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Home My WebLink AboutFinancial Condition EvaluationAcknowledgements; County of Albemarle staff used the "Evaluating Financial Condition" handbook for local governments pt lished by ICMA (copyright 1986) to develop the financial condition indicators contained in the "Financi Condition Evaluation" portion of this document. Much of the text used to preface each section, describe indicators, and identify warning trends has been borrowed from this publication. For more information about the data presented in the "Financial Condition Evaluation," or "Five-Year Fir cial Forecast" section of this document, please contact the County Executive's Office at: County of Albemarle County Executive's Office 401 Mclntire Rd. Charlottesville, VA 22902-4596 (804) 296-5841 Prepared: December, 1999 Table of Contents Introduction Financial Condition Evaluation **al Revenues Revenues Per Capita Restricted Revenues Intergovernmental Revenues Property Tax Revenues Assessment Ratios User Charge Coverage Revenue Surplus/Shortfalls 9 11 13 15 17 19 20 21 Expenditures Expenditures Per Capita Employees Per Capita 23 26 28 Operating Position Operating Surplus/Deficit Unreserved Fund Balances Liquidity 31 33 34 36 Debt and Unfunded Liabilities Current Liabilities Long-Term Debt Per Capita Long-Term Debt Debt Service Accumulated Employee Leave 37 39 40 41 42 43 Capital Plant Capital Outlay School Debt and Capital Outlay 45 47 49 Table of Contents (continued) Communi _ty Profile Population Growth Enrollment Growth Median Age Personal Income Per Capita Unemployment Rate Families in Poverty Growth in Real Property Values Residential Development Business Activity 51 52 53 54 55 56 57 58 59 60 Five-Year Financial Forecast: Introduction 61 Overview 6¸1 Assumptions/Projections Economic & Demographic (Growth) Assumptions Revenue Assumptions/Projections Expenditure Assumptions/Projections 62 62 63 67 Expenditure/Revenue Scenarios I: Total County Budget; Growth and Inflation Costs Only II: Total County Budget; with Additional Operating Costs Associated with the FY 1999/00 - 2003/04 Approved CIP III: Total County Budget; with Additional Operating Costs Associated with the FY 2000/01 - 2004/05 Recommended CIP 69 69 70 73 Table of Contents (continued) Conclusion 74 Appendix Financial Management Policies Projected Capital Project Operating Budget Impact FY 1999/00 - 2003/04 Approved CIP FY 2000/01 - 2004/05 Recommended CIP 77 77 82 82 83 This page is intentionally blank. , Introduction What is 'Financial Condition' and Why Evaluate it? The term "financial condition" can have many meanings. In a narrow, accounting sense, it means "cash solvency," or a government's ability to generate enough cash over a thirty to sixty day period to pay all of its bills. In a budgetary sense, financial condition refers to the ability to generate enough revenues to meet expenditures during a normal budget period and not to incur budget deficits. In a still broader sense, financial condition may mean "long-nm solvency," a government's ability to adequately meet the costs of doing business over time, or "service level solvency," the ability to provide services at the level and quality desired for the health, safety and welfare of the eommumty. In a general sense, however, financial condition is synonymous with financial 'health,' and may be summarized as a government's ability to finance services on a continuing basis, to withstand local and regional economic disruptions and to meet the demands of natural growth, decline and change. The County of Albemarle has a responsibility to its citizens to ensure that the County is m good financial condition. This means at counting for public funds, managing the County's finances wisely and allocating resources efficiently and effectively in order to pn vide the services desired by citizens. To accomplish this, the Board of Supervisors adopted Financial Management Policies that pr, vide financial practice guidelines and goals for the long term betterment and stability of Albemarle County. (These policies are pr sented in full in the Appendix to this document. Additionally, relevant section(s) of these financial policies are reproduced in ea chapter.) One of these aforementioned policies states that "[t]he County will develop and annually update a financial trend monitoring syst that will examine fiscal trends from the preceding five years. Where possible, trend indicators will be developed and tracked for s cific elements of the County's fiscal policy." By systematically monitoring and evaluating this trend information, the County wil' able: to gain a better understanding of its financial condition; · to identify previously unrecognized or emerging financial problems before they reach serious proportions; · to present a picture of the County's financial strengths and weaknesses to the Board of Supervisors, citizens, and other g~ with a need to know; · to introduce long-range considerations into the budgeting process; and · to evaluate whether established financial policies are effective and are being adhered to. In fulfillment of this established objective, this document presents a series of financial trend indicators that together present a t of the County's financial condition. These indicators pull together information from budgetary and f'mancial reports as well ~ nomic and demographic data and relate to various important aspects of County finances: external revenues, expenditures, ftu ances, liquidity, unfunded liabilities and business activity. Where possible, these indicators also address specific elements County's £mancial policies. What is a 'Financial Forecast' and Why is it Important? A financial forecast is a projection of future revenues and expenditures that localities can use to evaluate their future fmanci~ tion. As such, financial forecasting is important for many of the same reasons that localities evaluate their current fmanci~ tion: to gain a better understanding of its long-range financial picture; to identify projected revenue or expenditure trends that could adversely affect or benefit the locality; to present a projection of future financial strengths and weaknesses to the Supervisors and public; to incorporate long-range considerations into the budget process; and to identify any potential diffi adhering to established financial policies. County financial policies state that: "...the County will develop and annually update a long-range (3-5 year) financial forecl rem, which will include projections of revenues, expenditures, as well as future costs and financing of capital improvement~, projects that are included in the capital budget." In fulfillment of this established objective, the second part of this document presents a five-year projection of total Coun' and expenditures. IVhat is Albemarle County's Overall Financial Condition ? Overall, the financial position of the County continues Io'be positive. The County has enjoyed a large, growing revenue base which has enabled it to provide services to citizens without increasing tax rates. (The last tax rate increase in the County occurred in FY 91, when real property taxes rose by $0.02 for one year.) Additionally, over the past five years, the County also has en- joyed end of year operating surpluses that have generated adequate cash flow and provided a source of funding for one-time capi- tal and operational needs. Additionally, although substantial, long-term debt and debt service levels have remained within the target ratios set by the Board of Supervisors. Finally, the County is a vibrant growing community with a young and middle-aged population, rising personal incomes per capita, a strong employment base, and a robust business sector. However, over the past five to ten years, a number of financial and demographic trends have emerged that are likely to stress the future financial health of the County: · A growing reliance on property taxes to fmance operations, which can make the County vulnerable to diminished growth in property values, or in the number and value of new vehicles sold; · Declining shares of state and federal funding for education; · Increasing levels of long-term debt and debt service that are approaching target limits; · Small and variable level of capital outlay for infrastructure improvements; and · Continued population and enrollment growth. A brief summary of the County's financial position with respect to revenues, expenditures, operating position, debt, unfunded li- abilities, capital plant and demographic trends follows. Revenues: Albemarle County has enjoyed a large, growing revenue base that so far has enabled it to provide services to citizens without in- creasing tax rates. Since FY 94, per capita operating revenues (in constant dollars, and net of revenues collected from the split billing of property taxes or for the revenue sharing agreement with Charlottesville) have increased by 17,5%. Most of this in- crease is due to growth in general property tax revenues, which have increased by 12.0% since FY 94 (in constant dollars per cap- ita), despite flat property tax rates and declining reassessment increases. The County's efforts to keep property values current, to monitor taxes for equitable administration and timely and accurate collec- tious, and to aggressively collect tax revenues, also have contributed to this impressive revenue growth. Between FY 94 and FY 97, the County's assessment to sales ratio increased from 96.6% to 98.4%, exceeding the target rate of 95%. (Additionally, annual sales ratio studies have indicated that assessments in the County are both reasonably equitable and progressive.) Finally, greater than anticipated total revenue receipts have been used to build the County's financial reserves, Most of the revenue surplus is col- lected in the General Fund and reflects greater than anticipated property tax receipts, sales tax revenues, interest income, utility tax revenues and business licenses. The County also maintains a relatively flexible, diversified and stable revenue base that allows for adjustments to changing condi- tions, and protects the County against short-term revenue fluctuations. This flexibility is illustrated by the fact that restricted op- erating revenues (i.e., revenues legally earmarked for specific uses) account for only 23.8% of the County's total net operating revenues. Additionally, the revenue base is diversified. Currently, local property tax revenues (net of split billing and revenue sharing funds) account for about 41.7% of all net Operating revenues, while other local revenues provide an additional 27.6%, and state and federal funds contribute the remaining 30.7%. Since property tax revenues account for nearly half of total net oper- ating revenues, the tax base also is relatively stable. Property tax values do not fluctuate much with annual changes in economic conditions; typically, it takes a few years for property tax revenue receipts to be affected by economic conditions. The County's revenue base is becoming relatively less flexible over time, however. Restricted revenues have come to account for a greater share of total net operating revenues. (Since FY 94, the share of restricted revenues has increased from 18.2% to 23.8%.) Most of this restricted revenue growth has occUrred .on the general government side, reflecting increases in revenues for social service programs, crime control juvenile justice, recordation, and other government programs. Additionally, the County's revenue base is becoming relatively less. diversified, as well. Property tax revenues, particularly real estate tax revenues, have come to account for an ever larger share of total County revenues. Since FY 88, property tax revenues (net of Split Billing and revenue sharing) have increased from 38.7% to 41.7% of total net operating revenues. The share of state and federal funds, however, declined from 35.3% to 30.7% during the same period. This relative decline in intergovernmental revenues has been most pronounced for the School Division, where state and federal aid fell from 37.3% of school operating revenues in FY 94, to 33.2% in FY 00 (a decline of 4.1%.) By contrast, state and federal funding has increased for General Gov- ernment - up from 20.7% in FY 94 to 26.8% in FY 00. The large increase in general government intergovernmental aid reflects increased Social Services funding (due to Welfare reform), as well as increases in recordation fees (which the County began col- lecting in FY 93), crime control and juvenile/criminal justice funds. The trend toward less flexibility and diversity in the revenue base has left the County increasingly vulnerable to changing condi- tions, particularly those effecting property tax growth. In fact, since the early 1990s, declining reassessment rate increases have resulted in increasingly slower property tax revenue growth. In Tax Year 1991 (FY 92), the biennial reassessment increased 22.48%. By Tax Year 1999 (FY 00), however, the rate of increase m property values had slowed to 3.51%. Additionally, per- sonal property tax revenue growth has slowed considerably since 1998. As part of maintaining a healthy revenue base, the County also is committed to maintaining adequate user charge coverage. That is, fees and user charges should cover all or part of the cost of providing related services. Although user charge coverage has declined for the Department of Parks and Recreation since FY 94, it has increased for the'Development Departments. In FY 94, parks fees and charges offset 26.3% of associated expenditures, compared to 21.7% in FY 00. By contrast, permit and develop- ment fee revenues offset 74.3% of all development activities in FY 94, compared to 78.0% in FY 00. Expenditures: Since FY 94, real per capita net operating expenditures (net of Split Billing and Revenue Sharing) have increased by 20.4%, due in part to growth in mandated services such as foster care and other social services programs. This expenditure growth has not occurred evenly between General Government and the School Division, however. Since FY 94 real per capita general government expenditures have grown much more rapidly than real per capita school expenditures, hox~ ever. Between FY 94 and FY 00, real per capita expenditures on general govemmem programs increased by 38.2%, compared 12.8% for school programs. Differences in the relative growth rates of general government and school division expenditures are explained, in part, by diffi ences in the growth rates of State and Federal funding. As discussed in detail in the revenue section, real per capita state and fe eral funding for general government activities has increased steadily and substantially since FY 94, rising from $98 in FY 94 $162 m FY 00 -- an increase of 65.5%. Nearly all of this increase is due to growth in restricted operational revenues - that revenues received by the state and federal governments legally earmarked for use in specific general government progra These revenues fund social services programs, law enforcement and community policing initiatives, juvenile justice, Sectic housing subsidies, and constitutional officer reimbursements. Many of these programs are mandated and require local matcl funds. By contrast, real per capita intergovernmental aid to the School Division has declined since FY 96. This decline reflects sl growth in state and federal education revenues, relative to general government increases-, as well as a change in the Cot., Composite Index, which caused a significant drop in state aid after FY 96. Between FY 94 and FY 96, real per capita inte emmental aid to schools grew by 0.8%. After FY 96, however, real per capita state and federal receipts fell by 1.2% befor, were partially restored by a $1.4 million increase in state education funds. Another indicator of total expenditures per capita is the number of total employees per capita, since salary and fringe cost major portion of a local government's operating budget. Since FY 94, the number of general government and School Fu ployees per 1,000 County residents has grown by only 1.67 FTE's, or 6.5%. Part of this increase is due to growth in the' of school employees (including teachers, central office staff, bus drivers, and other school division employees,) which t creased 5.1%, from 20.6 FTE's to 21.7 FTE's. The remainder of this increase represents the number of general govermr ployees per 1,000 County residents, which grew from 5.0 FTE to 5.6 FTE in FY 00, an increase of 12.6%. Growth in poi cers and f~re/rescue personnel accounts for nearly half of this increase. Oi~eratin~ PosRion: Albemarle County's operating position is favorable. Since FY 94, the County has enjoyed end-of~year operating surph caring that current revenues are sufficient to support operations. (These surpluses were due both to greater than anticip hue collections as well as expenditure savings.) These surpluses have provided a steady source of funds to be held against unanticipated events and unforeseen emergencies, for cash-flow purposes, and to finance one-time capital recurring expenditures. However, over time, the amount of operating surplus, as a percentage of net operating revenu clined, reflecting smaller real estate reassessment increases and slower state and federal revenue growth. Additionally, fund balances have been sizeable. Between FY 94 and FY 98, total undesignated fund balances increased from about $16.3 milhon to $20.5 million, although as a percentage of total net operating revenues they have remained relatively con- stant at 16.8%. Most (72.4%) of these surplus funds are collected inthe General Fund. Approximately 14% ($2.9 million) repre- sents School Fund balance. Although General and School Fund balance may be used to finance operations, County financial pol- icy requires that approximately $13 million of the undesignated General Fund balance be retained as fund balance for cash flow purposes. (The fund balances of other general and school special revenues funds may be used only for cash flow in those funds.) Additionally, the General Fund balance has averaged about 13.9% per year of net General and School Fund revenues (combined)i well in excess of the 10% minimum required by the financial policies. Finally, the year-end cash position of the County has been quite favorable. Since FY 94, the County has held more than twice the amount of cash and short-term investments than it has incurred in current liabilities at the end of each fiscal year, demonstrating sufficient liquidity to meet short-term obligations, and providing substantial end-of-year cash reserves. Debt and Unfunded Liabilities: Debt: Although the ratio of current liabilities to net operating revenues has increased since FY 94, the County maintains sufficient li- quidity to meet its obligations, and has run operating surpluses since at least FY 94. Additionally, both long-term debt and the associated debt service payments remain within the target ratios set in the Financial Policies. Since FY 94, net direct bonded long-term debt has amounted to approximately one percent or less of the estimated mar- ket value of taxable property -- well below the 2% maximum established by the Board of Supervisors. (The highest value of this indicator occurred in FY 98, at 1.01%, reflecting borrowing for the new Monticello High School.) Additionally, per capita debt has remained below the $1,000 maximum. (The highest value of debt per capita occurred in FY 00, at $852.) Finally, the ratio of debt service expenditures to General Fund revenues (net of revenue sharing) remains below the 10% ceiling. (The largest val- ues of this indicator occurred in FY 95, at 9.6%, and in FY 99, at 8.8%, reflecting the associated debt service costs of borrowing for the Sutherland Middle School in FY 94 and Monticello High School in FY 98.) Nevertheless, the levels of long-term debt and debt service have been increasing rapidly. Per capita long-term debt has increased substantially; growing from $695 in FY 94to $852 in FY 00 (an increase of $157, or 23%.) The majority ofthis growth is due to borrowing in FY 98 for the construction of Monticello High School Additionally, debt service costs reached 9,6% m FY 95 and 8.8% in FY 99, due to borrowing for the new middle and high schools. Unfunded Liabilities: Finally, the amount of unused vacation and sick leave per FTE is at a manageable level. Although the constant dollar value of accumulated employee leave per employee (FTE) has risen slightly since FY 94, this increase represents the impact of regular compensation increases received by employees, and not a change in County policy related to vacation