December 20, 2013
TO: Mayor, Council, City Administrator and Department Heads
From: Rob Orton, Finance Officer
Subject: Monthly Financial Report—October 2013
Highlights:
-Taxes from hydro project fading as project winds down
-B and O taxes will likely not make budget target
Budget Performance
The City’s overall budget performance through October 2013 is summarized in the
following table:
The major fund groups are within the trend for this point in the year. While the general
fund is well under the expense trend (75% versus 83%). Last month, the following
exceptions were noted as they cannot be detected from the summary, above.
Election costs, overtime and higher utilities expenses have respectively, pushed the
City Clerk and Parks budget ahead of the trend.
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).
In addition, the Finance Department is well behind expenses (67%), as the 2013 budget
was considerably overstated by a transposition error in preparation. Adjusting for this,
the Department is about 80% expended at October end.
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 October were:
The General Fund balance was $2,164,000 at the end of October---up from $605,000 at
the end of September and aided, of course, by payment of second half property taxes.
In October, the City received $1,982,000 in property tax payments compared to
$1,665,000 in 2012. The increased collections are partly a result of timing of payments
but also due to a general increase in tax revenue. The properly tax budget is
$5,445,000 for 2013.
General Fund Reserves were at $3,240,000 an increase of $500,000 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), matching cash for one of the Phase 2A Downtown
Improvement Project grants ($66,000) and a loan of $534,000 to the Jeanne Hansen
park construction project.
Sales taxes are separated into “general” and “one-time” reflecting Council policy
discussed below.
The City is transferring non-recurring revenue from certain
construction sector sales.
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 October , there is a two month reporting lag for sales taxes. The
actual income shown here was generated in August.
Net of the “diverted” taxes, revenue between 2012 and 2013 is up less than 6%.
The perennial dominance of the construction sector is waning.
construction in August declined 30% between 2012 and 2013.
Taxable sales for
In October (sales in August) the whole sector comprised 34% of our tax base contrasted
with 45% in 2012. The expected wind down of the PSE Hydro project is the root cause
of this change. Taxable sales attributed to the project itself dropped 30%. Normally
averaging about $40,000, in October only $1 was collected!
However, removing the entire construction sector reveals that the tax base has grown
23% between the two comparable months and 17% when comparing the most recent
twelve month period in 2012 and 2013.
Among the sectors most closely related to local Snoqualmie business (retail, wholesale
trade, manufacturing, accommodations and food services), only wholesale trade
stepped back in October. But for the last twelve months, even this sector has improved
markedly.
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.
The red shaded portions of the trend in are taxes related to the large hydro project at
Snoqualmie Falls. Similar to sales taxes, City policy requires that money from one-time
or non-recurring sources be isolated from the cash flow to ensure that they are not used
to balance operating budgets. This is accomplished by transferring these funds to
general reserves.
Returns for third quarter 2013 (received in October) were technically $22,000 below the
comparable period in 2012. However, timing of receipt of returns and posting of
revenue can bleed into November. This happens with regularity and was repeated this
year.
Third quarter income in 2012, for example, was $93,000 compared to $70,000 this year.
Two larger companies had third quarter returns last year posted in October but this
year, recorded in November. Adjusting for this discrepancy ($25,000), the two years
are quite comparable.
One of the City’s stalwart companies recorded a significant drop in sales between Q2
and Q3 that is worth monitoring while one of the newest business park entrants has
significantly spun up sales since the beginning of the year (Snoqualmie Code frowns on
naming taxpayers). This experience, which is recurring revenue, easily replaces the
stream of income from the hydroelectric project---which was, by itself, the largest
producer of B and O taxes.
Year-to-date income is ahead of last year by $51,000 ($464,000 versus $413,000 in
2012) but subtracting the “diverted” or one-time revenue reveals that net taxes have
declined.
The 2013 budget for B and O income is $490,000—net of the tax diversion (discussed
above). This was $40,000 above 2012 anticipating growth from new business.
