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HomeMy WebLinkAboutSpecial 2018-09-11 COMPLETE AGENDA PACKET - 2019-2020 BIENNIAL BUDGET WORK SESSIONCity of Tukwila City Council Tukwila City Council Work Session: 2019-2020 Budget Tuesday, September 11, 2018 City Council Chamber 6200 Southcenter Blvd Tukwila, WA 98188 6:00-8:00 p.m. AGENDA I. Call to Order and Introduction II. Overview and Status of Priority Based Budgeting III. Budget Process IV. Mid -Year Sales and Miscellaneous Tax Report V. 2018, 2019, 2020 General Fund Preview 6zoo Southcenter Boulevard • Tukwila, Washington • 98188 - Tel: 206-433-180o • www.tukwilawa.gov Priority Based Budgeting Priority Based Budgeting provides a comprehensive review of the entire organization, identifying every program offered, identifying the costs of every program offered, evaluating the relevance of every program offered on the basis of the community's priorities, and ultimately guiding elected and appointed officials to the policy questions they can answer with the information gained from the Priority Based Budgeting process, such as: • What is the local government uniquely qualified to provide, offering the maximum benefit to citizens for the tax dollars they pay? • What is the community truly mandated to provide? What does it cost to fulfill those mandates? • What programs are most appropriate to fund by establishing or increasing user -fees? • What programs are most appropriate for establishing partnerships with other community service providers? • What services might the local government consider "getting out of the business" of providing? • Where are there apparent overlaps and redundancies in a community because several entities are providing similar services? • Where is the local government potentially competing against private businesses within its own community? The creative, organic, and diagnostic process developed by CPBB progresses from a diagnosis to a prescription that ultimately enables communities to link funding decisions to their avowed priorities. (Source: PBBCenter.org) The Philosophy of Priority -Driven Budgeting The underlying philosophy of priority -driven budgeting is about how a government entity should invest resources to meet its stated objectives. It helps us to better articulate why the services we offer exist, what price we pay for them, and, consequently, what value they offer citizens. The principles associated with this philosophy of budgeting include: • Prioritize Services • Do the Important Things Well, cut back on the rest • Question past patterns of Spending • Know the true cost of doing business • Provide transparency of community priorities • Provide transparency of service impact • Demand accountability for results 2 Appendix 1: Building a Program Inventory Introduction Financial constraints have forced many govern- ments to take a hard look at the services they offer. A fundamental step is to inventory all the service programs a government offers. A program inventory clarifies the breadth of services provid- ed and, ideally, highlights key characteristics of each program (e.g., the full cost of providing the program and the level of revenues that program directly generates to support its operations). The inventory provides the basis for discussion about the services that should be provided. Steps to Take 1. Define your objectives and goals for the pro- gram inventory. Identifying a program is as much art as it is science — an inescapable amount of subjectivity is involved. Therefore, to make judgments as effectively as possible, make sure you are clear on why you are devel- oping a program inventory. Some of the potential purposes are: • Understanding the complete scope of services government provides. • Communicating the scope of services to the public in a format that is easy to understand and can be digested by the average citizen (i.e., not too detailed). • Drawing distinctions between the results (that matter to citizens) provided by dif- ferent programs. To achieve this, programs cannot to be too large or vague. • Beginning to show the true cost of doing business by describing what government does on a meaningful level, and then iden- tifying costs for those programs. • Laying the groundwork for priority -driven budgeting, where programs receive budget allocations based on their contributions to the government's priority objectives. • Laying the groundwork for program review, where programs are subjected to efficiency tests to determine if the service delivery method employed is optimal. 2. Decide what information the program inven- tory should contain, in addition to the basic description of the program. Options to con- sider include: • Full cost. The full cost of the program is its direct cost plus its indirect cost (overhead charges). Full -cost accounting makes the true cost of offering a service transparent, which allows better planning and decision making. It also helps show that the organ- ization is achieving the expected level of Program Costing Tips Precise costs for each program might not be achievable without a great deal of work (or a new financial man- agement system). For purposes of priority -driven budgeting, accessible and widely used cost allocation methodologies allow for relatively accurate costing of each program is possible. If you have a formal cost allo- cation plan, this would be the best place to start assigning program costs. Otherwise, start with direct costs. Remove any one-time costs (e.g., capital) to make sure you are capturing only ongoing expenditures related to a given program. However, you can assign the operating and maintenance costs of the assets employed by a program to the direct costs, if doing so is logical and consistent with the way these costs are being handled for other programs. Cost allocation plans may be the most cost effective way to produce a reliable overhead allocation figure. In the inventory document, displaying the overhead costs separately from the direct costs can provide flexibility to those who use the information. In making the transition from department or division budgets to program costs, use an allocation method that is intuitive and therefore would enjoy legitimacy among the users of the costing system (e.g., the number of FTEs or percentage of employee time devoted to a program). Whatever the allocation methodology, the finance or budget staff needs to be able to prepare a reconciliation. i GFOA Research and Consulting / www.gfoa.org 20 3 cost recovery for a given service. Full cost- ing is especially important if the govern- ment envisions eventually going to a prior- ity -driven budget process. • Alignment with strategic goals. Knowing how programs contribute to priority goals enables organizations to develop more strategic cutback strategies. • Service level. Describe the level of services provided to the public. If service is being provided at a premium level, perhaps serv- ice levels can be lowered to reduce costs. • Mandate review. List and clearly define any mandates a program is subject to. Then review the current service level against the mandate requirements. Perhaps the service level being provided is higher than what the mandate requires. • Demand changes. Is demand for a service going up or down? If demand is going down, perhaps the program can be cut back and resources shifted elsewhere. If demand is going up, steps can be taken to manage demand. For example, perhaps means testing can be applied to a social services program. • Support from program revenues. Describe the extent to which the program is sup- ported by its own user fees, grants, or intergovernmental revenues. Is there an opportunity to achieve greater coverage of the full costs of the program? 3. Develop forms and templates. Create tools departments can use to describe their pro- grams in a manner that is consistent and that captures the information needed to fulfill the purpose of the inventory. Consider testing the forms and templates with one or two depart- ments and then distributing them to a wider group. Also consider providing training and an official point of contact for questions. 4. Differentiate programs from functions. Departments or divisions (i.e., public health, courts, public works, sheriff) are often described as functions or nouns. These are not programs, which are more often described with verbs — programs are action -oriented. For example, programs in a sheriff's office might include crime investigations, deten- tions, and court security. However, programs should not be described in terms of overly detailed tasks. For instance, "supplying a bailiff for court rooms" is a task within the court security program, not a program itself. 5. Find the right level of detail. A program is a set of related activities intended to produce a desired result. When constructing a program inventory, it can sometimes be challenging to find the right level of detail. If a program is too big or encompasses too much, it will not provide sufficient information — that is, it will be very difficult to describe the precise value the program creates for the public or to use program cost information in decision making. However, if program definitions are too small, decision makers can become overwhelmed with detail and be unable to see the big pic- ture. In addition, tracking program costs for very small programs is generally not cost- effective. Generally speaking, if a program equates to 10 percent or more of the total expenditures of the fund in which it is accounted for, then the program should probably be broken down into smaller pieces. And if a program equates to 1 percent or less of total expenditures, or to $100,000 or less, it is probably too small and should be combined with others. This is just a guideline — there could be valid reasons for going outside of these parameters. For exam- ple, a small program could be much more important than its cost suggests. Here are some other points that have proven helpful in identifying programs: • A program is a group of people working together to deliver a discrete service to identifiable users. • A program groups all tasks that a cus- tomer of that program would receive and does not break one program or service into multiple items based on tasks. GFOA Research and Consulting / www.gfoa.org 4 • As far as possible, a program is individual — a program with its own name, cus- tomers, and staff team. Each program stands alone and is distinct from like pro- grams in a similar service area. • Programs that are handled by less than 1 FTE are combined with other existing programs. • A program uses an existing name that is familiar to customers and staff, and/or it uses a name that could stand on its own and would be understandable to the aver- age reader. Examples of Program Inventories Sample Health and Environment Programs Environmental