or sick leave policies. (In FY 94, the real cost of unused vacation and sick leave was $819 per FTE. By FY 98, that amount had risen to $847, an increase of $28/FTE, or 3.4%.) As such, vacation and sick leave policies have not placed an excessive burden on County finances. Capital Plant: Albemarle County is committed to maintaining, replacing, and enhancing its physical plant both to protect its capital investments and to minimize future maintenance and repair costs. Part of this commitment includes increased funding for maintenance/repair projects from current revenues, as opposed to borrowed funds. However, this commitment has been difficult to maintain in recent years due to operating budget constraints. Since FY 94, the amount of capital outlay, as a percentage of General Fund net operating revenues, has fluctuated. In FY 94 and FY 95, the operating budget transfer to the County's Capital Improvements Program represented 2.3% of General Fund net oper- ating revenues. In an effort to meet the goal of dedicating a minimum of 3% of annual General Fund operating revenues (net of revenue sharing) to the CIP, the transfer was increased substantially m FY 96 to $2.7 million, or 3.5% of net operating revenues. lince then, however, this percentage has declined substantially to 2.1% of General Fund net operating revenue in FY 99 and FY ~0. This decline reflects operating budget constraints that have limited growth in capital outlay, as well as a decision by the loard of Supervisors in FY 00 to re-allocate all school outlay to debt service, to fund needed school improvements. The Board's :cision hms contrary to the approved financial policies that call for increasing the percentage of capital improvements financed t current revenues, and increasing the percentage of repair and maintenance projects funded with current revenues. Thc County's commitment to debt service and capitaloutlay as a combined total has not been reduced however. Since FY 94, the combined cost of school debt service and capital outlay has averaged 9.8% of the School Division net operating expenditures. (Annual fluctuations reflect the impact of project staging and operating budget constraints.) Demographic Profile: Albemarle County is a vibrant, steadily growing community with a young and middle-aged population, rising personal incomes per capita, a strong employment base, rising property values, and a robust business sector. These demographic characteristics have shaped, and will continue to shape the demand for services in the County. Since FY 94, the population of Albemarle has grown from 72,400 residents to a projected 81,800 residents in FY 00, an increase of 13.0%. During this period, population growth has been relatively smooth and steady, averaging about 2.2% per year. School enrollment also has increased smoothly and steadily since FY 94, at an average rate of about 2.3% per year. (In FY 94, total public school enrollment was 10,581. By FY 00, it had increased to 12,205.) Although the median age of County residents has risen by 5 years since 1960, Albemarle remains a relatively young community with a median age of 31.4 years. This relatively youthful population reflects the large number of University of Virginia students residing in the area, who have lowered the median age of the community as a whole. Additionally, real, per capita personal incomes have increased steadily, the number of families in poverty have declined, and th~ unemployment rate has fallen. Between FY 94 and FY 98, real per capita personal incomes grew from $24,781 in FY 94 t{ $26,166 in FY 98 - an increase of 5.6% (or 2.0% per year, on average.) Additionally, the number of families in poverty have de clined. (Between 1970-1990, the percentage of white families in poverty declined from 10.9% to 3.8%, and the percentage ( African American families in poverty dropped from 30.8% to 13.3%.) Finally, Albemarle has enjoyed a low and shrinking unen ployment rate. Between FY 94 and FY 99, the County's unemployment rate declined from 2.7% in FY 94 to 1.2% in FY 9 Throughout this period, the County's average unemployment rate of 2.1% was lower than that of the City of Charlottesvi~ (2.7%), the State (4.3%) and Nation as a whole (5.6%.) Additionally, property values have been increasing. Between FY 94 and FY 98, the combined value of residential and comrr cial property grew from $5.3 billion to $5.7 billion (7.4%,) in constant dollars. However, the rate of growth in property val has slowed dramatically, particularly for commercial property. In FY 94, residential property values increased by 7.5% over prior year (in constant dollars.) By FY 98, however, this growth had slowed to about 4.4%. Similarly, commercial property ues grew by 8.9% in FY 94, but had slowed to 1.2% in FY 98. Since FY 94, the market value of new residential development, as a percentage of total development, also has declined. (The portion of new development that is residential is important because the net cost of serving residential development typica higher than the net cost of serving either commercial or industrial development.) In FY 94, 81% of new County developmer residential, compared to 72% in FY 98. Finally, business activity in the County has been growing, as measured by per capita real sales tax receipts. Since FY 94, r~ capita sales tax revenues have increased from $88 in FY 94 to $90 in FY 00, an increase of 2.6%. This increase reflects ti nomic prosperity of the late 1990's as well as the impact of some large retail stores opening in the area, which increased s~ revenues. Given the inter-relationships between demographic and economic factors and revenues and expenditure growth, it is like~ growing population, increased property values, rising personal incomes, Iow unemployment and a strong business sec' contributed to the favorable financial position of the County. However, the steady growth in enrollments, coupled with the slowdown in reassessment increases have put pressure o' government to meet the demands of growth within available resources, while still maintaining cun~ent service levels, p~ in the area of education. Wltat is the Overall Financial Forecast for'Albemarle County? The updated long-range financial forecast for Albemarle County presents four possible scenarios of revenues and ex- penditures for the next five years, FY 2000/01 - FY 2004/05. The first scenario focuses only on the General Fund (without school division intergovernmental revenues) and balances expenditures to available revenues. The second scenario shows the total County budget (including the school funds,) and assumes that expenditures grow at the com- bined rate of growth and inflation. In this scenario, total County revenues are projected to exceed expenditures by $3.6 million over the five-year period, with the highest surplus being $1.7 million in FY 01. A third scenario adds the additional operating costs associated with previously-approved capital projects, and projects a cumulative operat- ing budget shortfall of $8.8 million over the five-year period. The fourth and final scenario shows what the overall imbalance would be based on the FY 01-05 Recommended Capital Improvement Program (CIP.) In this scenario, the shortfall increases by approximately $2.3 million to $11.0 million overall. In all of these scenarios, the effect of ~n- creasing County revenues to fund the debt service on the General Obligation debt proposed in the CIP (to fund the City/County courthouse expansion, public safety facility, and urban gym projects) would be to reduce projected defi- cits by approximately $2.9 million, over the five-year period. The operating budget shortfalls projected in the last two scenarios reflect the impact of additional operating expenses associated with planned capital projects over the next five years. General Government accounts for the majority of these projected deficits, due to the operational expenses associated with the regional jail expansion, and the new ju- venile detention facility, as well as staffmg a new fire/rescue station projected in southern Albemarle, and maintain- ing and upgrading park facilities. The School Division shortfall generally represents the impact of opening two new elementary schools within the next five years. Several mechanisms to address these operating budget shortfalls were discussed: Expenditure Reduction Strategies: * Reduce expenditure growth rates by funding operations at something less than the combined rates of inflation and growth. * Limit growth in debt serrate costs by limiting the use of borrowed funds for capital projects. * Limit growth in the amount of General Fund revenues transferred to the Capital Improvement Program. * Limit growth in capital associated operating costs by deferring or spreading out large capital projects, such as new schools. * Assume capital associated operating costs will be absorbed within a department's budget. Revenue Enhancement Strategies: * Expand fee revenues, to increase the percentage of operational expenditures directly offset by fee revenues. * Actively pursue other revenue sources, including public and private grants to provide expanded services. * Increase the real property tax rate. Of course, projected imbalances in the last three scenarios do not mean that future County budgets will be unbal- anced. Not only do state laws require the Board of Supervisors to adopt a balanced budget annually, but the budget process also demands an annual compromise of revenue enhancements and expenditure reductions to achieve a balanced budget. Additionally, revenue and expenditure projections may change dramatically over a five-year period depending on state mandates, revenue decisions at both the state and local level, and the local economy. What the projected shortfalls do indicate, however, is that desired levels of service and infrastructure growth may not )e affordable, given existing financial policies and revenue sources. The County will need to make some difficult '~hoices as it goes about addressing the projected operating budget deficits associated with planned capital improve- aent projects and balancing its budget over the next five years. Additionally, none of the aforementioned scenarios address the large number of general government and school projects that are not funded in the either the current or recommended CIP's, including additional fire/rescue stationS, expanded urban infrastructure improvements, public safety equipment and technology, road projects, library facilities, park and recreational facilities, and future school needs. The County will need to address how, or whether, to fund these projects in the future as well. Th/s page is intentionally blank. Revenue Indicators lgIty are Revenues Important? Revenues determine the capacity of a government to provide services to its citizens. Important indicators of revenue health are growth, flexibility, diversity and good administration. Under ideal conditions, revenues should grow at a rate greater than or equal tc the combined effects of inflation and population growth, and should be sufficiently free from spending restrictions to permit adjust- ments to changing conditions. Additionally, the revenue base should be diversified -- not overly dependent on residential, commer- cial or industrial land uses, or on external funding sources or discretionary state aid. Finally, user fees should cover increases in the cost of related services provided. }Vhat are Albemarle County's Revenue Policies? 1. Reassessment of real property will be made every two years. The County will maintain sound appraisal procedures to keep property values current. The County's goal is to achieve ar annual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 1st assessmen~ is compared to sales in the succeeding calendar year, when that year is a reassessment year. The County will maintain a diversified and stable revenue structure to shelter it from short-term fluctuations in any one reve. hue year. 4. The County will estimate its annual revenues by an objective, analytical process. 5. The County will monitor all taxes to insure that they are equitably administered and collections are timely and accurate. The County will follow an aggressive policy of collecting tax revenues. The annual level of uncollected current properg taxes should not exceed 4% unless caused by conditions beyond the County's control. To the extent possible, the County shall attempt to decrease the dependency on real estate taxes to finance the County's oper. ating budget. The County will, where possible, institute user fees and charges for specialized programs and services in the County baser on benefits and/or privileges granted by the County, or based on the cost of a particular service. Rates will be established tr recover operational as well as capital or debt service costs. The County will regularly (at least every 3 years) review user fee charges and related expenditures to determine ifpre-estab. lished recovery goals are being met. 10. The County will identify all inter-governmental aid funding possibilities. However, before applying for or accepting eithe: state or federal funding, the County will assess the merits of the program as if it were to be funded with local dollars. Nr grant will be accepted that will incur management and reporting costs greater than the grant. 11. Local tax dollars will not be used to make up for losses of inter-governmental aid without first reviewing the program and it: merits as a budgetary mcrement. 12. The County will attempt to recover all allowable costs - both direct and indirect - associated with the administration and im plementation of programs funded through inter-governmental aid. In the case of state and federally mandated programs, th~ County will attempt to obtain full funding for the service from the governmental entity requiring that the service be pro vided. }Vhy Develop Revenue Indicators and What Revenue Indicators are Included in this Section Revenue indicators provide a means of assessing the growth, flexibility, diversity and adequacy of a government's revenue base. The following indicators are contained in this section: Indicator: · Revenues Per Capita · Reslricted Revenues · Intergovernmental Revenues · Property Tax Revenues · Assessment Ratios · User Charge Coverage · Revenue Surplus/Shortfalls Description: Net Operating Revenues Per County Resident (in Constant $) Restricted Revenues, as a Percentage of Total Net Operating Revenues State and Federal Revenues, as a Percentage of Total Net Operating Revenues Property Tax Revenues (in Constant $) Ratios of Assessed Property Value to the Market Value of New Property Sold Revenues from Fees and User Charges, as a Percentage of Expenditures for Related Services Revenue Surplus/Shortfalls, as a Percentage of Net Operating Revenues 10 Revenues Per Capita Formula: Total Operating Revenues (Net of Split Billing and Revenue Sharing, in Constant $, FY 94 =100) Population Warning Trend to Watch for: Decreasing Net Operating Revenues Per Capita (in Constant $) County Trend: Increasing Net Operating Revenues per Capita $1,600 $1,550 $1,500 $1,450 $1,400 $1,350 $1,300 $1,250 $1,200 Net Operating Revenues Per Capita (in Constant $, FY94 = 100) 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Net Operating Rev. (Millions) 96.6 103.1 112.4 120.4 126.5 140.6 147.4 CPI (FY94 = 100) .100.0 102.6 105.5 108.6 111.1 112.8 114.9 Constant $ 96.6 100.5 106.6 110~9 113.9 124.6 128.3 Population 72,400 74,300 75,900 78,400 79,200 80,200 81,800. $ Per Capita $1,335 $1,353 $1,404 $1,414 $1,438 $1,554 $1,568 Description of lndicator: Net operating revenues are revenues collected in the general, school, special revenue and debt service funds that are available for general municipal operations, prior to any inter-fund transfers and net_ of 1) revenues received from the split billing of property taxes (in FY 91 and FY 96) and 2) revenues that fund the revenue sharing agreement with Charlottesville. Per capita net operat- ing revenues are a measure of total net operating revenues per County resident. Theoretically, as the County's population increases, revenues should increase proportionately. As a result, per capita operating revenues should remain at least constant m real terms. Decreasing levels of per capita revenues may signal possible difficulties in maintaining existing service levels without the addition of new revenue sources, cost cutting measures or efficiency enhance- ments. Analysis: · Since FY 94, real per capita net operating revenues have increased from $1,335 to $1,568 in FY 00 (17.5%). · Most of this increase is due to growth in general property tax revenues, the County's principle source of revenue. (Since FY 94, real per capita property tax revenues (net of Split Billing and Revenue Sharing) have risen by 12.0%, increasing from $573 in FY 94 to $642 in FY 00.) However, the large increase m revenues per capita in FY 99 reflects $1.4 million m addi- tional state lottery funding for school operations, as well as a full year of meals tax collections (which went into effect on Jan. 1, 1998) as well as greater than anticipated growth in transient lodging (hotel/motel) tax revenues. The effect of these in- creases ~s magnified by the slow down in personal property tax revenues (reflecting market conditions), that depressed reve- nue growth in the previous fiscal year, FY 98. Revenues Per Capita Net County Operating Revenues: FY 87188 (Net of Split Billing & Revenue Sharing) State Property Tax 30.8% Revenues 38.7% Feder~ 4.5% Other Local 26.0% Net County Operating Revenues: FY 99~00 (Net of Split Billing & Revenue Sharing) State 25.5% Fedeml 5.2% PmpeKyTax Revenues 41.7% Other Local 27.6% ~lnalysis (continued): · Although real per capita net operating revenues have increased, however, the County has become increasingly reliant on property tax revenues to f'mance operations over time. As the above charts indicate, the share of net County revenues derived from property taxes has increased from 38.7% in FY 88 to 41.7% in FY 00. By contrast, state and federal revenues have de- clined from a combined share of 35.3% in FY 88 to 30.7% in the current year. (The same general trend is evident for FY 94 - 00, as well.) · The general slowdown in state and federal funding has occurred primarily in the School Division. Since FY 94, the share of state and federal revenues for education fell from 37.3% to 33.2% in FY 00. State and federal funding for General Govern- ment operations, however, increased from 20.7% to 26.8% of general government net operating revenues. Since the schools receive a greater dollar amount of state and federal funding assistance than local government, the relative decline in state and federal funding for education has more than offset the increase m intergovernmental aid to General Government. · A more detailed discussion of trends in property tax revenues is found on page 17. Additional information about state and federal revenue trends is found on pages 15-16. 12 Restricted Revenues Formula: Restricted Operating Revenues Total Operating Revenues (Net of Revenue Sharing and Split BilYmg) Warning Trend to Watch for: Increasing Amount of Restricted Operating Revenues, as a Percentage of Net Operating Revenues County Trend: Steady Growth of Restricted Revenues as % of Net operating Revenues 35% - 30% 25% 20% 15% 10% 5% 0% Restricted Revenues as % of Net Operating Revenues 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Gen. Gov't. " School Div. - -. ~,. - - Total Data Chart: Restricted Revenues (Millions) Net Oper. Revenues (Millions) % FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 17.6 19.2 23.0 25.4 26.0 31.3 35.1 96.5 102.9 112.2 120.4 126.5 140.4 147.4 18.2% 18.6% 20.5% 21.1% 20.5% 22.3% 23.8% Description of Indicator: Restricted operating revenues are operating revenues that are legally earmarked for a specific use, as may be required by state law, bond covenants, or grant requirements. As the percentage of restricted revenues increases, a local government loses its abil- ity to respond to changes in conditions and to meet citizens' needs and demands. Increases in restricted revenues also may indi- cate an over-dependence on external revenues and signal a future inability to maintain existing service levels. The County is committed to maintaining a diversified and stable revenue base that minimizes the use of restricted operating reve- nues. Analysis: · Since FY 94, restricted operating revenues have come to account for a larger share of net operating revenues, increasing from 18.2% (FY 94) to 23.8% (FY 00.) · Most of this increase has occurred on the General Government side, where restricted revenues have grown from 20.8% of net general government revenues in FY 94 to 28.8% in FY 00 - an increase of 38.2%. Restricted school revenues, on the other hand, have grown more modestly, increasing from 16.8% of School Division operating revenues in FY 94 to 20.7% in FY 00, an increase of 23.0%. · The rapid growth in restricted general government revenues is due to increases in social sen'ices revenues (due to Welfare Reform and the re-structuring of several large programs from a County-only direct payment, to an up-front payment of the State share to be reimbursed by State revenues,) as well as additional revenues for criminal justice and crime control, recor- dation fees (which the County began collecting in FY 93), and reimbursements for State constitutional officers. Restricted Revenues Steady growth in restricted revenues is not necessarily cause for alarm, however. Restricted revenues often fund services mandated by the state or federal government, (such as social services) and grant related projects of finite duration. (Current policy states that local tax dollars will not be used to make up for losses of intergovernmental aid without first reviewing the program and its merits as a budgetary increment.) Additionally, restricted revenues comprise less than one quarter (23.8%) of total operating revenues (net of Revenue Sharing and Split Billing.) 