Purpose of Budget Review

The purpose of our budget review was to determine whether the significant revenue and expenditure projections in the City’s proposed budget for the 2017 fiscal year are reasonable.

Background

The preliminary budget developed by the City Manager for 2017 included two options for consideration by the City Council: one that proposed borrowing $1 million for general fund operating expenses and a tax rate increase of 10.55 percent, and another that did not include borrowing for operating expenses, but included a 31.8 percent tax rate increase. Neither option included the appropriation of fund balance. There is no statutory authority for the City to borrow for operating expenses, as offered in one preliminary budget option. The budget option with the 31.8 percent property tax increase would put the City at approximately 97.5 percent of its constitutional tax limit. Prior to the completion of our review, the City Council adopted a resolution on November 28, 2016 to amend the 2017 preliminary budget. Most importantly, the amendments decreased the property tax levy by approximately $527,000, which is a 20.6 percent tax rate increase. This amended preliminary budget also did not include any borrowing for operating expenses.

Key Findings

• The proposed tax levy of $5,674,602 is projected to exhaust approximately 88.5 percent of the City’s constitutional tax limit.
• The budget provides for a limited contingency equal to only 0.2 percent of general fund appropriations, and does not provide for a tax overlay.
• The general fund budget relies on a significant amount of interfund revenues from both the water and sewer funds.
• On October 11, 2016, the City Council adopted a local law to override the tax levy limit in 2017.

Key Recommendations

• Be mindful of the constitutional tax limit in future budgets.
• Include a tax overlay and consider increasing the contingency appropriation in the adopted budget.
• Closely monitor the financial position of the water and sewer funds to ensure service rates are sufficient to support the cost of ongoing operations and fund balance is not gradually depleted over time.