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Home My WebLink AboutCOW 2024-10-28 Item 4B - Budget - 2025-2026 Biennial Budget: 6-Year Financial Forecast & Budget Assumptions / Property Tax & Levies 101October 28, 2024 - Committee of the Whole Budget Assumptions & Six -Year Forecast CITY OF TUKWILA 2025-26 x 1 i BUDGE DEVELOPMENT PROCESS Pripr )9N, The City of opportunity, the community of choice. Building the '25-26 Budget —Assumptions Keep commitment to return some property tax capacity from RFA annexation (up to $7M, '23/24 budget) Meet established financial and reserve policies. Avoid major staffing changes or layoffs. n Budget enhancements limited to available resources and based rtl-e�b on priority need. AIA Use one-time funds as needed to balance budget. Aim for sustainable budget model and reviewing issues in 2025. City of Tukwila 2025-26 Budget Development 2 Building the '25-26 Budget —Assumptions Maintain '23-24 cuts to positions, services & supplies No planned debt issuance. 0 0 Return Fleet fund management to replacement cost model. No tax rate increases. Budget for realistic revenue growth and review future revenue options. 0 Defer GF transfers to capital for 2025/26. City of Tukwila 2025-26 Budget Development 3 `25-26 Budget —Tradeoffs o I I I 1 I I I 1 Facility needs: PW Shops Phase 2, improve/repair current facilities Street maintenance level of service Neighborhood traffic calming level of service reduction Parks deferred maintenance Balance facility rentals, recreation leagues, programs, event offerings Timely permit issuance / code enforcement response Limited process improvements Cost of service studies (DCD, Parks & Rec) No new investments City of Tukwila 2025-26 Budget Development 4 Examples: Issues for 2025 Review • Revenue opportunities/options (B&O, REET, other) • Update compensation policy (Res 1951) • Continued evaluation of Finance Enterprise system • Implement Financial Sustainability Committee recommendations: operational audits, continuous improvement, lean process • Consider operational changes and impacts of service changes • Capital repair/replacement • Financial policies, Indirect Cost Allocation model • Other City of Tukwila 2025-26 Budget Development 5 Forecasting / Long-term Planning • Encourages strategic thinking. • Allows for making business decisions by focusing on long-term objectives and future impacts of current decisions. • Platform for analyzing trends as well as risk factors that may impact the City's financial standing. • Helps organizations to be proactive in addressing emerging issues. City of Tukwila 2025-26 Budget Development 6 Six -year Forecast • City maintains a six -year financial forecast for the General Fund. • The first two years of the forecast is the proposed budget for 2025/26. • The forecast provides a forward -looking view allowing City officials and other to evaluate the funds long-term sustainability. • The forecast is built assuming status quo operations meaning no new positions or program expansion as of 12/31/2026. • Increases in expense or revenue generation is based on growth in line with previous years actuals and any known changes. City of Tukwila 2025-26 Budget Development 7 Forecast -Out Years Assumptions Annual % Change Revenue Assumptions 2026- 2027 2027- 2030 Sales & Use Tax 1.5% 3.0% Property Tax 1.8% 1.8% Gambling & Excise Tax 1.9% 1.9% Business & Occupation Tax 2.0% 2.0% Private Utility Tax 4.5% 4.5% Public Utilty Tax 6.4% 6.4% Admissions Tax 2.0% 3.0% Charges for Services 1.5% 1.5% Other/Misc Income 1.0% 1.0% License & Permits 2.7% 2.7% Indirect Cost 5.0% 5.0% Intergovernmental 1.0% 1.0% Franchise Agreements 5.0% 