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Budget and Finance Overview City of Plano
The Budget Process
Why Budget? Chapter 102 of the Texas Local Government Code states: •
An annual budget to cover proposed operating expenditures is required to be prepared and submitted for the municipal government;
•
Public Hearings and Special Notice on the proposed budget must be published and held;
•
The budget must be available for inspection;
•
The approved budget is authorized by ordinance and thus specifies the legal spending limits for the fiscal year; and
•
The budget must be a structurally balanced budget.
In other words, we must have an annual budget and it must be a balanced budget – we cannot run a deficit.
Best Practices The City of Plano follows the budget and finance best practice guidelines of two national organizations: 1) The Government Finance Officers Association (GFOA). The GFOA has issued 172 Best Practices which cover 9 topic areas. The association offers a Distinguished Budget Award Program (the City of Plano has been recognized 28 times), a Certificate of Achievement for Excellence in Financial Reporting program and an Elected Officials Guide Series. 2) The National Advisory Council on State and Local Budgeting (NACSLB) is a joint effort by eight public sector associations. In a report issued in 1998, the NACSLB outlined four (4) principles and 58 recommendations.
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The Budget Cycle There are four stages of our yearly budget cycle. Stage One | Preparation From January-June, the City establishes its budget focus for the upcoming fiscal year. This process includes the development of a Three-Year Financial Forecast, Revenue Estimates and the Proposed Budget based on the City Council’s Strategic Plan. During this time each department is preparing their operating budget and capital investment program (CIP) for the fiscal year. All departmental budgets and CIP are due in May to the Deputy City Managers and the Budget Department for their review. It is at this time the Budget Department prepares salary and benefit forecasts for inclusion in the budget. Once all budgets are complete, the City Manager conducts budget review meetings with each department to discuss any changes to existing or new programs for inclusion in the City Manager Recommended Budget. Stage Two | Approval
Budget Cycle
From July- September, the Budget works through the approval process. The City Manager Recommended Budget is submitted to Council. City Council reviews and approves both the budget and the tax rate. The Budget and the Community Investment Program (CIP) budget are adopted first, then the Tax Rate is adopted. Stage Three | Execution
Preparation
Audit
The new budget year begins October 1. Throughout the financial year, the City monitors and provides periodic reports. The City publishes and submits the Adopted Budget and CIP for inclusion on the City’s web site, to all libraries and to the Government Finance Officers Association for the Distinguished Budget Award Program.
Approval
Execution
Stage Four | Audit The City’s Annual Audit is in January. The purpose of the audit is to ensure that the financial statements present fairly, in all material respects, the financial position of the City and have been prepared in accordance with U.S. generally accepted accounting principles and governmental accounting standards.
Budget Management Budget management is a continual process. If City staff are not preparing a budget, they are monitoring and reporting on the current budget. Reports include: •
Monthly reporting on finances with quarterly presentations to Council
•
Summarize key revenues and monitor expenditures
•
Allows for early identification of potential issues 3
An important role of Council is to assess the budget proposal using a long-range forecast. Decisions made each budget year impact every future year. The budget must be sustainable from year-toyear, considering a variety of factors which impact City revenue sources.
Plano | Budget Management Policies The following are highlights of the budget policies the City of Plano follows during budget formation. Each policy is discussed in greater detail within this document. •
Budget Projections
•
CAD’s Certified Appraised Property Value Estimates
•
Sales Tax Cap Projections Policy – 3-year rolling average
•
Capital Reserve Fund Transfer– 75% of annual depreciation
•
Water & Sewer – Pay-as-you-go philosophy since 1993
•
Employee Compensation
•
Salary and Benefits account for 65% of General Fund expenses
•
Out of the 65% ($192M), Public Safety accounts for 63% ($120M). Public Safety includes Police, Fire, Public Safety Communications, Health and Code Enforcement
•
Budget Formulation
•
Decision Package
•
Supplements
•
Budget Changes
•
Supplemental Appropriations
Strategic Goals for Excellence • Carry Forwards Budget decisions are based upon the City Council’s Strategic Goals for Excellence. Fiscal Year 2015-16
Protect and Sustain Quality of Governance
Deliver Outstanding Operational Analysis and Effectiveness
Successfully Address Revitalization Needs in the City of Plano
Affirm and Reinforce Plano’s Commitment to Exceptional City Services
Enhance Plano’s Role as a Regional Leader
Expand and Improve Communications
Strengthen the Working Relationship with our Strategic Partners in the Areas of Education, Business, Non-Profits and Faith-Based
Plano City Council | Strategic Goals for Excellence 2015-2016 6
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Types of Budgets There are multiple budgets within the City. The Operating Budget is the financial plan adopted for a single fiscal year. There are two working titles associated with the Operating Budget: 1. Proposed Operating Budget designates the financial plan initially developed by departments and presented by the City Manager to the City Council for approval. 2. Adopted Operating Budget refers to the plan as modified and finally approved by the City Council. The Community Investment Program (CIP) Budget is the five-year financial plan which addresses development and improvements to the city’s infrastructure. This was formerly known as the Capital Improvement Program. The Council Budget is the budgetary amount adopted in budget ordinance by the City Council in September. The Current Budget is the Council Budget plus encumbrances and carry-forwards, and any budget adjustments that departments operate under during the fiscal year. The Re-Estimate Budget is the Current Budget, adjusted at mid-year to reach September 30. The main reason for the re-estimate is for each department to re-evaluate the actual amount needed to complete the fiscal year. Departmental savings are usually found at this time as well as savings from salary and benefits due to attrition and timing of employee hiring. The Proposed Budget is the budgetary amount recommended by each department director, which is validated and recommended by the City Manager for next fiscal year. The proposed budget is submitted to the City Council for adoption in September.
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Governmental Accounting
About Governmental Accounting Governmental accounting differs from business and personal accounting. It follows the guidance provided by the Governmental Accounting Standards Board (GASB). Key principles of government accounting. It: •
Uses fund accounting
•
Follows Generally Accepted Accounting Principles (GAAP)
•
Focuses on a balanced budget (exception: enterprise funds which can make a profit)
•
Is a modified accrual basis of accounting
•
Relies on suggested best practices from the Government Finance Officers Association (GFOA)
Fund Accounting There are four main fund types within the Plano budget: 1. Governmental •
General Fund
•
Special Revenue Funds
•
Debt Service Funds
•
Internal Service Funds
•
Capital Projects Funds
2. Enterprise Funds / Business-Type Funds 3. Trust and Agency Funds 4. Component Units
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Governmental | General Fund The General Fund is used to account for all financial resources except those required to be accounted for in another fund. Resources are generated by property and other taxes, franchise fees, fines, licenses and fees for services. Operating expenditures support the service provided by the following functional areas: General government, public safety, public works and community services. The best practice according to GFOA is to maintain a target of no less than 45 days of working capital (“cash in hand”). The City budgets to maintain 30 days. Governmental | Special Revenue Funds Special Revenue Funds account for the accumulation and disbursement of restricted resources. In other words, funds in these accounts are restricted in how they can be used. Special Revenue Funds at the City of Plano include: •
Economic Development Incentive
•
Criminal Investigation
•
Grant
•
Plano Television (PTV)
•
Public Safety Communications (911 reserve fund)
•
Municipal Court Technology
•
Memorial Library
•
Seized Asset
•
Libraries
•
Animal Shelter Donations
Governmental | Debt Service Fund A Debt Service Fund is sometimes called an I&S Fund. It is used to account for the monies set aside for the payment of interest and principal to holders of the City’s general obligation and revenue bonds, the sale of which finances longterm capital improvements, such as facilities, streets and drainage, parks and water/wastewater systems.
When the tax rate is set, the debt service is to be paid back first.
Governmental | Internal Service Fund Internal Service Funds account for the financing of goods or services provided by one department for another. These include: •
Equipment Maintenance Fund (includes the Equipment Replacement Fund)
•
Municipal Warehouse
•
Technology Services
•
Risk Management
•
Health Claims
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Governmental | Capital Projects Fund Capital Projects Funds account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary type funds). These are typically bond proceeds and are restricted other than the Capital Reserve Fund. The Capital Reserve Fund are monies set aside from the operating budget each year to supplement the funding of capital projects. Thus, these funds are not restricted. Governmental / Capital Projects Funds include: •
Capital Reserve
•
Street Improvements
•
Municipal Facilities
•
Park Improvements
•
DART
•
Park Services
•
Public Infrastructure
Enterprise Funds Enterprise Funds account for operations that are financed and operated in a manner similar to private business. For example, where the intent of the City is that costs of providing the goods or services to the general public on a continuing basis will be financed or recovered through user charges. These include: •
Water and Sewer
•
Environmental Waste Services
•
Municipal Drainage
•
Convention and Tourism
•
Municipal Golf Course
•
Downtown Center Development
•
Recreation Revolving
Trust and Agency Funds Agency funds are restricted in how funds can be expended. For example, developers’ escrow are monies received from developers that must be returned to them once a project is completed. Unclaimed property must be held for the rightful owners. Trust funds are held in trust for the benefit of employees. These include: •
115 Trust (Other Post-Employment Benefits - OPEB)
•
Retirement Security Plan
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Component Units Considerations which influence if an organization can be classified as a component unit are: •
Organization is legally separate.
