December 17, 2013
TO: Mayor, Council, City Administrator and Department Heads
From: Rob Orton, Finance Officer
Subject: Monthly Financial Report—September 2013
Highlights:
-General fund major revenue showing growth
-REET sales surge ahead of recession years
The City’s overall budget performance through September 2013 is summarized in the
following table:
All fund groups are at or below the expenditure trend. The general fund is about 8%
behind the expected trend in September but there are a few departmental issues not
apparent in the snapshot, above.
Election costs were about $8,000 ahead of our estimate---pushing the City Clerk’s
budget ahead of the trend. The City does not control election costs.
The Parks Department has experienced higher than expected utilities expense and
overtime.
The North Bend Police Services expenses are ahead of the trend but this is due to
timing of receipt of State loan proceeds for law enforcement vehicles and the second
“start up” payment from North Bend due December 1st (this was actually paid early by
the City of North Bend and will be reported in November).
Debt Service Funds, which are the annual loan and bond payments for borrowed
capital, look well behind. The funds will be 100% expended as the balance of
scheduled payments are made in November.
Capital projects are under spent because the major improvement projects (Downtown
Phase 2A, Tokul Roundabout, Snoqualmie Parkway intersections and Jeanne Hansen
Park) will not be completed or started in 2013.
Major Revenues, Fund Balance, Reserves and One-Time Revenue
Major sources of revenue in the general fund through September were:
The General Fund balance was $605,000 at the end of September; down about
$50,000.
Property taxes, which comprise nearly half of all general fund revenue, are 10% ahead
of 2012. Normally restricted to a statutory increase of 1% (Initiative 747), voters last
November approved “lifting” this cap by $.24 per $1,000 of assessed value to a
maximum of $2.99. 2013 is the first year of collection for the new levy amount.
Sales taxes are separated into “general” and “one-time” reflecting Council policy
discussed below. The City is isolating non-recurring revenue from certain construction
revenue. It is significant that absent these deductions, sales tax income is gaining
ground over 2012.
General Fund Reserves were at $3.2 an increase of $460,000 since January. Reserve
balances are increasing because of transfer of one-time revenue streams from sales
and business taxes noted below.
Reserves are supporting some one-time capital expenditures in 2013. These are:
contribution for purchase of rail road museum right of way to complete the second
phase of the Downtown Improvement project ($47,000), Tokul Roundabout public
parking lot allocation ($364,000) and matching cash for one of the Phase 2A Downtown
Improvement Project grants ($66,000).
Sales taxes
The graph shows total sales tax income, but also illustrates the effect of removing
(“diverting”) taxes on the Hydro project, and, beginning in 2013, a similar diversion of
sales tax generated by Ridge construction (shown in green).
These funds are part of the construction sector of sales taxes, and are transferred to
general fund reserve accounts by Council policy to segregate them from recurring
revenue. The goal is to avoid using non-recurring sources for ongoing operations:
Although received in September , there is a two month reporting lag for sales taxes.
The actual income shown here was generated in July.
For the year, sales taxes---net of the diverted, one-time funds, are up $85,000 or 9%
over 2012.
In 2013, the City began segregating sales tax from construction on Snoqualmie Ridge—
regarding this as an eventual non-recurring resource when the development wanes.
Taxes from the Hydro Project at the falls average $40,000 per month.
Business and Occupation (“B and O”) Taxes
The City’s B and O tax is .0015% of gross receipts or about $1.50 per $1,000 of sales.
Year-to-date receipts 2006-13 are charted below:
The steep decline in tax income between 2006 and 2011 is directly related to the phase
down and eventual closure of a large healthcare company in 2010.
September is an “off” month for taxes as Q3 ends but returns are not due until October.
Only $800 in receipts for the month was reported. excluding the hydro tax diversion
($65,000
Receipts through September----are $7,000 ahead of 2012 excluding the hydro tax
diversion ($65,000).
Akin to the discussion under the sales tax section, the influence of construction activity
on business tax revenue---and the eventual replacement of it when this activity fades, is
challenging.
Our two new, large companies have filed first returns but owing to the nature of their
business (wholesale distribution), most of their gross sales will be exempt from B and O
under our code. The bulk of their deliveries are outside the City, State or country. As
the forty “B and O” local taxing cities have adopted a model tax ordinance, this problem
is not unique to our town.
The typical solution in other communities has been to enact a square footage tax that
would replace revenue lost because of this exemption. Staff has been researching this
question.
The 2013 budget for B and O income is $490,000—net of the tax diversion (discussed
above). A year-end estimate looks to be more like $445,000.
Utility tax revenue
Utility taxes are derived from a tax on sales of city-owned utilities, state regulated
utilities (gas, power, cable and telephone including cell) and solid waste collection.
These taxes are the second largest general revenue resource behind property taxes.
The rate on state regulated utility companies is 6% but on garbage and city utility
services, the rate has been 9% since 2011.
Total utility tax revenue year-to-date (September) 2006 to 2013 is shown on the
following chart:
Tax revenue is 11% or $166,000 above last year at September-end.