5.0% Fines & Penalties 1.0% 1.0% Annual % Change Expense Assumptions 2026 - 2030 Salaries (inc. OT, Extra Labor, Holiday Pay) 3.2% Historical Salary Underspend -3.0% Medical & Dental 7.0% FICA 3.2% PERS/PSERS Pension 3.2% Industrial Insurance 7.0% LEOFF 2 Pension 3.2% Uniform/Clothing 2.0% Unemployment 0.0% All Other Operating/Service/Supplies 3.0% City of Tukwila 2025-26 Budget Development 8 Forecast Excluding Budgeted land Sales General Fund 2025 Proposed Budget 2026 Proposed Budget 2027 Projected 2028 Projected 2029 Projected 2030 Projected Revenues - EXCLUDING Revenues From One -Time Property Sales Total Taxes $ 51,976,379 $ 53,854,765 $ 55,049,065 $ 56,671,954 $ 58,352,642 $ 60,043,812 Total Non -Tax Revenues 17,916,352 17,930,727 18,305,533 18,882,956 19,483,210 20,107,308 Total Ongoing Revenues 69,892,731 71,785,492 73,354,598 75,554,910 77,835,851 80,151,120 Transfers In & Bond Proceeds 1,494,619 1,419,637 1,318,824 1,317,654 1,317,225 1,274,624 Total Revenue 71,387,350 73,205,129 74,673,422 76,872,564 79,153,076 81,425,744 Expenditures - EXCLUDING Expenditures Reated to One -Time Property Sales Salaries and Benefits 46,025,672 48,788,425 50,661,115 52,615,560 54,655,905 56,786,534 Salary Underspend (1,131,598) (1,167,809) (1,205,179) (1,243,745) Services 22,044,457 22,191,305 23,887,044 24,603,656 25,341,765 26,102,018 Supplies 1,640,914 1,667,078 1,717,090 1,768,603 1,821,661 1,876,311 Capital 200,000 - - - - - Principal, and Interest 30,205 30,205 968,127 - - - Debt Service Transfers Out 3,692,390 3,784,347 3,787,556 3,789,292 3,782,274 4,093,895 Other Transfers Out 971,089 702,450 1,030,000 1,310,000 1,310,000 1,310,000 Other Non -Operating - - - - - - Total Expenditures 74,604,727 77,163,810 80,919,335 82,919,301 85,706,425 88,925,012 General Fund - Fund Balance Beginning Fund Balance 15,564,070 13,381,503 9,519,331 3,273,418 (2,773,319) (9,326,668) Surplus/Deficit (3,217,377) (4,958,681) (6,245,913) (6,046,737) (6,553,349) (7,499,269) Salary Underspend 1,034,810 1,096,509 Ending Fund Balance 13,381,503 9,519,331 3,273,418 (2,773,319) (9,326,668) (16,825,936) Reserve Fund Balance Policy Met? No No No No No No City of Tukwila 2025-26 Budget Development 9 a7 n $90 0 2 $85 $80 $75 $70 $73M $71M 2025 2026 2027 2028 Total Revenue Total Expenditures 2029 2030 City of Tukwila 2025-26 Budget Development 10 Forecast Including Proposed Budgeted Land Sales General Fund With Land Sales 2025 Proposed Budget 2026 Proposed Budget 2027 Projected 2028 Projected 2029 Projected 2030 Projected Revenues Total Taxes $ 51,976,379 $ 53,854,765 $ 55,049,065 $ 56,671,954 ' $ 58,352,642 $ 60,043,812 Total Non -Tax Revenues 17,916,352 17,930,727 18,305,533 18,882,956 19,483,210 20,107,308 Total Ongoing Revenues 69,892,731 71,785,492 73,354,598 75,554,910 77,835,851 80,151,120 Transfers In & Bond Proceeds 1,494,619 1,419,637 1,318,824 1,317,654 1,317,225 1,274,624 Sale of Capital Assets 4,700,000 5,000,000 - - - - Total Revenue 76,087,350 78,205,129 74,673,422 76,872,564 79,153,076 81,425,744 Expenditures Salaries and Benefits 46,025,672 48,788,425 50,661,115 52,615,560 54,655,905 56,786,534 Salary Underspend (1,131,598) (1,167,809) (1,205,179) (1,243,745) Services 22,044,457 23,191,305 23,887,044 24,603,656 25,341,765 26,102,018 Supplies 1,640,914 1,667,078 1,717,090 1,768,603 1,821,661 1,876,311 Capital 200,000 - - - - - Principal, and Interest 30,205 30,205 968,127 - - - Debt Service Transfers Out 3,692,390 3,784,347 3,787,556 3,789,292 3,782,274 4,093,895 Other Transfers Out 971,089 702,450 1,030,000 1,310,000 1,310,000 1,310,000 Other Non -Operating - - - - - - Total Expenditures 74,604,727 78,163,810 80,919,335 