•
City appoints a voting majority of the organizations board.
•
City is able to impose its will.
•
Organization has the potential to impose a financial burden on the City.
•
There is a fiscal dependency by the organization on the city
The City currently has three component units: •
TIF Eastside
•
Plano Improvement Corporation
•
Public Improvement District
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Revenue Projections
City Money Sources
Combined Budget Resources Combined Budget Resources
2016-17 COMBINED BUDGET RESOURCES $578,654,110 Fines & Forfeits $7,228,045 1.2%
Taxes $246,466,426 42.6%
Fund Balance $80,143,300 13.9%
Interest Income $1,130,892 0.2% Licenses & Permits $13,459,213 2.3%
Charges for Service $189,459,213 32.7% Intergovernmental Misc/Other $4,621,249 $4,160,002 0.8% 0.7%
Fines & Forfeits Fund Balance Interest Income Licenses & Permits Charges for Service Franchise Fees Misc/Other Intergovernmental Taxes
Franchise Fees $32,111,587 5.6%
2016-2017 Combined Budget Resources | $578,654,110
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neral Fund Budgeted Revenues General Fund Budgeted Revenues 2016-17 GENERAL FUND
REVENUES $279,783,389 Sales Tax $75,418,120 27.0%
Property Tax $119,687,600 42.8%
All Other Revenues $84,677,669 30.2% 2016-2017 General Fund Revenues | $279,783,389
2016-17 General Fund 2016-2017 General Fund
EXPENDITURES BY AREA $295,090,435
Non-Departmental & Transfers $64,278,292 22%
Facilities Maintenance $9,858,037 3%
General Administration $18,207,788 6%
Libraries $11,554,191 4%
Parks & Recreation $27,888,011 10%
Building & Development $13,213,523 4%
Public Safety & Health $139,987,023 48%
Public Works $7,551,286 3%
Expenditures by Area | $295,090,435 25
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Taxes and the Average Home Property Tax Basics
2016-17 Adopted Tax Rates
Property tax (also called Ad Valorem) represents the revenue based upon the value of a property. The value is determined by outside agency, the Central Appraisal District, not the City.
Average Home Value
$ 326,099
Tax Rate
City of Plano
$ Amount
%
.4786
$1,249
19.2%
1.4390
$4,333
66.7%
10.0%
Because the City is in two counties, Denton and Collin, two Central Appraisal Districts determine the value of property within the City’s boundaries.
PISD
While the Appraisal District determines a property’s value, it does not set the tax rate.
* Using the 2016-17 Adopted Tax Rates and the 2016 Average Home Value, this assumes that the General Homestead Exemptions were taken for the City of Plano (20%), for PISD ($25,000), and Collin County (5%).
Collin County
.2084
$646
CCCCD
.0812
$265
4.1%
2.2072
$6,493
100.0%
TOTAL TAXES/YEAR
Assessed Property Valuations Assessed Property Valuations $36.0
$34.4
$34.0
$31.3
Value in Billions
$32.0 $30.0
$28.8
$28.0 $26.0
$24.5
$24.0
$21.7
$22.0
$25.8
$25.5
08-09
09-10
$24.7
$25.0
10-11
11-12
$25.7
$26.9
$22.8
$20.0 $18.0
05-06
06-07
07-08
12-13
13-14
14-15
15-16
16-17
Fiscal Year 27
Change in Plano’s Taxable Value 2,500
$2,321.8
2,000
Millions of Dollars
1,500 1,000
$750.7
500 0 -500 -1,000 -1,500
2007-08
2008-09
2009-10
2010-11
2011-12
Existing Property
2012-13
2013-14
2014-15
2015-16
2016-17
New Property 28
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Assessed Property Valuations Residential & Commercial Break-out
36.0
$34.4
34.0 32.0
$31.3
30.0 28.0 26.0
$24.7
$25.0
$26.9
$25.7
$28.8
Value in Billions
24.0 22.0 20.0 18.0
50%
50%
47%
48%
50%
51%
50%
53%
52%
50%
49%
50%
50%
50%
10-11
11-12
12-13
13-14
14-15
15-16
16-17
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
Fiscal Year Residential
Commercial
City of Plano Residential Tax Exemptions and Tax Freeze
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The City offers a variety of exemptions to offer tax relief for its residents. All property owners are entitled to take a 20% Homestead Exemption. This exemption is only valid for one property. Additional exemptions include: • $40,000 Senior/Disability Exemption, which is available if an individual is over 65 years old or is disabled (either/or). • Over-65 Tax Freeze, which freezes the tax at age 65. Once the freeze is in place, as property values increase the dollar amount cannot go up. However, if property values decrease the dollar amount can go down. It is helpful to think of the Over-65 Tax Free as a “Tax Ceiling.” Individuals can apply anytime during the year, by submitting tax exemption information to the individual’s Central Appraisal District. New improvements are being added to the Tax Freeze. As well, if individuals move, a new Tax Freeze is established by porting, which is determined by the Central Appraisal District on a percentage basis on the new residence.
Property Tax Calculation Property owners can only homestead one property, regardless of how many homes they may own. Homestead properties fall under the State of Texas’ 10% Appraised Tax Value Limit. This limit states the appraised value is limited to 10% increase each year for residential homesteads. For example: •
A house valued at $250K in 2015 is valued at $300k in 2016. This represents a 20% increase. If this house has been homesteaded, the appraised tax value is limited at $275K – a 10% increase. The other 10% is removed from the tax roll via a Homestead Cap reduction.
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•
The homestead exemption is applied to the $300K (Market Value) not $275K (Appraised value) for a total of $60K.
•
If that homeowner lives in Plano, taxes owed in 2016 are: $275K - $60K = $215K/100 x .4786 = $1,028.99
•
For 2017 the 10% increase will be from the $275K appraised value not the $300K market value. The process begins again.
Ad Valorem Tax Rates Residential Customers Only With Homestead Exemption Applied to the Rate Plano and Surrounding Cities – 2016-17 Adopted Tax Rates Based on Plano Average Home Value of $326,099 (Cents per $100 Valuation)
Plano
Irving
Carrollton
Frisco*
Irving
Carrollton
* Cities do not offer Homestead Exemption
Arlington Arlington
Allen* Allen*
$2,039
Frisco*
$1,869
Plano
McKinney* Richardson*
McKinney*
62.60 (78.25)
Richardson*
Dallas
Dallas Garland
64.82 (70.46)
66.80 (83.50)
$2,178
0
57.30
52.00
$1,696
10
51.58 (64.48)
$1,682
20
45.00
48.30 (60.37)
$1,575
30
38.29 (47.86)
$1,467
40
$1,249
50
47.53 (59.41)
$1,550
60
62.52
$2,114
70
$2,041
80
Garland
Fort Worth
Fort Worth
*Cities do not offer Homestead Exemption
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Revenue Savings to taxpayers From Ad Valorem Tax Exemptions Average Home Value
**Total Exemptions APV
Revenue Savings Revenue Savings From Over-65 Exemptions Tax Freeze
FY 2009-10
$249,679
$5.10 billion
$24.5 million
$765,884
FY 2010-11
$245,802
$5.21 billion
$25.4 million
$779,912
FY 2011-12
$245,074
$5.22 billion
$25.5 million
$771,923
FY 2012-13
$243,118
$5.37 billion
$26.2 million
$753,197
FY 2013-14
$248,817
$5.53 billion
$27.0 million
$780,493
FY 2014-15
$265,930
$6.30 billion
$30.8 million
$1.1 million
FY 2015-16
$291,717
$7.80 billion
$38.1 million
$1.8 million
FY 2016-17
$326,099
$8.48 billion
$40.6 million
$2.6 million 31
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Senior Property Tax Calculation How does this work for Seniors? Let’s look at another example: •
Homeowner just turned 65 on March 11th and has filed the Over-65 Tax Free.
•
A house worth $150K Market Value would be calculated: •
$150,000 X 80% - 20% homestead exemption = $120K
•
Reduce by $40,000 for the Over-65 tax exemption = $120K - $40K = $80K
•
$80K / 100 * 0.4786 = $382.88 = Over 65 Tax Freeze
•
If new improvements are made to home, these will be added to amount.
•
A new Tax Freeze amount will be established if the individual moves and homesteads another property.
Sales Tax Cap Projection Policy What is the Sales Tax Cap? In 2008, a cap was placed on sales tax projections at $57 million. Due to the economic downturn, the cap was placed on sales tax projections in order to limit the amount of collections to be used to support existing operating expenditures. Sales Tax Cap The policy stated that any amount collected over the $57 million could be used for onetime expenditures, transferred to the Capital Reserve Fund, Economic Development Incentive Fund, fund one-time expenditures or kept in the fund balance to offset the following year’s budget. In 2012, the cap was changed to a three-year average. The cap stabilizes the revenue source during periods of declining sales tax.
