3/31/15

Although it is not mandatory in this budget that the various individual funds be balanced, it is important that the “Total All Funds” revenue be higher than the “Total All Funds” expenses.

For the first time in many years, and barring unforeseen developments between now and March, staff plans to submit to you a budget that shows all funds revenues higher than all funds expenses.

Additionally, a large number of the funds are either balanced at this moment, or are showing higher revenues than expenses. For example, Fund 15 is balanced, as of this moment.

On the other hand, as in previous years, the General Fund is not balanced. Also, as in previous years, we are hopeful the general fund will be balanced by the end of the coming fiscal year.

The previous evaluation system was criticized by the council because of it’s large amount of high rating numbers.

Goal: Effectively evaluate an employee while trying to prevent as much subjectivity in the evaluation process as possible. In the current evaluation period, they have been much more critical. Consequently, more of them have been a better learning experience for the employee.

The new system takes a different approach.

Provide a more position-specific evaluation. In other words avoid the one-evaluation-covers-all approach.

The evaluation instrument now being used has a simple “pass” or “fail” measurement. If an employee passes, he or she is eligible for a 2% step increase. If an employee fails, he or she is not eligible for the step increase. There are options beyond the 2% for extraordinary improvements by an employee. But these must also be approved by the City Administrator and must be budgeted. All step increases must be supported by the budget.

Proposed for the FY2015 Budget

Personnel Costs

Requested Operational Increases No additional (new) personnel are proposed for this budget in

the General Fund. But, last year there were several new personnel added.

However, $100,000 is being proposed for the Police Retirement Fund in order to help bring it into the black. This follows similar action and similar costs two years ago to assist the Fire Department retirement fund.

Employee 2% step increase (all employees who received a “do pass” in their evaluation)

2.0% - $143,142.45

Health insurance: Increased costs Anticipated Health Insurance increase: 10% As of this moment, we

are continuing with an identical city contribution to the HSA health insurance as is currently being paid. This year’s savings in health insurance with the HSA is $20,000. The more people we have switching to HSA’s the higher the savings will be.

Fiscal Year Total GF Personnel Percentage

2014 15,807,163.00$ 10,510,971.00$ 66.49%

2012 14,775,259.00$ 9,371,871.00$ 63.42%

2011 14,749,144.69$ 9,078,334.69$ 61.55%

2010 14,411,116.04$ 8,764,823.04$ 60.82%

2009 13,958,454.00$ 8,723,317.54$ 62.49%

2008 14,894,839.00$ 8,568,249.00$ 57.52%

2007 12,410,014.00$ 8,025,873.00$ 64.67%

2006 11,683,179.00$ 7,873,950.00$ 67.40%

FY2005 through FY2011

Several employees are asking the City of Sedalia to adopt the “80 and Out” retirement benefit plan. What is “80 and Out”? “80 and Out” gives the employee the ability to retire early from the City without taking a decrease in their retirement benefit. Employees who are vested can retire early if their years of service and their age equal 80. An example: if an employee is 50 years old and has worked for the city for 30 years, they could retire. Normally, the earliest they could retire would be age 55, but their benefit would be decreased. Full retirement is calculated at age 60.

What is the cost and impact of “80 and Out?”

Cost to the City of Sedalia: Over the next 30 years: $1,322,217 Under the current retirement/benefit plan the cost to the city beginning April 1st is 16.8% of every dollar earned by the employee. If “80 and Out” is adopted, that cost to the city increases to 19.6%.

There are 17 employees “80 and Out” would effect: 2014 - 12 employees 2015 - 1 employee 2016 - 0 employees 2017 - 2 employees 2018 - 2 employees

Ongoing awareness of national and state economies, as well as local expenditures and revenues and their impact on the city budget. Continue to examine sales tax monthly returns.

Continue monitoring the General Fund revenues and expenses and work to close the past and ongoing gap.

Closely monitor the General Fund/Fund Balance and make certain it remains between 25% and 50%. Monitor Fund 15 sales tax revenues and related debt service. This year’s debt service for the bridge and part of next year will be carried by the savings in the bridge contract price. Continue efforts to clean-up the community. This issue has a significant impact on economic development and the city’s credit rating.

Continue Stormwater policy Process Ongoing work with citywide wastewater project. Continue to monitor sewer revenues and related debt service.

Continue efforts to improve sidewalks and streets as permitted by the budget.

Continued support by the City for attracting local jobs and increased retail. This issue impacts sales tax revenue.

As permitted by the budget, support organizations without their own funding source that bring visitors into the city. This issue impacts sales tax revenue.

See through completion of streetscape phase from Broadway north to 7th.

Continue to monitor police and fire retirement plans. Make a decision on the Use Tax. Conduct a survey this Spring/Summer to continue measuring citizens’ opinion of city services. We have reserved the July water bill cycle reserved for this survey. Anticipate animal shelter improvements and changes will occur in FY15. Show-me Green sales tax holiday As in years past - Staff recommends that the city not participate.

A budget work session is scheduled for February 24th at 6:00 PM. At that time, some of the issues discussed in this presentation will need decisions.

QUESTIONS