14 Intergovernmental Revenues Formula: Intergovernmental Operating Revenues Total Operating Revenues (Net of Revenue Sharing and Split Billing) Warning Trend to Watch for: Increasing Amount of Intergovernmental Operating Revenues, as a Percentage of Net Operating Revenues County Trend: Overall Steady Decline of Intergovernmental Revenues as % of Net Operating 40% ' 35% 3O% 25% 20% 15% 10% 5% 0% Intergovernmental Revenues as % of Net Operating 1994 ~ 1995 1996 1997 1998 1999 2000 Fiscal Year Gen. Gov't. -- School Div.. - -&--. Total ~ Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Intergov'tl Revenues (Millions) 30.3 32.2 34.3 36.6 38.7 42.5 45.3 Net Oper. Revenues (Millions) 96.5 102.9 112.2 120.4 126.5 140.4 147.4 % 31.4% 31.3% 30.6% 30.4% 30.6% 30.3% 30.7% Description of Indicator: Intergovernmental revenues are revenues received from another governmental entity, such as the state or federal governments. An over-dependence on such revenues may be harmful if the external source withdraws its funding or reduces its share of costs, re- sultmg in the local government either cutting programs or paying for them out of the general fund. Nevertheless, rater- governmental revenues may be an ideal source of financing for mandated services or to fund one-time operating costs. Recogmzing the need to use state and federal funding wisely, the County is committed to: Identifying and evaluating all intergovernmental aid funding possibilities. No grants will be accepted that incur management and reporting costs greater than the grant. · Not using local tax dollars to make up for losses m intergovernmental aid without first reviewing the program and its merits as a budgetary increment. · Recovering all allowable costs associated with the administration and implementation of programs funded through intergov- ernmental aid. The County will seek full funding from the state and federal governments for mandated services. Analysis: · Currently, state and federal revenues account for 30.7% of total net operating revenues. However, since FY 94, the com- bined percentage of County funds coming from state and federal sources has declined from 31.4% of net operating revenues to 30.7% in FY 00. · This general decline in state and federal revenue growth has occurred primarily in the School Division. Between FY 94-FY 00, intergovernmental aid to the schools fell from 37.3% of school division net operating revenues to 33.2%, a 11% decrease. This decline reflects not only slower revenue growth for schools, compared to general government, but a change in the County's Composite Index as well, which caused a dramatic slowdown in real per capita state revenue receipts after FY 96. (Federal funds comprise a relatively small percentage of total education revenues.) Intergovernmental Revenues ~lnalysis (continued): Meanwhile, state and federal funding for local government operations has grown steadily, rising fi:om 20.7% of general gov- ernment net operating revenues in FY 94 to 26.8% in FY 00, an increase of 29% Most of this overall increase reflects growth in revenues for social services programs, crime control and criminal/juvenile justice, recordation fees and reimburse- ments for constitutional officers. Since the schools receive a greater dollar amount of state and federal ftmding assistance than local government, however, the relative decline in intergovernmental aid for education has more than offset the increase in aid to General Government. 16 Property Tax Revenues Formula: Property Tax Revenues (Net of Revenue Sharing & Split Billing, in Constant $, FY 94 = 100) Warning Trend to Watch for: Decline in Net Property Tax Revenues (in Constant $) County Trend: Steady Propexxy Tax Revenue Growth $60 $50 ~40 $30 $20 $10 $0 Property Tax Revenues (Constant $, FY94 = 100) 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: Net Property Taxes (Millions) CPI (FY 94 = 100) Constant $ FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 41.5 44.6 48.9 51.9 54.2 58.0 60.3 100.0 102.6 105.5 108.6 111.1 112.8 114.9 41.5 43.5 46.4 47.8 48.8 51.4 52.5 Description of Indicator: General property taxes are ad valorem taxes based on the assessed value of real and personal property owned by businesses, indi- viduals and public service corporations in the County. These revenues are derived primarily from real estate, personal property, public service, mobile home and machinery and tools taxes. Net general property tax revenues are property tax revenues, net of revenues received from the split billing of property taxes (in FY 91 and FY 96) and of those revenues that go to support the reve- nue sharing agreement with Charlottesville. Real and personal property in the County are assessed every two-years at 100% valuation with tax rates being applied per $100 of assessed value. Re-assessments are completed during odd fiscal years on a December to December basis. However, adjustments to the tax base are not reflected until the following fiscal year. In FY 98/99, the Virginia General Assembly exempted personal property taxes on the first $20,000 of the value of most cars and tracks in Virginia. The exemption, which will be phased in over a five-year period, applies to personal cars, tracks, and motorcy- cles, but not to boats, recreational vehicles or commercially-owned vehicles. The State has promised to reimburse localities for the full amount of lost revenue, and localities still will be able to collect tax on any assessed value in excess of $20,000. Since property taxes are heavily relied upon by most local governments to finance operations, a decline or a diminished growth in these revenues may signal coming fiscal difficulties. To ensure an adequate stream of personal property tax revenues, and to avoid an over-dependence on these revenues to finance operations, the County has established that: The reassessment of real property shall be made every two years; The County will maintain sound appraisal procedures and achieve an annual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 1st assessment is compared to sales in the succeeding calendar year when that year is a reassessment year; Property Tax Revenues The annual level of uncollected property taxes shall not exceed 4%, unless caused by conditions beyond the County's con- trol; and To the extent possible, the County will decrease its dependence on real estate taxes to finance the County's operating budget. Analysis: Net property tax revenues (in constant dollars) have grown smoothly and steadily since FY 94, increasing from $41.5 raillion to $52.5 million in FY 00, an increase orS11.0 million (26.5%.) · Of these, personal property tax revenues have grown the fastest. In constant dollar terms, personal prope~y tax revenues grew from $12.1 million in FY 94 to $20.7 million in FY 00, a $8.7 million (72.0%) increase. However, in 1998, the annual growth rate for these revenues began to slow considerably, due to a flattening out of new and used vehicle prices. As such, in FY 99/there was a 2% decrease in comparison to the 7% average annual real growth rate that had occurred since FY 94. · By contrast, real property tax revenues (net of Split Billing and revenue sharing) have grown more slowly - increasing from $35.2 million in FY 94 to $41.6 million in FY 00, a constant dollar increase 0£$6.4 million (18.3%.) · All of this growth ia prOPerty tax revenues has occurred despite flat property tax rates and declining real estate reassessment increases. Since FY 93, the real property tax rate has remained at $0.72/$100 and the personal property tax rate has remained at $4.28/$100. Additionally, the bienmal rate of appreciation increase in real estate values has slowed from 22.5% in Tax Year 1991 (FY 92) to 3.5% in 1999 (FY 00), reflect~g trends in the real estate market. A chart illustrating the decl~_lng rate of appreciation increases in real prope~3~ values appears below: Reassessment Increases in Real Property Values 25% 20% 15% 10% 5% 0% % ~o ~.17% 1987 1989 1991 1993 1995 1997 1999 Tax Year · Over time, the County has become increasingly reliant on property tax revenues to £mance operations. As the charts on page 12 indicate, the share of total net County revenues derived from property taxes has increased from 38.7% in FY 88 to 41.7% in FY 00. By contrast, the combined percentage of total revenues from state and federal sources declined from 35.3% in FY 88 to 30.7% in the current year. · This dependency has increased the County's vulnerability to changes in conditions effecting property tax growth, such as de- clining reassessment increases, a decline in either the volume or value of new cars sold, or the State's ability to reimburse localities for all of the personal property tax exemption. 18 Assessment Ratios Formula: Annual Assessment to Sales Ratio Warning Trends to Watch for: · Declining Annual Assessment to Sales Ratios · Ratios of Less than the County's Prescribed Minimum (95%) County Trend: Steadily Increasing Assessment to Sales Ratios; Ratios Greater than 95% 00% 98% 960/0 94% 92% 90% 88% 86% 84% 82% 80% 78% Assessment Ratios L 1994 1995 1996 1997 Fiscal Year [+Virginia,Albemarle] Data Chart: Assessment to Sales Ratios- Albemarle County Assessment to Sales Ratios- Virginia FY 94 FY 95 FY 96 FY 97 96.6% 96.3% 97.2% 98.4% 86.0% 91.3% 91.6% 91.5% Description of Indicator: The County's assessment to sales ratio relates assessed property values to the market value of new property sold. It is an indicator of sound appraisal procedures to keep property values current. Declining assessment ratios may indicate that property value as- sessments are not being kept current, resulting in lower property tax revenues. To ensure a healthy stream of property tax revenues, the County has established the following assessment policies · The reassessment of real property shall be made every two years; and · The County will maintain sound appraisal procedures and achieve an annual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 15t assessment is compared to sales in the succeeding calendar year when that year is a reassessment year. Analysis: · Since FY 94, the County's annual assessment to sales ratio has increased. The FY 97 sales to assessment ratio of 98.4% is 1.8% higher than the FY 94 rate of 96.6%. Additionally, the assessment ratio has exceeded the County's prescribed mini- mum of 95% since FY 94, as well as the State average throughout the five-year period. · The results of the sales ratio studies also indicate that assessments in the County are both reasonably equitable and progres- sive. User Charge Coverage Formula: Revenues from Fees and User Charges Expenditures for Related Services Warning Trend to Watch for: Decreasing Revenues from User Charges, as a Percent- age of Total Expenditures for Related Services County Trend: Increasing User Charge Dept.; Slowly Declining Parks & Recreation Coverage for Development User Charge Coverage for 90% 80% 70% ~60% 50% 40% 30% 20% 0% User Charge Coverage 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Parks & Rec ~ Development Data Chart: Parks Fees & Charges (Mill.) Parks Expenditures (Mill.) % Coverage Dev. Fees & Charges (Mill.) Dev. Expenditures (Mill.) % Coverage FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 0.18 0.17 0.20 0.18 0.22 0.22 0.23 0.69 0.72 0.77 0.85 0.96 1.02 1.06 26.3% 23.4% 25.5% 21.6% 23.0% 21.8% 21.7% 0.77 0.75 0.73 0.84 0.92 0.99 1.08 1.03 1.11 1.13 1.17 1.22 1.23 1.38 74.3% 67.5% 64.8% 72.1% 75.3% 80.5% 78.0% Description of Indicator: Fees and user charges are revenues collected from permits and privilege fees and for the services of County personnel. "User charge coverage" refers to the extent to which the amount of fees and user charges collected offset the cost of providing related services. If fees and user charges offset all related expenditures, the coverage is 100%. If these revenues cover only half of these cosls, the coverage is 50%. As coverage declines, the burden of financing these operations falls on other revenues to support these services. This indicator focuses on the County's two major sources of fee and user charge revenues: development activity and parks and recreation. The majority ofpenmts, fees and license revenues are development-related, and offset the activities of the Building Code and Zoning Services, Planning, and Engineering (Erosion Control) departments. Parks and Recreation also collects user charges to offset the cost of its core operations. Analysis: · Since FY 94, user charge coverage has declined for the Department of Parks and Recreation, but has increased for the Devel- opment Departments. In FY 94, park fees and charges offset 26.3% of associated expenditures, compared to 21.7% in FY 00. By contrast, permit and development fee revenues offset 74.3% of all related development activities in FY 94, compared to 78.0% in FY 00. · The declining user charge coverage for Parks and Recreation reflects the County's desire to keep its recreation rates afford- able for all citizens, while providing regular operational (expenditure) increases for this function. Increasing user charge cov- erage for the development departments generally reflects the fact that the fees collected are sufficient to offset associated ex- penditures. The drops in coverage during FY 95 and FY 96 reflect decreases in permit activity during these years, as well as the fact that Inspections stopped collecting fees for mumcipal (County) building activity in FY 96. 20 Revenue Surplus/Shortfalls Formula: Revenue Surplus or Shortfall Total Operating Revenue (Net of Split Billing & Revenue Sharing) Warning Trend to Watch for: Increase in Revenue Shortfalls in the General and School Funds, as a Percentage of Net Operating Reve- nues in these Funds. County Trend: Continuing Revenue Surpluses on an Annual Basis 5% 4% 3% 2% 1% O% -1% -2% Revenue Surplus/Shortfall In General & School Funds as % of Fund Net Operating Revenues Fiscal Year Gen. Gov't + School Div. --.a... Total Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 General Fund Surplus/Shortfall (Millions) 1.6 2.3 3.0 0.4 -0.1 General Fund Net Operating Rev. (Millions) 66.6 71.2 77.0 83.2 89.0 % 2.3% 3.2% 3.9% 0.5% -0.1% School Funds Surplus/Shortfall (Millions) -0.3 0.2 0.3 0.2 0.9 School Funds Op. Rev. (Net of Transfer, in Millions) 27.4 28.8 30.8 31.7 3,2.4 % -1.1 % 0.5% 1.0% 0.5% 2.7% Description of Indicator: An operating surplus is defined as the excess of revenues actually received at the end of a fiscal year over initial estimated re- ceipts. An operating shortfall arises when actual revenues received fall short of the initial estimates. Major shortfalls that con- tinue year after year can indicate a declining economy, inefficient collection procedures, or inaccurate estimation techniques. This indicator measures operating surpluses and shortfalls in the General and School Funds (net of Split Billing and Revenue Sharing receipts), as a percentage of total net operating revenues in these funds. (Special Revenue funds such as the federal/state grant funds, the E-911 Fund and the Duplicating Fund, as well as the Debt Service Fund are excluded from this analysis, as some of these funds do not show budgeted revenues in every year.) Analysis: · Prior to FY 97 surpluses had risen from 1.3% of net operating revenue in FY 94 to 3.1% in FY 96. In FY 97 and FY 98 the overall revenue surpluses dipped to 0.5% and 0.6%, respectively, reflecting smaller than anticipated collections of personal property tax revenues in FY 98. Overall, the County has experienced surpluses annually. · As evident from the data chart above, most of these surplus revenues have come from the General Fund, and reflect greater than anticipated receipts in general property tax revenues, sales tax revenues, interest income, utility tax revenues and busi- ness licenses. Thc General Fund accounted for 100% of the surplus in FY 94, since the school funds registered a revenue deficit in that year. Between FY 94-95, the General Fund accounted for an average of 92% of the total surplus, and about 90% of the overall surplus in FY 96. · In FY 98, thc school funds again represented 100% of the annual surplus, since the General Fund received less revenue than originally estimated, due to slower personal property tax growth. · Excess revenues in these funds have been used for one-time capital and operating expenditures, and to build reserves for emergency or unanticipated needs. This page is intentionally blank. 22 Expenditure Indicators Why are Expenditures Important? Expenditures are a rough measure of a local government's service output. Generally, the more a local government spends (in con- stant dollars), the more services it is providing. (Of course, this does not take into account how effective the services are, or how efficiently they are being provided.) Two issues to consider when evaluating expenditure growth are 1) whether the government is living within its revenues, and 2) how flexible the government is in its ability to adjust its service levels to changing conditions. What are Albemarle County's Operating Budget Policies? Recognizing the irnponance of both living within its means and maintaining expenditure flexibility, the County has established the following operating budget policies: 1. The annual budget will be prepared consistent with guidelines established by the Govermnent Finance Officers Association (GFOA) and will annually seek the GFOA Distinguished Budget Presentation Award. 2. The budget must be structured so that the Board and the public can understand the relationship between revenues, expendi- tures and the achievement of service objectives. 3. The goal of the County is to fund all recurring expenditures with recurring revenues and to use non-recurring revenues only for non-recurring expenses. 4. The County will maintain an updated fiscal impact model to assess the impact of new development on the future costs of as- sociated county servmes. Utilizing the fiscal impact model, the County will develop and annually update a long range (3-5 year) financial forecasting system, which will include projections of revenues, expenditures, as well as future costs and financing of capital improve- ments and other projects that are included in the capital budget. 