2008
Any amount collected over $57M
2012
Cap on Sales Tax Projections $57 Million
One-time expenditures
Cap changed to three-year average Stabilizes revenue source during periods of declining sales tax
Limits the amount of collections used for existing operating expenditures
Capital Reserve Fund
Economic Development Incentive Fund Offset following year’s budget
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Here’s how the collections above the sales tax cap have been used since 2008: •
Provided an additional $13.1 million to the Capital Reserve Fund
•
Capital Reserve now funded at 68% of annual depreciation (Goal 75%)
•
Provided an additional $6.8 million to the Economic Development Incentive Fund
•
$1M for Salt and Sand Storage (One-time)
•
$500K for one-time expenditures at Oak Point Nature Preserve
•
$1.3M for land located at McDermott and Robinson for Fire Training Center and Police Sub-station
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Factors Impacting Sales Tax Sales tax projections are limited to a 3 year average less audit adjustments per City Council Policy. This cap stabilizes the revenue source during periods of declining sales tax. What are factors that impact sales tax collections (both increasing and declining)? •
Competition from surrounding cities
•
Economic Conditions
•
Audit Adjustments
•
Sales Tax Holidays such as Back-to-School, Energy Star, etc.
Community Investment Program The Community Investment Program (CIP) is a five-year financial plan which directs development and improvements to the city’s infrastructure. These include: •
Streets – includes sidewalks, alleys, screening walls & traffic signals
•
Parks – includes trails, athletic fields, maintenance facilities
•
City Facilities – fire stations, police stations, libraries & service centers
•
Water & Sewer Utility – utility lines, pump stations, lift stations
•
Municipal Drainage Utility – drainage improvements & erosion control
The five-year CIP guides the city’s capital planning. The first year outlines projects included within the annual appropriation ordinance adopted by Plano City Council. The following four years are presented as a plan for future expenditures, but are not covered by the annual appropriation ordinance. This approach allows for a reasonable time horizon before authorizing future–year expenditures via an appropriation ordinance.
2016-17 CIP Budget – $210.6 Million Project Expenditures in $ Millions Street Improvements
$82.2
Water & Sewer
$50.2
Parks & Recreation Centers
$38.7
Technology Improvements
$15.0
Municipal Facilities
$10.4
Municipal Drainage
$8.1
Public Infrastructure Improvements
$6.0 $-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
50
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Where does the money for CIP come from? CIP is funded by the General Obligation Debt Fund. Ad Valorem (Property) Tax is used to repay Bonds. There are three main types of Bonds/Debt Where Does the Money Come From? Instruments: •
General Obligation (G.O.)
•
Certificates of Obligation (C.O.’s)
•
Tax Notes
Ad Valorem Tax
Bonds/Debt Instruments
Other funding sources that can be used to fund the City’s Capital Investment Program include: •
State funding (TXDOT, RTR)
•
Collin and Denton Counties funding
•
Developers’ fees
•
Other Cities
Other Sources
What type of projects are included in the City’s General Obligation CIP? 1) Municipal Facilities Examples: Fire Training Center, Northwest Plano Police Substation & Davis Library and Harrington Library Expansions 2) Park Improvements & Recreation Centers Examples: Plano Senior Recreation Center Expansion, Windhaven Meadows Park Development, Cottonwood Creek Trail and Oak Point Park & Nature Preserve 3) Street Improvements Examples: 15th Street- G Ave to Central Expressway, Bridge Inspection & Repair, Corridor Improvements, Intersection Improvements, Dallas North Tollway Ramps etc. Remember, the City’s General Obligation CIP is funded by General Obligation bonds and Ad Valorem Taxes. Water & Sewer and CIP Ideally, Water & Sewer and CIP projects use a pay-as-you-go financing method. This means that the funds necessary for projects in these categories are transferred on a regular basis from the Water & Sewer Operating fund, and are planned for in the overall rates charged to utility customers. Revenue bonds have been used for major projects when necessary. Water improvement projects include items like new water projects and rehabilitation of existing water lines and pump stations. Sewer improvement projects include new sewer projects, and rehabilitation and repair of existing sewer lines. 17
Park Fee Program The City uses fees paid by developers to fund neighborhood parks and trails. Examples: Cotton Creek Greenbelt, Bluebonnet Trail, Preston Ridge Trail, Spring Creek/ Neighborhood Park Municipal Drainage CIP Drainage projects are funded through revenue bonds, which are supported directly from drainage fee revenues. Projects funded this way include drainage improvements, erosion control, creek restoration within Plano’s parks, and retaining walls.
What is the history of the City of Plano Capital Reserve Fund? The capital reserve fund was established in 1985 with a $1 million transfer from the General Fund to pay for infrastructure maintenance and replacement projects on a pay-as-you-go basis. The City set a goal for Capital Reserve Fund revenues to equal 75% of the annual depreciation expense of Plano’s governmental assets, including streets, parks and municipal facilities. This ratio is considered a Government Finance Officers’ Association “Best Practice.” Historical Analysis In 2000, the City maintained $925 million in infrastructure. In 2016, it maintained $2.4 billion in infrastructure. Our methodology uses a 20 year life cycle for buildings and 45 year life cycle for improvements other than buildings. Since 2000, our depreciation value increased an average of 5% annually. This reflects the increasing cost of building, renovating and replacing infrastructure. It is much more costly to build facilities and infrastructure today than it was 20-45 years ago for a variety of reasons, and as Plano continues to undertake projects to keep its assets up to date we expect depreciation expenses to rise steadily in the future. The City uses the Capital Reserve Fund to pay for projects on a pay as you go basis to fund major renovations, restorations or repairs with an expected useful life of (10 years) expect asset to be able to still be used in 10 years or in cases where the replacement cost exceeds ten percent (10%) of the prorated replacement costs of an asset. We expect projects paid for by the Capital Reserve Fund to have a value of greater than 10% of the total asset being worked on. This guideline was introduced to insure Capital Reserve projects are of significant scope and not used for minor repairs. No project shall exceed 45% of the prorated replacement costs of an asset. We expect that projects won’t be undertaken out of the Capital Reserve if the cost approaches 50% of the assets total value. In cases where the cost exceeds 45% of the total replacement value of an asset, the preferred course of action would be to place the project on a future bond referendum or utilize available funding from other CIP Funds. Capital reserves are funded primarily by annual transfers from the City’s Operating Funds for rehabilitation and repair projects. These fall into four categories: Capital Reserve – Streets Examples: Arterial & Residential Street Concrete Repair, Sidewalk Repairs & Replacement, Pavement Maintenance, Screening Wall Reconstruction & Alley Repairs 18
Capital Reserve – Parks Examples: Athletic Field Renovations, Playground Equipment Replacement, Irrigation & Landscape Renovations, Trail Repairs Capital Reserve – Facilities Examples: Roof Repairs & Replacements, HVAC Replacement, Flooring Replacement, Facility Renovations, Painting Capital Reserve – Utility & Other Examples: Pump Station Maintenance & Rehab, Americans with Disabilities Act (ADA) Compliance Projects
Capital Reserve Funding Levels Capital Reserve Fund Revenues as a % of Annual Depreciation
100%
78% 75%
70% 64% 57%
53%
50%
68% 61%
72%
73%
70%
71%
FY 19*
FY 20*
68%
59% 53%
53%
46%
44% 38%
39%
39%
38%
FY 10
FY 11
FY 12
25%
0%
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
FY 08
FY 09
FY 13
FY 14
FY 15
FY 16
FY 17*
FY 18*
FY 21*
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Why does the City issue debt? There are many good reasons for the City to issue debt. These include: •
To finance projects over their useful lives with a variety of repayment options and revenue streams.
•
To help minimize impact on property taxes and/or user rates.
•
Future beneficiaries pay their “fair share” for public improvements/services.
•
Tax-exempt feature provides low cost, long-term financing.
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The City evaluates the following considerations when issuing debt: 1) Debt Structure and Type •
Revenue available to pay debt
•
Planning for the future
•
Does the term match the asset life?
•
Deferral of principal
•
Call feature (meaning: When the bond can be refinanced?)
•
Ability to achieve the lowest true interest cost while maintaining future flexibility
2) Credit Ratings 3) Transparency •
Texas Legislature
•
Disclosure
•
Meet Municipal Advisor Rule. A municipal advisor is a person/firm who advises municipalities on bond offerings and are prohibited from serving as an underwriter on the issuance. A municipal advisor has a fiduciary duty to the municipality it advises and must be registered with the SEC.
Common Debt Instruments General Obligation Bonds
Certificates of Obligation
Tax Notes
Revenue Bonds
Issuing Entity
City/County/ISD
City/County
City/County
City
Approval Process
Bond election (Voter Authorization May & November)
Elected officials’ approval of Notice of Intent
Elected officials
Elected officials
Security/ Pledge
Taxes only
Taxes and/or revenue
Taxes and/or revenue
Revenues of the System
Other Considerations
If the election fails, how does the city address needs?
