FY10 Revised Budget

Presented to the Assembly Finance Committee on March 25, 2009

City Manager’s Budget Message

It is my pleasure to forward to the Assembly and community the balanced FY10 revised budget.  In the first year of each two-year budget, the Assembly adopts the first year’s budget (FY09) and approves, in concept, the second year’s budget (FY10).  The FY10 budget has been revised to reflect known changes or anticipated changes that will occur in the coming year.  It is being brought back before the Assembly for review and approval.

We have made significant efforts to hold the line on governmental growth and spending and, where possible, reduce the budget in light of the current economic recession and the impact it may have on our future finances.  The economic recession will challenge our future ability to maintain a sustained level of public service in light of our growing infrastructure and community needs.  This year’s budget reflects a bare bones ‘maintenance level’ for general government operations.  In balancing the FY10 revised budget, we tried to be mindful of ensuring that we maintain core functions and services.  In developing this year’s budget, each city department was instructed to:

 

 

Revenue changes

To date, the CBJ has been relatively sheltered from much of the impact of the world economic recession.  However, it appears the recession is now starting to impact our financial operations.  Starting in FY10 and running through the next few years, we are anticipating significant impacts in our major revenue sources. Nearly 80 percent of general governmental operations rely on funding from a few major sources.  Three of these major sources -

 

 

are being impacted by the economic recession.

 

We have all seen or heard, over the past year, how property values and assessments across the United States are decreasing dramatically.  In Juneau, we have been somewhat isolated from these extreme changes, but we are now starting to see an impact.  Residential real property values have been relatively flat for the last few years, but we have seen significant increases in our commercial property values.  For calendar year 2009 (FY10), the Assessor is projecting an assessed value reduction of 2.3% with additional reductions in next year’s assessed values (FY11).  We are continuing to experience reasonably stable commercial property values, but our average residential values are projected to decline in some areas by as much as 5%.  While we are continuing to experience new construction and property improvements, many of the new construction projects are tax exempt facilities.

 

Our sales tax revenue growth trend has increased over the past three years.  In the early 2000’s through 2005 we were experiencing sales tax growth trends in the range of 2% to 3%.  In the summer of 2006 we started to experience a growth rate increase into the range of approximately 5% percent.  When preparing our FY09 and FY10 Biennial Budget, we assumed that our sales tax growth rate would continue at a rate of approximately 4.5%.  This stronger growth rate held through the 3rd calendar quarter of 2008 (the first quarter of FY09).  Based on our most recent sales tax trends and the summer tourist season outlook for the next two years, we are now reducing our sales tax revenue projections significantly.  We are anticipating that our sales tax growth rate for FY10 will drop from our original projected increase of 4.5% down to 2.6% and that by FY11 it will drop by an additional 4.8%.  This reduction will impact both our general governmental operations and the capital projects which are funded from sales tax revenue.

 

Our Central Treasury investment earnings vary with market conditions.  The CBJ has a fairly sophisticated investment code and policies to maximize our investment earnings while still providing security of the principle.  While our Central Treasury operations have not experienced any material losses due to defaults we are seeing significant reductions in our investment yields.  This reduction in earnings on our investments results in a further reduction of funds available to support general governmental operations.

 

On a positive note, the economic stimulus bill passed by the President and Congress in 2008 did provide funding for two federal programs which will help fund our operations for several years.  There is an increase in the funding levels for the Federal Payment In Lieu of Taxes (PILT) program and a temporary reinstatement of the Secure Rural School Act.  The federal PILT program funding was increased from a proration of approximately 64% to full funding.  This will result in an increase in CBJ’s operating revenues of approximately $560,000 per year through FY12.  The reinstatement of the Secure Rural School Act provides operational funding based on the prior National Forest Timber Receipts Act.  The reinstatement of this program for the period FY09 through FY12 will result in approximately $1.03 million in additional operating revenues in FY09 with the amount decreasing by 10% per year through FY12.