Planning Air Quality Control Water Quality Ambulance Licensing EIP FoodNet Compliance Et Community Safety Vital Statistics Immunization Grant Emergency Preparedness Response Non -grant Immunization Sexually Transmitted Disease (STD) Food Protection Cities Readiness Initiative Zoonosis Cancer Control Initiative Communicable Disease Early Periodic Screening, Diagnosis and Treatment Radon Health Care Program for Children with Special Needs Women, Infants, and Children Special Needs Nutrition Services Family Planning Recreation Maternal a Child Health Block Grant Prenatal Plus Housing a Institutions Adult Substance Abuse Counseling Fetal Alcohol Syndrome Youth Substance Abuse Counseling HIV Counseling a Testing Nurse Home Visitor Specialized Women's Services Tobacco Cessation Nutrition Services Adult Health Home Visit/Maternity International Travel Clinic Heart Wise Grant Health Education Healthy Wheat Ridge Public Health Communications Home Visit/Children Sample Sherriff Programs Traffic Patrol Precincts Emergency Management Transportation Court Security Work Release Inmate Food/Medical Service Civil/ Fugitive/Warrants Records Dispatch (Communications Center) Academy Executive Directed Operations (DOU) Critical Incident Response Radio Maintenance Grants Coordinator West Metro Drug Task Force Crimes Against Children Crimes Against Persons Victim Services Training and Recruiting Patrol Administration Criminalistics Detentions Administration Crimes Against Property Special Investigations Support Laundry/Custodial Inmate Worker Program School Resource Officers (SROs) Operations/Booking Animal Control Inmate Welfare Evidence Accreditation Crime Analysis Investigations Administration Professional Standards Internal Affairs Staff Inspection Volunteer Programs Community Relations 1 GFOA Research and Consulting / www.gfoa.org 22 5 Notes 1 The concept of incremental budgeting was developed by Aaron Wildavlsky. See, for example: Aaron Wildaysky, The Politics of the Budgetary Process (Boston: Little, Brown, 1964). 2 Robert Behn discusses the shortcomings of incremental budgeting in a cutback environ- ment in the following article: Robert D. Behn, "Cutback Budgeting," Journal of Policy Analysis and Management, Vol. 4, No. 2 (Winter, 1985). 3 Priority -driven budgeting is also known as "budgeting for results" and "budgeting for outcomes," although the latter is used to describe a specific method of priority -driven budgeting. 4 Personal interviews were conducted with the managers who led priority -driven budgeting at these entities. 5 Behn. 6 Mark Moore emphasizes that these two sources of legitimacy are essential to making any big public policy change. Mark Moore, Creating Public Value (Boston: Harvard University Press, 1997). 7 Diagram inspired by Eva Elmer and Christopher Morrill, "Budgeting for Outcomes in Savannah," Government Finance Review, April 2010. 8 Budgeting for outcomes was the subject of The Price Of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis by David Osborne and Peter Hutchinson (New York: Basic Books, 2004). 9 Robert S. Kaplan and David P. Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business Press, 2004). 10 Peter Block, Community: The Structure of Belonging (San Francisco: Berrett-Koehler Publishers, 2008). 11 William D. Eggers and Shalabh Kumar Singh, The Public Innovator's Playbook: Nurturing Bold Ideas in Government (New York: Deloitte, 2009). 12 Eggers and Singh. GFOA Research and Consulting / www.gfoa.org 23 6 2019-2020 BIENNIAL PBB BUDGET PROCESS Activity driven b y : All De.artments Cit Administration City Council BUDGET PROCESS Contract w/ Center for PBB PROCESS BEGINS IN 2017 • September Internal PBB Work Group Sept -Oct -Nov -Dec Identify programs Refine program inventory Dev program attributes Allocate 2017 budget amts Month JANUARY FEBRUARY MARCH APRIL (Week ot) 1 8 15 22 29 5 121 19 26 5 12 19 26 2 9 i 16 23 Sept -Oct -Nov Sept -Oct -Nov -Dec Review strategic goals Community outreach Internal communications Rate programs to attributes Depts develop budgets Review program rankings CITY COUNCIL Committee budget review Finance Committee MAY 30 7 14 21 28 4 JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER 11 18 25 2 9 16 23 30 6 131 20 27 3 10 17 24 1 8 15 22 28 5 12 19 26 3 10 17 24 31 Community Works Strategic Plan outreach included presentations to Foster High School civics classes, TIBAC, Parks Commission, COPCAB, Human Services Advisory Board, Community Connectors, Equity & Social Justice Commission, Civil Service Commission, Planning Commission, and Pray Tukwila. Internal outreach included a Hot Topics item. Transportation / Infrastructure Update (09/06) Community Development / Neighborhoods Public Safety Full Council DOCUMENTBUDGET Document redesign Status Goals/PBB Oct -Nov -Dec I Consensus on PBB, Stra tegic Pon re ♦ Budget up fresh ♦ I date hop at Thorndyke Trar! esolution ado, )ting amended La nd A Stra COMMUNICATION & ENGAGEMENT VEHICLES Brown Bag Lunch Li Tukwila Reporter eHazelnut Hot Topics Workshop Hazelnut o prt sen lation of budg Council HR, self-insurance, cquis Residential Street - ;t ♦ ition I FF A Public Works,'tree ♦ tegi , Pla ♦ & Park Fund, DC ♦ ♦ cinaniii, F ♦ Flee El ourt, Fire olic:, Drug S-izure ♦ ♦ Golf Impact 0 Mayor, T De.t Se IRVA at r, S wer, Su ce Course 123 A _od.1! rvice Urban R Water cee, Pub 'c S fety Ian PW Fire, Fire en . Pensio ♦ Adm inist atio & ouncil bu . get Public eari She ps wor sho- ng Bu dge enewal, t♦ General G ovt Finance Transportation Neighborhoods Public Safety "ont'nge cy Fund, Mayor presents proposed Budget ♦ Council adopts final Budget ♦ 2019 Budget Calendar for Cities and Towns The annual budget preparation procedures and deadlines for cities are found in chapter 35A.33 RCW (code cities) and chapter 35.33 RCW (all other cities and towns except Seattle) and outlined below. The procedures and deadlines are the same for biennial budgets, although the statutory citations are different. The pre -budget items listed below are recommendations only and are not required by statute. The rest of the items are statutory deadlines only — cities and towns can take these steps earlier than listed or adopt different deadlines for some of these steps by ordinance or charter. We recommend that each city and town develop a timeline that best meets its needs, assures compliance with the statutes, and provides sufficient time to prepare this vital plan. For recent examples of budget preparation calendars created by cities and towns, as well as a downloadable calendar that will load all of this information directly into your Outlook calendar, see our webpage 2019 Budget Calendar for Cities and Towns. For a detailed explanation of the budget requirements, as well as some helpful practice tips, see our webpage Budget Preparation Procedures for Cities and Towns. Pre -Budget Items Council retreat Update and/or adopt financial policies Public hearings for capital facility plan updates Public forums or community outreach (ex: community priorities) Mayor/Manager communicates budget objectives to staff Sept 10 Budget request to all department heads. Sept 10-23 Department heads prepare estimates of revenues and expenditures. Clerk prepares estimates for debt service and all other estimates. Sept 24 Budget estimates from department heads filed with clerk Sept 25 Implicit price deflator calculated (only applies to cities of 10,000+ population) Oct 1 Clerk provides estimates filed by department heads to Mayor/Manager showing complete financial program. Mayor/Manager provides Council with estimates of revenues from all sources including estimates prepared by clerk for consideration of setting property tax levy. Mid -October to Mid -November (suggested) Public hearing on revenue sources including possible increases in property tax. Nov 2 Mayor/Manager prepares preliminary budget and budget message. Files with clerk and council. Nov 2-20 Publication notice of preliminary budget and final hearing. Nov 2-29 Public hearing(s) on preliminary budget. Public hearing on revenue sources for levy setting. Nov 19 Copies of budget available to public Nov 30 Property tax levies set by ordinance and filed with the County Dec 3 Final budget hearing Dec 31 Budget adoption M RSC 8 4RSC - Budget Preparation Procedures for Cities and Towns http://mrsc.org/Home/Explore-Topics/FinanceBudgetsBudget-Proce... �MRSC Local Government Success Budget Preparation Procedures for Cities and Towns This is a step-by-step overview of the required budget procedures for cities and towns in Washington State, along with tips and recommendations for an effective process. It is part of MRSC's series on Budgeting in Washington State. For a quick overview of the statutory deadlines associated with the budget process, see the budget calendar for cities and towns. Download the MRSC Budget Calendar for Outlook! You can now import our information on city/town budget procedures and deadlines directly into your Outlook calendar! See the Budget Calendar for Cities and Towns for details. Budget Statutes Annual Budgets The annual fiscal period for cities and towns is January 1 to December 31. Annual budget requirements are provided in: • Chapter 35A.33 RCW (code cities) • Chapter 35.33 RCW (all other cities and towns except Seattle) Seattle's budget requirements (chapter 35.32A RCW) are different and are not discussed on this page. Biennial Budgets A number of cities use a two-year biennial budget process. All the budget adoption procedures and deadlines below are the same, plus there is a required mid -biennium budget review and adjustment that must occur sometime between September 1 and December 31 of the first year of the biennium. Biennial budget requirements are listed in: • Chapter 35A.34 RCW (code cities) • Chapter 35.34 RCW (all other cities and towns) For cities adopting a biennial budget, the procedures on this page only apply in even -numbered years, with the mid -biennium budget review taking place in odd -numbered years. This is because state law requires that city biennial budgets begin on January 1 of an odd -numbered year. For more information and examples of biennial budgeting processes, see our page Biennial Budgeting. 