Subject to petition by 5% of registered voters
Maximum maturity of 7 years
Coverage requirements, additional bonds test, debt service reserve fund requirement
Typical Projects
Any public purpose
Any public purpose including enterprise projects
Any public purpose (7 yrs) and cash flow deficit (1 yr)
Water, sewer and drainage infrastructure
Ratings
Highest rated credit based on ad valorem tax pledge
Typically 1 to 2 notches lower than a city’s tax credit
68
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What does it cost the City if we lose our AAA bond rating? Based on the latest General Obligation Bond issuance, delivered March 21, 2017 of $41.29 million, if the City were to drop to an AA rating, the City’s True Interest Cost would increase by 22 basis points. This translates into additional debt service of $1,010,714. If the City were to drop to an A rating, the True Interest Cost would increase by 57 basis points which translates into additional debt service of $2,925,912. Plano does have alternatives to issuing debt. These are: 1) Use cash reserves. This strategy brings potential negative credit implications, cash flow concerns and represents a one-time fix. 2) Defer purchase/improvements. Potential negative implications include possible deterrent to growth and it may cost the issuer more in the long run from constrained economic benefit. Due to inflationary factors that affect the cost of materials such as concrete, it can be more expensive to repair items such as streets in the future rather than today. 3) Pay-as-you-go. In a pay-as-you-go model, the City must budget to collect enough funds over time to use for capital projects/improvements. As a result, it may be difficult to initiate large projects due to an inability to have funds on hand in a timely manner to enter into and complete constructions contracts. It also prevents the City from leveraging cash flow. The pay-as-you-go method puts a majority of costs on current users, instead of sharing costs with future users.
Why Do Rating Agencies Assign Plano AAA? Conservative Budgeting Practices
Self-Insured/ Managing Costs Well
Adequate Fund Balance
Creation of the OPEB Trust
Dedication to Economic Development
AAA
Capital Reserve Fund
Pension Funding • RSP 95.5% funded • TMRS 87.9% funded • OPEB 81.1% funded
Timeliness of Audit
70
21
Portfolio Allocation of City Funds as of May 31, 2017 ($588,111,219) Internal Service Funds 12%
Fiduciary Funds* 1%
Component Units* 2%
115 Trust* 0% General Fund 18%
Special Revenue Funds* 15%
Debt Service Fund* 7% General Fund Debt Service Fund* Capital Projects Funds* Enterprise Funds* Special Revenue Funds* Internal Service Funds Fiduciary Funds* Component Units* 115 Trust*
Enterprise Funds* 14%
Capital Projects Funds* 31%
* Restricted
Investment Program
73
Cities, Counties, ISD’s and other local government entities must comply with the Public Funds Investment Act (PFIA), passed by the Texas Legislature. The PFIA emphasizes an investment program which focuses on Safety, Liquidity and Yield (SLY). •
Safety is ensured because the PFIA limits the types of investments that entities can invest, in such as T-Bills/Bonds, agencies, municipal bonds, CD’s, commercial paper, mutual funds, state pools, etc.
•
Adequate balances of cash must be maintained to meet the liquidity needs of the City
•
Yield is the last consideration in an investment program, after safety and liquidity
Cash Management The City matches cash flow needs to maturities of investments over a 5 year period. The program is managed in a disciplined, appropriate manner. The PFIA also requires City Council to approve investment reports on a quarterly basis and the City of Plano investment report, which must be presented at a Council meeting once a year. Comparison of Actual Interest Earnings vs. Investing in TexPool Only Year
*Projected Interest Earned
Interest Earned by the City
Difference
2009
$2,583,953
$5,054,980
$2,471,027
2010
682,576
3,913,239
3,230,663
2011
471,550
5,701,916
5,230,366
2012
446,752
3,541,403
3,094,651
2013
382,465
977,566
595,101
2014
142,664
2,789,690
2,647,026
2015
229,652
3,699,225
3,469,573
2016
1,381,870
3,754,528
2,372,658
Grand Total
$6,321,481
$29,432,528
$23,111,066
* Projection applies the historical monthly TexPool rate to the total portfolio book balance for the same *Projection applies the historical monthly TexPool rate to the total portfolio book balance for the same month month.
76
22
Texas Property Tax Laws - Truth-In-Taxation There are four guiding principles to the Texas Truth-In-Taxation tax laws: 1. Property owners have the right to know about increases in their properties’ appraised value and to be notified of the estimated taxes that could result from the new value. 2. A taxing unit must publish its effective and rollback tax rates before adopting an actual tax rate. 3. A taxing unit must publish special notices and hold two public hearings before adopting a tax rate that exceeds the lower of the rollback rate or the effective tax rate. 4. If a taxing unit adopts a rate that exceeds the rollback rate, voters may petition for an election to limit the rate to the rollback rate.
Property Tax Definition Effective Tax Rate
Seesaw Effects APV: Appraised Property Value
The Effective Tax Rate is essentially the tax rate a City would pass to collect the same tax revenue as the previous fiscal year using the current fiscal year’s appraised values. The Effective Tax Rate is a calculation, based upon new property valuations, that gives the City the exact dollars in revenue as generated in the previous year
APV
ETR: Effective Tax Rate
ETR
Important: Truth in Taxation requires the Effective Rate calculation be published.
81
•
If proposed tax rate is equal to or less then Effective Rate, no further action is required prior to adoption.
•
If proposed tax rate is greater then Effective Rate, notices and public hearings are required. There are some exceptions for smaller cities or districts.
Rollback Rate The Rollback Rate allows a taxing unit to raise the same amount for operations as in the prior year, plus provides for an additional 8% cushion. The 8% cushion calculation does not include debt, only operations. The debt service portion of the overall rate may rise as high as necessary. Taxpayers may petition for rollback tax election if City proposes tax increase over the rollback rate. The Rollback rate equals the sum of an 8% increase over the effective Operations and Maintenance (O&M) rate, + Interest and Sinking (I&S – the part that pays for debt service) rate.
23
What triggers a rollback election?
Rollback O&M History
A rollback election can be triggered by an increase above • Since 1996 the City of Plano has 8% in the Operation and Maintenance (O&M) rate. Some been: considerations: •
• •
If the taxing unit imposes over a $5M operating budget, 7% of the registered voters shown on the most recent official voter list must sign the petition. If the taxing unit imposes under a $5M operating budget, 10% of registered voters. If the rollback election passes, the taxing unit must reduce its tax rate for the current year to the rollback rate and also refund the difference.
Even With Rollback Rate
Over Rollback Rate
• 1996
• 1998 – .0072¢
• 1997
• 2000 – .0077¢
• If a taxin over the registere recent o petition
• If the rol taxing u for the c rate.
• 2002 – .0050¢ • 2003 – .0036¢ • 2007 – .0055¢ • 2015 – .0027¢
• 2016 – .0127¢
Recent Tax Legislative Changes Changes to the tax code (SB) 1760, (SB )1510, (HB) 1953 1. There are no longer requirements for the effective tax rate calculation to be published by cities in the newspaper. There are some exceptions for other types of entities. 2. Cities are no longer required to take a record vote to place proposed tax rate on the City’s public hearing notices 3. Cities must follow Local Government Code Section 140.010 for publication of notices. 4. Cities are required to file one form - the Notice of 2016 Tax Year Proposed Property Tax Rate for City of Plano - by September 1st – Plano must include the proposed tax rate on this form. – City Council will need to decide the proposed tax rate to include on the form. 5. If Plano’s rate exceeds the lower of the effective tax rate or rollback tax rate, the City must: – Hold two public hearings, and – Describe the purpose for which the increase in taxes will be used. 6. At least 60 percent of members of the governing body (i.e. - the City Council) must vote in favor to adopt a rate that exceeds the effective tax rate.
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Economic Development Funds There are two primary types of Economic Development funds. 1. Type A funds are for projects such as business infrastructure, manufacturing, research and development, military base realignment, job training classes and public transportation 2. Type B funds are for projects eligible for Type A, as well as parks, museums, sports facilities and affordable housing. Both Type A and B funds are raised by local sales and use tax dedicated to economic development. For example, the City of Frisco dedicates one-half (1/2) of one cent of its sales tax for Type A and B funds (equalling a total of one cent). In Fiscal Year 2016, this amounted to $18.9 million each for a total of $37.8 million dedicated to Economic Development. In contrast, half of Plano’s sales tax revenues fund DART rather than economic development. Plano had to find a way to fund economic development. Ten years ago, the City Council approved dedicating two-cents of Plano’s property tax rate to economic development. In Fiscal Year 2016, this amounted to $6.8 million. As a result, the types of economic development that Plano may use are local property tax incentives, also called Chapter 380 Agreements or Property Tax Abatements. • Local Property Tax Incentives (Chapter 380 Agreements) | Cities may provide monies, loans, city personnel, and city services for promotion and encouragement of economic development. • Property Tax Abatements | An agreement whereby a city forgoes tax revenue and the entity promises to contribute to economic development in that city. If the entity does not fulfill its promise, it must pay back the tax abatement.
Contacts Questions about the Budget and Finance process within the City of Plano? Contact: Karen Rhodes – Director of Budget & Research | 972-941-7472 Casey Srader – Budget Manager | 972-941-5152 Denise Tacke – Director of Finance | 972-941-5233 Myra Conklin – Treasurer | 972-941-7312
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2017 City Council Budget & Finance Workshop
26
Budget & Finance Workshop 2017 City Council Group July 12, 2017
Why Budget?