6. When revenue shortfalls are anticipated in a fiscal year, spending during the fiscal year must be reduced sufficiently to offset current year shortfalls. The County wilt prepare the capital improvement budget in conjunction with the development of the operating budget, in or- der to assure that the estimated costs and furore impact of a capital project on the operating budget will be considered prior to its inclusion in the CIP. o 10. The County will develop and annually update a financial trend monitoring system that will examine fiscal trends from the preceding five years. Where possible, trend indicators will be developed and tracked for specific elements of the County's fiscal policy. The County shall establish a Memorandum of Understanding with the School Board regarding the amount of annual general fund support received each year, which has currently been established at approximately 60% of all new available local tax revenues. Available revenues are revenues that can be used for County and School Division operations after any increases in debt service, capital improvement program funding, City of Charlottesville revenue sharing, and the Board reserve fund have been funded. This guideline will be reviewed annually. The operating budget preparation process is conducted to allow decisions to be made regarding anticipated resource levels and expenditure requirements for the levels and types of services to be provided in the upcoming fiscal year. The following budget procedures will insure the orderly and equitable appropriation of those resources: 11. Operating budget requests are initiated at the department level within target guidelines set by the County Executive. Pri- orities of resource allocation of divisions within a department are managed at the department level. In formulating budget requests, priority will be given to maintaining the current level of services. New services will be funded through identification of new resources or the reallocation of existing resources. Proposed program expansions above existing service levels must be submitted as a budgetary increment requiring de- tailed justification. Every proposed program expansion will be scrutinized on the basis of its relationship to the health, safety and welfare of the community including an analysis of long term fiscal impacts. · Proposed new programs also must be submitted as budgetary increments requiring detailed justification. New programs will be evaluated on the same basis as program expansions including an analysis of long term fiscal impacts. · Performance measurement and productivity indicators will be integrated into the budget process as appropriate. The operating budget is approved and appropriated by the County Board of Supervisors at the department level. Total ex- penditures cannot exceed total appropriations of any department within the General Fund. Changes to the approved operat- ing budget during the fiscal year can be accomplished in any of the following ways: · The Director of Finance approves transfers between divisions and line-item expenditures within a department. · The Board of Supervisors approves transfers between expenditure accounts in different departments. · Encumbered funds for active purchase orders will be carried forward into the next fiscal year with the approval of the Board of Supervisors. · The County Executive will require monthly budget reports, monthly financial statements, and annual financial reports. · The Board of Supervisors will adopt the budget no later than April 30t~ of each year. Why Develop Expenditure Indicators and What Expenditure Indicators are Included in this Section? By developing and tracking indicators of expenditure growth and flexibility, the County can evaluate the extent to which it has been living within its revenues, and can adjust service levels to changing conditions. The two indicators included in this section relate to expenditure growth, and to assessing how well Albemarle has been able to live within its revenues: Indicator: · Expenditures Per Capita · Employees Per Capita Description: Net Operating Expenditures per County Resident (in Constant $) Total Municipal Employees per County Resident. 24 This page is intentionally blank. Expenditures Per Capita Formula: Net Operating Expenditures (Constant $, FY 94 =100) Population Warning Trend to Watch for: Increasing Net Operating Expenditures Per Capita (in Constant $) County Trend: Steadily Increasing Net operating Expenditures per Capita $2,000 $1,500 $1,ooo $5oo $o Expenditures Per Capita (Constant $) 1994 1995 1996 1997 1998 1999 2000 Fiscal Year [] Gen. Gov't. [] Public Safety [] Schools Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Net Operating Exp. (millions) 93.7 102.3 109.5 118.7 125.0 135.6 146.3 CPI (FY94 = 100) 100.0 102.6 105.5 108.6 111.1 112.8 114.9 Constant $ (millions) 93.7 99.7 103.9 109.3 112.6 120.2 127.4 Population 72,400 74,300 75,900 78,400 79,200 80,200 81,800 $ per Capita $1,294 $1,342 $1,368 $1,394 $1,421 $1,499 $1,557 Description of Indicator: Net operating expenditures are expenditures for operations in the general, debt service and special revenue funds, including the school funds, federal/state grant funds, and the E-911 fund, net of split billing and revenue sharing costs. Net operating expendi- tures per capita are total net operating expenditures per County resident. Increasing net operating expenditures per capita (in constant dollars) may indicate that the cost of providing services is out pacing the commumty's ability to pay. Analysis: · Since FY 94, real per capita net operating expenditures have increased steadily from $1,294 to $1,557 - an increase of 20.4%, or $263. Much of this increase reflects growth in mandated programs, such as social services, for which expenditures have grown faster than population. In FY 96, for example, social services revenues and expenditures increased, duc to wel- fare reform and the re-structuring of several large County programs from a County only direct payment, to an up front pay- ment of thc State share to bc reimbursed by State revenues. · Additionally, expenditure growth has not occurred evenly between General Government and the School Division. Real per capita general government expenditures have grown much mom rapidly than real per capita spending in the School Division. Between FY 94 and FY 00, real per capita expenditures on general government programs increased by 38.2%, compared to 12.8% in the School Division. · Differences in the relative growth rates of general government and school expenditures are explained in part by differential growth rates in state and federal funding. State and federal funding for general government operations (including state/federal grant funds) has increased steadily and substantially since FY 94. During this time, constant per capita state and federal revenues for General Government 26 ExpenditureS Per Capita have increased from $98 in FY 94 to $162 in FY 00, an increase of $64 (65.5%.) Nearly all of this increase is due to growth in restricted operational revenues - that ~s, revenues received by the state and federal governments legally ear- marked for use m specific general government programs. These revenues fund social services programs, law enforce- ment and coramunity policing initiatives, juvenile justice, Section 8 housing subsidies, and constitutional officer reim- bursements. Many of these programs are mandated and require local matching funds. By contrast, real per capita intergovernmental aid to the Schools has declined, particularly since FY 96. This decline reflects slower growth in state and federal education revenues, relative to general government increases, as well as a change in the County's Composite Index, which caused a significant drop in state aid after FY 96. (Federal funds com- prise a relatively small percentage of total education revenues.) Before FY 96, real per capita intergovernmental aid to Schools was growing (from $321 in FY 94 to $324 in FY 96.) After FY 96, however, real per capita state and federal revenue receipts have fallen by 1.2%. (A large $1.4 million increase in State lottery funds for education in FY 99 has helped to offset partially the recent decline in per capita school revenues, which is reflected in the chart below.) Never- theless, general government experienced a 54.2% increase during this period. The charts below illustrate the trends in funding from state and federal sources. Intergovernmental Per Ca pita Revenues General Government (Constant $ FY 94 = 100) $160 $140 $120 $100 $80 1994 1995 1996 1997 1998 1999 2000 F~calYear $380 $360 $34O $320 $300 $280 Intergovernmental Per Capita Revenues School Division (Constant $ FY 94 -- 100) 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Employees Per Capita Formula: General Government & School Fund Employees (in FTE's) Population Warning Trend to Watch for: Increasing Number o£ County Employees Per Capita County Trend: Slowly Increasing Employees per Capita 15.0 10.0 0.0 Employees Per Capita 20.6 20.6 20g 20,2 20.7 21.4 21.7 1994 1995 1996 1997 1996 1999 2000 Fiscal Year IOGen Govt nSchools ] Data Chart: Total Employees (FTE) Population (Thousands) FTE Per Capita FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 1,852 1,899 1,915 1,992 2,063 2,152 2,229 72.4 74.3 75.9 78.4 79.2 80.2 81.8 25.6 25.6 25.2 25.4 26.0 26.8 27.2 Description of Indicator: The number of employees per capita relates total municipal employees to population, for a measure of the total number of County employees per resident. This indicator includes employees of the School Fund and general government. FTEs funded by the school division's Self-Sustaining Funds, such as employees working m food service, summer school programs or other federally funded programs, are not included due to inconsistencies in year to year budgeting practices. The number of municipal employees is measured by the number of Full-Time Equivalent positions (FTE's), which converts part- time positions into the decimal equivalent of a full-time position based on 2,080 hours worked per year. A full-time employee working 2,080 hours/year is counted as 1.0 FTE. A part-time employee working 1,040 hours per year is counted as 0.5 FTE. Changes in the number of employees per capita is a good indicator of changes in total expenditures per capita, since salary and fringe costs are a major portion of a local government's operating budget. (Personnel costs accounted for about 55% of general government operations and 76% of school operations in FY 00.) Analysis: · Since FY 94, the number of municipal employees per 1,000 County residents has grown by only 1.67 FTEs, or 6.5%. · Part of this overall increase reflects growth in the number of school division employees (including teachers, central office staff, bus drivers, and other school employees.) Since FY 94, the number of School Division employees per 1,000 County residents has grown from 20.6 FTE in FY 94 to 21.7 FTE in FY 00, an increase of 1.0 FTE per 1,000 County residents (5.1%.) The remainder of this increase represents the number of general government employees per 1,000 County residents, which has increased by 0.6 FTE (12.6%) since FY 94 (growing from 5.0 FTE in FY 94 to 5.6 FTE in FY 00.) CJrowth in police of- ricers and fire/rescue personnel alone accounts for nearly half (47%) of the overall increase in general government employ- ees. 28 Employees Per Capita Moderate growth in the number of employees per capita, as the County has seen since FY 94, is not by itself cause for alarm. There are several classes of employees, for example, the need for which may be tied to factors other than population or en- rollment growth. Examples of these classes of employees include teachers for federally mandated programs like ESOL (English as a Second or Other Language), which is based on the number on non-native English speakers; custodial staff, which is driven by actual square footage; increased demands associated with the new Standards of Learning, resulting in the need for additional staff; or the addition of administrative staff for each newly constructed school. Social workers and tech- nology support workers are examples of general government employees whose numbers are driven by factors other than population growth. This page is intentionally blank. 30 Operating Position Indicators What is 'Operating Position' and Why is it Important? The term 'operating position' refers to a government's ability 1) to balance its budget on an annual basis, 2) to maintain reserves for emergencies and 3) to ensure sufficient liquidity to pay all of its bills on time. Although Albemarle County is required by law to adopt a balanced budget, it is rare that current expenditures exactly equal current revenues during the year. Usually, a local government generates either an operating deficit or surplus. An operating deficit occurs when current expenditures exceed revenues. If revenues exceed expenditures, an operating surplus arises. However, operating defi- cits or surpluses do not necessarily result in "budget deficits" or "budget surpluses." If expenditures exceed revenues, reserves (or fund balances) from prior years are used to cover the difference and balance the budget. Operating surpluses generally increase fund balances. In fact, operating deficits or surpluses may be created intentionally, to achieve a particular policy goal, or unintentionally, due to the difficult task of predicting revenues and expenditures exactly. Reserves provide a £mancial cushion against unexpected events such as the loss of a revenue source, an economic downturn, unantici- pated operating expenditures due to a natural disaster (for example), unexpected capital expenditures or other non-recurring expendi- tures, or an uneven cash flow. Reserves are built through accumulating operating surpluses and may be budgeted in a contingency account, or camed as part of one or more fund balances. Albemarle County maintains both "designated" and 'hmdesignated" fund balances. Designated fired balances are reserves set aside for a particular use -- such as capital or inventory. Undesignated fund bal- ances are available for general appropriation. Liquidity refers to cash inflow and outflow. Since governments often receive their revenues in large installments and at infrequent intervals during the year, revenues may be received before they are actually needed to be spent, resulting in a positive liquidity or cash flow position. Excess liquidity, or "cash reserves" also provide a valuable cushion against financial pressures. What are Albemarle County's Fund Balance or "Reserve" Policies? Recognizing the importance of operating position to its overall financial condition, Albemarle County has established the following fund balance (reserve) policies: The County does not intend, as a common practice, to use General Fund equity (undesignated fund balance) to finance currem operations. The fund balance is built over years from savings to provide the County with working capital to enable it to finance unforeseen emergencies without borrowing. 2. The County will maintain a fund balance for cash liquidity purposes that will provide sufficient cash flow to minimize the possi- bility of short-term tax anticipation borrowing. 3. The undesignated fund balance, plus the designation for fiscal cash liquidity purposes, at the close of each fiscal year should be equal to no less than 10% of the County's total operating budget. 4. Funds in excess of the required undesignated fund balance may be considered to supplement "pay as you go" capital expendi. tares, or as additions to the fund balance. Why Develop Operating Position Indicators and What Indicators are Included in this Section? By developing and monitoring indicators of operating position, the County can assess whether currem revenues are sufficient to sup. port current operations, whether adequate reserves are being maintained for emergencies, and/or whether the government has suffi cient liquidity to pay all of its bills on time. The following operating position indicators are contained in this section: Indicator: · Operating Surplus/Deficit · Unreserved Fund Balances · Liquidity Description: Operating Surplus/Deficit, as a Percentage of Net Operating Revenues. Unreserved Fund Balances as a Percentage of Net Operating Revenues. Cash and Short-term Investments as a Percentage of Current Liabilities. 32 Operating Surplus/Deficit Formula: Actual Operating Surplus or Deficit (Net of Revenue Sharing & Split Billing Total Operating Revenues (Net of Revenue Sharing & Split Billing) Warning Trend to Watch for: Increasing Net Operating Deficits, as a Percentage of Net Operating Revenues County Trend: Annual Net Operating Surpluses 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Operating Surpluses as % of Net Operating Revenues 1994 1995 1996 1997 1998 Rs cai Year Data Chart: Net Operating Revenues (Millions) Net Operating Expenditures (Millions) Operating Surplus (Millions) Net Operating Revenues (Millions) % FY 94 FY 95 .,FY 96 FY 97 FY 98 96.6 103.1 112.4 120.4 126.5 93.7 102.3 109.5 118.7 125.0 3.0 0.8 2.9 1.7 1.5 96.6 103.1 112.4 120.4 126.5 3.1% 0.8% 2.6% 1.4% 1.2% Description of Indicator: An operating deficit occurs when a government is spending more than it is earning, i.e., when current expenditures exceed reve- nues. An operating surplus occurs when current revenues exceed expenditures. Operating deficits are usually funded with re- serves (fund balances) from prior years. Operating surpluses generally build up reserves. This indicator illustrates the relative size of operating deficits or surpluses. Although an operating budget surplus or deficit in any one year may be the result of a pohcy goal aimed at building reserves, or be unintentional, due to inaccurate estimates, frequent operating deficits may indicate that current revenues are not sufficient to support current expenditures and that serious fiscal diffi- culties lie ahead. Analysis: · The County earns more m current revenues than it has spent on operations, generating annual operating surpluses. These sur- pluses were due both to higher than anticipated revenue collections and to expenditure savings within County departments. Since FY 94, however, the amount of surplus, as a percentage of net operating revenues has declined. This reduction reflects the impact of declining real estate reassessment increases, and slower state and federal revenue growth. · These "surplus" revenues have been used to fund one-time capital and operational expenditures, and to build reserves against emergencies or unexpected events. Unreserved Fund Balances Formula: Total Unreserved Fund Balances Total Operating Revenues (Net of Split Billing & Revenue Sharing) Warning Trends to Watch for: · Declining Unreserved Fund Balances, as a Per- centage of Net Operating Revenues · Unreserved General Fund Balances of Less than 10% of the County's General and School Revenue Funds, Combined, Net of Revenue Sharing and Split Billing (County Minimum) County Trem~ · Relatively Constant Unreserved Fund Balances as % of Net Operating Revenues · General Fund Balances above 10% Minimum 20% Unreserved Fund Balances as % of Net Operating Revenues 10% IVinimum 1994 1995 1996 1997 1998 Fiscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 Fund Balance (millions) 16.3 17.4 19.1 20.9 20.5 Net Op. Rev. (millions) 96.6 103.1 112.4 120.4 126.5 % 16.8% 16.9% 16.9% 17.4% 16.2% Description of Indicator: Positive fund balances function as "reserves," or a financial cushion against emergencies. Additionally, fund balances may be used to finance one-time capital and operating expenditures, or to provide sufficient cash flow to rainimize thc possibility of short-term tax anticipation borrowing. Some fund balances are "designated" (reserved) for uses such as inventory or for capital projects. "Unreserved" fund balances are available for general appropriation. The total mount of unreserved fund balances, as a percentage of total net operating reve- nues are an indicator of a local government's abihty to withstand financial emergencies or finance unforeseen or one-time ex- penses. The size of a government's fund balances also may affect its ability to accumulate funds for capital purchases without having to borrow, An unplanned decline in fund balances may indicate that the government will be unable to meet a future need. Albemarle County's Financial Policies state that undesignated General Fund balances, plus the designation for fiscal cash liquid- ity purposes, be no less than 10% of the County's operating budget at the close of each fiscal year (where County operating budget is defined as the sum of the general and school revenue funds, net of Revenue Sharing and Split Billing.) Analysis: · Between FY 94-98, total unreserved fund balances have grown from about $16.3 million to $20.5 million in FY 98. During this time, unreserved fund balances remained relatively steady at 16.8% of net operating revenues. The slight decline in the fund balance percentage in FY 98 reflects smaller than anticipated personal property tax revenue collections that year. · As evident in the chart on the next page, a majority of these surplus funds are accumulated in the General Fund. In FY 98, 72.4% ($14.8 million) of the overall fund balance was General Fund balance, another 13.6% ($2.8 million) represented fund balance in the general government special revenue funds (including federal/state grant funds), and 14.0% ($2.9 million) was collected in the school funds. 