10 n//1,n10 '1.7A T171X MRSC - Budget Preparation Procedures for Cities and Towns http://mrsc.org/Home/Explore-Topics/Finance/Budgets/Budget-Proce... Budget Maker Roles The roles of the budget makers may vary by municipality. For instance, many of the budget statutes refer to the "clerk" but the title of "clerk" might be the clerk -treasurer or finance director in your jurisdiction. The "clerk" is defined in statute as "the officer performing the functions of a finance or budget director, comptroller, auditor, or by whatever title [the officer] may be known..." Similarly, the statutes refer to the "chief administrative officer (CAO), but this definition includes mayors, city managers/administrators, or the budget/finance officer designated by the CAO to perform these functions. The guidelines and procedures posted here reflect the statutory language. Pre -Budget Items There are a few items that are not addressed within the budget statutes but are considered essential to local government financial planning. For example: • Strategic planning sessions, budget retreats, and financial policy updates provide direction and focus to the budget process. • Capital facilities plan updates are required for GMA cities, and capital improvement plan updates are vital to the budget planning process. • Updating your cost allocation formulas and data will help enhance the budget forecasting numbers. We suggest that you consider incorporating these pre -budget steps into your budget calendar. For help crafting your financial policies and procedures, see our series on Financial Management Policies and Resources. We've focused on five key areas in particular. asset management, cost allocation, debt management, fund balance/reserves, and investments. Each page includes key questions to consider, as well as links to best practices and sample documents from other jurisdictions. Step 1: Clerk Issues Budget Request Statutory Deadline: On or before the second Monday in September, or at such time as the city or town may provide by ordinance or charter. See: • RCW 35.33.031 / RCW 35A.33.030 (annual budgets) • RCW 35.34.050 / RCW 35A.34.050 (biennial budgets) The budget process begins with the "request for budget' when the clerk requests all department heads and those in charge of municipal offices to prepare detailed estimates of the probable revenue from sources other than ad valorem (property) taxes and of all expenditures required by his or her department for the next fiscal year (calendar year). For a simple example, see MRSC's Sample Budget Request Letter. The clerk is responsible for preparing the estimates for interest and debt redemption requirements and all other estimates not being prepared by the department heads, including the amount to be raised by ad valorem ta3cies and unencumbered fund balances estimated to be available at year end. n _f- IRSC - Budget Preparation Procedures for Cities and Towns http://mrsc.org/Home/Explore-Topics/FinanceBudgetsBudget-Proce... Practice Tip: Budget proposals are made up of estimates and predictions about the future that are based on historical data and trends. Historical sales tax and property tax data can be obtained from the state Department of Revenue (DOR) website (sales taxes and property taxes) or the Local Government Financial Reporting System maintained by the State Auditor's Office. To help with evaluating the data, GFOA provides guidance in the form of best practice articles such as Financial Forecasting in the Budget Preparation Process. Step 2: Estimates Filed with Clerk Statutory Deadline: On or before the fourth Monday in September, or at such time as the city or town may provide by ordinance or charter. See: • RCW 35.33.031 / RCW 35A.33.030 (annual budgets) • RCW 35.34.050 / RCW 35A.34.050 (biennial budgets) Within 14 days of the request for budget (unless your jurisdiction has established a separate timeline) all department heads and program managers must file their estimates of revenue and expenditures for their programs and/or departments with the clerk. Practice Tip: It is important to provide staff with guidelines that clearly identify the budget goals, objectives, and any limitations on expenditure requests that may be applicable. A uniform budget information form can help staff in providing estimates consistent with the budget objectives. Step 3: Clerk Presents Preliminary Budget to CAO Statutory Deadline: On or before the first business day in the third month (October) prior to beginning of the fiscal year, or at such time as the city or town may provide by ordinance or charter. See: • RCW 35.33.051 / RCW 35A.33.050 (annual budgets) • RCW 35.34.070 / RCW 35A.34.070 (biennial budgets) Upon receipt of the estimates prepared by department heads and program managers, the clerk must submit the proposed preliminary budget to the CAO. The preliminary budget should set forth the complete financial program, showing expenditures requested by each department and the proposed sources of revenue by which those programs will be financed. The CAO then may make modifications, revisions, or additions as they see fit. The RCW additionally requires that the revenue and expenditure sections be presented for each fund in a comparative form that will display the actuals for the last fiscal year, the estimates for the current fiscal year, and the budget projections for the ensuing fiscal year. The revenue section must include the amount to be raised from property tax levies and unencumbered fund balances estimated to be available at the close of the current fiscal year. The expenditures must include a salary or salary range for each office, position, or job classification. Salaries may be set out in total amounts under each department if a detailed schedule of such salaries and positions is attached to and made a part of the budget document. 12 nici'1nio 1.1A DTd MRSC - Budget Preparation Procedures for Cities and Towns http://mrsc.org/Home/Explore-Topics/Finance/Budgets/Budget-Proce... Step 4: CAO Presents Preliminary Budget to Legislative Body Statutory Deadline: No later than the first Monday in October. See: • RCW 35.33.135 / RCW 35A.33.135 (annual budgets) • RCW 35.34.230 / RCW 35A.34.230 (biennial budgets) Once the CAO has approved the preliminary budget, making modifications as necessary, they present it to the legislative body along with current information on estimates of revenues from all sources as adopted in the budget for the current year. The legislative body must hold a public hearing (see below) on revenue sources for the coming year's budget, including consideration of possible increases in property tax revenues. See RCW 84.55.120. Due to the number of public hearings required of cities and towns during the budget process, we suggest that the property tax hearing precede the preliminary budget hearing, which would place the property tax levy hearing sometime between mid - October and mid -November. Practice Tip: The city or town must set by ordinance the amount to be raised by ad valorem tax. For examples, see the DOR website. If the city or town wants to increase its levy amount as allowed by law or bank its levy capacity, the legislative body must adopt a resolution or ordinance stating the increase in terms of both dollars and percentage. If the percentage is less than the lawful limit the remainder will be banked. However, if the implicit price deflator is lower than 1%, cities with a population of 10,000 or greater must also adopt a resolution of substantial need to levy or bank the full 1% increase. See our property tax page for additional information. Step 5: CAO Files Final Budget Proposal with Clerk Statutory Deadline: At least 60 days before the beginning of the next fiscal year. See: • RCW 35.33.055 / RCW 35A.33.052 (annual budgets) • RCW 35.34.080 / RCW 35A.34.080 (biennial budgets) The CAO prepares the preliminary budget in detail, making any revisions or additions to the reports of the department heads deemed advisable. Once this is filed with the clerk, it is considered the recommended final budget. Practice Tip: Preparing a balanced budget is one of the most challenging tasks for the CAO. Articles such as The Economy is Better — So Why is My Budget So Hard to Balance?, by Mike Bailey, Redmond Finance Director, and Achieving a Structurally Balanced Budget, a GFOA best practice guide, will provide some insight. Step 6: CAO Files Final Budget Proposal/Budget Message With Legislative Body Statutory Deadline: At least 60 days before the beginning of the next fiscal year. See: 13 vIRSC - Budget Preparation Procedures for Cities and Towns • RCW 35.33.057 / RCW 35A.33.055 (annual budgets) • RCW 35.34.090 / RCW 35A.34.090 (biennial budgets) http://mrsc. org/Home/Explore-Topics/FinanceBudgetsBudget-Proce... The budget message is both a required element of the budget and key component of communicating the budget program and objectives. The RCW requires that the budget message contain the following key points: • An explanation of the budget document. • An outline of the recommended financial policies and programs of the city for the ensuing fiscal year. • A statement of the relation of the recommended appropriation to such policies and programs. • A statement of the reason for salient changes from the previous year in appropriation and revenue items. • An explanation for any recommended major changes in financial policy. See MRSC's Sample Budget Message. Step 7: Clerk Publishes Notice of Public Hearings Public notice is required for each public hearing that must be held during the budget process. The number of public hearings held during the budget process may vary depending upon local policy or procedure. At a minimum there should be three hearings: a revenue hearing, a preliminary hearing, and a final hearing. (See Step 9 below.) Statutory Deadline: Once the final budget proposal has been filed, notice of the final budget hearing must be published once a week for two consecutive weeks, although the statutes do not provide an exact deadline. The final hearing date is the first Monday in December, which requires the publication notice to be published in November. See: • RCW 35.33.061 / RCW 35A.33.060 (annual budgets) • RCW 35.34.100 / RCW 35A.34.100 (biennial budgets) Step 8: Clerk Distributes Budget Proposal to Public Statutory Deadline: No later than six weeks before January 1. See: • RCW 35.33.055 / RCW 35A.33.052 (annual budgets) • RCW 35.34.080 / RCW 35A.34.080 (biennial budgets) Practice Tip: There are many different ways of communicating budget information. While the full budget document may be useful for the legislative body, simpler, more engaging versions that balance text and numbers with simple graphs are a better way of helping the public understand the budget story. Budget -At -A -Glance documents are a popular tool that cities and towns use. Recently, some cities have started experimenting with online budget portals. See our page Communicating Your Budget to the Public for ideas and examples. Step 9: Public Hearings 14 MRSC - Budget Preparation Procedures for Cities and Towns http://mrsc.org/Home/Explore-Topics/FinanceBudgetsBudget-Proce... The number of public hearings held during the budget process may vary depending upon local policy or procedure. At a minimum there should be three hearings, as reflected below. See our tips for a successful public hearing for more information. Statutory Deadlines: • Revenue Hearing — The legislative body must hold a public hearing on revenue sources for the coming year's