It’s the Law
Hearings and Notices
Authorized by Ordinance
Inspection
Structurally Balanced
2
Best Practices • Government Finance Officers Association (GFOA) – www.gfoa.org – 172 Best Practices covering 9 topic areas
• National Advisory Council on State and Local Budgeting (NACSLB) www.gfoa.org/services/nacslb.org – Report issued in 1998
– Distinguished Budget Award Program
– Four principles and 58 recommendations
– Certificate of Achievement for Excellence in Financial Reporting Program
– Joint effort by 8 public sector associations
– Elected Officials Guide Series
3
Budget Cycle Preparation
Audit
Approval
Execution
4
Phases of the Budget Cycle Budget Preparation: January - June Budget Approval: July - September Execution & Implementation: October Annual Audit: January
• • • •
Establish Budget Focus Three-Year Financial Forecast Revenue Estimates Develop Proposed Budget
• City Manager Recommended Budget submitted to Council • City Council reviews and approves budget & tax rate • Adoption of the Budget & CIP first • Tax Rate second • Periodic reporting and monitoring • Publish and submit Budget & CIP
• The purpose of the audit is to ensure that the financial statements present fairly, in all material respects, the financial position of the City and have been prepared in accordance with U.S. generally accepted accounting principles and governmental accounting standards.
5
Strategic Goals for Excellence Fiscal Year 2015-16
Protect and Sustain Quality of Governance
Deliver Outstanding Operational Analysis and Effectiveness
Successfully Address Revitalization Needs in the City of Plano
Affirm and Reinforce Plano’s Commitment to Exceptional City Services
Enhance Plano’s Role as a Regional Leader
Expand and Improve Communications
Strengthen the Working Relationship with our Strategic Partners in the Areas of Education, Business, Non-Profits and Faith-Based
6
Budget Management • Budget management is a continual process • If we are not preparing a budget we are monitoring and reporting on the current budget – Monthly reporting on finances – Summarize key revenues and monitor expenditures – Allows for early identification of potential issues
• Important to assess budget proposal on a long range forecast – Decisions made this year impact every future year
– Budget needs to be sustainable 7
Plano – Budget Management Policies • CAD’s Certified Appraised Property Value Estimates • Sales Tax Cap Projections Policy – 3-year rolling average • Capital Reserve Fund Transfer – 75% of annual depreciation • Water & Sewer – Pay-as-you-go philosophy since 1993 • Decision Packages • Supplements
• Salary and Benefits account for 65% of General Fund expenses • Out of the 65% ($192M), Public Safety accounts for 63% ($120M)
Budget Projections Budget Formulation
Employee Compensation Budget Changes
• Supplemental Appropriations • Carry Forwards
8
Types of Budgets Operating Budget
Community Investment Program (CIP) Budget
• The financial plan adopted for a single fiscal year. • Proposed Operating Budget – designates the financial plan initially developed by departments and presented by the City Manager to the City Council for approval. • Adopted Operating Budget – the plan as modified and finally approved by the City Council.
• The five-year financial plan which addresses development and improvements to the city’s infrastructure. (formerly known as the Capital Improvement Program)
9
Budget Types Council Budget • Budgetary amount adopted in budget ordinance
Current Budget • Council Budget + encumbrances + carry-forwards +/- budget adjustments Re-Estimate Budget • Current Budget adjusted at mid-year to reach September 30 Proposed Budget • Budgetary amount recommended by department director, then city manager for next fiscal year 10
Governmental Accounting
11
Governmental Accounting
Follows the guidance provided by the Governmental Accounting Standards Board (GASB)
Utilizes fund accounting
Follows Generally Accepted Accounting Principles (GAAP)
Focus is on a balanced budget (exception: enterprise funds which can make a profit)
Modified accrual basis of accounting
Relies on suggested best practices from the Government Finance Officers Association (GFOA)
12
Fund Types Governmental Enterprise Funds/Business-Type Funds Trust and Agency Funds Component Units
13
General Fund • Used to account for all financial resources except those required to be accounted for in another fund. • Resources are generated by property and other taxes, franchise fees, fines, licenses and fees for services. • Operating expenditures support the service provided by the following functional areas: – – – –
General Government Public Safety Public Works Community Services
• Best practice per GFOA is to maintain a target of no less than 45 days of working capital. • The City budgets to maintain 30 days. 14
Special Revenue Funds • Special Revenue Funds – account for the accumulation and disbursement of restricted resources. Economic Development Incentive
Criminal Investigation
Grant
Plano Television (PTV)
Public Safety Communications (911 reserve fund)
Municipal Court Technology
Memorial Library
Seized Assets
Libraries
Animal Shelter Donations
15
Debt Service Fund • A fund used to account for the monies set aside for the payment of interest and principal to holders of the City's general obligation and revenue bonds, the sale of which finances longterm capital improvements, such as facilities, streets and drainage, parks and water/wastewater systems. • When the tax rate is set the debt service is to be paid back first
16
Internal Service Funds • Account for the financing of goods or services provided by one department for another. Equipment Maintenance Fund (includes the Equipment Replacement Fund)
Municipal Warehouse
Risk Management
Technology Services
Health Claims
17
Capital Projects Funds • Account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary type funds). These are typically bond proceeds and restricted other than the Capital Reserve Fund. Capital Reserve
Street Improvements
DART
Municipal Facilities
Park Services
Park Improvements
Public Infrastructure
18
Enterprise Funds • Account for operations that are financed and operated in a manner similar to private business – where the intent of the City is that costs of providing the goods or services to the general public on a continuing basis will be financed or recovered through user charges. Water and Sewer
Environmental Waste Services
Municipal Golf Course
Municipal Drainage
Downtown Center Development
Convention and Tourism
Recreation Revolving
19
Trust & Agency Funds • Agency funds are restricted in how funds can be expended. – Developers escrow is monies received from developers that must be returned to them once a project is completed.
– Unclaimed property must be held for the rightful owners.
• Trust funds are held in trust for the benefit of employees. – 115 Trust (Other Post-Employment Benefits - OPEB) – Retirement Security Plan
20
Component Units Consideration to be classified as a component unit • Organization is legally separate • City appoints a voting majority of the organizations board • City is able to impose its will • Organization has the potential to impose a financial burden on the City • There is a fiscal dependency by the organization on the city
The City has 3 component units • TIF Eastside • Plano Improvement Corporation • Public Improvement District 21
Revenue Projections
Where does the money come from?
22
Combined Budget Resources 2016-17 COMBINED BUDGET RESOURCES $578,654,110 Fines & Forfeits $7,228,045 1.2% Taxes $246,466,426 42.6%
Fund Balance $80,143,300 13.9%
Interest Income $1,130,892 0.2% Licenses & Permits $13,459,213 2.3%
Charges for Service $189,459,213 32.7% Intergovernmental Misc/Other $4,621,249 $4,160,002 0.8% 0.7%
Fines & Forfeits Fund Balance Interest Income Licenses & Permits Charges for Service Franchise Fees Misc/Other Intergovernmental Taxes
Franchise Fees $32,111,587 5.6%
23
General Fund Budgeted Revenues 2016-17 GENERAL FUND REVENUES $279,783,389 Property Tax $119,687,600 42.8%
Sales Tax $75,418,120 27.0%
All Other Revenues $84,677,669 30.2%
24
2016-17 General Fund EXPENDITURES BY AREA $295,090,435 Non-Departmental & Transfers $64,278,292 22%
Facilities Maintenance $9,858,037 3%
General Administration $18,207,788 6%
Libraries $11,554,191 4%
Parks & Recreation $27,888,011 10%
Building & Development $13,213,523 4%
Public Safety & Health $139,987,023 48%
Public Works $7,551,286 3%
25
Property Tax Basics • Revenue based upon value of property • Determined by outside agency – Appraisal District determines “market value”
• City does not determine value of property • Appraisal District does not set the tax rate
26
Assessed Property Valuations Assessed Property Valuations $36.0
$34.4
$34.0
$31.3
Value in Billions
$32.0 $30.0
$28.8
$28.0 $26.0
$24.5
$24.0
$22.0
$21.7
$25.8
$25.5
08-09
09-10
$24.7
$25.0
10-11
11-12
$25.7
$26.9
$22.8
$20.0 $18.0
05-06
06-07
07-08
12-13
13-14
14-15
15-16
16-17
Fiscal Year 27
Change in Plano’s Taxable Value 2,500
$2,321.8
2,000
Millions of Dollars
1,500 1,000
$750.7
500 0 -500 -1,000 -1,500
2007-08
2008-09
2009-10
2010-11
2011-12
Existing Property
2012-13
2013-14
2014-15
2015-16
2016-17
New Property 28
Assessed Property Valuations Residential & Commercial Break-out
36.0
$34.4
34.0 32.0
$31.3
30.0 28.0 26.0
$24.7
$25.0
$26.9
$25.7
$28.8
Value in Billions
24.0 22.0 20.0 18.0
47%
48%
50%
50%
50%
51%
50%
50%
50%
15-16
16-17
16.0 14.0 12.0 10.0 8.0 6.0
53%
52%
50%
49%
50%
10-11
11-12
12-13
13-14
14-15
4.0 2.0 0.0
Fiscal Year Residential
Commercial 29
City of Plano Residential Tax Exemptions & Tax Freeze
20% Homestead Exemption • Only on one property
$40,000 Senior/Disability Exemption • If over - 65 or disabled • Either/Or scenario
Over-65 Tax Freeze • Tax is frozen at age 65 • Amount cannot go up but can go down • Really more like a tax ceiling • New improvements will be added to the tax freeze • If you move, establishment of a new tax freeze is done on a percent basis – called porting
30
Revenue Savings to taxpayers From Ad Valorem Tax Exemptions Average Home Value
**Total Exemptions APV
Revenue Savings Revenue Savings From Over-65 Exemptions Tax Freeze
FY 2009-10
$249,679
$5.10 billion
$24.5 million
$765,884
FY 2010-11
$245,802
$5.21 billion
$25.4 million
$779,912
FY 2011-12
$245,074
$5.22 billion
$25.5 million
$771,923
FY 2012-13
$243,118
$5.37 billion
$26.2 million
$753,197
FY 2013-14
$248,817
$5.53 billion
$27.0 million
$780,493
FY 2014-15
$265,930
$6.30 billion
$30.8 million
$1.1 million
FY 2015-16
$291,717
$7.80 billion
$38.1 million
$1.8 million
FY 2016-17
$326,099
$8.48 billion
$40.6 million
$2.6 million 31
Property Tax Calculation 10% Appraised Tax Value Limit – State Law
• Can only homestead one property • House value of $250K in 2015 • House value of $300K in 2016 = 20% increase • Appraised value is limited to 10% increase each year for residential homesteads
• Appraised tax value for house limited to $275K or 10% increase • The other 10% is removed from the tax roll via a Homestead Cap reduction 32
Continuation of Tax Calculation • Homestead exemption is applied to the $300K (Market Value) not $275K (Appraised value) for a total of $60K. • Taxes owed in 2016 = $275K minus $60K=$215K/100 x .4786 = $1,028.99 • For 2017 the 10% increase will be from the $275K appraised value not the $300K market value. The process begins again.