34 Unreserved Fund Balances Undesignated County Fund Balances (in Millions): FY 94-98 Gen. Govt. General School Grant & E-911 FY Fund ~ Fund; Total 1994 13.2 1.6 1.5 16.3 1995 14.3 1.2 1.9 17.4 1996 15.7 0.9 2.5 19,1 1997 16.3 2.2 2.3 20.9 1998 14.8 2,9 2.8 20.5 (1) Includes Self-Sustaining School Funds Fund balances of the General and School Funds may be used for operations, although County financial policies require that ap- proximately $13 million of the General Fund balance be retained as fund balance to meet ongoing cash flow requirements. Al- though "undesignated," fund balances in the school and general government special revenue funds may not be used for opera- tious, only for cash flow within those funds. Ratio of General Fund Balance to Net Operating Budget (in Millions) FY 94 FY 95 FY 96 FY 97 FY 98 General Fund Balance 13.2 14.3 15.7 16.3 14.8 Net Operating Budget (1) 94.1 100.0 107.9 114.9 121.3 % 14.0% 14.3% 14.5% 14.2% 12.2% FY 94-98 AVG 13.9% (1) Includes General, School & Self-Sustaining Funds, Net of Revenue Sharing & Split Billing As evident from the chart above, General Fund balances have remained well above the 10% minimum required by County finan- cial policy, averaging about 13.9% per year. Liquidity Formula: Cash and Short-Term Inveslrnents Current Liabilities Warning Trend to Watch for: Decreasing Amount of Cash and Short-Term Invest- ments, as a Percentage of Current Liabilities County Trend: Increasing Amount of Cash and Short-Term Invest- ments, as a Percentage of Current Liabilities, Since FY 95 Cash and Cash Equivalents as %of Current Liabilities 4,0 ' 3.5 3.0 2.5 2.0 1.5 1.0- 0.5- 0.0 1994 1995 1996 1997 1998 Fiscal Year Data Chart: Cash & Short-Term Investments (Millions) Current Liabilities (Millions) Ratio FY 94 FY 95 FY 96 FY 97 FY 98 25.1 21.2 26.8 36.5 40.2 7.2 7 .._.~9 9.9 12.2 11 .,7 3.47 2.70 2.70 2.99 3.45 Description of Indicator: "Liquidity" is synonymous with cash position. Cash position, which includes cash on hand, cash in the bank, and other assets eas- ily converted to cash, determines a government's ability to pay its short-term obligations. The immediate effect of insufficient liquidity is insolvency-- the inability to pay bills. Low or declining liquidity may indicate that a government has over-extended itself in the long run. To measure liquidity, a standard measure called the "quick ratio" is used. It takes cash, short-term investments and accounts re- ceivable as a percentage of current liabilities. (Current liabilities are defined as short-term debt, current portion of long-term debt, accounts payable, accrued and other liabilities.) If the quick ratio is less than one, the entity is facing liquidity problems. If it is greater than one, the entity has cash reserves (has excess liquidity.) Analysis: · Since FY 94, the County has held more than twice the amount of cash and short-term investments as current liabilities at the end of each fiscal year. Additionally, the ratio of cash and short-term investments to current liabilities has been steadily in- creasing since FY 95. (The high ratio in FY 94 reflects greater than anticipated revenue collections, including a large, unan- ticipated increase in sales tax revenues due to the opening of several large retail stores in the County, as well as significant expenditure savings within County departments.) · These percentages indicate a healthy amount of cash reserves for use as a cushion against unexpected financial pressures and as cash flow to minimize the possibility of short-term tax anticipation borrowing. 36 Debt & Unfunded Liability Indicators What are Debt and Unfunded Liabilities and 197ty are they Important? Debt: When a government borrows money, it incurs debt. Debt can be an effective way to finance capital improvements or even out short- term revenue flows, but its misuse can cause serious £mancial problems. Generally, there are two types of debt: short and long-term debt. In short-term borrowing, a government incurs a debt that it mus~ repay within twelve months. Governments often use short-term debt to finance uneven cash flows. However, if revenue shortfalls o~ over-expenditures prevent payment of the short-term debt during the year in which it was borrowed, this debt may be '~rolled over" into the next year. In this event, the government may choose to repay the loan and then re-borrow the money, or to pay only the inter- est on the loan and not the principal. This practice effectively tums short-term debt into long-term debt and, if continued over ~ number of years and the mount of outstanding debt increases, may be an indication that debt is being used to f'mance operating defi- cits. Long-term debt is debt with a maturity of more than one year after the date of issuance. The most common forms of long-term deb are general obligation, special assessment and revenue bonds. General obligation bonds are bonds backed by the full faith,, credit anC taxing power of the government. Revenue bonds are backed only by the revenues from a specific enterprise or project, such as a hos. pital or toll-road. Special assessment bonds are bonds financed by special charges levied on specific properties within a special as. sessment district. (Albemarle County's long-term debt is in the form of general obligation bonds through VPSA and state literar3 fund loans.) Under ideal circumstances, a local government's debt: I) should be proportional to the size and the rate of growth of the tax base; 21 should not extend past the useful life of the facilities that it finances; 3) should not be used to balance the operating budget; 4) shouk not require re-payment schedules that place excessive burdens on operating expenditures, and 5) should not be so high as to jeopard. ize a government's credit rating. Even a temporary mabihty to repay debt can damage a government's credit rating, which in mm car increase the cost of future borrowing or worse. Unfunded Liabilities: Unfunded liabilities are similar to long-term debt in that they represent a legal commitment to pay at some point in the future. How. ever, an unfunded liability is simply a liability that has been incurred during the current or a prior year, which does not have to b~ paid until a future year, and for which reserves have not been set aside. Two major types of unfunded liabilities are pension liability and employee leave (uncompensated absences) liability. Unfunded li abilities have the potential to significantly effect a government's financial condition because they usually don't show up in ordinar, financial records in a way that makes their impact easy to assess, and because they tend to accumulate slowly over time. These type.. of liabilities may grow unnoticed until they create severe problems. What are Albemarle County's Debt Policies? Recognizing the importance of underlying debt to overall financial condition, Albemarle County has established a number of debt related financial policies:. 1. The County will not fund current operations from the proceeds of borrowed debt. 2. The County will manage its financial resources in a way that prevents borrowing to meet working capital needs. 3. The County will confine long-term borrowing and capital leases to capital improvements or projects that cannot be financed by current revenues. 4. To the extent feasible, any year that the debt service payment fails below its current level, those savings will be used to finance one-time capital needs. When the County finances capital improvements or other projects through bonds or capital leases, it will repay the debt within a period not to exceed the expected useful life of the projects. The County's debt offering documents will provide full and complete public disclosure of financial condition and operating results and other pertinent credit information in compliance with municipal finance industry standards for similar issues. Recognizing the importance of underlying debt to its overall financial condition, the County will set target debt ratios, which will be calculated annually and included in the annual review of fiscal trends: · Net debt per capita should remain under $1,000. · Net debt as a percentage of the estimated market value of taxable property should not exceed 2%. · The ratio of debt service expenditures to General Fund revenues should not exceed 10%. Why Develop Debt and Unfunded Liability Indicators? By developing and monitoring indicators of debt and unfunded liability, the County can assess whether current debt levels are af- fordable given existing resource levels, and whether unfunded liabilities are at a manageable level. The indicators included in this section are: Debt Indicator: · Current Liabilities · Long-Term Debt Per Capita Long-Term Debt · Debt Service Unfunded LiabilitF Indicator: · Accumulated Leave Description: Current Liabilities, as a Percentage of Net Operating Revenues. Long-term Debt, as a Percentage of Assessed Valuation. Long-term Debt per County Resident. Debt Service Payments, as a Percentage of General Fund Net Operating Revenues. Description: Accumulated (Unpaid) Employee Vacation and Sick Leave, per Municipal Employee. 38 Current Liabilities Formula: Current Liabilities Total Operating Revenues (Net of Revenue Sharing & Split Billing) Warning Trend to Watch for: Increasing Current Liabilities, as a Percentage of Net Operating Revenues County Trend: Increasing Amount of Current Liabilities, as a Percent- age of Net Operating Revenues 12% 10% 80/0 6% 4% 2% 0% Current Uabilities as %of Net Operating Revenue 1994 1995 1996 1997 1998 Fiscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 Current Liabilities (Millions) 7.2 7.9 9.9 12.2 11.7 Net Operating (Millions) 96.6 103.1 112.4 120.4 126.5 % 7.5% 7.6% 8.8% 10.2% 9.2% Description of Indicator: Current liabilities are defmed as the sum of all liabilities due at the end of the year, including short-term debt, current portion of long-term debt, all accounts payable, accrued liabilities and other current liabilities. The ratio of current liabilities to net operating revenues as an important indicator of potential liquidity and furore operating budget health. Although short-term debt may be used to 'smooth' uneven cash flows, an increasing amount of short-term debt outstand- ing at the end of successive years may signal liquidity problems, deficit spending or both. Analysis: · Between FY 94-98, thc ratio of current liabilities to net operating revenues increased from 7.5% of net operating revenues to 9.2%. Most of this increase occurred m FY 96 and FY 97, reflecting the split billing of real estate tax revenues in FY 96 (and a corresponding increase in deferred revenues.) From FY 97 to FY 98 the ratio declined 1%. However, this increase in current liabilities does not indicate either liquidity problems or deficit spending. As discussed on page 36, the County maintains sufficient liquidity to meet its current obligations. (Since FY 94, the County has held more than twice the amount of cash and short-term invesunents as current liabilities.) Additionally, since FY 94, the County has nm operating surpluses. Long-Term Debt Formula: Net Direct Bonded Long-Term Debt Assessed Valuation Warning Trends to Watch for: · Increasing Net Direct Bonded Long-Term Debt, as a Percentage of Assessed Valuation · A ratio of Long-Term Debt to Assessed Valuation ia Excess of 2% (County Maximum) County Trend: Relatively Constant Net Direct Bonded Long-Term Debt, Ratio of Debt to Assessed Valuation that is Be- low 2% County Maximum 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Net Direct Bonded Long-Term Debt as %of Assessed Valuation 2.0% Maximum - I 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Long-Term Debt (Millions) 50.3 46.3 48.2 50.3 66,8 68.2 69.7 Assessed Value (Millions) 5,58t:.1 5,737.7 6,160.8 6,378.3 6,608.8 6,838.0 7,240.0 % 0.90% 0,81% 0.78% 0.79% 1.01% 1.00% 0.96% Description of lndicator: Net direct debt is bonded debt for which the local government has pledged its full faith, credit and taxing power, netof any self- supporting debt (bonded debt that the govermnent has pledged to repay from a source other than general tax revenues.) An increase ia net direct bOnded debt as a percentage of assessed valuation may signal a diminishing ability to repaY on the part of the government -- especially for localities such as Albemarle that depend heavily on property tax revenues to finance opera- tions and repay its debts. Recognizing the importance of underlying debt to its overall financial condition, Albemarle County requires that net long-term debt not exceed 2% of the estimated market value of taxable property. Analysis: · Since FY 94, long-term debt as a percentage of the estimated market value of taxable property has remained relatively con- stant at 0.90% on average. Additionally, it remains well below the 2% maximum hrq~osed by the Board of Supervisors. In FY 94, long-term debt represented 0.90% of assessed value. By FY 00, that ratio increased to ordy 0.96%. The slight ia- creases ia FY 98 and FY 99 correspond to borrowing for the construction of Monticello High School. 40 Per Capita Long-Term Debt Formula: Net Direct Bonded Long,Term Debt Population Warning Trends to Watch for: · Increasing Amounts of Net Direct Bonded Long- Term Debt Per Capita; · Per Capita Long-Term Debt in Excess of $1,000. County Trend: Increasing Per Capita Net Direct Bonded Long-Term Debt; Although it Remains Below the $1,000 County Maximum $1,200 $1,000 $800 $600 $400 $200 $0 Per Capita Net Direct Bonded Long-Term Debt $1,000 Maximum ~ -' ~ = 1994 1995 1996 1997 1998 1999 2000 Rscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Long-Term Debt (Millions) 50.3 46.3 48.2 50.3 66.8 68.2 69.7 Population 72,400 74,300 75,900 78,400 79,200 80,200 81,800 Debt Per Capita $ $695 $623 $635 $641 $843 $850 $852 Description of Indicator: Another indicator of a government's ability to repay its long-term debt is the ratio of net direct bonded long-term debt to popula- tion, i.e., the amount of net long-term debt per capita. Under ideal circumstances, the level of net debt per capita should remain constant over time, since, as the population increases, capital needs, and therefore, long-term debt, should increase proportionately. If debt levels are increasing faster than the popula- tion is growing, the level of long-term debt per person is increasing. If, on the other hand, population is growing faster than long- term debt levels, per capita debt is falling. Increasing levels of per capita long-term debt may be a signal that debt levels are reaching or exceeding the government's ability to pay. Recognizing the importance of underlying debt to its overall financial condition, Albemarle County has established that net debt per capita should'remain under $1,000. Analysis: · Since FY 94, per capita net direct bonded long-term debt has increased, although the level of debt per capita remains below the $1,000 maximum set by the Board of Supervisors. In FY 94, per capita long-term debt was $695. By FY 00, it had grown by 23% to $852 (an increase of $157.) The large increase in FY 98 corresponds to borrowing for the construction of Monticello High School. Debt Service Formula: Net Direct Debt Service (Acml Payments) General Fund Operating Revenues (Net of Revenue Sharing & Split Billing) }Varning Trends to YYatch for: · Increasing Amounts of Net Direct Debt Service, as a Percentage of General Fund Net Operating Revenues; · Ratio of Debt Service to Net General Fund Reve- nues in Excess of 10% (County Maximum) County Trend: Fluctuating Amounts of Net Direct Debt Service; Debt Service as a Percentage of General Fund Net Operating Revenues Remaining under the 10% County Maximum 12% 10% 8% 6% 4% 2% O% Debt Service as %of Net General Fund Revenues 10% Maximum 1994 1995 1996 1997 1998 1999 Fiscal Year 2000 Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Debt Service (Millions) 5.6 6.8 5.9 6.5 6.7 8.6 9.0 Net Gen. Fund (Millions) 66.6 71.2 77.0 83.2 89.0 97.2 102.1 % 8.4% 9.6% 7.7% 7.8% 7.6% 8.8% 8.8% Description of Indicator: Debt Service is the amount of principal and interest that a local government must pay each year on its long-term debt. Debt serv- ice is a fixed cost paid out of the operating budget. This indicator addresses actual debt service payments on School Division long-term debt, net of bond fees and other charges. Increasing debt service payments add to the government's obligations, thereby reducing expenditure flexibility. They also may indicate excessive debt or financial strain on the part of the government, since debt service is a major component of a local gov- ernment's fixed costs. Recognizing the importance of underlying debt to its overall £mancial condition, Albemarle County has established that the ratio of debt service expenditures to net General Fund revenues should not exceed 10%. ~4nalysis: Since FY 94, the ratio of debt service to General Fund net operating revenues has fluctuated, particularly in years following large bond issues, although it has remained below the 10% maximum set by the Board of Supervisors. In FY 94, debt service costs equaled approximatelY 8,4% ($5.6 million) of General Fund net operating revenues. The following year, the ratio of debt service to General Fund net operating revenues increased dramatically to 9.6% ($6.8 million) due to borrowing for the Sutherland Middle School in FY 94. Over the next three years, debt service declined to approximately 7.6% of net operating revenues, on average. By FY 99, however, the percentage had risen again to 8.8% ($8.6 million) due to borrowing for the new Monticello High School in FY 98 and remained at 8.8% in FY 00. 42 Accumulated Employee Leave Formula: Dollar Value of Unnsed Vacation and Sick Leave Days (in Constant $) Total Number of County Employees Warning Trend to Watch for: Increasing Dollar Value of Unused Vacation and Sick Leave Days (in Constant $), Per County Employee County Trend: Increasing Unused Vacation and Sick Leave Days per FTE $900 $850 $800 $75O $700 $650 $600 $550 $500 Accumulated Erq31oyee Leave 1904 1995 1996 1997 t990 Fiscal Year Data Chart: Total Compensated Absences (Millions) CPI (FY 94 = 100) Constant $ (Millions) Total County Employees (FTE's) Constant $ Per Employee FY 94 FY 95 FY 96 FY 97 FY 98 1.54 1.65 1.81 1.94 2.04 1.0.0 102.6 105.5 108.6 111.1 1.54 1.61 1.71 1.79 1.84 1,884 2,020 2,094 2,128 2,170 $819 $795 $818 $841 $847 Description of lndicator: Accumulated employee leave represents the total unused vacation and sick leave of all County employees at the end of each fiscal year. Although uncompensated, these benefits become a real cost when paid during employment or upon termination or retire- ment. (Unlike unused vacation days, however, unused sick leave balances are forfeited at the end of employment and may not be paid out.) This indicator divides the total constant dollar value of cumulative, unused vacation and sick leave by the number of Full-Time Equivalent positions ("FTE's") to obtain the total value of unused vacation and sick leave per full-me employee. Increasing leave balances per capita may indicate that vacation and sick policies are contributing to an excessive increase in unfunded liabil- Analysis: · Since FY 94, the constant dollar value of unused vacation and sick leave days per employee (FTE) has risen slightly. In FY 94, the constant dollar cost of unused vacation and sick leave was $819 per FTE. By FY 98, that amount had risen to $847, an increase of $28/FTE, or 3.4%. · This increase is not cause for alarm, however, since it represents normal increases in the dollar value of compensated ab- sences (due to annual scale adjustments and merit increases,) and does not reflect changes m vacation or sick leave policies. This page is intentionally blank. 44 Capital Plant Indicators What is 'Capital Plant, and Why is it Important? Most of a local government's wealth is invested in its physical assets or "capital plant" -- streets, buildings, land, utility networks, and/or equipment. Deferring maintenance of such assets can create safety hazards and potential liability risks, can result in a loss of operating efficiency, can depress property values, can increase the cost of repairs (Particularly if maintenance of a project has been delayed for so long that it must be replaced entirely), and can create the potential for a huge future financial obligation if a backlog of maintenance and repair needs persists. Additionally, the attractiveness of the community as a place to live or to do business may de- cline. What are Albemarle County's Capital Budget and Asset Maintenance, Replacement and Improvement Poli- cies? Capital Budget Policies: 1. The County will approve an annual capital budget in accordance with an adopted Capital Improvements Program. 