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HomeMy WebLinkAboutagenda.council.worksession.20120710 MEMORANDUM TO: Mayor and City Council FROM: Don Taylor, Director of Finance THRU: Steve Barwick, City Manager DATE OF MEMO: July 3rd,2012 MEETING DATE: July 10th, 2012 RE: Discussion of Budget Parameters REQUEST OF COUNCIL: Council is requested to provide feedback on the budget that will be used to create the 2012 budget. PREVIOUS COUNCIL ACTION: Each year the Council provides feedback on the assumptions to be used to create the upcoming budget. BACKGROUND: The City of Aspen is emerging from a difficult period where the national recession had significantly impacted the local economy. Fiscal year 2011 reflected a modest turnaround from the 2009—2010 recession years and 2012 is, for the most part, shaping up to be a good year as well. The General Fund sales tax (share of Pitkin County sales tax) is up 6% year, to date over 2011. Planning fees are up somewhat over 2011 but still remain well below the boom years of 2006—2008. Recreation fees may continue slow growth in 2013. On the other hand there are areas of concern that call for a continued conservative forecast for City revenues. The national economy has been showing weakness of late and should be monitored closely. The City's real estate transfer tax is currently 18% below last year's levels year to date. One has to assume that real estate transfer taxes will remain at reduced levels until there is clear turnaround in the housing market. Real estate property taxes are likely to experience slow to no growth over the next three or more years also. 2013 will be a non- reassessment year so property taxes will increase modestly. However, in 2014 it is likely the reassessment will decrease once again. We may be able to offset part of that with tax credit carry forward, but perhaps not all of it. DISCUSSION: Given the mixed revenue picture City staff has taken a conservative approach to its forecast for 2013 revenues and in setting budget parameters for 2013. At a glance the 2013 budget parameters are as follows: Page 1 of 6 Target Budget Increase for programs 4% Pay for Performance 4% Pay Range Adjustment 0% Health Insurance Increase, Employer 8% Health Insurance Increase, Employee 8% Sales Tax Estimated Increase over 2012 Budget 4% RETT Estimated Decrease Over 2012 Budget -4.4% Lodging Tax est. Increase Over 2012 Budget 14% The target budget increase is a maximum that we give all departments for submitting their budgets. This was set at 104% of their approved 2012 budget. Departments are allowed to submit for distinct supplemental requests that are evaluated closely. The pay for Performance assumption is the same as last year. Employees are eligible for up to a 4% raise based on performance and actual increases average about 3.5%. All job descriptions are defined by a pay range which will remain unchanged this year. When an employee reaches the top of their range their pay is frozen unless the range is adjusted. About 30% are currently at the top of the range. Health care costs are estimated to increase 8% for 2013. While this seems high, the cost trend for increases in health care costs has decreased from almost 14% a year on average to approximately 8%. Part of this can be attributed to the change to high deductible health plan by many employees. Other changes to the plans coverage have also helped reduce its cost. Sales tax is proposed at a 4% increase over 2012 budget. Currently 2012 is running ahead of budget so if it finishes ahead of budget it will take less than a 4% increase to hit the 2013 target. On the positive side we are seeing pricing power return to lodging sales which is the biggest component of retail sales. On the cautious side, there are many signs on a macroeconomic level that the nation will experience sluggish growth for several years or even drop again into recession. We have learned that the City is not autonomous from national trends. We should be cautious in our forecasts of future sales tax receipts. Exhibit I shows the historic trend for sales tax both on a nominal and inflation adjusted basis. A trend line that is fit to the last ten years data shows that the trend for inflation adjusted sales tax is essentially flat. The trend over recent years suggests modest growth. Lodging taxes will experience strong growth this year as the 2012 budget was underestimated (December 2011 growth was much stronger than anticipated). Lodging taxes are projected at 14% over 2012 budget, but only 2% over 2012 actual collections. Exhibit II shows the historic trend for lodging taxes. Real Estate Transfer Taxes (RETT) are trending down again for 2012 and are estimated to be down 4.4% from the 2012 adopted budget amount. Windfall transactions