The City Manager and Financial Services Director are presenting the City Manager’s final budget recommendations for fiscal year 2015-2016 (FY ’16).  Today, the City Council is being asked to direct staff in preparing the City’s final budget document for submission to the State of Nevada.  City staff has filed the tentative budget for FY ‘16, and City Council will receive public comment on the FY ‘16 tentative budget on Tuesday morning, May 19, 2015 at 9:00 am.  Immediately following the public hearing on the FY ‘16 tentative budget, the City Manager and Financial Services Director will present the final budget document which will be prepared based upon direction received today.  The final budget must be filed with the Nevada Department of Taxation by June 1 annually.  During years in which the Legislature is in session, should the Legislature take action which affects the City’s budget for the subsequent fiscal year, an additional 30 days would be granted to file an amended budget if necessary with the Nevada Department of Taxation.

Attached to this agenda is the City Manager’s Budget Recommendation Book as well as the proposed five-year Capital Improvements Plan (CIP).  The City Manager’s Recommendation Book provides a synopsis of results and expectations of the City Manager’s budget recommendations for the various Funds maintained by the City of Sparks and the Sparks Redevelopment Agency for FY ‘16.  Today, the Financial Services Department Director will be presenting the material found in the City Manager’s Recommendations book, and is seeking approval of the City Manager’s final budget recommendations or alternate direction to prepare the City’s final budget for FY ‘16.

Today, the City Manager is seeking the following:

1. Approval of the FY ‘16 City Manager’s final budget recommendations;
2. Approval of the proposed five-year Capital Improvements Plan (CIP)

Item #1 -- Information Regarding the City Manager’s FY ’16 Final Budget Recommendations:

• The City Manager’s final budget recommendations have been prepared based upon direction received from City Council at the February 24, 2015 budget workshop.  See the attached Budget Recommendations Book for more detailed information on the City Manager’s final budget recommendations for FY ’16. 

Summary of the City Manager’s final budget recommendations for FY ’16 according to fiscal policy direction received on February 24, 2015:

Policy #1:  General Fund ending fund balance

• Council provided direction to submit a final budgeted ending fund balance to no lower than 5.0% of expenditures in FY ‘16
• Final budget recommendations presented today include an ending fund balance of 6.0% of expenditures in FY ‘16
• The slightly higher ending fund balance presented today compared to what was presented at the workshop in February is primarily the result of stronger than expected property tax receipts in the current FY ’15, creating a higher fund balance in FY ’15 which will be carried over into FY ’16.

Policy #2:  General Fund contingency budget

• The City Manager’s final budget recommendations include a contingency budget of $1.0M within the General Fund, offset by a transfer-in of an equal amount from the Motor Vehicle Internal Service Fund. 
• This offsetting transfer-in is available as long as resources are available within the Motor Vehicle Fund.  The contingency budget is established for use only upon Council designation to cover unexpected one-time budget shortfalls
• So far, $445,000 has been spent from the Contingency budget in FY ’15, and there is no expectation that further usage of the Contingency budget will be necessary in FY ’15.  Due to higher revenues and savings primarily from staff vacancies in FY ’15, the General Fund has sufficient resources so that a transfer from the Motor Vehicle Fund is not necessary to offset the $445,000 Contingency budget use.  $555,000 remains within the Contingency budget for FY ’15 should an unexpected need arise between now and the end of the fiscal year
• Fire Department overtime is expected to be over budget in FY ’15 due to several vacancies resulting from retirements and medical leaves, and it was thought that usage of the Contingency might be necessary for this purpose.  However, after further analysis, the Financial Services Department does not expect that use of the Contingency budget will be necessary to pay for the Fire Department overtime issues
• There is no change to what was presented during the workshop in February

Policy #3:  Transfer resources from the General Fund to the Capital Projects Fund to help pay for infrastructure, facility, and technology needs as identified within the Capital Improvements Plan (CIP)

• The City Manager’s final budget recommendations include a transfer of approximately $1.9 million for FY ‘16
• No change compared to what was presented during the workshop in February

Policy #4:  Commit Business License revenue to the Stabilization Fund

• The City Manager’s recommendations include no commitment of Business License Revenue to the Stabilization Fund for FY ‘16
• Keeping true to direction from Council during previous budget workshops, the expectation for this policy is that funding for the Stabilization Fund might commence once again beginning in FY ’17.  Council has stated the desire to wait for revenues to improve and fiscal stability to improve before making further financial commitments to the Fund.  We are beginning to see signs of that happening, and FY ’17 may be the right time to commence funding the Stabilization Fund again
• The Stabilization Fund has a current fund balance of ~$230K