33
Senior Property Tax Calculation • Citizen turned 65 on March 11th and filed the Over 65 – Can apply anytime during the year – Submit tax exemption information with my CAD.
• Home is worth $150K Market Value • Calculation – $150,000 X 80% - 20% homestead exemption = $120K – Reduce by $40,000 Over 65 tax exemption = $120K - $40K = $80K – $80K / 100 * 0.4786 = $382.88 = Over 65 Tax Freeze
• If new improvements are made to home – will be added to amount • Establishment of new tax freeze amount is made if tax payer moves 34
Taxes and the Average Home 2016-17 Adopted Tax Rates Average Home Value
$ 326,099
Tax Rate
City of Plano
$ Amount
%
.4786
$1,249
19.2%
1.4390
$4,333
66.7%
Collin County
.2084
$646
10.0%
CCCCD
.0812
$265
4.1%
2.2072
$6,493
100.0%
PISD
TOTAL TAXES/YEAR
* Using the 2016-17 Adopted Tax Rates and the 2016 Average Home Value, this assumes that the General Homestead Exemptions were taken for the City of Plano (20%), for PISD ($25,000), and Collin County (5%).
35
Ad Valorem Tax Rates Residential Customers Only With Homestead Exemption Applied to the Rate Plano and Surrounding Cities – 2016-17 Adopted Tax Rates Based on Plano Average Home Value of $326,099 (Cents per $100 Valuation)
Frisco*
Irving
Carrollton
Arlington
Allen*
Plano
Frisco*
Irving
Carrollton
Arlington
Allen*
McKinney* Richardson*
McKinney*
Richardson*
*Cities do not offer Homestead Exemption
Dallas
$2,178
Plano
66.80 (83.50)
$2,114
$1,696
0
$1,682
10
$1,575
20
$1,550
30
45.00
57.30
52.00
$1,467
40
38.29 (47.86)
51.58 (64.48)
$1,249
50
47.53 (59.41)
48.30 (60.37)
$1,869
60
62.52
62.60 (78.25)
64.82 (70.46)
$2,041
70
$2,039
80
Dallas
Garland
Fort Worth
Garland
Fort Worth
36
Sales Tax Cap Projection Policy
37
37
Sales Tax Cap 2008
Any amount collected over $57M
2012
Cap on Sales Tax Projections $57 Million
One-time expenditures
Cap changed to three-year average Stabilizes revenue source during periods of declining sales tax
Limits the amount of collections used for existing operating expenditures
Capital Reserve Fund
Economic Development Incentive Fund Offset following year’s budget
38
Sales Tax Cap Policy – Funding Initiatives since 2008 • Provided an additional $13.1 million to the Capital Reserve Fund – Capital Reserve now funded at 68% of annual depreciation - goal 75%
• Provided an additional $6.8 million to the Economic Development Incentive Fund • $1M for Salt & Sand Storage – One-time
• $500K for one-time expenditures at Oak Point Nature Preserve • $1.3M for land located at McDermott and Robinson for Fire Training Center and Police Sub-station 39
Annual Sales Tax Receipts $90 $80 $70
Millions
$60
$58.7
$62.3
$73.9
$69.9
$68.7
11-12
12-13
$76.8
$76.3
$76.1
$77.1
14-15
15-16
16-17*
17-18**
$62.6
$62.1 $56.5
$58.0
08-09
09-10
$50 $40 $30 $20 $10 $0
05-06
06-07
07-08
10-11
13-14
* FY 2016-17 Re-estimate. ** FY 2017-18 Proposed Budget.
40
Sales Tax Collections and Audit Adjustments FY 2009-10 to Present Fiscal Year
Total Receipts
Audit Adjustments
380 Agreements
Collections
2009-10
$58,292,983
$288,727
($589,640)
$57,992,070
2010-11
$62,945,168
$377,316
($691,693)
$62,630,791
2011-12
$67,147,158
$3,444,408
($723,235)
$69,868,331
2012-13
$69,258,476
$175,529
($710,325)
$68,723,680
2013-14
$73,835,092
$912,207
($771,142)
$73,976,157
2014-15
$75,868,420
$1,856,197
($895,372)
$76,829,245
2015-16
$76,816,842
$460,824
($930,580)
$76,347,085
2016-17 YTD
$60,483,222
($115,070)
($179,683)
$60,188,469
41
Annual Sales Tax Receipt Percentage Changes From Prior Year Actual 15.0%
12.3%
11.6%
10.0%
8.0%
7.6%
6.2% 5.0%
3.9%
3.6%
3.1%
0.0% -0.3%
-5.0%
-10.0%
-15.0%
-1.6%
-0.6%
-10.2%
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17* * Projected
42
Retail & Business to Business Collections Comparison 2001-2017 YTD As of May 31, 2017
$50,000,000
$45,000,000
58%
$40,000,000
$30,000,000
55%
58%
57%
$35,000,000 50% 50%
51% 49%
51% 49%
53% 47%
45% 42%
43%
56%
44%
54%
46%
54%
42% 46%
$25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0
2007
2008
2009
2010
2011 Retail
2012
2013
2014
2015
2016
2017YTD
Business to Business
43
Plano’s Major Non-Retail Industries $9,000,000
$8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000
$2,000,000 $1,000,000 $0
2007
2008 Information
2009
2010
2011
Professional, Technical Services
2012
2013
Wholesale Trade
2014 Manufacturing
2015
2016
2017YTD
Utilities
44
DART Sales Tax Collections FY 2006-07 Through Q2 $80
$67.6
$70
Millions
$60
$56.4
$59.4
$71.7
$73.7
$76.1
$66.4
$59.4 $52.5
$54.8
$50 $39.7
$40 $30 $20 $10 $0
2007
2008
2009
2010
2011
2012
* Dallas Area Rapid Transit (DART) receives 1% of Sales Tax Rate
2013
2014
2015
* FY 2016-17 Re-estimate. ** FY 2017-18 Proposed Budget.
2016
Through Q2 2017 45
Factors Impacting Sales Tax • Projections are limited to a 3 year average less audit adjustments per City Council Policy – Any amount collected over can be transferred to the Capital Reserve Fund, Economic Development Incentive Fund,
• Competition from surrounding cities • Economic Conditions • Audit Adjustments • Sales Tax Holidays such as Back-to-School, Energy Star, etc. 46
Community Investment Program
47
Community Investment Program • A five-year financial plan which directs development and improvements to the city’s infrastructure.