budget (RCW 84.55.120), including consideration of possible increases in property tax revenues, prior to the ad valorem/property tax certification deadline, which is November 30 (see Step 10 below). After the hearing, a city may choose to pass an ordinance at the same meeting authorizing a property tax increase in terms of dollars and percent to comply with Referendum 47. Due to the number of public hearings required of cities and towns during the budget process, we suggest that the property tax hearing precede the preliminary budget hearing, which would place the property tax levy hearing sometime between mid -October and mid -November. • Preliminary Hearing — The legislative body, or a committee thereof, must schedule a preliminary hearing on the budget prior to the final budget hearing, which must be on or before the first Monday in December, and may require the presence of department heads. See RCW 35.33.057 / RCW 35A.33.055 (annual budgets) and RCW 35.34.090 / RCW 35A.34.090 (biennial budgets). • Final Budget Hearing — The legislative body must conduct a final budget hearing on or before the first Monday in December, and the hearing may be continued from day-to-day, but no later than December 7 (the 25th day prior to the next fiscal year). See RCW 35.33.071 / RCW 35A.33.070 (annual budgets) and RCW 35.34.110 / RCW 35A.34.110 (biennial budgets). Step 10: Legislative Body Certifies Levy to County Assessor Statutory Deadline: November 30. See RCW 84.52.070. By November 30, cities and towns must certify to the county assessor the amount of property taxes to be levied upon the property within their jurisdiction for the coming fiscal year. If your jurisdiction misses the November 30 deadline, you may not increase the levy amount above the prior year's level. See RCW 84.52.070(3). DOR provides samples of the required property tax increase ordinance/resolutions for local governments to meet this requirement. Adopting the required ordinances and/or resolutions is a critical component of the budget process. If the implicit price deflator (IPD) is lower than 1%, cities with a population of 10,000 or greater must also adopt a resolution of substantial need to levy or bank the full 1% increase. For more information on the IPD or examples of substantial need resolutions, see our page Implicit Price Deflator. Step 11: Legislative Body Adopts Budget Statutory Deadline: Following the final public hearing and prior to the beginning of the ensuing fiscal year (no later than December 31). See: 15 VIRSC - Budget Preparation Procedures for Cities and Towns • RCW 35.33.075 / RCW 35A.33.075 (annual budgets) • RCW 35.34.120 / RCW 35A.34.120 (biennial budgets) http://mrsc. org/Home/Explore-Topics/FinanceBudgets/Budget-Proce... The legislative body adopts budget for the ensuing year following the final public hearing and prior to the beginning of the next fiscal (calendar) year. Practice Tip: The budget ordinance can take on many forms depending upon whether your jurisdiction adopts at the fund level or department level, or includes the ending fund balance or displays appropriations separately from the ending fund balance. For examples of these formats, see MRSC's Sample Budget Ordinance. The budget ordinance format adopted by the city or town should be consistent with the detailed budget document approved by the legislative body. Step 12: Submit Adopted Budget to MRSC and SAO Statutory Deadline: None, but recommended immediately following adoption. See: • RCW 35.33.075 / RCW 35A.33.075 (annual budgets) • RCW 35.34.120 / RCW 35A.34.120 (biennial budgets) Cities and towns are required to submit a copy of the final budget to AWC, but AWC has asked MRSC to be the recipient of those documents. Please send a web link or electronic document to Gabrielle Nicas. In addition, code cities adopting an annual budget, and any city or town adopting a biennial budget, must also submit a copy to the State Auditor's Office. SAO has advised us that they prefer electronic copies of the budget (preferably a web link or, if your city or town does not post the budget online, a PDF attachment) to be emailed to WAStateAuditorSubscriptionsosao.wa.gov, with the city/town name and the word "budget" in the subject line. © 2018 MRSC of Washington. All rights reserved. Privacy & Terms. Last Modified: June 26, 2018 16 :hapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true Chapter Listing Chapter 35A.33 RCW BUDGETS IN CODE CITIES Sections 35A.33.010 Definitions. 35A.33.020 Applicability of chapter. 35A.33.030 Budget estimates. 35A.33.040 Classification and segregation of budget estimates. 35A.33.050 Proposed preliminary budget. 35A.33.052 Preliminary budget. 35A.33.055 Budget message —Preliminary hearings. 35A.33.060 Budget —Notice of hearing on final. 35A.33.070 Budget —Hearing. 35A.33.075 Budget adoption. 35A.33.080 Emergency expenditures—Nondebatable emergencies. 35A.33.090 Emergency expenditures —Other emergencies —Hearing. 35A.33.100 Emergency expenditures —Warrants —Payments. 35A.33.102 Registered warrants —Appropriations. 35A.33.105 Adjustment of wages, etc., of employees permissible budget notwithstanding. 35A.33.110 Forms —Accounting —Supervision by state. 35A.33.120 Funds —Limitations on expenditures —Transfers and adjustments. 35A.33.122 Administration, oversight, or supervision of utility —Reimbursement from utility budget authorized. 35A.33.125 Limitation on expenditures —Void. 35A.33.130 Funds received from sales of bonds and warrants —Expenditures program —Federal tax law. 35A.33.135 Levy for ad valorem tax. 35A.33.140 Funds —Quarterly report of status. 35A.33.145 Contingency fund —Creation. 35A.33.146 Contingency fund —Withdrawals. 35A.33.150 Unexpended appropriations. 35A.33.160 Violations and penalties. 35A.33.010 Definitions. Unless the context clearly indicates otherwise, the following words as used in this chapter shall have the meaning herein prescribed: 18 Chapter 35a.33 RCW: BUDGETS 1N CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true (1) "Chief administrative officer" as used in this chapter includes the mayor of cities having a mayor -council form of government, the commissioners in cities having a commission form of government, the city manager, or any other city official designated by the charter or ordinances of such city under the plan of government governing the same, or the budget or finance officer designated by the mayor, manager or commissioners, to perform the functions, or portions thereof, contemplated by this chapter. (2) "Clerk" as used in this chapter includes the officer performing the functions of a finance or budget director, comptroller, auditor, or by whatever title he or she may be known in any code city. (3) "Council" as used in this chapter includes the commissioners in cities having a commission form of government and any other group of city officials serving as the legislative body of a code city. (4) "Department" as used in this chapter includes each office, division, service, system or institution of the city for which no other statutory or charter provision is made for budgeting and accounting procedures or controls. (5) "Fiscal year" as used in this chapter means that fiscal period set by the code city pursuant to authority given under RCW 1.16.030. (6) "Fund", as used in this chapter and "funds" where clearly used to indicate the plural of "fund", shall mean the budgeting or accounting entity authorized to provide a sum of money for specified activities or purposes. (7) "Funds" as used in this chapter where not used to indicate the plural of "fund" shall mean money in hand or available for expenditure or payment of a debt or obligation. (8) Except as otherwise defined herein, municipal accounting terms used in this chapter have the meaning prescribed in "Governmental Accounting, Auditing and Financial Reporting" prepared by the National Committee on Governmental Accounting, 1968. [ 2009 c 549 § 3032; 1969 ex.s. c 81 § 2; 1967 ex.s. c 119 § 35A.33.010.] NOTES: Reviser's note: The definitions in this section have been alphabetized pursuant to RCW 1.08.015(2)(k). Effective date-1969 ex.s. c 81: See note following RCW 35A.13.035. 35A.33.020 Applicability of chapter. The provisions of this chapter apply to all code cities except those which have adopted an ordinance under RCW 35A.34.040 providing for a biennial budget. In addition, this chapter shall not apply to any municipal utility or enterprise for which separate budgeting provisions are made by general state law. [ 1985 c 175 § 33; 1967 ex.s. c 119 § 35A.33.020.] 19 -2hapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true 35A.33.030 Budget estimates. On or before the second Monday of the fourth month prior to the beginning of the city's next fiscal year, or at such other time as the city may provide by ordinance or charter, the clerk shall notify in writing the head of each department of a code city to file with the clerk within fourteen days of the receipt of such notification, detailed estimates of the probable revenue from sources other than ad valorem taxation and of all expenditures required by his or her department for the ensuing fiscal year. The notice shall be accompanied by the proper forms provided by the clerk, prepared in accordance with the requirements and classification established by the state auditor. The clerk shall prepare the estimates for interest and debt redemption requirements and all other estimates, the preparation of which falls properly within the duties of his or her office. The chief administrative officers of the city shall submit to the clerk detailed estimates of all expenditures proposed to be financed from the proceeds of bonds or warrants not yet authorized, together with a statement of the proposed method of financing them. In the absence or disability of the official or person regularly in charge of a department, the duties herein required shall devolve upon the person next in charge of such department. [ 1995 c 301 § 51; 1967 ex.s. c 119 § 35A.33.030.] 35A.33.040 Classification and segregation of budget estimates. All estimates of receipts and expenditures for the ensuing year shall be fully detailed in the annual budget and shall be classified and segregated according to a standard classification of accounts to be adopted and prescribed by the state auditor after consultation with the Washington finance officers association, the association of Washington cities and the association of Washington city managers. [ 1995 c 301 § 52; 1967 ex.s. c 119 § 35A.33.040.] 