2. The Board of Supervisors will accept recommendations from the Planning Commission for the five-year Capital Improvements Program that are consistent with identified needs in the adopted Comprehensive Plan and Capital Facilities Plan. 3. The County will coordinate the development of the capital budget with the development of the operating budget so that future operating costs associated with new capital projects, including annual debt service, will be projected and included in operating budget forecasts. 4. Emphasis will continue to be placed upon a viable level of "pay-as-you-go" capital construction to fulfill needs in a Board ap- proved Capital Improvement Program. 5. The County believes in funding a significant portion of capital improvements on a cash basis and will, therefore, increase incre- mentally the percentage of its capital improvements financed by current revenues. The County's goal will be to dedicate a mini. mum of 3% of the annual General Fund revenues allocated to the County's operating budget to the Capital Improvement Pro. gram. 6. Financing plans for the five-year capital program will be developed based upon a five-year forecast of revenues and expenditure: coordinated by a capital improvements technical management team. 7. The County will begin to inventory capital facilities and estimate remaining useful life and replacement costs. 8. Upon completion of any capital project, remaining appropriated funds in that project will be returned to the undesignated capita project fund. Any transfer of remaining funds from one project to another must be approved by the Board of Supervisors. 9. The County will develop a Memorandum of Understanding with the School Board regarding the development and coordinatio~ of the County's Capital Improvement Program, which will address the following areas: a) a plan for required capital improve ments; b) debt ratio targets; c) debt issuance schedules. Asset Maintenance, Replacement and Enhancement Polices: The County will maintain a system for the maintenance, replacement and enhancement of the County's and School Division's physica plant. This system will protect the County's capital investment and minimize furore maintenance and replacement costs: · The operating budget will provide for minor and preventive maintenance. Within the Capital Improvement Program, the County will maintain a Capital Plant and Equipment Maintenance/Re- placement Schedule, which will provide a five-year estimate of the funds necessary to provide for the structural, site, ma- jot mechanical/electrical rehabilitation or replacement to the County and School Division physical plant requiring a total expenditure of $10,000 or more and with a useful life of ten years or more. · To provide for the adequate maintenance of the County's capital plant and equipment, the County intends to increase the percentage of maintenance/repair and replacement capital improvements financed with current revenues. Why Develop Capital Plant Indicators? Capital plant indicators are important for assessing how well the capital assets of a community are being maintained. The indica- tors included in this section show the relative amount of capital outlay devoted to building and maintaining the existing capital stock, as well as relative operating budget expenditures devoted to School Division capital and debt service needs. Indicator: · Capital Outlay · Expenditures on School Debt and Capital Needs Description: Capital Outlay, as Percentage of General Fund Net Operating Revenue. Total Expenditures on School Division Debt and Capital Needs, Expenditures on Schools. Relative to Total 46 Capital Outlay Formula: Capital Outlay General Fund Operating Revenue (Net of Revenue Sharing & Split Billing) Warning Trends to Watch for: · Persistent Decline in Capital Outlay, as a Percent- age of General Fund Net Operating Revenues; · Capital Outlay of Less than 3% of General Fund Net Operating Revenues County Trend: Declining General Fund Transfer to CIP as % of Net General Fund Revenue 4.0% 3.5% 3.0% 2,5% 2.0% 1.5% 1.0% 0.5% 0.0% General Fund Transfer to ClP as % of Net General Fund Revenue w / School w/o School 2.1% Capital Outlay 1994 1995 1996 1997 1998 1999 2000 Actual % --- e- -- Pcior To Transfer to Operations Data Chart: FY 94 Fy 95 FY 96 .F.Y 97 FY 98 FY 99 FY 00 ClP Transfer (Millions) 1.5 1.6 2.7 2.7 2.7 2.0 2,2 Net Gen. Fund (Millions) 66.6 71.2 77.0 83.2 89.0 97.2 102,1 % 2.3% 2.3% 3.5% 3.2% 3.1% 2.1% 2.1% Description of lndicator: "Capital outlay" are operating budget funds used for capital expenditures; the General Fund transfer to the CIP. These funds fi- nance General Government capital projects, School Division technology purchases and a portion of the repak and maintenance of existing School assets, although they also may be used to help finance the purchase or construction of new facilities or equip- ment. This indicator relates capital outlay to General Fund operating revenues (net of Split Billing and revenue sharing.) Under ideal circumstances, this ratio should at least remain constant over time. However, a persistent decline (of three or more years) can in- dicate that capital needs are being deferred, which can result in the use of inefficiem or obsolete equipment. Recognizing the importance of funding capital improvements on a cash basis, particularly maintenance and replacement projects, Albemarle County will: · increase incrementally the percentage of its capital improvements financed by current revenues with the goal of dedicating a minimum of 3% of the net General Fund revenues annually of the County's operating budget for the Capital Improvement Program (CIP); and · increase the percentage of maintenance/repair and replacement projects financed with current revenues. Analysis: · Since FY 94, the annual operating budget transfer to the County's CIP, as a percentage of General Fund net operating reve- nues, has fluctuated. In an effort to meet the County's goal of dedicating a minimum of 3% of General Fund net operating revenues to the CIP, the amount of capital outlay was increased substantially in FY 96 to $2.7 million (3.5%.) · Since then, however, the level of capital outlay has declined. In FY 99, the transfer percentage fell below 3% to 2.1%, where it has remained ever since, due to operating budget constraints and a decision of the Board of Supervisors to re-allocate all school outlay to debt service, in FY 00. (This shift of current revenue to debt service allowed the School Division to fund all of its requested projects in FY 00.) Capital Outlay As a result, the capital outlay percentage remains at 2.1% in FY 00 (although it now is directed entirely at General Govern- ment projects,) instead of the 2.7% it would have been, had the funds been used for School capital outlay. The impact of the Boards' action on this indicator is presented in the graph on the previous page. The Board's decision to shift capital outlay to debt service runs contrary to the approved financial policies which call for m- creasing the percentage of capital improvements financed by current revenues, and for increasing the percentage of repair and maintenance projects funded with current revenues. Although lamentable, this policy change was needed to finance school improvements. 48 School Debt Service & Capital Outlay Formula: School Debt Service & Capital Outlay School Division Net Operating Expenditures Warning Trend to Watch for: A Rapid Increase or Decrease in the Araount of School Division Debt Service and Capital Outlay, as a Per- centage of School Division Net Operating Expendi- tares County Trend: Relatively Constant Capital and Debt Expenditures as % of School Net Operating Expenditures 30% 25% 20% 15% 10% 5% 0% Capital & Debt Expenditures as % of School Net Operating Expenditures 9.3% 10.0% 10.5% 9.8% 8.5% 1994 1995 1996 1997 1998 1999 2000 Fis cai Ye ar -- W'~h Split Billing -. -e- -- Without Split Billing Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 School Debt Service (millions) 6.1 7.7 7.0 6.8 7.6 8.9 8.5 School Capital Outlay (millions) 0.2 0.6 0.8 0.7 1.4 0.3 0.__~0 School Net Op. Exp. (millions) 67.6 74.0 7,7.1 80.8 85.9 93.9 98.9 % 9.3% 11.3% 10.0% 9.2% 10.5% 9.8% 8.5% Description of Indicator: School Division capital needs constitute a large portion of annual capital budgets. In FY 00, school division projects totaled $3.9 million, or 63% of all County capital projects. Approximately 72% of these projects are financed by borrowed funds, which are repaid gradually through annual debt service payments. These payments cover interest and principal on the School Division's long-term debt, and are expenditures of the General Fund operating budget. The remaining 28% of school projects are funded with current revenues, including fund balance, interest income, and state construction fimds. The annual combined costs of servicing School Division long-term debt plus capital outlay for school projects, as a percentage of total expenditures for School needs, is an indicator of the ongoing operating budget costs of funding school capital needs. A rapid increase in this indicator may be a signal that School Division capital budgets are placing an excessive burden on the operating budget, especially since debt service is a fixed cost. A rapid decrease may signal that school capital facilities are not being ade- quately maintained, or that the existing capital stock is insufficient to meet the needs of the community. Analysis: · The combined cost of debt service and capital outlay has averaged 9.8% of School Division net operating expenditures since FY 94. (During this time, this percentage ranged from a high of 11.3% in FY 95 to a low of 8.5% in FY 00. Annual fluctua- tions reflect the impact of project staging and operating budget constraints.) · With Split Billing, expenditures on debt service and capital outlay, as a percentage of total School Division expenditures in- creased to 24.6% in FY 97. (In FY 97, $16.5 million from the split collections of real property taxes was allocated to the construction of Monticello High School. ) This page is intentionally blank. 50 Community Profile [~hat Defines Community Profile and l~hy Is It Important? In the same way that the tax base detenuines a community's ability to generate revenues, the economic and demographic characteri: tics of a community shape its demand for services. In fact, changes in conmmnity needs and resources are related in a continuot cycle of cause and effect. For example, a decrease in population may lower the demand for housing, causing a corresponding decli~, in the market value of housing, which in turn, reduces property tax revenues. However, since it is not always possible for a goven merit to balance declining revenues with equivalent reductions in expenditures, the government may be forced to raise property taxe to make up for lost revenues, thereby placing an even greater burden on the remaining population. As economic conditions declin~ the community becomes a less attractive place to live, and as a result, the population may decline further. What Economic and Demographic Indicators are Included in this Section? Indicator: · Population Growth · Enrollment Growth · Median Age Personal Income Per Capita · Unemployment Rate · Families in Poverty · Changes in Property Value · Residential Development · Business Activity Description: Population Growth of County Residents. Growth in Public School Enrollment (K-12.) Median Age of the County's Population. Per Capita Personal Income (in Constant $.) Ratio of Unemployed Workers to the Total Potential Work Force. County Families Living at or Below the Poverty Level, as a Percentage of total families. Changes in Property Values, as a Percentage of the Prior Year Property Value. Market Value of New Residential Development, as a Percentage of the Value of Total New (Residential and Commercial) Development. Per Capita Local Option Sales Tax Revenues (in Constant $.) Population Growth Formula: Total County Population Warning Trend to Watch for: A Rapid Change in Population Size. County Trend: Smooth and Steady Population Growth 84,000 82,000 80,000 78,000 76,000 74,000 72,000 70,000 68,000 66,000 Population Growth 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 Proj. Population 72,400 74,300 75,900 78,400 79,200 80,200 81,800 % Increase 3.0% 2.6% 2.2% 3.3% 1.0% 1.3% 2.0% Description of lndicator: Population growth is an iraportant determinant of £mancial condition because sudden changes in population size can have an ad- verse impact-on a local government's expenditure and revenue profile. A sudden increase in population may require higher levels of service and/or additional capital outlay. A sudden decline in population may reduce pressure on expenditures, if governments are able to reduce expenditures by a proportionate amount. This may be difficult to accomplish in practice, however, for a variety of reasons. First, fixed costs such as debt service, pensions, and governmental mandates must be paid regardless of population size. Second, if the out migration is composed of rddclle- and upper-income households, then those remaining in the community are likely to be the poor and the aged, who rely most heavily on government services. Additionally, population decline can have a negative effect on revenues, where the greater the decline, the more adverse the ef- fects on employment, income, housing, and business activity. Analysis: · The population of Albemarle County has grown smoothly and steadily from 72,400 in FY 94 to 80,200 in FY 99 at an aver- age annual growth rate of approximately 2.2% per year. In FY 00, the County's population is projected to reach 81,800 based on 2.0% annual growth. 52 Enrollment Growth Formula: Total Public School Enrollment (K-12) Warning Trend to Watch for: A Rapid Change in Enrollment Size. County Trend: Smooth and Steady Enrollment Growth 12,500 12,000 11,500 ~1,ooo 10,500 10.000 9.500 School Enrollment (K-t2) 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: September 30 Enrollment % Increase/Decrease FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 10,581 10,889 11,123 11,344 11,626 11,981 12,205 1.4% 2.9% 2.1% 2.0% 2.5% 3.1% 1.9% Description of Indicator: Since expenditures on education account for nearly 70% of the total County budget, changes in enrollment can have a significant impact on the expenditure profile of a community. In general, enrollment growth requires ever increasing expenditures on educa- tion. Sharp increases, however, may require expenditures that exceed available resources without the addition of new sources of revenue, efficiency gains or reductions in other areas. Although declining enrollment may relieve some of the pressure on expen- ditures, governments may not be able to produce corresponding reductions in expenses, due to the presence of fixed costs in the budget. Analysis: Like population, County enrollment also has grown smoothly and steadily from 10,581 in FY 94 to 12,205 in FY 00 -- an increase of 1,624 (15.35%.) The average annual enrollment growth rate during this period was about 2.3%. Median Age Formula: Median Age of Population Warning Trend to Watch for: Increasing Median Age of Population County Trend: Slowly Increasing Median Age 40 35 .a 25 20 Median Age 27.3 26.4 25 31.4 1961 1971 1981 1991 Fiscal Year Data Chart: Median Age of Population 1960 (FY 61) 1970 (FY 71) 1980 (FY 81) 1990 (FY 91) 26.4 25.0 27.3 31.4 Description of Indicator: This indicator shows the median (middle) age of thc County's population. A b_igh median age of fifty or more indicates that a communiW is comprised primarily of senior citizens or older families without children. This indicator is important because an aging population and an increasing number of senior citizens residing in a community, may depress revenue growth and increase governmental expenditures. For example, revenue growth may slow if incomes (which for many seniors take the form of social security and pension payments) do not grow at the same rate as the general economy. Moreover, senior citizens often qualify for full or partial exemption from property taxes. Finally, sales tax revenues may taper off since older persons tend to spend less money than younger persons. Expenditures on services also may increase, since elderly citizens tend to require a more expensive mix of services, especially in the area of health and welfare. However, an aging population may have the opposite effect of boosting revenues and reducing expenditures, particularly if the increasing median age is caused by a drop in the number of families with young children, since older families reduce the need for school, recreation, and related programs. ,4nalysis: · Although the median age of County residents has increased by approximately 5 years since 1960, the County's population is relatively young. The current median age is 31.4 years. This relatively youthful population is due in part to the large number of University of Virginia students residing in the area, which has lowered the median age of the commumty as a whole. · The small increase in median age since 1960 reflects the aging of the County's post-war baby boom population. During the 1970s and 1980s, the 40-60 and 60+ age groups were the fastest growing population groups, averaging between 37-47% per decade. Recent Year 2000 age cohort estimates from the Virgima Employment Commission indicate, however, that the growth rates of these age groups will slow to about 20% per decade during the 1990s, and will represent approximately 13% of the total population. 54 Personal-Income Per Capita Formula: Personal Income (FY 94 = 1 O0 Constant $) Population Warning Trend to Watch for: Decline in the Level, or Growth Rate, of Personal In- come Per Capita (Constant $) County Trend: Steady Growth of Personal Income per Capita 24,500 24,000 Personal Income Per Capita Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 Per Capita Personal Income 24,781 25,544 26,686 27,879 29,063 CPI (FY 94 = 100) 100.0 102.6 105.5 108.6 111.1 Constant $ 24,781 24,906 25,303 25,676 26,166 Annual % Increase 4.4% 0.5% 1.6% 1.5% 1.9% Description of Indicator: This indicator tracks the constant dollar value of personal income per capita for residents of Charlottesville and Albemarle. Real, per capita personal income is one measure of a commumty's ability to pay taxes; since the higher the per capita income, the more property tax, sales tax, income tax, and business tax revenues a community can generate. Although incomes tend to fluctuate with changes in the overall economy, a sustained decline in real per capita incomes may cause a drop in consumer purchasing power and can provide advance notice that businesses, especially in the retail sector, will suffer a decline that can ripple through the rest of the local economy and depress revenue receipts. Analysis: · Since FY 94, real per capita incomes have grown steadily in Albemarle and Charlottesville. Between FY 94 and FY 98, real per capita persona] incomes grew from $24,781 in FY 94 to $26,166 in FY 98, an increase of 5.6%. (The average annual growth during this period was about 2.0% per year.) This increase reflects the general climate of economic prosperity that has existed during the latter half of this decade. Unemployment Rate Formula: ~ocal Unemployment Rate Warning Trend to Watch for: Increasing Rate of Local Unemployment County Trend: Low and Declining Unemployment Rate 8% ~. 6% ~ 5% ~ 4% ~ 2% m° 1% ~ 0% Unemployment Rates 1994 1995 1996 1997 1998 1999 Fiscal Year .. - Albemarle a, Charlottesville - X- - - Virginia :K United States Data Chart: FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 Albemarle County Unemployment Rate 2.7% 2.4% 2.0% 2.2% 1.8% 1.2% City of Charlottesville Unemployment Rate 3.2% 3.3% 2.7% 2.9% 2.4% 1.7% · Virginia Unemployment Rate 5.1% 4.9% 4.5% 4.4% 4.0% 2.9% United States Unemployment Rate 6.8% 6.1% 5.6% 5.4% 4.9% 4.5% Description of Indicator: The unemployment rate, or number of unemployed people actively seeking work, as a percentage of the total potential workforce, is an indicator of the employment base of a cornmumty. Since changes in the unemployment rate are related to changes in per- sonal income, the unemployment rate also is an indicator of a commumty's ability to support its business sector and a govern- ment's ability to generate revenues. An increasing proportion of unemployed people in a community may lead to declining per- sonal incomes, and ultimately to slower revenue growth. A declining employment rate, on the other hand, may have a positive effect on personal incomes and, ultimately, revenue receipts. Analysis: · Although the unemployment rate is a cyclical indicator which follows upturns and downmrns in the general economy, the rate of local unemployment in Albemarle County has declined since FY 94. This decline, from 2.7 % (FY 94) to 1.2% in FY 99, reflects general economic pr, osperityl · Moreover, the County's unemployment rate has been consistently lower than that of the City, State and Nation as a whole. (Actually, the County's rate has been lower than the state and national averages since at least 1975. It also has been lower than the City's rate, except during the 1980s, when they were more or less on par with one another.) These long term trends are depicted below: U nomployment Rates: FY75 - FYSS 12% -- -- Charlottesville ~ ~ 6% Virginia ~ ~ 4% ~ '~'-~..a.