Streets Sidewalks Alleys Screening Walls Traffic Signals
Parks Trails Athletic Fields Maintenance Facilities
City Facilities Fire Stations Police Stations Libraries Service Centers
Water & Sewer Utility Lines Pump Stations Lift Stations
Municipal Drainage Improvements Erosion Control
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The CIP Covers Five Years • The five-year CIP guides the city’s capital planning Year One Outlines projects included within the annual appropriation ordinance adopted by Plano City Council
Following Four Years A plan for future expenditures, but are not covered by the annual appropriation ordinance
Allows for a reasonable time horizon before authorizing future– year expenditures via an appropriation ordinance
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2016-17 CIP Budget – $210.6 Million Project Expenditures in $ Millions Street Improvements
$82.2
Water & Sewer
$50.2
Parks & Recreation Centers
$38.7
Technology Improvements
$15.0
Municipal Facilities
$10.4
Municipal Drainage
$8.1
Public Infrastructure Improvements
$6.0 $-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
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Where Does the Money Come From?
Ad Valorem Tax
Bonds/Debt Instruments
Other Sources
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2017 General Obligation Bond Sale Bond Authority
Amount Issued
Street Improvements Park Improvements
$22,462,000 18,390,000
Public Safety Facilities
2,193,000
Recreation Centers
1,920,000
Total
$44,965,000
• Park Improvements: Carpenter Park Renovation, Enfield Park Maintenance Facility, General Park Improvements, Land Acquisitions & Cottonwood Creek Trail • Public Safety Facilities: Fire Station #1 & Fire Administration Renovation • Recreation Centers: Senior Center Expansion (Final Construction), High Point Tennis Center Renovation Design & Liberty Recreation Center Renovation Design 52
2017 Tax Notes Sale Technology Project NextGen Fiber
Amount Issued $5,500,000
Public Safety & Enterprise Technology
4,440,000
NextGen Application Modernization
2,000,000
Telephone System Upgrade
1,300,000
Projects under $1,000,000
Total
$2,760,000
$15,000,000
• Projects under $1,000,000: Warning Siren System Expansion, Business Intelligence, Cloud Storage, Security Hardware, Data Governance, Wireless
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General Obligation (G.O.) CIP Funded by G.O. Bonds / Ad Valorem taxes
Municipal Facilities • Fire Training Center • Northwest Plano Substation • Davis Library and Harrington Library Expansions
Park Improvements & Recreation Centers • • • •
Plano Senior Center Expansion Windhaven Meadows Park Development Cottonwood Creek Trail Oak Point Park & Nature Preserve
Street Improvements • • • • •
15th Street – G Ave to Central Expressway Bridge Inspection & Repair Corridor Improvements Intersection Improvements Dallas North Tollway Ramps etc.
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Recreation Centers
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Oak Point Park & Nature Preserve
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Water and Sewer CIP • Ideally uses a pay-as-you-go financing method – funds necessary for projects are transferred on a regular basis from the Water & Sewer Operating fund, and are planned for in the overall rates charged to utility customers. Revenue bonds have been used for major projects when necessary. Water Improvements
Sewer Improvements
• New water projects • Rehabilitation of existing water lines and pump stations
• New sewer projects • Rehabilitation and repair of existing sewer lines
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Take or Pay – Undelivered Water 15 Year Cost to City of Plano $79.0M
$16,000,000
Take or Pay = 26.7 Billion Gallons
25,000,000 20,000,000
$14,000,000
26.3 Billion
$12,352,716
22.5 Billion
17.9 Billion
19.0 Billion $7,548,222
15,000,000
5,000,000 0
$2,384,878
$4,302,319
$3,062,096 $3,087,076 $2,982,691
$1,657,294
Take or Pay (T Gallons)
$9,887,540
$6,103,258
$5,552,552
10,000,000
21,460,479
$2,523,088
$10,000,000
$8,000,000 $6,000,000 $4,000,000
$3,080,141
$336,521
Actual (T Gallons)
$12,000,000
Dollars
Thousand Gallons of Water
30,000,000
$2,000,000 $0
Cost of Undelivered Water (after rebate) 58
Park Fee Program
Developer Fees
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Municipal Drainage CIP
Revenue Bonds
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Capital Reserve Fund History •
Established in 1985 with $1.0 million transfer from General Fund to pay for infrastructure maintenance and replacement projects on a pay-as-you-go basis
•
Goal established to have Capital Reserve Fund revenues equal 75% of the annual depreciation expense of Plano’s governmental assets (Streets, Parks and Municipal Facilities)
Considered a Government Finance Officers’ Association “Best Practice” 61
Capital Reserve Fund Historical Analysis • $925 million in infrastructure in FY 00 • $2.4 billion in infrastructure in FY 16 • Methodology uses a 20 year life cycle for buildings and 45 year life cycle for improvements other than buildings • Since 2000, depreciation value increased an average of 5% annually
Use of Resources • Major renovations, restorations or repairs with an expected useful life of ten (10) years • Replacement cost exceeds ten percent (10%) of the prorated replacement costs of an asset • No project shall exceed forty five percent (45%) of the prorated replacement costs of an asset
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Capital Reserve Fund • Funded primarily by annual transfers from Operating Funds for rehab and repair projects. Streets • Arterial & Residential Street Concrete Repair • Sidewalk Repairs & Replacement • Pavement Maintenance • Screening Wall Reconstruction • Alley Repairs
Parks • Athletic Field Renovations • Playground Equipment Replacement • Irrigation & Landscape Renovations • Trail Repairs
Facilities • Roof Repairs & Replacements • HVAC Replacement • Flooring Replacement • Facility Renovations • Painting
Utility & Others • Pump Station Maintenance & Rehab • Americans with Disabilities Act (ADA) Compliance Projects
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Capital Reserve Funding Levels Capital Reserve Fund Revenues as a % of Annual Depreciation
100%
78% 75%
70% 64% 57%
53%
50%
68% 61%
72%
73%
70%
71%
FY 19*
FY 20*
68%
59% 53%
53%
46%
44% 38%
39%
39%
38%
FY 10
FY 11
FY 12
25%
0%
FY 01
FY 02
FY 03
FY 04
FY 05
FY 06
FY 07
FY 08
FY 09
FY 13
FY 14
FY 15
FY 16
FY 17*
FY 18*
FY 21*
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Debt issuance
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Why Issue Debt? Finance projects over their useful lives with a variety of repayment options and revenue streams Help minimize impact on property taxes and/or user rates Future beneficiaries pay their “fair share” for public improvements/services Tax-exempt feature provides low cost, long-term financing 66
Considerations When Issuing Debt • Debt Structure and Type – Revenue available to pay debt – Planning for the future
– Does the term match the asset life? – Deferral of principal – Call feature
• Credit Ratings • Transparency – Texas Legislature
– Disclosure – Meet Municipal Advisor Rule
– Ability to achieve the lowest true interest cost while maintaining future flexibility
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Common Debt Instruments General Obligation Bonds
Certificates of Obligation
Tax Notes
Revenue Bonds
Issuing Entity
City/County/ISD
City/County
City/County
City
Approval Process
Bond election (Voter Authorization May & November)
Elected officials’ approval of Notice of Intent
Elected officials
Elected officials
Security/ Pledge
Taxes only
Taxes and/or revenue
Taxes and/or revenue
Revenues of the System
Other Considerations
If the election fails, how does the city address needs?