September receipts were $20,000 above the same month in 2012. Three of the four
regulated utilities reported taxes in September---all ahead of the previous year save
natural gas which fell off $2,000. Taxes on City utilities are reported monthly.
The 3% increase in utility taxes enacted in 2011, has produced $212,000 thus far in
2013. The extra 3% is being used exclusively to pay for a portion of the debt service
on 2011, non-voted, infrastructure bonds.
Taxes by utility type area charted below:
Real Estate Excise Taxes (REET)
The City receives ½ of 1% of the selling price for residential and commercial property
sales.
September had 35 properties sold compared to 32 in August. Average price was
$410,000 in September---brought down by the sale of some “Habitat for Humanity”
proprieties and lower priced condominiums. Absent these, average home price was
$443,000.
Year-to-date experience now pre-dates the great recession.
year-to-date are:
Cumulative units sold
61 more lots have sold in 2013 over the same period in 2012.
REET revenue year-to-date 2006-2013 was:
This version of the above chart is adjusted to separate tax revenue realized from large
commercial tract and building sales in 2008, 2009, 2011, 2012 and 2013 (in red) that
have tended to skew what otherwise would be straight residential sales. The dollar
figures are the calculated tax revenue attributed to each commercial sale.
Excluding commercial tract sales, REET revenue for 2013 is $171,000 ahead of 2012. .
The City issued eight single family housing permits in September bringing the total for
the year to 72.
Lodging Tax Receipts (Hotel/Motel):
Lodging taxes (which are a diversion of state sales tax on hotel accommodations) are
reported with the same two month lag as sales tax.
Lodging taxes moved ahead again in September---a trend enjoyed in every month this
year. Because of the lag in reporting, September data was generated in July.
The trend line “fitted” to the above data is a moving average---more recent months
having a larger influence on the trend than older data. As these taxes were obviously
affected by the recession, the more recent income is probably a better indicator. The
post recession trend is obvious.
While lodging income is not a huge source, it does much benefit and supports several
local, non-profit agencies as well as the City’s tourist marketing investments. It is an
important indicator for the general health of our accommodations sector. 1.6 million
Tourists visit Snoqualmie each year.
Lodging taxes are used exclusively for tourist promotion. The 2012-13 Legislative
Session saw passage of House Bill 1253 which increases reporting accountability for
certain of the agencies in Snoqualmie who are recipients of part of lodging tax dollars.
These funds are used to operate visitor centers, museums and special events that are
not operated by City government.
Investments
At the end of September, the City’s cash and investment balances stood as follows:
The investment balance was $20 million in September compared to $19.5 million in
August..
The City is phasing out of its relationship with Bank of America (BOA) and moving
account balances to its State Treasurer’s investment account. The City does not need
two commercial bank accounts. The association with BOA may have been kept as the
vehicle to pay down a loan for the Police Department building which will be fully
discharged October 31st.
Closing the account will save $4,500 per year in fees with no corresponding increase in
costs as account balances are being moved to investment accounts.
Total City revenues for September were $2,278,000 or about $37,000 down from from
August. City expenses declined from $2,630,000 million in August to $1.9 million in
September. As most operating expenses are relatively fixed, the decline is largely due
to timing of capital project outlays. Project costs show up in construction months and
typically elevate expenses during those periods.
The revenue behavior is typical as property tax payments in May and November
dominate City cash income while operating expenses remain relatively flat.
Interest earnings improved to $29,000 for the year—up just $1,000 over August as the
month again recorded “routine” earnings from the State Treasurer’s pool and overnight
rates at the banks.
The “LGIP” or “Local Government Investment Pool”, managed by the State Treasurer,
allows cities to ride on the back of the State’s $9 billion portfolio. The investments are
completely liquid. In September, the LGIP yielded .12% --unchanged from the month
previous
This yield is small but beats contemporary money market accounts against which the
LGIP is indexed.
The LGIP account receives direct deposits of all State shared revenue due the City
(liquor revenue, gas taxes, criminal justice sales taxes etc.). In September, the City
received $290,000 from these sources increasing the LGIP balance to $9.4 million.
The investment account ($6,096,000) is comprised of government agency securities.
The cost of these securities is shown at the price paid for them (all at slight premiums
plus accrued interest).
Disclosing the market value of these securities has been deemed a best practice. At
the end of September, the market value was $6,056,000---a $2,000 uptick since August.
The interest or coupon rate on these bonds is fixed but the price paid (above or below
par) can vary in the market. The City plans on holding these securities until maturity
when they will be redeemed at par value.
The yield on this portion of the portfolio is .49% roughly equivalent to the two year
Treasury note.
Transportation Benefit District (TBD)
This special district, formed in 2011, places a $20 license fee on renewed vehicle
registrations in the City.
Receipts were $12,300 in September---bringing total revenue for the year to $109,000.
Please contact me if you have questions.
Rob Orton, Finance Officer
City of Snoqualmie