35A.33.050 Proposed preliminary budget. On or before the first business day in the third month prior to the beginning of the fiscal year of a code city or at such other time as the city may provide by ordinance or charter, the clerk or other person designated by the charter, by ordinances, or by the chief administrative officer of the city shall submit to the chief administrative officer a proposed preliminary budget which shall set forth the complete financial program of the city for the ensuing fiscal year, showing the expenditure program requested by each department and the sources of revenue by which each such program is proposed to be financed. The revenue section shall set forth in comparative and tabular form for each fund the actual receipts for the last completed fiscal year, the estimated receipts for the current fiscal year 20 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true and the estimated receipts for the ensuing fiscal year, which shall include the amount to be raised from ad valorem taxes and unencumbered fund balances estimated to be available at the close of the current fiscal year. The expenditure section shall set forth in comparative and tabular form for each fund and every department operating within each fund the actual expenditures for the last completed fiscal year, the appropriations for the current fiscal year and the estimated expenditures for the ensuing fiscal year. The salary or salary range for each office, position or job classification shall be set forth separately together with the title or position designation thereof: PROVIDED, That salaries may be set out in total amounts under each department if a detailed schedule of such salaries and positions be attached to and made a part of the budget document. [ 1967 ex.s. c 119 § 35A.33.050.] 35A.33.052 Preliminary budget. The chief administrative officer shall prepare the preliminary budget in detail, making any revisions or addition to the reports of the department heads deemed advisable by such chief administrative officer and at least sixty days before the beginning of the city's next fiscal year he or she shall file it with the city clerk as the recommendation of the chief administrative officer for the final budget. The clerk shall provide a sufficient number of copies of such preliminary budget and budget message to meet the reasonable demands of taxpayers therefor and have them available for distribution not later than six weeks before the beginning of the city's next fiscal year. [ 2009 c 549 § 3033; 1967 ex.s. c 119 § 35A.33.052.] 35A.33.055 Budget message —Preliminary hearings. In every code city a budget message prepared by or under the direction of the city's chief administrative officer shall be submitted as a part of the preliminary budget to the city's legislative body at least sixty days before the beginning of the city's next fiscal year and shall contain the following: (1) An explanation of the budget document; (2) An outline of the recommended financial policies and programs of the city for the ensuing fiscal year; (3) A statement of the relation of the recommended appropriation to such policies and programs; (4) A statement of the reason for salient changes from the previous year in appropriation and revenue items; (5) An explanation for any recommended major changes in financial policy. Prior to the final hearing on the budget, the legislative body or a committee thereof, shall schedule hearings on the budget or parts thereof, and may require the presence of department heads to give information regarding estimates and programs. 21 -2hapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true [ 1967 ex.s. c 119 § 35A.33.055.] 35A.33.060 Budget —Notice of hearing on final. Immediately following the filing of the preliminary budget with the clerk, the clerk shall publish a notice once each week for two consecutive weeks stating that the preliminary budget for the ensuing fiscal year has been filed with the clerk, that a copy thereof will be furnished to any taxpayer who will call at the clerk's office therefor and that the legislative body of the city will meet on or before the first Monday of the month next preceding the beginning of the ensuing fiscal year for the purpose of fixing the final budget, designating the date, time and place of the legislative budget meeting and that any taxpayer may appear thereat and be heard for or against any part of the budget. The publication of the notice shall be made in the official newspaper of the city. [ 1985 c 469 § 43; 1973 c 67 § 1; 1967 ex.s. c 119 § 35A.33.060.] 35A.33.070 Budget —Hearing. The council shall meet on the day fixed by RCW 35A.33.060 for the purpose of fixing the final budget of the city at the time and place designated in the notice thereof. Any taxpayer may appear and be heard for or against any part of the budget. The hearing may be continued from day to day but not later than the twenty-fifth day prior to commencement of the city's fiscal year. [ 1967 ex.s. c 119 § 35A.33.070.] 35A.33.075 Budget adoption. Following conclusion of the hearing, and prior to the beginning of the fiscal year, the legislative body shall make such adjustments and changes as it deems necessary or proper and after determining the allowance in each item, department, classification and fund, and shall by ordinance, adopt the budget in its final form and content. Appropriations shall be limited to the total estimated revenues contained therein including the amount to be raised by ad valorem taxes and the unencumbered fund balances estimated to be available at the close of the current fiscal year. Such ordinances may adopt the final budget by reference: PROVIDED, That the ordinance adopting such budget shall set forth in summary form the totals of estimated revenues and appropriations for each separate fund and the aggregate totals for all such funds combined. A complete copy of the final budget as adopted shall be transmitted to the state auditor, and to the association of Washington cities. [ 1995 c 301 § 53; 1969 ex.s. c 81 § 3; 1967 ex.s. c 119 § 35A.33.075.] 22 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true NOTES: Effective date-1969 ex.s. c 81: See note following RCW 35A.13.035. 35A.33.080 Emergency expenditures—Nondebatable emergencies. Upon the happening of any emergency caused by violence of nature, casualty, riot, insurrection, war, or other unanticipated occurrence requiring the immediate preservation of order or public health, or for the restoration to a condition of usefulness of any public property which has been damaged or destroyed by accident, or for public relief from calamity, or in settlement of approved claims for personal injuries or property damage, or to meet mandatory expenditures required by laws enacted since the last annual budget was adopted, or to cover expenses incident to preparing for or establishing a new form of government authorized or assumed after adoption of the current budget, including any expenses incident to selection of additional or new officials required thereby, or incident to employee recruitment at any time, the city council, upon the adoption of an ordinance, by the vote of one more than the majority of all members of the legislative body, stating the facts constituting the emergency and the estimated amount required to meet it, may make the expenditures therefor without notice or hearing. [ 1967 ex.s. c 119 § 35A.33.080.] 35A.33.090 Emergency expenditures —Other emergencies —Hearing. If a public emergency which could not reasonably have been foreseen at the time of filing the preliminary budget requires the expenditure of money not provided for in the annual budget, and if it is not one of the emergencies specifically enumerated in RCW 35A.33.080, the city council before allowing any expenditure therefor shall adopt an ordinance stating the facts constituting the emergency and the estimated amount required to meet it and declaring that an emergency exists. Such ordinance shall not be voted on until five days have elapsed after its introduction, and for passage shall require the vote of one more than the majority of all members of the legislative body of the code city. Any taxpayer may appear at the meeting at which the emergency ordinance is to be voted on and be heard for or against the adoption thereof. [ 1967 ex.s. c 119 § 35A.33.090.] 35A.33.100 Emergency expenditures —Warrants —Payments. 23 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true All expenditures for emergency purposes as provided in this chapter shall be paid by warrants from any available money in the fund properly chargeable with such expenditures. If, at any time, there is insufficient money on hand in a fund with which to pay such warrants as presented, the warrants shall be registered, bear interest and be called in the same manner as other registered warrants as prescribed in RCW 35A.21.110. [ 1967 ex.s. c 119 § 35A.33.100.] 35A.33.102 Registered warrants —Appropriations. In adopting the final budget for any fiscal year, the council shall appropriate from estimated revenue sources available, a sufficient amount to pay the principal and interest on all outstanding registered warrants issued since the adoption of the last preceding budget except those issued and identified as revenue warrants and except those for which an appropriation previously has been made: PROVIDED, That no portion of the revenues which are restricted in use by law may be appropriated for the redemption of warrants issued against a utility or other special purpose fund of a self-supporting nature: PROVIDED FURTHER, That all or any portion of the city's outstanding registered warrants may be funded into bonds in any manner authorized by law. [ 1967 ex.s. c 119 § 35A.33.102.] 35A.33.105 Adjustment of wages, etc., of employees permissible budget notwithstanding. Notwithstanding the appropriations for any salary, or salary range of any employee or employees adopted in a final budget, the legislative body of any code city may, by ordinance, change the wages, hours, and conditions of employment of any or all of its appointive employees if sufficient funds are available for appropriation to such purposes. [ 1967 ex.s. c 119 § 35A.33.105.] 35A.33.110 Forms —Accounting —Supervision by state. The state auditor is empowered to make and install the forms and classifications required by this chapter to define what expenditures are chargeable to each budget class and to establish the accounting and cost systems necessary to secure accurate budget information. [ 1995 c 301 § 54; 1967 ex.s. c 119 § 35A.33.110.] 