82,919,301 85,706,425 88,925,012 General Fund - Fund Balance Beginning Fund Balance 15,564,070 18,081,503 19,219,331 12,973,418 6,926,681 373,332 Surplus/Deficit 1,482,623 41,319 (6,245,913) (6,046,737) (6,553,349) (7,499,269) Salary Underspend 1,034,810 1,096,509 Ending Fund Balance 18,081,503 19,219,331 12,973,418 6,926,681 373,332 (7,125,936) Reserve Fund Balance Policy Met? Yes Yes No No No No City of Tukwila 2025-26 Budget Development 11 0) O) co$90 c 0 2 $85 $80 $75 $70 $75M 2025 2026 $75M 2027 2028 Total Revenue • Total Expenditures 2029 2030 City of Tukwila 2025-26 Budget Development 12 Identified Risks • Budget Sustainability • Staffing & Service Levels • Infrastructure Repair & Maintenance • Economic Recession & Slowdowns • Legislative Changes City of Tukwila 2025-26 Budget Development 13 Key Takeaways • 2025 & 2026 operating budget is balanced using one-time resources to balance on -going operations. • True gap in 2025 and 2026 is $3.2 and $5.0 million, respectively. • Forecasts, especially those looking out over several years, are reliably unreliable. • Working towards a sustainable General Fund budget will begin early in 2025. City of Tukwila 2025-26 Budget Development 14 Future Forecasting Updates • Annual Forecasts for all major funds as defined by the Comprehensive Annual Financial Report. • Include a sensitivity/"what if" component to allow for presentation of a range of forecasting outcomes based on variables. • Annually review and refine assumptions and forecast methodology. • Include additional out years to create a 10-year view. City of Tukwila 2025-26 Budget Development 15 Wrap Up/Q&A City of Tukwila 2025-26 Budget Development 16 CITY OF TUKWILA 2025-26 1 � 1ja BUDGE DEVELOPMENT PROCESS a� o October 28, 2024 - Committee of the The City of opportunity, the community of choice. Whole Meeting - Property Tax Levy Touch Points • Set a baseline understanding of property tax levies and rules. • 2025/26 Budget is submitted with a property tax reduction from previous year. • Council has a decision point on property tax revenues. • Vote on Levy Ordinances scheduled for 11/4. ICity of Tukwila 2025-26 Budget Development 2 Administrative Requirements • A public hearing is required & must include: • Revenue sources for the district's following year's current expense budget (General Fund). • Consideration of possible increases in property tax revenue. • Must be held prior to certification of levy amount. • By November 30th, Districts are required to certify amount of tax to be levied with the County Assessor. ICity of Tukwila 2025-26 Budget Development 3 Agenda g 4 ke Property Tax Limitations $ Assessed Value & Levy Banked Capacity & Statutory Maximum Rate Limitations & Statutory Maximum • State law limits growth property tax revenue for a district to 1% or the Implicit Price Deflator (IPD), whichever is less. • IPD for 2025 is 2.57%. • New construction, changes in state assessed property, and refunds are not constrained to the 1% limitation (but cannot lift the levy rate above statutory maximum). City of Tukwila 2025-26 Budget Development aiND Limitations & Statutory Maximum • $3.60 — City Base Rate • ($0.50) —Library District • ($1.00) — RFA (with Fire Benefit Charge) • $0.225 — Pre-LEOFF Firefighters Pension* • $2.325 —Statutory Maximum * Law Enforcement Officers & Fire Fighters City of Tukwila 2025-26 Budget Development .0110 Limitations & Statutory Maximum ' ‘ • Substantial Need: When the IPD is less than 1.0%, a district can still levy the full 1% by passing legislation of "substantial need". • Since 2016, the IPD has been below 1% three times: 2016, 2017, & 2021. City of Tukwila 2025-26 Budget