-.~."~ United States 2% 0% Fiscal Year 56 Families in Poverty Formula: Families in Poverty Total Families Warning Trend to Watch for: A Rapid Increase in the Number of Families in Poverty County Trend: Declining Percentage of Families in Poverty 35% 30% ~ 25% u. 20% ~ 15% "6 10% 5% 0% Families in Poverty 30.8% 1970 21.6% 1980 Year 13.3% 1990 ElWhite mAfrican American ] Data Chart: White Families in Poverty (as % of Total White Families) African American Families in Poverty (as % of Total Afr. Amer. Families) 1970 (FY' 71) 1980 (FY 81) 1990 (FY 91) 10.9% 5.5% 3.8% 30.8% 21.6% 13.3% Description of Indicator: This indicator illustrates the proportion of families living at or below the poverty threshold in Albemarle County, by race. This indicator is important because an increase in the number of families in poverty, as a percentage of total families, is a signal of declining personal incomes, as well as an indicator of possible future increases in the level and unit cost of assistance services, particularly in the areas of health and welfare services. Analysis: · Although data is available only for census years since 1970, the percentages of African American and white families in pov- erty have declined over time. Between 1970-1990, the number of white families in poverty, as a percentage of total white families, declined from 10.9% to 3.8%. For African American families, this percentage fell from 30.8% to 13.3%. · However, as evident from the data below, whites, as a group, were more likely than African Americans to leave poverty in the 1970s, while relatively more African Americans escaped poverty in the 1980s. % of Families in Poverty Year White African American 1970 10.9% 30.8% 1980 5.5% 21.6% 1990 3.8% 13.3% %Decrease White African American 1970 - 1980 49.54% -29.87% 1980 - 1990 -30.91% -38.43% Growth in Real Property Values Formula: Change in Property Value (FY 94 = 100, Constant $) Property Value in Prior Year (FY 94 = 100, Constant $) Warning Trend to Watch for: Declining Growth or Drop in the Market Value of Residential or Commercial Property (Constant $) County Trend: Declining Reassessments through FY 00; Increasing after FY 00 12.00°/o 10.00% 8.00% 6.00% 4.00% 2.00°/° 0.00% -2.00% -4.00% Growth in Real Property Values Fiscal Year Residential -..s,--- Commercial Data Chart: Market Value Residential (in millions) CPI (FY 94 = 100) Constant $ % Increase Market Value Commercial (in millions) Constant $ % Increase FY 94 FY 95 FY 96 FY 97 FY 98 4,690 4,832 5,171 5,240 5,598 100.0 102.6 105.5 108.6 111.1 4,690 4.711 4,903 4,826 5,040 7.45% 0.46% 4.06% -1.57% 4.44% 612.7 615.4 692.9 704.1 729.0 612.7 600.0 657.0 648.5 656.3 8.94% -2.06% 9.49% -1.30% 1.22% Description of Indicator: This indicator measures the percentage increase or decrease in residential and commercial property values from year to year. Changes in property values are important since many mumcipalities depend on property taxes for a substantial portion of their revenues. This is especially true in communities like Albemarle County with a stable or frxed tax rate, since in these areas, thc higher thc aggregate property value, the greater the revenues came& Analysis: · Property values in the County follow an uneven, "up and down" growth pattern that corresponds to the fiscal re-assessment cycle, with property values increasing significantly in the fiscal year following a re-assessment, then slowing the following year. (For example, thc FY 93 reassessmcnt caused property values to increase significantly in FY 94.) · Although overall (residential and commercial) property values have, for the most part, increased annually since FY 94, thc rate of increase has slowed. In FY 94 (a non-reassessment year), residential property, values grew by 7.5% over the prior year (in constant dollar terms.) By FY 98, however, this annual growth had slowed to about 4.4%. Similarly, commercial property values grew by 8.9% in FY 94 and 9.5% in FY 96, but slowed to 1.2% in FY 98. · Slower growth in property values follows the general slowdown in reassessment increases the County has experienced since 1991. In FY 92, property values appreciated by 22.5% (biennial increase.) By FY 00, however, reassessment increases had declined by to 3.5%. Reassment Summary_: A0oreclation Increases in Real Pronerty_ Values - Current $ /excluding new construction) Reassessment Year 1987 1989 1991 1993 1995 1997 1999 Fiscal Year 1988 1990 1992 1994 1996 1998 2000 Appreciation Increase (%) 10.69% 13.15% 22.48% 11.17% 5.24% 2.26% 3.51% 58 Residential Development Formula: Market Value of New Residential Development Market Value of Total New Development Warning Trend to Watch for: Increasing Market Value of Residential Development, as a Percentage of the Market Value of Total New De- velopment County Trend: Decline in the Proportion of New Development that is Residential 100% g0% 80% 70% 60% 50% 40% 30% 20% 10% 0% Residential Development 1994 1995 1996 1997 1998 Fiscal Year Data Chart: Market Value New Residential (in Millions) Market Value Total New Development (in Millions) % FY 94 FY 95 FY 96 FY 97 FY 98 88.6 65.3 82.8 93.0 95.8 109.2 75.9 110.5 136.3 133.9 81.1% 85.9% 74.9% 68.2% 71.5% Description of Indicator: This indicator relates the market value of new residential development to the total value of all new residential and commercial development. The proportion of new development that is residential is important because the net cost of serving residential devel- opment typically is higher than the net cost of serving either commercial or industrial development. (Residential development typically creates more expenditure demands than revenue receipts.) Conversely, commercial and industrial development tend ei- ther to pay for themselves or result in revenue surpluses. Although the impact of new residential development on the County's financial condition is best evaluated through fiscal impact analysis, this indicator may signal the extent to which new development is likely to effect the financial resources of a community. Analysis: · Since FY 94, the market value of new residential development, as a percentage of the value of total new development, has declined from 81% in FY 94 to 72% in FY 98. A ten-year trend for this indicator is depicted below: 100% ,- 80% ~ ~ ~% i- .~ 40% "sg 2o% 0% Residential Development 72% 77% 82% 75% 79% 86% 81% 86% 75% 68% 72% 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Fiscal Year Business Activity Indicator: Per Capita Sales Tax Revenues (in Consmt $, FY 94 =100) Formula: Local Option Sales Tax Revenues (in Constant $, FY 94 = 100) Population Warning Trend to Watch for: Declining Per Capita Sales Tax Revenues (in Constant $) County Trend: Increasing per Capita Sales Tax Revenues $96 $94 $92 $90 $88 $86 $84 Per Capita Sales Tax Revenues (Business Activity) $90 1994 1995 1996 1997 1998 1999 2000 Fiscal Year Data Chart: Sales Tax Revenues (in Millions) CPI (FY 94 =100) Constant $ (in Millions) Population Real $ Per Capita FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 6.4 7.0 7.3 7.8 8.1 8.6 8.5 100.0 102.6 105.5 108.6 111.1 112.8 114.9 6.4 6.8 6.9 7.2 7.3 7.6 7.4 72,400 74,300 75,900 78,400 79,200 80,200 81,800 $88 $92 $91 $91 $92 $95 $90 Description of Indicator: Local sales and use taxes are revenues received by the County from the 1 cent of the 4.5 cents sales tax generated within the County. Per capita sales tax revenues measure the total amount of sales tax receipts per County resident, and are an indicator of the strength of business activity in the community. .Increasing per capita sales tax revenues (in constant dollars) imply robust sales and a strong business sector. A strong business sector typically has a favorable impact on demographic and economic factors such as personal incomes, property values, and the employment base. However, declining real per capita sales tax revenues reflect weak business activity and a possible decline in personal incomes, property values and employment. Analysis: · Real per capita sales tax receipts have increased since FY 94. Between FY 94-FY 00, real per capita sales tax revenues grew from $88 to $90 -- an increase of 2.6%. This increase reflects thc general economic prosperity of the late 1990's as well as the impact of some large retail stores opening m the area, which increased sales tax revenues. (The particularly large increase to $95 in FY 99 is the result of a continued strong good economy, audits by the Department of Taxation, which increased payment compliance, combined with thc opening of a new grocery store in the area.) Additionally, preliminary estimates from thc Department of Finance indicate that an additional $0.4 million in sales tax revenues could be expected in the current fiscal year, over budget, based on continued strong compliance and grocery sales. 60 Five-Year Financial Forecast Introduction: A financial forecast is a projection of furore revenues and expenditures that localities can use to evaluate thek future financial condition. Its purpose is to help the Board of Supervisors and the School Board take a com- prehensive look at the financial condition of the County, and weigh the impact of future decisions and policies in light of projected revenues and expenditures. Additionally, it provides a framework for County staff to re- view current and future services in light of projected available revenues. Finally, it enables the citizens of Al- bemarle to better understand future policy and budget decisions by making them more knowledgeable aboul projected County resources. This five-year forecast also fulfills one of the stated goals of the County's Financial Management Policies. which is to "develop and annually update a long range (3-5) year financial forecasting system, which will in- clude projections of revenues and expenditures, as well as future costs and financing of capital improvements and other projects that are included in the capital budget." Overview: This updated long-range financial forecast for Albemarle County presents three possible scenarios of revenue~, and expenditures for the next five years FY 2000/01 - FY 2004/05. The first scenario assumes that opera. tional expenditures grow at the combined rate of growth and inflation. In this scenario, total County revenue~, are projected to exceed expenditures by $3.6 million over the five-year period, with the highest surplus bein~ $1.7 million in FY 01. A second scenario adds the additional operating costs associated with previously. approved capital projects, and projects a cumulative operating budget shortfall of $8.8 million. The third an( final scenario showS what the overall imbalance would be based on the FY 01-05 Recommended Capital Im provement Program (CP.) In this scenario, the shortfall increases by approximately $2.3 million to $11.0 mil. lion overall. In all of these scenarios, the impact of increasing County revenues to fund the debt service on the General Obligation debt currently proposed in the CIP would be to reduce projected deficits by approximatel: $2.9 million, over the five-year period. The operating budget shortfalls projected in the last two scenarios reflect the impact of the additional operatint expenses associated with planned capital projects over the next five years. General Government accounts fo the majority of these projected deficits, due to the operational expenses associated with the regional jail expan sion, and the new juvenile detention facility, as well as staffing a new fire/rescue station projected in southen Albemarle, and maintaining and upgrading park facilities. The School Division shortfall generally represent the impact of opening two new elementary schools within the next five years. Projected imbalances in the last two scenarios do not mean, however, that future County budgets will b. unbalanced. Not only do state laws require the Board of Supervisors to adopt a balanced budget annuall) but the budget process also demands an annual compromise of revenue enhancements and expenditure re ductions to achieve a balanced budget. Additionally, revenue and expenditure projections may change ore a five-yearperiod depending on enrollment and population growth, state mandates, reassessment estimatet revenue decisions at both the state and local level, and the local economy. What the projected shortfalls do indicate, however, is that desired levels of service and infrastructure improve- ments may not be affordable, within existing resources and current financial policies, due to the operating budget impact of planned capital projects. The County will need to make some difficult choices as it goes about balancing its budget over the next five years. Assumptions: This five-year forecast is based on several critical assumptions in the major areas of: graphic characteristics, revenues and expenditures. economic and demo- Economic & Demographic (Growth) Assumptions: Inflation Rates Inflation rates reflect the annual average Consumer Price 3.50/0 Index for all urban residents (CPI-U.) Projected inflation ~ 3.o% rates are based on a combined average of the CPIU esti- ~. 2'5% -- 2.0% mates provided by the Congressional Budget Office ~ 1.5% (CBO) and the Office of Management and Budget °o 1.0% (OMB.) The average rate of inflation for FY 01-05 is -~ o.5% projected to be 2.5%, which is approximately the same as o.o% the FY 94-99 historical average of 2.5%. Historical and projected inflation rates are depicted in the chart on the right. Projection = Actual I 3.5% ~ 3.0% >- ~ 2.5% ~ 2.0% 1.5% 1.0% - 0.5% 0.0% Population Growth Rates * Population projections for FY 01-05 arc based on an average annual growth rate of 2.0%, which reflects a combination of historical trend analysis and projected population growth rates fi.om the Virginia Employment Commission. (The historical average rate of population growth since FY 94 was 2.2%. The average growth rate projected by the VEC for FY 01-05 is 1.7%.) His- torical and projected population growth rates are de- picted in the chart on the right. '--1-- Projection .* Actual Enrollment Growth Rates Projected enrollment figures were provided by the School Division. Between FY 01-05, annual enrollments are projected to grow by an average of 1.5% per year, which is less than the 2.3% historical average during FY 94-99. Historical and projected enrollment growth rates are de- picted in the chart on the left. 3.5% 3.0% ~ 2.5% ~, 2.0% ~ 1.5% Oo 1.0% - 0.5% 0.0% U,. U. U- U. Projection · Actual 62 These economic and growth assumptions are summarized in the chart below: Summary of Economic and Growth Assumptions: General Governlllent FY 00 Inflation (1) 2.1% Population Growth (2) 2.0% School Division Inflation [1) 2.1% Enrollment Growth (2) 1.9% Population (2) 81,804 Enrollment (3) 12,205 FY 01 FY 02 FY 03 FY 04 FY05 2.5% 2.5% 2.5% 2.5% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.5% 2.5% 2.5% 2.5% 2.5% 1.7% 1.7% 1.4% 1.3% 1.6% 83,440 85,109 86,811 88,547 90,318 12,417 12,627 12,805 12,967 13,174 (1) Based on average of CBO & OMB estimates. (2) Based on average historical growth rate of 2.2% and average VEC projection of 1.7% (3) Based on School Division enrollment projections. AVG 01-05 2.5% 2.0% 2.5% 1.5% Revenue AssUmptions/ Proiections: Each scenario is presented under the alternative assumptions that a) tax rates and tax structures do not change; and that b) additional revenues are raised to fund the debt service on three projects proposed to be funded with general obligation debt in the approved CIP. (These projects include the City/County Court- house Renovation and Expansion project, the Public Safety Facility project, and the new Urban Gym proj- ect.) These additional revenues, if needed, could take the form of a tax rate increase, and are assumed to equal $1.4 million in FY04 and $1.5 million in FY05. Issuance of this debt would require approval by County voters in a referendum, tentatively scheduled for November, 2001. General Fund revenue projections were provided by the Department of Finance, and reflect the October, 1999 preliminary revenue projections, plus $1.1 million in cumulative additional motor vehicle license fees added as a result of rate changes, $0.8 million in Social Services revenue adjustments over the five-year pe- riod, and $0.3 in jail expansion reserve carry-over. General Fund revenue projections are based on a com- bination of historical trend analysis and deterministic factors that show an average 4.6% increase in reve- nues over the next five years, compared to an average of 7.2% since FY 94. Real estate and personal prop- erty taxes are projected to assume a relatively larger share of the revenue stream (from a combined 42.8°/~ to 46.5%.) As a result of this increase, local revenues are projected to account for 69.7% of General Funi revenues in FY05, compared to 66.5% in FY00. State and federal revenues, by contrast, will decline ir relative terms, from 6.7% of General Fund revenues in FY.00 to 5.9% in FY05. State revenues are pro- jected to grow at an average of 2.1% annually, while federal revenues are expected to grow by only 0.4~ per year. The School Division typically projects School Fund revenues based on the County's composite index rather than relying upon an historical trend analysis. However, projections made in prior years based on thc composite index have significantly underestimated the amount of actual increase received. As such School Fund revenues in this analysis are projected based on an average annual growth rate of 3.0%, whict is slightly higher than the 2.4% average increase received in FY97 and FY98 (the fiscal years immediately. following the large composite index increase in FY96, which slowed school fund revenue growth.) A five-year projection of County revenues is presented on the next page. Total County Revenues Total County Revenues % TL (In $ Millions) FY 00 Real Estate Taxes 28.7% Personal Property 14.2% Sales Tax 5.8% Other Local Taxes 14.4% Other Local Revenues 3.5% Subtotal Local 66.5% State Revenues 4.7% Federal Revenues 2.0% Fund Balance 0.3% Transfers In 0.2% Total General Fund 73.7% School Funds 26.3% Total Budget 100.0% FY 00 42.0 20.7 8.5 21.1 5.1 97.4 6.9 3.0 0.4 O.2 108.0 146.5 FY 01 FY 02 FY 03 FY 04 FY05 45.1 47.3 50.0 52.6 55.3 23.2 24.7 26.3 28.0 29.9 9.4 9.9 10.3 10.7 11.1 22.8 23.6 24.4 25.2 26.1 4,7 4,7 4.8 5.0 5.2 105.1 110,3 115.8 121,5 127.5 6.8 7.0 7.2 7.4 2.8 2.8 2.8 2.9 0.3 - 0.3 0.3 0.3 __0.2 %TL FY05 30.2% 16.3% 6.1% 14.2% 2.8% 69.7% 7.6 4.2% 3.0 1.7% 0.0% 0.2 0.1% '115.3 120.3 126.1 132.0 138.4 75.6% 39.7 40.9 42.1 43.4 44,7 24.40/0 155.0 161.2 168.2 175.4 183.1 100.0% Avg. Annual Increase FY 01-05 5.7% 7.6% 5.6% 4.3% 0.5% 5.5% 2.1% 0.4% 0.0% 0.1% 5.1% 3.0% 4.6% Avg. Annual Increase FY94-99 6.2% 10.5% 6.0% 8.5% 9.5% 7.6% 12.8% 12.1% 0.0% 0.0% 7.9% 5.7% 7.2% Projections of individual revenue sources are discussed below: Real Property Taxes Real property tax revenues should grow at an average $60 of about 5.7% per year over the next five-year pc- $50 riod, compared to about 6.2% per year during the '~ $40 preceding five year period. These projections are m $30 based on increased reassessment values of 7.0% in ~ $20 2001, 7.0% in 2003 and 7.0% in 2005 and an esti- 510 mated $100 million in new construction value every two years. Projected real property tax revenues are depicted in the chart at right: Real Property Tax Revenues Prior --al--- Projection Personal Property Taxes $35 Personal property taxes will continue to increase, al- $30 though growth in this revenue source is projected to A $25 diminish, reflecting a projected slowdown in high- .