Policy #5:  Personnel costs not to exceed 78% of total General Fund revenues

• The City Manager’s final budget recommendations include personnel costs equal to 78.9% of total revenues
• This is slightly lower than the 79.2% which was presented during the workshop in February primarily due to slightly higher revenues expected for FY ‘16

Policy #6:  Determine strategies for reducing liabilities related to the City’s Other Post-Employment Benefit (OPEB) and Workers Compensation (Public Safety Heart/Lung/Cancer benefits). 

• The City currently has approximately $6.0 million of assets within the Workers Compensation Fund available to pay for claims.  However, Workers Compensation Fund liabilities total approximately $10.0 million, resulting in a negative fund balance of about $4.0 million. The liabilities will be paid over a long period of time, but with the number of heart/lung/cancer claims increasing dramatically, it is unclear how long the $6.0 million of assets will last.  While a “pay-as-you-go” funding policy is still recommended for the immediate future, long term solutions are needed to address the fast-growing workers compensation liability for public safety personnel heart/lung/cancer benefits
• Based on direction received at the February workshop, the City Manager is recommending City staff create an irrevocable trust fund for the purpose of funding the City’s OPEB liability.  A resolution to create an irrevocable trust fund will be presented for Council approval at a subsequent Council meeting
• The City Manager is recommending funding for the OPEB irrevocable trust fund would not be included in the FY ’16 final budget; rather, funding options for Council consideration will be developed and presented at a subsequent Council meeting
• Thus, the City Manager’s FY ’16 final budget recommendations include maintaining the current pay-as-you-go funding status for OPEB until funding options can be presented for Council consideration at a subsequent Council meeting date.  The City Manager is recommending that the resolution to create an irrevocable trust fund will be presented to Council this summer, followed by a presentation of funding options for Council consideration either at the Fall Council workshop or no later than the Council workshop traditionally held in January or February.

Other FY ’16 items that have already been presented or discussed at the February 24 budget workshop are presented here with updated estimates that are captured in the final budget recommendations and fiscal policies listed above:

General Fund Revenues:

• Property Taxes are trending higher by 6.3% in FY ’15 compared to FY ’14 which is much stronger than originally expected due to more related growth and development than expected (previously, 4.4% increase in revenues was expected).  FY ’16 is expected to see an increase of approximately 3.0%
• CTAX revenues are expected to end finish FY ’15 higher by about 5.9%, with an increase of about 6.0% expected in FY ’16.
• License & Permit revenue is increasing by about 8.0% in FY ’15 (partially due to an increased garbage franchise fee increase), and is expected to increase 3.7% in FY ‘16
• Total G.F. revenues are trending increasing 5.0%, or $2.7M higher in FY ’15, followed by an increase of 3.9%, or $2.2M in FY ‘16

General Fund Expenditures:

• Salaries & Wages are expected to increase 2.8% in FY ’15 followed by 2.0% increase in FY ‘16
• Benefits are expected to increase 7.8% in FY ’15 (primarily driven by a 25% contribution and premium rate increase planned for the Group Health Self Insurance Fund).  An increase of 14.9% is expected in FY ’16 (driven by an additional 25% group health premium increase as well as an increase in PERS contribution rates)
• Services & Supplies expenditures are expected to increase 7.4% in FY ’15, and remain flat in FY ‘16
• Total G.F. expenditures are expected to increase by 5.1%, or $2.7M in FY ’15, and by 5.3%, or $2.9M in FY ‘16
• The City Manager’s recommended New Needs book is presented today as Appendix B to the City Manager’s recommendations book attached to this agenda item.  There is one slight change to his recommendations in that the Police Department’s request for funding for the Property Management System for Evidence is now being recommended.  To pay for this request, the hiring of two Communication Supervisors will be delayed until mid-September or October
  • This is the only change in New Needs recommended by the City Manager compared to what was presented to the Council during the February workshop.  The overall funding recommended for New Needs as presented today is not different from what was presented in February
  • In total, $290,028 of New Needs in the General Fund is being recommended by the City Manager for inclusion into the FY ’16 budget.  New Needs recommended for other Funds total $634,657

FY ’16 General Fund Transfers:

• $1.116M subsidy to the Development Services Fund made during the recession has been paid back to the General Fund during FY ’15.  No further subsidies are expected.
• $1.0M transfer-in from the Motor Vehicle Fund to offset the contingency budget.  This is only expected to be utilized in General Fund resources are insufficient to meet any contingency budget usage.  This budget item is recommended solely for the purpose of providing financial flexibility that might be needed to fund unforeseen expenditures.  It must be recognized that a transfer from the Motor Vehicle Fund would damage the fiscal stability of that Fund and should be made only as a measure of last resort
• $835K transfer-out to the Parks & Rec. Fund representing a subsidy of about 23.9% of expected expenditures in that Fund
• $1.9M transfer-out to the Capital Projects Fund for infrastructure, facility, and technology needs as identified in the 5 year Capital Improvement Plan
• Transfer-out to the Debt Service Fund of $491K for the City’s 2007 CTAX bond debt service needs.  Unspent bond proceeds were used to pay this debt service during FY ’14 and FY ’15, but the debt service payments need to be added back into the General Fund in FY ’16 as the bond proceeds have now been exhausted

General Fund Ending Fund Balance:

• A net increase of $919K is expected in FY ’15, followed by a budgeted reduction of $2.3M in FY ’16
• FY ’15 estimated fund balance is expected to be approximately $5.8M, or 10.5% of estimated expenditures
• FY ’16 budgeted fund balance is approximately $3.4M, or 6.0% of budgeted expenditures

General Fund Subsidy of the Redevelopment Agency:

• $250K was paid to RDA #2 in FY ’13, and another $862K was paid in FY ’14.  Due to the 10.2 acre land sale and improving property tax receipts, no further subsidies are expected
• No subsidy is expected for RDA #1, but property taxes continue to rise at a slow pace; as such, a subsidy in subsequent fiscal years has not yet been ruled out

Other Post-Employment Benefit (OPEB) Liability

• Net OPEB liability was ~$6.7M as of June 30, 2014 (latest valuation available) and is expected to grow by ~$600K annually
• The City currently employs a “pay-as-you-go” funding policy for OPEB, but at the workshop in February, Council directed staff to pursue the creation of an irrevocable trust fund for the purpose of funding the OPEB liability.  However, as mentioned previously under fiscal policy #6, the City Manager’s FY ’16 final budget recommendations include maintaining the current pay-as-you-go funding status for OPEB until funding options can be presented for Council consideration at a subsequent Council meeting date

Workers Compensation Liability

• Long-term liabilities from the heart/lung/cancer benefits for the City’s public safety employees is ~$9.3M as of June 30, 2014 (latest valuation available)
• The liability from heart/lung/cancer benefits is expected to continue to rise in FY ’15 and FY ’16; however, the actual change in liability will not be determined until the City receives an actuarial report at the end of each fiscal year.  For the purposes of filing the FY ’16 budget, estimates have been made internally by Financial Services Department staff based upon information currently available
• A negative fund balance of $4.0M existed at June 30, 2014 within the Workers Compensation Self Insurance Fund
• Fund assets (~$6.0M as of June 30, 2014) are expected to be sufficient to cover claims as they come due for the next few years, but long-term solutions are needed.  As the number of heart/lung/cancer claims increase, we do not know how long the $6M of assets will last.  Current insurance provisions provide stop loss coverage which kicks in after $2M for each heart/lung/cancer claim.

Information on other Funds maintained by the City can be found in the City Manager’s final budget recommendations book attached to this agenda item.

Item #2 -- Information Regarding the City’s Five-Year Capital Improvements Plan (CIP):

• The CIP document can be found as an attachment to the City Manager’s FY ’16 Final Budget Recommendations book

Nevada Revised Statues (NRS) 354.59801 requires that each local government have on file, a copy of its plan for capital improvements.  NRS 354.5945 further requires a five year capital improvement plan be submitted to the Department of Taxation, Debt Management Commission of Washoe County, and the Director of the Legislative Counsel Bureau.  In addition, NRS 354.5945 requires that copies be available for public record and inspection at the offices of the Sparks City Clerk and the Washoe County Clerk.

City Council could also choose alternatives other than those presented today, and direct staff to prepare a final budget and Capital Improvements Plan for fiscal year 2015-2016 accordingly.

Recommended Motion #1:  “I move to approve the City Manager’s final budget recommendations for fiscal year 2015-2016”.

Recommended Motion #2:  “I move to approve the proposed five-year Capital Improvements Plan for fiscal years 2015-2016 through 2019-2020”.