can change this forecast significantly from year to year. Exhibit III shows the historic trend for real estate transfer tax. Page 2 of 6 All of the revenue parameters will be rechecked against trends as the next few months of revenue data comes in. There are also some small technical adjustments that may be proposed as it relates to the pay plan and the health insurance that are currently under development. As they are completed they will be provided and explained as part of the regular budget process. FINANCIALBUDGET IMPACTS: Each of the budget parameters have an financial impact that will be more completely developed as part of the budget proposal. Staff provides this information to give the Council a heads up on the basic constructs that will be used to develop the 2013 budget. Staff wants to solicit feedback on these constructs so that we know that we are heading in the right direction in terms of what Council thinks that they can support. RECOMMENDED ACTION: Staff is seeking Council feedback on the proposed parameters. ALTERNATIVES: Any combination of different assumptions for developing the 2013 proposed budget. PROPOSED MOTION: None CITY MANAGER COMMENTS: ATTACHMENTS: • Page 3 of 6 Exhibit I Retail Sales Tax Collections 2003-2012 Projected $12,000,000 $11,000,000 $10,000,000 - 711111111r- $9,000,000 = _ $8,000,000 ::':::'::: MIPW1 .11111k-- 6. igip■- $5,000,000 - -- $4,000,000 I —4—City Collections -I—City Adj. Inflation Page 4 of 6 Exhibit II Lodging Tax Collections (Transportation Fund) 2003-2012 Projected $800,000 — $700,000 $600,000 $500,000 $400,000 $300,000 - $200,000 - $100,000 $0 i ■ I I 1 I I tk y A % c) O N. N. ti�� DO Or`) 0 0 0 0 '0 0 0 0 ti AB � L � L � � � —I—Lodging Tax —M—Adj.Inflation Page 5 of 6 Exhibit III Housing Real Estate Transfer Tax 1990- 2020 Projected $12,000,000 $10,000,000 • $8,000,000 • - $6,000,000 $4,000,000 — $2,000,000 $0 1 1 I 1 1 I 1 1 1 f 1 1 1 1 1 1 1 1 1 1 1 1 1 7 1 1 1 1 1 1 0) 0) 0) 0) 0)) 0) 05 00)00°O°,°'L°�°R°h0 0 °4° N. Ntitititi� ti�`tihti�N. ti�ti�,0 N N. ti� 1oi y0� y0� ti� N ti� N ,1, ,1°,,1°,1°'1, ,10,1°,ti°1, ,1°,1°,1°,1, ,1°.10.1, ,1°,1, ,1°,1, ,ti° -t-RETT --Projected RETT Page 6 of 6 EXECUTIVE SESSION Date July 10 , 2012 Call to order at: 5:3(?m. I. Councilmembers present: Councilmembers not present: � Mick Ireland n Mick Ireland IXI Steve Skadron ❑ Steve Skadron tAdam Frisch ❑ Adam Frisch ] Torre Torre E Derek Johnson n Derek Johnson II. Motion to go into executive session by 1yl1or �T.-4�c.�.� ; seconded by 7o c..c- e..,. Other persons present: AGAINST: FOR: Mick Ireland ❑ Mick Ireland MI Steve Skadron ❑ Steve Skadron L[ Adam Frisch ❑ Adam Frisch © Torre ❑ Torre ® Derek Johnson [' Derek Johnson III. MOTION TO CONVENE EXECUTIVE SESSION FOR THE PURPOSE OF DISCUSSION OF: C.R.S. 24-6-402(4) (a)The purchase, acquisition, lease,transfer, or sale of any real, personal, or other property interest (b) Conferences with an attorney for the local public body for the purposes of receiving legal advice on specific legal questions. (c)Matters required to be kept confidential by federal or state law or rules and regulations. (d) Specialized details of security arrangements or investigations, including defenses against terrorism, both domestic and foreign, and including where disclosure of the matters discussed might reveal information that could be used for the purpose of committing, or avoiding prosecution for, a violation of the law; (e)Determining positions relative to matters that may be subject to negotiations; developing strategy for negotiations; and instructing negotiators; (f) (I) Personnel matters except if the employee who is the subject of the session has requested an open meeting, or if the personnel matter involves more than one employee, all of the employees have requested an open meeting. IV. ATTESTATION: The undersigned attorney, representing the Council and being present at the executive session, attests that the subject of the unrecorded portions of the session constituted confidential attorney-client communication: The undersigned chair of the executive session attests that the discussions in this executive session were ited Y to the topic(s)described in Section III, above. Aar /f Adjourned at: (Q <3.5" NOTICE OF SPECIAL MEETING At the request of Mayor Ireland, there will be a special City Council meeting Tuesday July 10, 2012, at 5:30 PM. City Council Chambers, 130 South Galena, Aspen, Colorado. The agenda for that meeting is: Request for Executive Session—Consultation with counsel regarding ongoing litigation C.R.S. 24-6-402(4)(b) and(e) %illy() Kathryn S. Koch, City Clerk Notices delivered to: Mayor Ireland Councilman Johnson Councilman Skadron Councilman Frisch Councilman Torre James R. True, city attorney Steve Barwick, city manager