Subject to petition by 5% of registered voters
Maximum maturity of 7 years
Coverage requirements, additional bonds test, debt service reserve fund requirement
Typical Projects
Any public purpose
Any public purpose including enterprise projects
Any public purpose (7 yrs) and cash flow deficit (1 yr)
Water, sewer and drainage infrastructure
Ratings
Highest rated credit based on ad valorem tax pledge
Typically 1 to 2 notches lower than a city’s tax credit
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S & P Bond Rating Criteria Institutional Framework 10%
Economy 30%
Management 20%
Financial Matters Liquidity 10%
Budgetary Performance 10%
Budgetary Flexibility 10%
Debt & Contingent Liabilities 10%
Indicative Rating Positive Overriding Factors
Negative Overriding Factors
Potential Adjustment
Final Rating
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Why Do Rating Agencies Assign Plano AAA? Conservative Budgeting Practices
Self-Insured/ Managing Costs Well
Adequate Fund Balance
Creation of the OPEB Trust
Dedication to Economic Development
AAA
Capital Reserve Fund
Pension Funding • RSP 95.5% funded • TMRS 87.9% funded • OPEB 81.1% funded
Timeliness of Audit
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The Cost To The City Of Losing Its AAA Rating Based on the latest G.O. Bond issuance delivered March 21, 2017 of $41.29 million: • If the City dropped to an AA rating, the True Interest Cost would increase by 22 basis points which translates into additional debt service of $1,010,714 • If the City dropped to an A rating, the True Interest Cost would increase by 57 basis points which translates into additional debt service of $2,925,912
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Alternatives To Issuing Debt • Use cash reserves – potential negative credit implications, cash flow concerns, one time fix • Defer purchase/improvements – potential negative implications, could deter growth, may cost issuer more in long run from constrained economic benefit
• Pay-as-you-go – Budget to collect over time to use for capital projects/improvements – May be difficult for large projects due to inability to have funds on hand to enter into and complete constructions contracts – Does not allow you to leverage cash flow – Puts majority of cost on current user, not future user
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Portfolio Allocation of City Funds as of May 31, 2017 ($588,111,219) Fiduciary Funds* 1% Internal Service Funds 12%
Component Units* 2%
Special Revenue Funds* 15%
Enterprise Funds* 14%
115 Trust* 0% General Fund 18%
Debt Service Fund* 7% General Fund Debt Service Fund* Capital Projects Funds* Enterprise Funds* Special Revenue Funds* Internal Service Funds Fiduciary Funds* Component Units* 115 Trust*
* Restricted
Capital Projects Funds* 31%
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Investment Program • Cities, Counties, ISD’s and other local government entities must comply with the Public Funds Investment Act (PFIA) passed by the Texas Legislature • The PFIA emphasizes an investment program which focuses on Safety, Liquidity and Yield (SLY) – Safety is ensured as the PFIA limits the types of investments that entities can invest in such as T-Bills/Bonds, agencies, municipal bonds, CD’s, commercial paper, mutual funds, state pools, etc. – Adequate balances of cash must be maintained to meet the liquidity needs of the City – Yield is the last consideration in an investment program after safety and liquidity
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Investment Program (cont.) • Cash Management – The City matches cash flow needs to maturities of investments over a 5 year period. The program is managed in a disciplined, appropriate manner
• The PFIA also requires City Council to approve investment reports on a quarterly basis and the investment report to be presented at a Council meeting once a year
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City of Plano Comparison of Actual Interest Earnings vs. Investing in TexPool Only Year
*Projected Interest Earned
Interest Earned by the City
Difference
2009
$2,583,953
$5,054,980
$2,471,027
2010
682,576
3,913,239
3,230,663
2011
471,550
5,701,916
5,230,366
2012
446,752
3,541,403
3,094,651
2013
382,465
977,566
595,101
2014
142,664
2,789,690
2,647,026
2015
229,652
3,699,225
3,469,573
2016
1,381,870
3,754,528
2,372,658
Grand Total
$6,321,481
$29,432,528
$23,111,066
*Projection applies the historical monthly TexPool rate to the total portfolio book balance for the same month
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Texas Property Tax
Truth-In-Taxation – Chapter 26 of the Texas Property Tax Code
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Texas Property Tax Laws – Truth-In-Taxation Property owners have the right to know about increases in their properties’ appraised value and to be notified of the estimated taxes that could result from the new value
A taxing unit must publish its effective and rollback tax rates before adopting an actual tax rate
Four Guiding Principles
A taxing unit must publish special notices and hold two public hearings before adopting a tax rate that exceeds the lower of the rollback rate or the effective tax rate
If a taxing unit adopts a rate that exceeds the rollback rate, voters may petition for an election to limit the rate to the rollback rate
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Elements of Property Tax Rate Operations and Maintenance (O&M) • Ongoing General Fund operations
Interest and Sinking (I&S) • Payments on debt for general government (not utility rated) improvements
Tax Rate = O&M Rate + I&S Rate Calculation • Tax Rate x Taxable Value ∕ $100 = Your City Tax Levy ($ paid to City) 79
Property Tax Definitions – Effective Tax Rate • “Effective” Tax Rate – “A calculation, based upon new valuations, that gives the City the exact dollars in revenue as generated in the previous year”
• The “Effective” Tax Rate is basically the tax rate you would pass to collect the same tax revenue as last year (FY 2015-16) using this year’s (FY 201617) appraised values. • Truth in Taxation requires the “Effective Rate” calculation be published – If proposed tax rate is = or < then Effective Rate No further action is required prior to adoption
– If proposed tax rate > then Effective Rate Notices and Public Hearings are required
Some exceptions for smaller cities or districts 80
Seesaw Effects APV: Appraised Property Value
APV
ETR: Effective Tax Rate
ETR
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Property Tax Definitions Rollback Rate
• Allows a taxing unit to raise the same amount for operations as in the prior year plus provides for an additional 8% cushion. – This part of the calculation does not include debt, only the operation side. – The debt service portion of the overall rate may rise as high as necessary.
• Rollback Rate – Taxpayers may petition for rollback tax election if City proposes tax increase over the “rollback rate” – “Rollback” rate = sum of: 8% increase over the “effective” O&M rate, + I&S rate
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Rollback Elections • Above 8% increase in O&M rate could trigger a rollback election – Taxing unit imposes over $5M operating budget, 7% of the registered voters shown on the most recent official voter list must sign the petition. – Taxing unit imposes under $5M operating budget, 10% of registered voters.
• If the rollback election passes, the taxing unit must reduce its tax rate for the current year to the rollback rate and also refund the difference.
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Rollback O&M History • Since 1996 the City of Plano has been: Even With Rollback Rate
Over Rollback Rate
• 1996
• 1998 – .0072¢
• 1997
• 2000 – .0077¢ • 2002 – .0050¢ • 2003 – .0036¢ • 2007 – .0055¢
• If a taxing unit adopts a tax rate over the rollback rate, 7% of the registered voters shown on the most recent official list must sign the petition for an election to occur. • If the rollback election passes, taxing unit must reduce its tax rate for the current year to the rollback rate.
• 2015 – .0027¢
• 2016 – .0127¢ 84
Truth in Taxation (TNT) • State laws that regulate public hearings & published notices for taxing entities • Go to Windows on State Government – Truth in Taxation Website for Forms
85
Recent Tax Legislative Changes • Changes to the tax code (SB) 1760, (SB )1510, (HB) 1953 – No longer required for the effective tax rate calculation to be published by cities in the newspaper Some exceptions for other types of entities
– No longer required to take a record vote to place proposed tax rate on your public hearing notices – Follow Local Government Code Section 140.010 for publication of notices – Required to file one form – Notice of 2016 Tax Year Proposed Property Tax Rate for City of Plano by September 1st Need to include the proposed tax rate on this form. City Council will need to decide the proposed tax rate to include on the form. 86
Recent Tax Legislative Changes • If your rate exceeds the lower of the effective tax rate or rollback tax rate: – Hold two public hearings
– Describe the purpose for which the increase in taxes will be used.
• At least 60 percent of members of the governing body must vote in favor to adopt a rate that exceeds the effective tax rate.
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Senate Bill 2, filed by Senator Bettencourt • Lowering the rollback from 8% to 4% • Requiring automatic elections for taxing units adopting a tax rate that exceeds the rollback rate • Requiring ratification elections to be held on general election dates (in November) • Requiring the chief appraiser to certify the tax roll by July 10 (instead of July 25) • Prohibiting local governments from being able to challenge the value of an entire class of properties. 89
City Council Agenda Items • Preparation of agenda items • Where do the numbers come from? • Link to Strategic Plan and Plano Tomorrow Plan
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91
92
93
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Economic Development • Create job opportunities to provide access to wealth through economic growth • Diversify the economic base to cushion against economic shock • Increase the tax base to provide services to citizens
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Types of Economic Development • Type A and B Funds – – Type A funds are for projects such as business infrastructure, manufacturing, research and development, military base realignment, job training classes and public transportation. – Type B funds are for projects eligible for Type A, as well as parks, museums, sports facilities and affordable housing.
– Type A and B funds are raised by local sales and use tax dedicated to economic development. For instance, the City of Frisco dedicates one-half of one cent of its sales tax for Type A and B funds (for a total of one cent). In Fiscal Year 2016, this amounted to $18.9 million each for a total of $37.8 million. 96
Types of Economic Development • Half of Plano’s sales tax revenues fund DART rather than economic development. Thus, Plano had to find a way to fund Chapter 380 incentives. Ten years ago, City Council approved two-cents of the property tax rate to be dedicated to economic development. In Fiscal Year 2016, this amounted to $6.8 million. The types of economic development that Plano may use are described below. – Local Property Tax Incentives (Chapter 380 Agreements) – cities may provide monies, loans, city personnel, and city services for promotion and encouragement of economic development. – Property Tax Abatements – An agreement whereby a city forgoes tax revenue and the entity promises to contribute to economic development in that city. If the entity does not fulfill its promise, it must pay back the abatement. 97
Key Dates on the Budget Calendar FISCAL YEAR 2017-18
March 27
Budget presents 2016-17 Status Report and Three-Year Forecast to City Council for review and input. Made available on the City’s web site.
March 28
At Management Team meeting, Budget gives overview and distributes instructions, forms and department targets.
May 6
2017 General Obligation Bond Referendum Election
June 13, 14 & 15
City Manager reviews operating budget and CIP with department heads.
July 26
City Manager submits Recommended Budget and CIP Program to City Council. Copies available on the City’s web site and libraries.
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Key Dates on the Budget Calendar FISCAL YEAR 2017-18
August 2
Grant Funding – City Council Budget Work Session.
August 14 Presentation of the Proposed CIP to the City Council Public Hearing on Operating Budget and Community Investment Program Approval of Appraisal Roll August 19 Council Work Session on the budget.
August 28 1st Public Hearing on tax rate. Sept. 5
2nd Public Hearing on tax rate.
Sept. 11
Council adopts operating budget and CIP, and sets tax rate.
October 1 New fiscal year begins. 99
Questions • Karen Rhodes – Director of Budget & Research – x7472 • Casey Srader – Budget Manager – x5152
• Denise Tacke – Finance Director – x5233 • Myra Conklin – Treasurer – x7312
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