FY06 Revised Budget

CITY MANAGER'S BUDGET MESSAGE

It is my pleasure to forward to the Assembly and community the second year budget of the two-year FY05-FY06 biennial budget. As required by charter, April 5th, I am submitting to the Assembly a balanced budget for the FY06 year and an accompanying explanatory message. The Assembly by ordinance must adopt the budget by June 15 of this year.

As you will recall, last year (FY05) I recommended nearly $1 million in additional cuts beyond what was necessary to balance the budget. I recommended this approach in anticipation of additional cuts that might be necessary to balance the budget this year and to bring some stability and predictability to the budget process.

For the past two years, we have continued to hold the line on governmental growth and spending in light of State funding reductions, unfunded mandates and normal operating cost increases. It has been a challenge to maintain a sustained level of public service and still meet the needs of a growing community. Each year we are left with fewer options to balance the budget and still not significantly, impact services that the public expects us to provide. In balancing the FY06 budget, we tried to be mindful of ensuring that we maintain core functions and services. In making adjustments to this year's budget, each city department was instructed to:

Continue to operate as conservatively as possible and keep spending to an absolute minimum;
Prepare your FY06 budget at the minimum funding level necessary to maintain services;
Any incremental requests must be submitted separately and accompanied with adequate justification of need; and
Departments were discouraged from requesting funding for new positions.

Unanticipated Additional Revenues

This year we are expecting significantly higher than projected revenue from property and sales taxes and a small increase from various other miscellaneous sources as follows:

Category	Initial FY06 Projection	Revised Projection
Property tax (excluding debt)	$ 30.9 million	$ 34.6 million
Sales tax (operational & capital improvement)	28.0 million	30.4 million
Miscellaneous (operational)	14.4 million	15.1 million
Total	$ 73.3 million	$ 80.1 million

The increase in property assessed values, and related tax, is mostly the result of the availability of low interest loans and the updating of commercial property values. The low interest loans increased the demand for housing which in turn resulted in an increase in home values and the construction of new homes and home improvements. Adding to this are commercial value adjustments in bringing the assessment of many commercial properties into line with current market values. The increase in sales tax (summer 2004) is believed to be due, in large part, to 1) improvements in the economic climate 2) significant increases in the purchase of home improvements and construction materials as a result of this past summer's nice weather, and 3) a strong summer tourism season. The miscellaneous category includes income from various sources such as penalties and fines, user fees and permit sales, interest earned on investments, etc. In addition, to the anticipated FY06 sales tax revenue increases, we also have additional sales tax revenues rolling from FY04 (actual) and FY05 (projected).

In summary, we expect to receive an additional $5.3 million for general operations and $1 million for capital improvement projects over what we projected at this time last year. In addition, I have included a $500,000 contribution into the Rainy Day Reserve.

Unanticipated Additional Expenses

We have experienced some additional costs that we did not anticipate or that were under estimated in the FY06 budget as follows:

Category	Revised/Additional Costs
Vehicles and equipment replacement	$ 160,000
Prisoner care	60,000
Abandon and junk vehicle program	117,000
Fuel increases (buildings and vehicles)	186,000
Transit (decreased ridership revenues)	330,000
Additional school district support in anticipation of an increase to the formula	800,000
Miscellaneous	147,000
Total	$ 1.8 million

The miscellaneous category includes increased costs for uniform allowances, increased telephone usage and charges, materials and commodity increases, etc.

Requested Increments

I am recommending, for your consideration, a list of increments that total slightly over $1 million.

The largest increment request is $500,000 to replace the CBJ's core operating computer systems. This includes replacement of the financial system, the human resources (personnel and payroll) system, the appraisal software used by the Assessor's Office, and potentially the permitting hardware used by Community Development Department. The existing system was acquired in the mid 1980's and has far exceeded its useful life. We are experiencing an increasing number of system failures. The current system is inefficient, antiquated, requires continuous maintenance and repair, and no longer meet the needs of our departments.

Another large increment being requested is support to the bus transit system. The request for $265,200 would fund year-round half-hour bus service, increase a half-time lead bus driver to full-time, provide uniforms for the bus drivers, and provide our portion of matching funds for an approved federal appropriation to purchase new replacement buses.

There are a number of smaller increments that amount to $324,000. All of the increment requests are detailed in the Executive Summary and described in the narrative for each respective department.

Summary

As a result of significant increases in sales and property taxes, we anticipate receiving an additional $5.3 million in FY06 general operating revenues, plus an additional $1 million for capital projects and $500,000 for the Sales Tax Rainy Day Reserve. Plus, an additional $2.4 million in sales taxes and unexpended fund balances from FY04 and FY05. Combined with the fact that we made significant cuts in the budget last year, this put us in a very good position at the start of this fiscal year with some carry over funds. As detailed above, we estimate that we will have approximately $1.8 million in unanticipated expenses in FY05. If the Assembly were to approve all of the requested increments, that would leave a surplus balance of approximately $4.8 million available for general operations. However, we must continue to be fiscally responsible and aware of our future funding requirements.

Looking ahead, we can anticipate a five percent increase in PERS in FY07 and again in FY08 (i.e., $3 million for the two years). Based on the State's existing school funding formula, the minimum funding contribution to education will increase by $920,000 in FY07 and an additional $300,000 in FY08. In FY08, we will no longer receive approximately $950,000 in National Forest Timber Receipt funds. This is a six-year program ending in FY07. These changes alone will result in $6.1 million in additional operating costs. This projection assumes no changes in the State's Educational Funding Formula for FY07 or FY08.

Juneau is a strong and diverse community where the citizens have come to expect responsive municipal services delivered in an efficient manner. As City Manager, I appreciate the community and Assembly's support in providing the City with the necessary resources and funding to meet the various public needs and allow us all to live in a safe and progressive community that we can be proud of.

Respectfully submitted,

Rod Swope,

City & 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.

NOTE: On June 13, 2005, the City and Borough Assembly adopted the final FY06 Budget. The adopted budget is different from the revised budget presented here and will be published by September 30, 2005.