 

 

Major Revenue Funding Source Changes

FY10 Revised Budget to

the Approved Budget

Revenue Impacts:

 

  Property Tax (excluding debt)

  ($488,000)

  Sales Tax Current Year (excludes capital support)

(3,485,300)

  Central Treasury Investment (Interest) Income

(616,500)

  Federal PILT

35,800

  Federal Forest Timber Receipts (Secure Rural Schools Act)

929,500

    FY10 Revenue Changes

$3,624,500

 

Expenditure Changes

We are projecting a small overall reduction in our total FY10 Revised Budget operating costs when compared to the FY10 approved budget.  While we did experience increases in wage rates (bargained and non bargained wage increases), employee benefits (health care) and inflationary adjustments in commodities and services, these increases were offset by conservative budget preparation, a significant reduction in vehicle fuels and heating oil costs, and a reduction in support to the School District.  While support to education was decreased, this budget continues to fund the School District to the maximum amount allowed under the State’s funding formula.  A large ongoing positive budgetary impact was the decision by the Legislature in 2008 to adopted SB125 which permanently set our employer retirement system contribution rate at a maximum of 22%.  For the past few years, the City and Borough of Juneau has, along with other Alaskan communities, been struggling with dramatic increases in our employer’s contribution rates.  In the early 2000’s, our employer contribution rate was 6.22%, by the end of FY07 there were projections indicating the contribution rate might go as high as 50%.  Adoption of SB125 means that our PERS employer contribution will not materially change for budget year FY10 and beyond.

 

 

Mill Levies and Debt service

The City and Borough of Juneau property tax mill levy consists of two parts; the general operating mill levy and the debt service mill levy.  The debt service mill levy is used to pay for voter approved general obligation bond issues.  The FY10 Biennial Budget includes no proposed changes in the total operating mill levy; however, it does include an increase in the debt service mill levy.  In calendar year 2007, voters approved several general obligation bond authorizations.  While we have scheduled the issuance of these bonds to minimize the impact on the mill levy, an increase will be required.  The general obligation bond authorizations approved by the voters include –

 

 

 

FY09

Adopted

FY10

Approved

FY10

Revised

 

Debt Service (dollars):

 

 

 

  General Obligation Debt Service (Gen’l Gov)

$16,619,700

$17,931,500

 

  State School Construction Reimbursement

11,814,600

12,131,500

12,358,800

  Tax Supported Debt Service

$ 4,805,100

$5,800,000

 

 

Debt Service (Mill Levy):

 

 

 

  Total Mill Levy Required

1.21

1.46

1.33

  Net Change In Debt Service Mill Levy

0.11

0.37

(0.13)

 


Summary

For FY10 we are projecting to have $9.8 million in our sales tax budget reserve by year-end which is the highest amount since this fund was recommended by the Mayor’s Task Force in 1994.  We have increased our Emergency Reserve account from $3.7 million back up to a targeted $4.3 million (approximately 5% of our general governmental operations).  Our PERS (employee retirement) liability to the state has been capped at an acceptable level for future years which provides predictability when preparing future budgets.  We will have an additional source of funds through the State’s Community Revenue Sharing Program established by the State in 2008 to assist local municipalities.  And the Federal Government’s full funding of the PILT program and reinstatement of the Secure Rural School Act/National Forest Timber Receipts Program.  All of these revenue and funding sources will help us fund future years.

 

While our FY10 budget year is balanced and shows a surplus, we anticipate that balancing the budgets for the following two years is likely to be very difficult and challenging.  Our current projections indicate that for FY11 and FY12 (our next biennial budget) we may be looking at operating deficits as high as $5 million per year.  We are responding to these anticipated shortfalls by immediately implementing a variety of budgetary reductions and conservation measures.  These budget reductions will be integrated into the FY10 budget over the next few months.  As we obtain better information/data on our future revenue trends (mainly sales tax), we will implement additional budgetary reductions as appropriate.  It is extremely important that we start addressing our anticipated future budget funding shortfalls now.     

 

Juneau is a strong and diverse community where the citizens have come to expect a responsive municipal government that delivers services in an efficient manner.  I am fully confident that we will be able to respond to the projected operating shortfalls and concerns.  As City Manager, I appreciate the community and Assembly’s support in providing the City with the necessary resources, flexibility and funding to meet the public’s need and allow us all to live in a safe and progressive community that we can be proud of.

 

Respectfully submitted,

 Rod Swope

City and Borough Manager

 

If you have questions regarding the budget, please contact Bonnie Chaney, Budget Analyst at 586-5215 or at Bonnie_Chaney@ci.juneau.ak.us.


Volume 1 of 2
Manager's Message and Budget Summaries

 

 


Volume 2 of 2
Departmental and Fund Budgets

 

 
CBJ Finance Department
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