24 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true 35A.33.12O Funds —Limitations on expenditures —Transfers and adjustments. The expenditures as classified and itemized in the final budget shall constitute the city's appropriations for the ensuing fiscal year. Unless otherwise ordered by a court of competent jurisdiction, and subject to further limitations imposed by ordinance of the code city, the expenditure of city funds or the incurring of current liabilities on behalf of the city shall be limited to the following: (1) The total amount appropriated for each fund in the budget for the current fiscal year, without regard to the individual items contained therein, except that this limitation shall not apply to wage adjustments authorized by RCW 35A.33.105; and (2) The unexpended appropriation balances of a preceding budget which may be carried forward from prior fiscal years pursuant to RCW 35A.33.150; and (3) Funds received from the sale of bonds or warrants which have been duly authorized according to law; and (4) Funds received in excess of estimated revenues during the current fiscal year, when authorized by an ordinance amending the original budget; and (5) Expenditures required for emergencies, as authorized in RCW 35A.33.080 and 35A.33.090. Transfers between individual appropriations within any one fund may be made during the current fiscal year by order of the city's chief administrative officer subject to such regulations, if any, as may be imposed by the city council. Notwithstanding the provisions of RCW 43.09.210 or of any statute to the contrary, transfers, as herein authorized, may be made within the same fund regardless of the various offices, departments or divisions of the city which may be affected. The city council, upon a finding that it is to the best interests of the code city to decrease, revoke or recall all or any portion of the total appropriations provided for any one fund, may, by ordinance, approved by the vote of one more than the majority of all members thereof, stating the facts and findings for doing so, decrease, revoke or recall all or any portion of an unexpended fund balance, and by said ordinance, or a subsequent ordinance adopted by a like majority, the moneys thus released may be reappropriated for another purpose or purposes, without limitation to department, division or fund, unless the use of such moneys is otherwise restricted by law, charter, or ordinance. [ 1967 ex.s. c 119 § 35A.33.120.] 35A.33.122 Administration, oversight, or supervision of utility —Reimbursement from utility budget authorized. Whenever any code city apportions a percentage of the city manager's, administrator's, or supervisor's time, or the time of other management or general government staff, for administration, oversight, or supervision of a utility operated by the city, or to provide services to the utility, the utility budget may identify such services and budget for reimbursement of the city's current expense fund for the value of such services. 25 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true [1991 c152§3.] 35A.33.125 Limitation on expenditures —Void. Liabilities incurred by any officer or employee of the city in excess of any budget appropriations shall not be a liability of the city. The clerk shall issue no warrant and the city council or other authorized person shall approve no claim for an expenditure in excess of the total amount appropriated for any individual fund, except upon an order of a court of competent jurisdiction or for emergencies as provided in this chapter. [ 1969 ex.s. c 81 § 4; 1967 ex.s. c 119 § 35A.33.125.] NOTES: Effective date-1969 ex.s. c 81: See note following RCW 35A.13.035. 35A.33.130 Funds received from sales of bonds and warrants —Expenditures program —Federal tax law. Moneys received from the sale of bonds or warrants must be used for no other purpose than that for which they were issued. If any unexpended fund balance remains from the proceeds realized from the bonds or warrants after the accomplishment of the purpose for which they were issued it must be used for the payment of principal of or interest on such indebtedness consistent with applicable provisions of federal tax law. Where a budget contains an expenditure program to be partially or wholly financed from a bond issue to be authorized thereafter, expenditures of amounts anticipated to be reimbursed from the proceeds of the issuance and sale of such bonds must be made or incurred consistent with any applicable federal tax law requirements. [ 2011 c 210 § 4; 1967 ex.s. c 119 § 35A.33.130.] NOTES: Application to previously issued bonds-2011 c 210: See note following RCW 39.46.040. 35A.33.135 26 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true Levy for ad valorem tax. At a time fixed by the city's ordinance or charter, not later than the first Monday in October of each year, the chief administrative officer shall provide the city's legislative body with current information on estimates of revenues from all sources as adopted in the budget for the current year, together with estimates submitted by the clerk under RCW 35A.33.050. The city's legislative body and the city's administrative officer or his or her designated representative shall consider the city's total anticipated financial requirements for the ensuing fiscal year, and the legislative body shall determine and fix by ordinance the amount to be raised by ad valorem taxes. Upon adoption of the ordinance fixing the amount of ad valorem taxes to be levied, the clerk shall certify the same to the board of county commissioners as required by RCW 84.52.020. [ 2009 c 549 § 3034; 1967 ex.s. c 119 § 35A.33.135.] 35A.33.140 Funds —Quarterly report of status. At such intervals as may be required by city charter or ordinance, however, being not Tess than quarterly, the clerk shall submit to the city's legislative body and chief administrative officer a report showing the expenditures and liabilities against each separate budget appropriation incurred during the preceding reporting period and like information for the whole of the current fiscal year to the first day of the current reporting period together with the unexpended balance of each appropriation. The report shall also show the receipts from all sources. [ 1967 ex.s. c 119 § 35A.33.140.] 35A.33.145 Contingency fund —Creation. Every code city may create and maintain a contingency fund to provide moneys with which to meet any municipal expense, the necessity or extent of which could not have been foreseen or reasonably evaluated at the time of adopting the annual budget, or from which to provide moneys for those emergencies described in RCW 35A.33.080 and 35A.33.090. Such fund may be supported by a budget appropriation from any tax 'or other revenue source not restricted in use by law, or also may be supported by a transfer from other unexpended or decreased funds made available by ordinance as set forth in RCW 35A.33.120: PROVIDED, That the total amount accumulated in such fund at any time shall not exceed the equivalent of thirty-seven and one-half cents per thousand dollars of assessed valuation of property within the city at such time. Any moneys in the contingency fund at the end of the fiscal year shall not lapse except upon reappropriation by the council to another fund in the adoption of a subsequent budget. [ 1973 1st ex.s. c 195 § 28; 1967 ex.s. c 119 § 35A.33.145.] 27 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true NOTES: Severability—Effective dates and termination dates—Construction-1973 1st ex.s. c 195: See notes following RCW 84.52.043. 35A.33.146 Contingency fund —Withdrawals. No money shall be withdrawn from the contingency fund except by transfer to the appropriate operating fund authorized by a resolution or ordinance of the council, adopted by a vote of the majority of the entire council, clearly stating the facts constituting the reason for the withdrawal or the emergency as the case may be, specifying the fund to which the withdrawn money shall be transferred. [ 1967 ex.s. c 119 § 35A.33.146.] 35A.33.150 Unexpended appropriations. All appropriations in any current operating fund shall lapse at the end of each fiscal year: PROVIDED, That this shall not prevent payments in the following year upon uncompleted programs or improvements in progress or on orders subsequently filled or claims subsequently billed for the purchase of material, equipment and supplies or for personal or contractual services not completed or furnished by the end of the fiscal year, all of which have been properly budgeted and contracted for prior to the close of such fiscal year but furnished or completed in due course thereafter. All appropriations in a special fund authorized by ordinance or by state law to be used only for the purpose or purposes therein specified, including any cumulative reserve funds lawfully established in specific or general terms for any municipal purpose or purposes, or a contingency fund as authorized by RCW 35A.33.145, shall not lapse, but shall be carried forward from year to year until fully expended or the purpose has been accomplished or abandoned, without necessity of reappropriation. The accounts for budgetary control for each fiscal year shall be kept open for twenty days after the close of such fiscal year for the purpose of paying and recording claims for indebtedness incurred during such fiscal year; any claim presented after the twentieth day following the close of the fiscal year shall be paid from appropriations lawfully provided for the ensuing period, including those made available by provisions of this section, and shall be recorded in the accounts for the ensuing fiscal year. [ 1967 ex.s. c 119 § 35A.33.150.] 35A.33.160 28 Chapter 35a.33 RCW: BUDGETS IN CODE CITIES http://app.leg.wa.gov/rcw/default.aspx?cite=35a.33&full=true Violations and penalties. Upon the conviction of any city official, department head or other city employee of knowingly failing, or refusing, without just cause, to perform any duty imposed upon such officer or employee by this chapter, or city ordinance or charter, in connection with the giving of notice, the preparing and filing of estimates of revenues or expenditures or other information required for preparing a budget report in the time and manner required, or of knowingly making expenditures in excess of budget appropriations, he or she shall be guilty of a misdemeanor and shall be fined not more than five hundred dollars for each separate violation. [ 2009 c 549 § 3035; 1967 ex.s. c 119 § 35A.33.160.] City of Tukwila Allan Ekberg, Mayor INFORMATIONAL MEMORANDUM TO: Finance Committee FROM: Peggy McCarthy, Finance Director BY: Aaron Williams, Fiscal Coordinator CC: Mayor Ekberg DATE: August 24, 2018 SUBJECT: Sales Tax and Miscellaneous Revenue Report— 2nd Quarter 2018 Schedule I - Sales Tax in $1,000's 2017 Actual 2018 Actual YOY Change j I j j j j i j Other ----Month ---- I Other ; Total I Other Total Construction I Industries I Total Collect- Construc! ! Construc. ed Rec'd tion j Industries i tion j Industries j Amount °o Amount % j Amount °o Jan Mar S 123 ! S 1.149 ! $ 1,272 S 116 ! $ 1,222 ! S 1.339 S (6) -5%! S 73 6%! 5 67 5% Feb Apr 83 1,1231 1,206 128 1,211 1.338 45 54%! 88 89-'0l 132 115.0 Mar May 120 1.664 I 1.784 131 1.487 1.618 11 9°`oj (177) -11%j (166) -9°%0 0-1 Totals $ 326 j 3,936 i $ 4,262 $ 375 j 3,920 j $ 4,295 $ 49 15%j (16) 0* $ 33 1% Apr Jun 90 1,317 i 1.408 122 1,349 1,471 32 35°76i 32 2%i 64 550 May Jul 103 : 1.318 : 1.421 134 : 1,492 : 1.626 31 30%: 174 13%: 205 14% I I Jun Aug 116 1.391 ; 1.506 139 1,682 1,821 23 20%; 292 21 °*o; 315 21 °o 0-2 Totals $ 309 ! 