228 tax returns were received in October 2013 up from 209 in 2012.
A year-end estimate looks to be more like $445,000 or $40,000-$50,000 short of that
mark.
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 (October) 2006 to 2013 is shown on the following
chart:
Utility Taxes
Year-to-Date October
2006-2013
2011
2012
$1,934,000
$1,702,000
2009
$1,582,000
2008
$1,312,000
$1,337,000
$1,000,000
$786,000
$1,500,000
$978,000
$2,000,000
$1,297,000
$2,500,000
R² = 0.9494
$500,000
$2006
2007
2010
2013
Tax revenue is $232,000 or 14% ahead of 2012.
The filing intervals are different among reporting utilities. Regulated gas and electric
companies file bi-monthly; cable and garbage quarterly and telephone and city utilities,
monthly. October is an “off” monthly for gas and electricity.
A 3% increase in utility taxes enacted in 2011, has produced $230,000 thus far in 2013.
The extra 3%, levied only on garbage and City services, is being used exclusively to
pay for a portion of the debt service on 2011, non-voted, infrastructure bonds.
In October, tax receipts were $193,000 compared to $126,000 in 2012. An increase of
$67,000. $33,000 of this is related to the 3% adjustment noted above.
Garbage taxes are down $16,000 from last year. In June 2012, the City awarded a new
collection contract to Waste Management Inc. The bid process for the new agreement
resulted in lower consumer rates and consequently, a lower base upon which utility
taxes are collected.
Cable television and telephone taxes for the year are both higher than 2012 by about
$130,000.
Taxes by utility type are charted below:
Real Estate Excise Taxes (REET)
The City receives ½ of 1% of the selling price for residential and commercial property
sales.
October had 39 properties sold compared to 35 the month before. The average price
was $440,000 compared to an adjusted average of $443,000 in September.
Year-to-date experience now pre-dates the great recession.
year-to-date are:
Cumulative units sold
73 more lots have sold in 2013 over the same period in 2012--- a very strong showing.
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 transaction.
Commercial transactions this year were dominated by the sale of the Echo Ridge
Apartment complex, retail buildings in the Ridge retail center (both January) and sale of
the Bright star (TPC) Golf course in May.
Excluding commercial tract sales, REET revenue for 2013 is $112,000 ahead of 2012.
But the total fund is up $290,000 over last year.
The City issued 11 single family housing permits in October bringing the total for the
year to 83.
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.
In October, reported tax income was $6,700---the highest recorded month since
January 2007----a pre-recession year. October of 2007 was the next highest period
with $6,300 paid. The sales for October were generated by lodging sales in August.
The trend line “fitted” to the above data is a moving average---more recent years 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.
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 help fund visitor centers, museums and special events that are
not operated by City government.
Investments
At the end of October, the City’s cash and investment balances stood as follows:
The investment balance was $21.1 million in October compared to $20 million in
September. As noted above, cash received an influx of $1.9 million as second half
property tax payments due October 31st, were received..
Total City revenues for October were $4.3 million compared to $2.3 million in
September while expenditures climbed to $3.2 from $1.9 million.
Revenue, as noted, was pushed up by October properly tax receipts.
Expenditures were up $1.3 million. Payments for capital projects (Jeanne Hansen Park)
rose by $530,000, interfund transactions were up $400,000 and transfers between
funds were $240,000.
Interest earnings were little changed from September improving to $31,000 from
$29,000.
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 October, the LGIP yielded .13% up from .12%.
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 October, the City
received $250,000 from these sources increasing the LGIP balance to $9.7 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 October, the market value was $6,057,000 virtually unchanged from the
month previous. 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 $12,500 in October---bringing total revenue for the year to $133,000—
equivalent to about 6,720 registrations.
Please contact me if you have questions.
Rob Orton, Finance Officer
City of Snoqualmie