Development co Levy Amount, AV, & Levy Rate Property Tax is based on a levy rate per $1,000 of Assessed Valuation (AV). Levy rate = revenue / AV x 1,000 The responsibility of determining AV rests with the County Assessor. The Assessor must determine "as nearly as practical" the true and fair value of the property, land, and improvements on the land. Washington State has a budget -based system of property taxation. The three components are: levy amount, assessed value, and levy rate. Within legal limitations, as part of the budget process, Council adopts the amount of property tax revenue needed to fund the budget. • As assessed values increase (more than 1%), the rate decreases. The same is true that as assessed values decrease, the levy rate increases. Hypothetical Model Year 1 Year 2 Year 3 Year 4 Year 5 Assessed Value $ 1,000,000,000 $ 1,300,000,000 $ 1,600,000,000 $ 1,500,000,000 $ 1,700,000,000 District Revenue $ 1,000,000 $ 1,010,000 $ 1,020,100 $ 1,030,301 $ 1,040,604 Calculated Levy Rate $ 1.00 $ 0.78 $ 0.64 $ 0.69 $ 0.61 City of Tukwila 2025-26 Budget Development Voter Approved Excess Levy for Collections in 2025 In 2016 and 2019 the voters approved an excess levy to pay debt service (principal and interest payments) on bonds issues to fund construction and equipment purchases. The total collections for 2025 is $4,931,725. • Excess levy is not constrained by the 1% limitation. The amount collected is equal to the principal and interest payment on debt. Excess Levy 2025 A.V. $ 9, 528, 451, 965 Debt Service 4,931,725 Rate 0.51758 City of Tukwila 2025-26 Budget Development 10 Banked Capacity Available to cities that are levying less than their maximum allowable levy (and less than their statutory maximum levy). Allows for "banking" the unused capacity for use at some future date. When the banked capacity is levied, the district is not constrained by the 1 % limitation. Decision to bank capacity, and then levy it at a future date, does not require voter approval. Does not require separate Ordinance from the annual property tax Ordinance to bank or use at a future date. 00 N Banked Capacity • The example below does not include legally allowed add-ons. Year Maximum Allowable Levy Actual Levy Levy Change Percentage Banked Capacity Baseline (Current) 1,000,000 1,000,000 N/A 1 1,010,000 900,000 -10.00% 110,000 2 1,020,100 909,000 1.0% 111,100 3 1,030,301 918,000 1.0% 112,301 4 1,040,604 927,000 1.0% 113,604 5 1,051,010 1,020,000 City of Tukwila 2025-26 Budget Development 10.0% OOP 31,010 Levy Collections —City Levies Only (estimate) Property Value $ 500,000 $ 600,000 $ 700,000 $ 800,000 Regular Levy Rate 1.25497 1.25497 1.25497 1.25497 Annual Tax Collected $ 627 $ 753 $ 878 $ 1,004 Excess Levy Rate 0.51758 0.51758 0.51758 0.51758 Tax Collected $ 259 $ 311 $ 362 $ 414 Total City Levy $ 886 $ 1,064 $ 1,241 $ 1,418 City of Tukwila 2025-26 Budget Development 13 City Regular Levy Comparative —Tax Savings from Levy Reduction (estimate) Property Value $ 500,000 $ 600,000 $ 700,000 $ 800,000 Regular Levy Rate Annual Tax Collected 1.25497 1.25497 1.25497 1.25497 $ 627 $ 753 $ 878 $ 1,004 Regular Levy No Bank 1.90382 1.90382 1.90382 1.90382 Annual Tax Collected $ 952 $ 1,142 $ 1,333 $ 1,523 Saving from banking $ 324 $ 389 $ 454 $ 519 City of Tukwila 2025-26 Budget Development 14 Total Property Tax (estimate) Regional Fire Authority, 8.2% Flood Control, 0.6% Tukwila School District, 31.7% Emergency Medical Service, 2.1% Other, 2.9% City of Tukwila, 16.0% Washington State, 22.8% _King County, 12.1% KC Library, 2.6% City of Tukwila 2025-26 Budget Development 15 Wrap Up/Q&A ICity of Tukwila 2025-26 Budget Development 16