4,026 ! $ 4,335 $ 395 ! 4,524 ! $ 4,919 $ 86 28%! 498 12%! $ 584 13% Jul Sep 130 ! 1,377 I 1.508 - I I Aug Oct 125 1.345 1.471 - j j Sep Nov 140 1.473 1.613 - j j 0-3 Totals S 396 j 4,196 i $ 4,591 $ - j - j i - $ - 0%j - 0°,oj $ - 0% Oct Dec 145 1.329 1,473 - j j Nov Jan 110 1.424 1,534 - j j Dec Feb 120 ; 1.849 ; 1.969 - Q-4Totals S 374 ! 4602 ! $ 4,976 $ - ! - ! $ - S - 0%! - 0%! $ - 0% Totals S 1.404 ! 16,760 ! $ 18,164 $ 770 ! 8,444 ! $ 9,214 S 136 10°0! 482 3%! $ 617 3% Second Quarter sales tax collections increased $584 thousand or 13% over the same period in 2017. Of this increase, Construction related sales tax accounted for an increased $86 thousand or 28% while all other industries accounted for an increase of $498 thousand or 12% when compared to the same period in 2017. 30 INFORMATIONAL MEMO Page 2 Budget to Actual - Sales Tax in $1,000's Schedule I - Sales Tax in 1.000's 2017 2018 Variance -- Month -- Actual Allocated Actual Collected Rec'd Budget Amt ° Jan Mar $ 1.272 $ 1.396 $ 1.339 (57) -4% Feb Apr 1.206 $ 1.323 $ 1.338 15 1% Mar May 1.784 $ 1.958 $ 1.618 (340) -17% Q-1 Totals $ 4,262 $ 4,677 $ 4,295 $382} -8% Apr Jun 1.408 $ 1.545 1.471 (74) -5% May Jul 1.421 $ 1,559 1.626 67 4% Jun Aug 1.506 $ 1.653 1.821 168 10% Q-2 Totals $ 4,335 $ 4,757 $ 4,919 $ 162 3% Jul Sep 1.508 $ 1.654 Aug Oct 1.471 $ 1.614 Sep Nov 1.613 $ 1.770 Q-3 Totals $ 4,591 $ 5,038 $ - $ - 0% Oct Dec 1.473 $ 1.617 Nov Jan 1.534 $ 1.683 Dec Feb 1.969 $ 2.161 Q-4 Totals $ 4,976 $ 5,461 $ - $ - 0% Totals $ 18.164 $ 19.932 $ 9,214 $(220). -1% Actual sales tax collected in the second quarter was $162 thousand greater than anticipated, representing a 3% positive variance from budget. Overall year-to-date sales tax collection through the second quarter is $220 thousand under budget, which is 1% less than budget expectations. Sales tax collections during the past two months (May and June) have exceeded budget expectations by $235 thousand. This increase can be mostly attributed to the category 441-Motor Vehicle and Parts Dealer from a manufacture of buses. W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 31 INFORMATIONAL MEMO Page 3 Below is a graph of the year-to-date changes in sales tax collections by industry type year over year. $300,000 $200,000 $100,000 $(1002000) $(200,O0O) $(300,000) Construction $127,93 7 Change YID by Category Manufacturing $32,537 Transportation/ Warehousing $(2,836) Wholesale Trade $87,578 Automotive $211,737 Retail Trade $110,676 5er is s $264 334 Miscellaneous $ ( 214,410) All industry categories show an increase in sales tax except for transportation/warehousing, which had a $2,836 decline. The miscellaneous category contains sales tax from periodic and one-time type transactions. Excluding this miscellaneous category, year -over -year sales tax through the 2nd quarter 2018 increased by $831 thousand. W:1FIN Projects\Sales Tax Information12018\_Memo files\Info Memo Sales Tax-2018-Q2.docx 32 INFORMATIONAL MEMO Page 4 Schedule II shows year-to-date sales tax collections from the top ten industry classifications. Schedule II - YTD sales tax collections - top ten industry classifications YTIJ YTD Dollar ¢�6 Group Name Current Prior Diff. Diff. 722 Food Services_ Drinking Places 5 973,229 5 910,341 $ 62,888 6.91% 452 General Merchandise Stores s 965,467 S 943,649 $ 21,857 2.32% 443 Clothing and Accessories 5 935,216 S 913,602 S 21,614 2.37% 423 Wholesale Trade. Durable Goods 5 565,535 5 4E2,065 5 33,472 17.32% 441 Motor Vehicle and Parts Dealer 5 557,218 5 349,360 5 247,856 59.550% 236 Construction of Buildings 5 514,527 5 379,001 5 135,526 355.76% 443 Electronics and Appliances 5 5 .0,419 5 546,770 5 (6,351) -1.25% 444 Building Material and Garden 5 403,303 5 334,0.86 5 19,216 5.00% 453 Miscellaneous Store Retailers 5 371,275 $ 335,554 5 35,721 10.65% 517 Telecommunications 5 355,433 $ 304,971 5 50,462 16.55% The top three industry classifications remain unchanged compared to the prior quarter, with 'Food Services, Drinking Places' topping the list. The chart below illustrates these three groups over past ten years, highlighting the relative growth in the Food Services category. General Merchandise Stores (such as Costco and Target) and Clothing and Accessories retailers (such as Nordstrom and Kohl's) is anticipated to finish the year just ahead of the Food Services, Drinking Places based on past consumer spending trends in the second half of the year. 2,400, C.D.C. 2,200,000 2,000 000 1$800,000 1,600,000 1,400,000 1200,000 1,000,000 Sales Tax -Top three industry classifications 2009-2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Projected) �722Food Services, DrinkingPlaces -452General MerchandiseStores--048CIothingarid Accessories W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 33 INFORMATIONAL MEMO Page 5 Schedule III shows the year-to-date ten largest declines in sales tax collections by dollar difference by industry collected. Schedule III - YTa ten largest declines M in sales tax collections by industry class YID YID Dollar Group Name Current Prior Diff. Riff. 999 Nonclassifiable Establishments 5 55,060 5 270,063 5 (215,00a)-79.61% 454 Nonstore Retailers S 85,223 5 135,474 3 (49,847) -36.94% 621 Ambulatory Health Care Service 5 32,374 5 51,442 3 (19,472) -37.47% 238 Specialty Trade Contractors 5 rr ,728 5 239,585 5 (16,857) -7.04% 926 Economic Programs Admin 5 34,535 5 41,464 3 (14,929) -26.36% 488 Transportation Support 5 16,426 5 26,844 5 (10,774) -44.24% 44a Electronics and Appliances 5 500,419 5 506,774 3 (6,351) -1.25% 515 Broadcasting (except Internet) 5 2,849 5 7,339 3 (4,530) -61.73% 323 Printing and Related Support 5 10,794 5 13,953 3 (3,159)-22.64% 812 Personal and Laundry Services 5 42,856 5 45,242 $ (2,336) -5.27% The largest decline was in the 999-Nonclassifiable Establishments industry category (also referred to as the miscellaneous category), which reflects a large art related transaction in the prior year. No trends were detected when analyzing these groups compared to prior periods. W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 34 INFORMATIONAL MEMO Page 6 0-3 N N t) CO r Q 2 (a W .��vcp /QncI.ri co O AL 0 N FC O 0- AUTOMOTIVE co Q Z 0 co co 1. r 0 CONSTRUCTION 0 0 } O 0 RETAIL TRADE U oo ,o o eo e ▪ DI o 'D v (-J 'Cr. rn• Ni 7 L(i 6 Ch CV CV 6 M n O O 2 W 0 Cn0 r N OS V CO M W N VCV CV Cp co O CO O V N CO O O O LC) r 0 COD (OD CO COO O O C7 CO M )1') 0,N O N COO coi0 co V Lei c iri r oo cCc(•-i - ro oc CO ON N N p O CO CO x CON N N o C e 03 • 0 ti r r � )19 O 0 h e • n O eo n CO • N Cr) 01 L CO N N V V O OD CO 0, O V V • rn CO O O O) o e o CO aCpD O C0'J M r CA• O CO O ✓ M N O cV O O co- oo-CO 0) N N CO COO - N CO 0 CO a 0 r MANUFACTURING o e o C7 O i0 N pOL.,Of�J N uu? cOf�J 00 e 0 M 0 • c CO � W CD CO CV M ws ` N O O t0 0 a 0 a m W � ✓ O 0 1 U w (0 eoeeee�eeo - N N O V N M O) M ch - C• r(J cD O co N O Q N ▪ O .9r Os-roCO CO O N O O Q 0oCOLJ O M O 10 4 V 0,CV • 0, M CO N V O N LO CV 0- 0- V N CVIx- COOCV CO o( x- ON M N N MN O CO O) O) CO 0 CO 0 0 CV CA CO O 2 O O .,I-3 .7(NO 4-2 N O N O O Oi LO CO CJ CO CO CO O x- N O N N 9 O U 2 a K y U m O C a N N U N N <5 .0 Z U C C m 4 1,5 d 0) V) R U C -g„, o u) o 8 E d Q E_ h n c = o `-' '§ r Q o v -o ami (d= iL OC 0 0 0 W 2 Q Q 0 0 cn Ou"i��(v�'i Comnnporn e e e o o e O\ O N CO ap c7 N V O N N Lei L6 N N N x? 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O N N N CI'S V m N Co- CO- ,- CO N CO N 0V (h N T O N O? r M N o co co N- V lD r N CO N x- V LO N n N nO WWOVOO? 0IQ rMT CO 0) O CO O GO C> L OD COO N cV N CV 2 4d c r Y) 2 2 v g o ._ 0_JO O- 9 dQ p o wag °.3 0 p`> cg 19?f Ew mg2 o g atf m v m Q c 12°a g. d o5 c co 2 2 rn a °tf a? m o6 a m m U o d a a a o a E. m a c 2 a 5 E cbi m 3 5 m r r a J 5- a a a 0 O z 0 0 g 0 w- 0 x N M V O O N N N N N N N M N M M COCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCOCO CO'J A N � fA N oo N 0) L 0 O e v n r h N CNy yy N O } } 0 n TRANSPORTATION & WAREHOUSING H O 0- MISCELLANEOUS ▪ eo C V M n O OM O OD N 1t07 O 0 0 CO ON N O N O m n O) CO OCO `Cr O '- .- 0) O rn N o c N (0 CO N N e O COO QOj N cnD q O N O o rn v CNI 0-0 O O I,-o O N n NO N O O CO CO V CV )f pOp cCcpO r M CO V V W C.0 OWN0L�Oox- CO 0i C) ICOCO CO CO O CO CO CO V O COD COIxCOW 0 V V V V V V 'Cr `Cr V V h n O NOS Vi oCf\1 in G � e o cp O cpp M! ea M! y N 0 0 a e 0 e 0 a z e y ie co us O co co 0 0 WHOLESALE TRADE 0 H O GRAND TOTALS e e, M N � V LI, rn n • M M • W CO• CQ • NVN N V n V VD c00 o5 N Ln O 7 Whls Trade -Durable Goods W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 35 INFORMATIONAL MEMO Page 7 Schedule IV shows quarterly gambling tax performance year over year and for the current year compared to budget. Schedule IV - Gambling Tax (d, 2018 Quarter 2017 2018 Allocated Earned Actual Actual Budget INCREASE !DECREASE) YEAR OVER YEAR BUDGET VARIANCE Amount °l° Amount Q1 $ 977.003 $ 985.901 $ 995.831 Q2 983.322 841.104 1.002,272 Q3 951.991 970,337 04 958.503 976.974 $ 8.898 1% $ (9.930) -1°!° 042.218) -14% (161,168) -16% Totals $ 3,870,819 $ 1,827,005 $ 3,945,414 $ 1133,319} -3% $ 171,097} -4% During the second quarter Gambling tax revenue was 14% below the prior year and 16% less than budget. The City has four casinos — the Riverside Inn, the Great American, the Fortune (formerly the Golden Nugget) and the Macau. An analysis of the second quarter gambling taxes show that the decline in the second quarter is attributed to one casino and not a trend among all casinos. Gambling tax is budgeted to increase by 2% over 2017 actual revenue. Schedule V shows quarterly admissions tax performance year over year and for the current year compared to budget. Schedule V - Admissions Tax (b) id) 2018 Quarter 2017 2018 Allocated Earned Actual Actual Budget INCREASE (:DECREASE) YEAR OVER YEAR BUDGET VARIANCE Amount °l° Amount Q1 $ 166.003 $ 206.037 $ 176.211 Q2 157.574 248.570 167.263 Q3 177.422 188.331 Q4 171.641 182.195 $ 40.034 24% $ 29.827 17% 90.996 58% 81.307 49% Totals $ 672,640 $ 454,607 $ 714,000 $ 131,030 19°/ $ 111,133 16% Second quarter admissions tax revenue was $91 thousand, or 58% more than the same period last year and exceeded the budget expectation by $81 thousand or 49%. A major contributor to the increase is a new entertainment venue in the Central Business District. Admissions tax is budgeted to increase 6% over 2017 actual revenue. Schedule VI shows quarterly telecommunications utility tax performance year over year and for the current year compared to budget. Schedule VI - Telecommunications Utility Tax id) 2018 Quarter 2017 2018 Allocated Earned Actual Actual Budget INCREASE (DECREASE) YEAR OVER YEAR BUDGET VARIANCE Amount °lo Amount °Io Q1 $ 323,708 $ 292.954 $ 319.585 Q2 312,456 279.555 308.47.6 Q3 388,433 383.486 Q4 316.497 312.466 $ (30.754) -10% $ (26.632) -8% (32.900) -11% (28.921) -9°I° Totals $ 1,341,094 $ 572,509 $ 1,324,013 $ l63,655} -5% $ l55,552} 4°1° Second quarter telecommunications utility tax was $33 thousand, or 11 % less than the previous year and $29 thousand less than budget. The 2018 revenue is budgeted at 1% less than 2017 actual revenue. (a) (b) (c) (d) Gambling tax currently includes card games, punch boards, pull tabs, and amusement games. Excludes golf course admissions tax. Telecommunications Utility tax currently includes cellular, pager and telephone usage. Actuals reflected in Schedules IV, V and VI are amounts earned for the quarter. W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 36 INFORMATIONAL MEMO Page 8 Chart 1: All Sales Tax 2009-2018 21,000,000 19,000,000 17,000,000 15,000,000 13,000,000 11,000,000 9,000,000 7,000,000 5,000,000 All Sales Tax 2009-2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ( Projected I Chart 2: Sales Tax by Major Sector (Retail, Services, All Other) 10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Sales Tax: by Major Sector 2009-2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 ( Projected Retail Services -All Others W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 37 INFORMATIONAL MEMO Page 9 Chart 3: Sales Tax collection history top three NAICS codes 2,400,000 2,, 000 2,000,000 1,800,000 I,, 000 1,400,000 1,200,000 1,000,000 Sales Tax: Top Three NAICS codes 2009-2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 {P ) 722-Food Services, Drinking PIaCM. 452-GeneraIMerchandiseStores —.448Clothiigand Accessories Chart 4: Sales Tax from Construction Activities 2009-2018 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 Sales Tax: Construction 2009 2viv 2011 2012 2013 2014 2015 2016 2017 2018 (Projected) Includes: 236-Construction of Buildigs_ 237-Heavy, & Civil Construction and 238-Specialty trade contractors. W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 38 INFORMATIONAL MEMO Page 10 Chart 5: Miscellaneous sales tax history 2009-2018 350,000 300,000 250,000 200,000 150,000 100,000 Sales Tax: Miscellaneous Categories 2009 2020 2011 2012 2013 20_4 2015 2016 2017 2018 Projected) Includes: Unclassifiable Establishments as well as ,agriculture Forestry: and Mining categories_ Chart 6: Sales Tax collections for Major Retial categories 2009-2018 4,000,00C 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 {Projected) 443-Electronics and Appliances 448-Cloth ing and Accessories -452-General Mercha ndise Stores All Other Retail W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 39 INFORMATIONAL MEMO Page 11 Chart 7: Sales Tax collections for Services categories 2009-2018 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Projected ) 51X-Information 53X-Real Estate, Rental, Leasing -72X-Food Services and Lodging All Other Services W:1FIN Projects\Sales Tax Information120181_Memo files\Info Memo Sales Tax-2018-Q2.docx 40 General Fund Preview 2018 Finance Committee and Council Decision Making to Date The Finance Committee spent February through June of this year studying and debating options to address the market -related gap in the Public Safety Plan budget. The Committee discussed project costs, debt capacity and LTGO bonds, Fire Impact Fees, land sales and other one-time funds, REET 1, new revenue options, general fund operations, and capital project prioritization. Following each of the committee meetings, staff used the discussion to build an iterative model reflecting financial framework scenarios. The following key assumptions went into the options: • One-time funds previously discussed (such as land sales, existing REET, etc.) are included in all options. • Dedicated REET1 to PSP projects is included in all options. • Fire impact fees are included at the projected higher rate and Tukwila South agreement fire impact fees are also included in all options. • Scenarios were run at both 20-year and 30-year amortization schedules. • Reducing the PW facilities to $30M would allow for land acquisition, improvements to one of the existing buildings and a full design program for the PW shops. Future decisions would need to be made about the Shops, with the ability to use Enterprise funds for additional financing. • Two scenarios contemplate reducing eliminating funding for Fire Apparatus and Equipment after year 10. The City would have five bienniums to identify how to pay for this needed equipment. • Two scenarios contemplate reducing or eliminating the construction of FS 54. There would likely be some costs associated with upgrading the facility. • Unless eliminated, each scenario contemplates the projects being built on the existing schedule. At the June 6, 2018 Finance Committee, the Committee moved to recommend Option D-20, amended to include using the state financing tool for purchasing $15 million in fire apparatus and equipment. This decision removed the construction of a new Fire Station 54 and reduced funding for apparatus and equipment by half, resulting in a budget reduction of $27 million. Some of the reasons offered by Committee members include: • The Committee prefers 20-year financing in order to not bind future councils and save financing costs; • Option D has the least overall impact to the General Fund over the life of the bonds; • Option D meets most of the goals of the Public Safety Plan and is the most fiscally prudent option; and • Financing apparatus and equipment allows for more positive cash flow for the City. 41 A work session was held on June 11 where the full Council discussed the options in detail. On June 18, the D-20 financing framework was adopted by the full Council with majority support. Future Decision -Making Following Council's adoption of a financial framework for the Public Safety Plan, the Finance Committee has continued to explore options relating to balancing the 2019-2020 biennial budget. Sales tax revenue has not grown in the past two years at the rate anticipated or budgeted. Additionally, the State's sales tax mitigation payments of approximately $1.1 million annually will cease in 2019, based on a decision by the state legislature. These two revenue shortfalls have the potential to create a more than $2 million annual budget gap. This budget gap was discussed with the Finance Committee in February through May in connection with the Public Safety Plan financing. The Administration has directed departments to underspend by 3% in 2018 in order to meet the revenue shortfall, as well as identify 3% reductions for the next biennium. While the budget will continue to increase due to contractual obligations, it will not rise as quickly were these reductions not implemented. In addition, the City is transitioning to Priority Based Budgeting (PBB), which may help the Administration and Council identify other opportunities for expenditure reductions as the budget process progresses. However, from what we know today, without adding new revenue in 2019 the City will have to reduce service levels. Additional opportunities to better align revenues and expenditures include: • Establish a B&O tax, which could generate between $700K - $3 million • Increase the business license fee to $112 per FTE and $56 for PTE, generating $1.5 million • Increase the gambling tax rate by 1% - 5%, generating between $380K - $1.9 million • Transportation Benefit District car tabs, which would provide $200K to $500K annually to transportation -related projects • Increase other tax rates to the extent allowed without voter approval • Reduce General Fund operational expenditures across-the-board at a higher percentage than 3% • Reduce the General Fund contribution to the CIP by $500,000 annually The B&O tax provides the greatest potential additional revenue, better diversifying and stabilizing the city's revenues. B&O Tax rates are calculated on gross receipts multiplied by the tax rate set by government. The rate can be set at 0.2% or lower. For example, a business with gross revenue of $1 million would pay $2,000 per year. Adoption of a B&O tax, along with the previously discussed reductions in expenditures being proposed for the 2019/2020 budget, could close the budget gap created by the flattening sales 42 tax and the discontinuation of the sales tax mitigation revenue and allow the City to provide its current level of service. Further, and importantly, adoption of this tax would better diversify and stabilize revenues, which would benefit the City longterm. Additional revenue could reach $3 million or more. However, implementing a new tax is time consuming and requires significant education and outreach to the business community. Raising the business license fee may be an easier tool to implement at this time. It is an existing tax and may be better received than a new tax. Additionally, it would be easier and less expensive to implement than a B&O tax. Raising the Business License fee, in coordination with increases in other fees and taxes, could generate the goal of $2 million additional revenue. For example, the 2018 budget for business license revenue is $2.4 million and the City is on track to collect that and more in 2018. The current business license fee is $70 per full time employee or $35 per part time employee. If the fee were raised to $112 per full time employee and $56 per part time employee, an additional $1.5 million could be generated. In comparison, the business license fee for the City of Kirkland is $105 per FTE and $112 for Redmond - neither city has a B&O tax. Raising the City's fee would bring it in line with these rates. The Administration has proposed to raise the rate associated with cardrooms by 1%. Per the TMC, gambling taxes are used primarily for public safety, which accounts for more than 56% of the City's general fund. State law caps the tax on card rooms at 20%. Jurisdictions in the county vary as to how they regulate and tax card rooms, and many ban such establishments all together. The City of Auburn has one of the lowest rates at 4%, and according to staff research, the City of Redmond has the highest at 12%. Both the City of Kent and King County levy the 11% rate. Staff estimates that a 1% increase in the tax levied on cardrooms would generate approximately $350,000 in additional revenue in 2019. The City heads into the 2019/2020 budget process with the reality that projected revenues will not meet expenditures. The Administration has directed departments to reduce expenditures in the next biennium by 3%, but additional resources are needed in order to provide the current level of City services. A small increase in the gambling tax is an opportunity to help align revenues with expenditures in the coming biennium. On September 5, the Finance Committee moved this proposal forward to the Committee of the Whole with no recommendation. 43