~ $20 end vehicle sales. Between FY 01-05, personal prop- ~ $15 erty tax revenues are projected to grow at approxi- ~ $10 mately 7.6% per year, on average, compared to the 55 10.5% average annual growth rate experienced since so FY 94. Projected personal property tax revenues are depicted in the chart at right: 64 Personal Property Tax Revenues Sales Tax Revenues Sales Taxes Sales tax revenues are projected to increase by ap- proximately 5.6% per year over the next five years, which is slightly slower than the 6.0% average annual increase experienced since FY 94. This decline re- flects the loss of some retail sales to newly con- strutted retail centers in surrounding counties. Pro- jected sales tax revenues are depicted in the chart at right: C: 0 $12 $10 $8 $6 $4 $2 $0 J= Prior ~ ProJection J Other Local Taxes Other local taxes consist of public service, mobile home, machinery & tools taxes, as well as utility taxes, business, professional and occupational license (BPOL) taxes, motor vehicle licenses, recordation taxes, taxes on wills, seller's tax, transient occupancy taxes, and the meals tax. These tax revenues are pro- jected to increase by an average of 4.3% per year over the next five years, down from the 8.5% annual average since FY 94. (The higher prior year growth rate reflects an increase in the hotel/motel tax from 3% to 5% in FY 98, and the imposition of a 4% County meals tax in FY 99.) Other local tax reve- nues are projected in the chart at right: Other Local Tax Revenues $30 $25 $20 $15 $1o $5- $0 J = Prior --al-- Projection J Other Local Revenues Other local revenues include revenues from permits and fees, fines and forfeitures, the use of money and property, charges for services, payments in lieu of taxes and recovered costs. These revenues are pro- jected to increase by an average of 0.5% per year over the next five years. (This average is less than the 9.5% annual average experienced since FY 94, which reflected increases in investment income due to rela- tively higher investment rates, and the collection of E-911 surcharge revenues to offset operational ex- penditures of the Emergency Communication Center and the Engineering and Planning Departments.) Other local revenue projections are depicted in the chart at right: $6 $5 O = $3 ~ $2 $1 Other Local Revenues $0 , ~ Prior + Projection State Revenues Revenues from the State are projected to grow by a modest 2.1% per year over the next five years. (This average is less than the 12.8% average annual in- crease experienced since FY 94, which reflected the impact of additional revenues for Welfare Reform and a re-structuring of several large programs in FY 96 from a County-only direct payment to an up-front payment of the state share, to be reimbursed by the State.) The slower projected growth rate also reflects the impact of lower than expected Social Services revenues in FY00, as well as the collection of County juvenile crime control funds by a joint City/County commission, beginning in FY00. State revenue pro- jections are depicted in the chart at right: $9 $8 $7 State Revenues $1 $0 Federal Revenues Federal revenues are projected to increase by only 0.4% annually between FY 01-05 (compared to 12.1% per year during the previous five year period.) This projected growth rate is based largely on information from the Department of Social Services that reflects a re-allocation of social services revenues from less fed- eral revenues for social services to more state reve- nues for social services. Federal revenue projections are depicted in the chart at right: School Fund Revenues School Fund revenues are projected to increase at an average of 3.0% per year, which is slightly higher than the 2.4% average rate of increase experienced in FY97 and FY98, the years following the significant increase in the County's composite index. (FY99 was not used to compute this average, since $1.4 mil- lion in additional state lottery funds were received in that year, causing school fund revenues to increase by 13.3%.) This projection methodology is different from that typically employed by the School Division, which is based on the County's composite index. However, projections made in prior years based on the composite index have significantly underesti- mated the amount of actual revenues received. As such, School Fund revenues are projected based on an average annual growth rate of 3.0%, as displayed in the chart at right: Federal Revenues $3.5 $3.0 $2.5 ~$2.0 $1.5 $1.0 $O.5 $0.0 Prior + Projection School Revenues (including Self-Sustaining) $50 $4O $30 $20 $10 $0 t --e-- Prior --l-- Projection 66 Expenditure Assumptions/Projections: Baseline general government operating expenditures are projected to increase by a Cost of'Government In- dex, which is a combined factor of inflation and population growth. For general government, the average annual factor is projected to be 4.5% between FY 01-05. Baseline School Division expenditures are projected to increase by a Cost of Education Index, which is a combined factor of inflation and enrollment growth. For the School Division, the average annual cost of education factor is projected to be 4.1%. These combined inflation and growth indices are illustrated in the charts below: ~ 7% General Government Combined Rate of Growth: Population & Inflation · 6% = 5% 3% ~ 2% ~ 1% ~ 0% School Division Combined Rate of Growth: Enrollment & Inflation L[] Actual · Projected Population n Projected Inflation Actual · Projected Enrotlrnsnt [] P~ojected Inflation ] 'These growth factors are slightly less than the annual averages experienced between FY 94-99. During this earlier period, the combined rate of inflation and growth was 4.8% for general government and 4.9% for the School Division, reflecting faster population and enrollment growth rates. For example, the average rate of population growth between FY 94-99 was 2.2% per year, compared to the 2.0% rate projected for FY 01-05. Enrollments grew at approximately 2.3% per year as well, which is higher thar the 1.5% average annual projected for FY 01-05. The General Fund transfer to the School Division continues to be based on the historical 60/40 split of nex~ local tax revenues between the School Division and General Government. It equals the prior year alloca- tion plus 60% of new local tax revenues, net of any increases in revenue sharing and tourism funds, and ne' of any increases in other committed expenditures such as capital outlay, debt service, contingencies and re. funds. · Capital operating costs for general government and the school division represent the cumulative, additiona cost of operating oi: maintaining planned capital projects or facilities. (Continued on next page.) General government capital projects are expected to add between $7.9- $8.1 million to the operating budget over the next five years, compared to only $2.7 fi:om the previous five-year period. These additional costs reflect the operational requirements of the expanded jail facility ($3.8 million,) and the new juvenile deten- tion facility ($0.6 million.) Other expenses include staffing a new fire/rescue station, providing technology maintenance and support, and maintaining park facilities. School-related capital projects are expected to add between $4.6- $5.8 million in operational expenditures, compared, to $5.0 million from the previous five-year CIP. These expenses include the operational costs associated with two new elementary schools in five years, and providing support for administrative and in- structional technology. Operating costs for the northern elementary school project have been delayed one year, in conjunction with deferring completion of this project to Fiscal Year 2001/02. A breakout of operating costs associated with projects approved for FY 99/0.0 - FY 03/04 and recom- mended for FY 00/01 - 04/05 are detailed in the appendix to this document. School debt service expenditures are based on approved bond issues fi.om the FY 99/00 - 03/04 CI?, ad- justed to reflect deferral of the Northern Elementary School project to FY02. It should be noted that defer- ring this project by one year will postpone approximately $1.0 million in debt service expense to FY06 and beyond. These 'savings' are assumed to remain in the School Debt Service Fund, where they will be ap- plied to debt service payments on future school bond issues. General government debt service costs include an annual payment of $550,000 for a new 800MHz emer- gency communication system, and $281,755 per year in additional per diem costs for jail expansion debt service (beginning in FY02.) (In this analysis, jail debt service is assumed to come 'off the top,' in the 60/40 allocation of revenues after FY01.) Additionally, a $200,000 per year debt service reserve fund con- tribution toward potential general obligation debt is budgeted in FY01-FY03, as are the following projected general obligation debt service payments in FY 04 and FY05: $1.4 million (FY04,) and $1.5 million (FY05.) This general obligation debt would be contingent upon voter approval in a referendum tentatively scheduled for November, 2001. Debt service on the Juvenile Detention Facility is funded in the Debt Serv- ice Reserve Fund. Capital outlay for the next five years is based on approved transfers fi:om the General Fund to the Capital Improvement Funds, adjusted to reflect additional projected revenues for FY 2000/01- 2004/05. These revenue adjusted capital transfers are built into the FY 01-05 recommended CIP and reflect the County's financial policy of increasing the amount of current revenues for capital projects toward the goal of dedicat- ing at minimum 3% of current General Fund revenues to the capital program. Programmed capital trans- fers represent 2.1% of General Fund revenues in FY01 and FY02, 2.3% in FY03, 2.4% in FY04 and 2.7% in FY05. Revenue sharing projections for FY 01 come fi:om the Department of Finance, and are based on the pro- jected fair market value of all real estate and the 10% cap. Projections for FY 02-05 are calculated based on pre-prior year increaseg in real :estate tax revenues. * Board of Supervisors' contingency reserves are estimated to be $50,000 per year in FY 01-05. 68 Refund projections for FY01 come from the Department of Finance. sumed to grow at the same rate as current real estate tax revenues. Projections for FY 02-05 are as- Expenditure/Revenue Scenarios: Three expenditure and revenue projection scenarios have been prepared: one which projects total County ex- penditures based on growth and inflation; a second which projects total County expenditures plus capital- related operating expenditures .from the approved FY 1999/00 - 2003/04 CIP; and a third which looks at the operating budget impact of the FY 2000/01 - 2004/05 Recommended CIP. These alternative scenarios are pre- sented in detail on the following pages. Scenario I: Total County Budget; Growth & Inflation Costs Only The first scenario looks at the total County budget under the assumption that operational costs for both General Government and the School Division increase at the combined rates of growth and inflation. In this scenario, total County revenues are projected to increase by 25.0% overall, while expenditures are projected to increase by 25.2%. Due to operating budget surpluses in the first three years, this scenario produces a cumulative budget surplus of $3.6 million over the five-year period. The highest amount of surplus is projected to be $1.7 million in FY 01. In this scenario, general government operations increase by an average of 4.5% per year (the average combined rate of inflation and population growth), while school operations increase by 4.1% per year (the average com- bined rate of inflation and enrollment growth.) This budget scenario is depicted in the chart below: Total Budget - No Capital Operating Exnenditures (in $ Millions) FY 00 General Government 39.43 School Operating 82.82 Self-Sustaining 7.38 Capital Transfer 2.16 School Debt Service 8.45 Gen Govt. Debt Service 0.31 Revenue Shadng 5.85 Contingency 0.05 Refunds 0.03 Non-Departmental 16.85 Total Expenditures 146.48 Total Revenues 146.48 [ Surplus/Shortfall 0 FY 01 FY 02 FY 03 FY 04 FY05 41.21 43.06 45.02 47.07 49.21 86.33 89.94 93.48 97.03 101.05 7.60 7.83 8.06 8.31 8,56 2.40 2.49 2.85 3.15 3.66 8.85 9.18 9.80 10.35 10.90 0.75 1.03 1.03 2.24 2.29 6.09 6.36 6.83 7.17 7.57 0.05 0.05 0.05 0.05 0.05 0.03 0.04 0.04 0.04 0.04 18.17 19.14 20.60 22.99 24.51 153.31 159.97 167.16 175.40 183.32 154.97 161.21 168.20 175.30 183.06 1.66 1.24 1.04 (0.04) (0.26) TL FY01-05 Scenario II: Total County Budget; ~Vith Additional Operating Costs AsSociated with the FY 1999/00- 2003/04 Approved ClP The second projection scenario looks at the total County budget with the above growth and inflation costs for current County expenses, plus the additional operating costs associated with school division and general gov- ernment capital projects planned in the approved FY 1999/00 - 2003/04 Capital Improvements Program. In- cluding these additional expanded costs produces a more realistic picture of projected expenditures for the next five years, since most of these expenditures, particularly those related to school projects, are funded outside of the regular allocation for operations. In this scenario, revenues are projected to increase by the same 25.0% overall, while expenditures are projected to increase by 27.9%, producing a cumulative shortfall amount of $8.8 million over the five-year period. The highest negative imbalance is projected to be $4.2 million in FY 05. (If additional revenues were raised in FY04 and FY05 to fund the proposed general obligation debt service expenses however, this deficit would drop to $5.9 million, overall.) This projection scenario is depicted in the chart below: Total Budget - With Capital Operating Expenditures (in $ Millions) FY 00 General Government 39.43 Gen. Govt Capital Exp. 0.00 Total General Govt. 39.43 School Operating 82.82 School Capital Exp. 0.00 Total School Operating 82.82 Self-Sustaining 7.38 Capital Transfer 2.16 School Debt Service 8.45 Gen Govt. Debt Service 0.31 Revenue Shadng 5.85 Contingency 0.05 Refunds 0.03 Non-Departmental 16.85 Total Expenditures 146.48 Total Revenues 146.48 FY 01 FY02 FY03 FY 04 FY05 41.21 43.06 45.02 47.07 49.21 0.81 1.48 1.72 1.86 1.98 42.01 44.54 46.74 48.93 51.19 86.33 89.94 93.48 97.03 101.05 0.13 0.23 1.02 1.20 1.98 86.46 90.17 94.51 98.23 103.02 7.60 7.83 8.06 8.31 8.56 2.40 2.49 2.85 3.15 3.66 8.85 9.18 9.80 10.35 10.90 0.75 1.03 1.03 2.24 2.29 6.09 6.36 6.83 7.17 7.57 0.05 0.05 0.05 0.05 0.05 0.03 0.04 0.04 0.04 0.04 18.17 19.14 20.60 22.99 24.51 154.25 161.68 169.90 178.46 187.28 154.97 161.21 168.20 175.36 183.06 TL FY01-05 7.86 4.56 Surplus/Shortfall 0.00 0.72 (0.47) (1.70) (3.10) (4.22) (8.77) Surplus/Shortfall - With Addtl. 0.00 0.72 (0.47) (1.70) (1.69) (2.76) (5.91 ) Resources for Debt Service on Proposed G.O. Bonds On the expenditure side, general government operations are projected to grow by an overall average of 5.4% per year and School Division operations are projected to increase annually by 4.5% overall, reflecting the im- pact of the additional capital project operating costs, as well as population growth and inflation. 70 Capital-related operating costs for General Government total $7.9 million, cumulatively, and include ex- penses associated with the: jail facility expansion ($3.8 million over the five-year period,) new juvenile de- tention facility ($0.6 million, cumulatively,) the cumulative cost of adding up to 9 new firefighters to staff a new County fire/rescue station by FY 04 ($1.8 million over the five-year period,) and $0.9 million in addi- tional costs associated with athletic field development and park facility renovation/upgrades, among others. School division capital-related operating costs total $4.6 million over the five-year period and include $2.5 million to staff and equip a new northern area elementary school in FY03, $0.9 million in staffing and op- erational costs of a new southern elementary school (to open in FY04), $0.8 million in technology support and maintenance, and $0.3 million in additional costs related to school building expansions or renovations. A list of projected capital operating costs fi.om the FY 1999/00 - 2003/04 CIP appears in the appendix to this document. Projected non-departmental expenditures remain the same as in the previous scenario. All of this operating budget shortfall is due to the additional operational costs associated with approved FY 99/00 - FY 03/04 CIP projects. As evident in the chart below, the General Government shortfall is $6.8 mil- lion, 100% of which is attributed to the aforementioned impact of opening an expanded regional jail and a new juvenile detention facility, staffing a new southern area fire/rescue station by FY04, and maintaining park fa- cilities and fields, among other projects. The School Division shortfall is $2.0 million, and reflects the operat- ing budget impact of opening two new northern elementary schools after FY02, as well as the cost of technol- ogy maintenance and support, and maintenance on renovated or expanded school facilities. Scenario I1: Source of O.oeratin_a BUd_aet Sur.~luslt. Shortfall) FY 0t FY 02 General Government Surplus/(Shortfall) Surplus/(Shortfall) from Operations 0.5 Surplus/(Shortfall) from Capital Operating (0.8) Subtotal General Government (0.3) School Division Surplus/(Shortfall) Surplus/(Shorffall) from Operations Surplus/(Shortfall) from Capital Operating Subtotal School Division FY03 FY04 FY05 0.3 0.3 (0.1) 0.0 (1.5) (1.7) (1.9) (2.0) (1.2) (1.4) (2.0) (1.9) Overall Surplus/(Shortfall) 1.1 0.9 0.7 0.1 (0.3) (0.1) (0.2) (1.0) (1.2) (2.0) 1.0 0.7 (0.3) (1.1) (2.3) 0.7 (0.5) (1.7) (3.1) (4.2) FY 01-05 1.0 (7.9) (6.8) 2.6 (4.6) (2.0) (8.8) The implication is that although the County can afford to build and complete the capital projects approved fo~ FY 1999/00 - 2003/04, it faces the difficult task of funding the substantial operating costs (and resulting oper. ating budget deficits) associated with these facilities. Mechanisms to Address Shortfall in Scenario II: As noted in the overview to this section, however, projected operating budget shortfalls do not imply that fu rare County budgets will be unbalanced. In fact, State law requires the Board of Supervisors to adopt a bal anced budget annually. What this forecast does illustrate, however, is that in light of these projected shortfalls the County must decide how it will go about balancing its budget, given existing financial policies, projectec resource levels, and desired service levels. Some of the potential mechanisms by which it may address these shortfalls are presented below: Reduce Expenditures: * Reduce expenditure growth rate by funding operations at something less than the combined rates of in- flation and growth. Base scenarios either would be to a) level-fund operations and fund only personnel costs with inflation, or b) to require that total operational increases remain within available revenues. * Limit growth in debt service costs by limiting the use of borrowed funds for capital projects (i.e., defer or eliminate projects.). VPSA bonds currently fund 91% of approved school capital projects. Borrowed funds also fund 60% of approved general government capital projects, contingent upon voter approval in a referendum. * Limit growth in the amount of General Fund revenues transferred to the Capital Improvement Pro- gram. The General Fund transfer to the CIP currently funds all technology projects, all general govern- ment repair/maintenance expenses, and is the major source of funding for general government capital proj- ects. County financial policy suggests that the annual transfer to the C~ be at least 3% of General Fund revenues. In FY 00, the CIP transfer comprised about 2.0% of General Fund revenues. This percentage is projected to increase to: 2.1% (FY 01), 2.1% (FY 02), 2.3% (FY 03), 2.4% (FY04) and 2.7% (FY 05.) . Limit growth in capital associated operating costs by deferring or spreading out large capital projects, such as new schools, if possible. Since school openings have a large impact on the operating budget, spac- ing out new and expanded school facilities would reduce the cumulative impact of these expenses on the operating budget. * Assume capital associated operating costs will be absorbed within a department's budget. Most of the smaller capital operating costs, such as those associated with parks and recreation maintenance, expanded school facility maintenance, heating, etc. and new computer technology support, are already being absorbed within department budgets with no additional funding. However, there are limits on how long depamnents can absorb these expanded costs without a concomitant drop in service levels. This has been particularly evident in the critical lack of additional technical and instructional staff to support the large capital invest- ment of new computers in the schools. Increase Revenues: * Expand fee revenues to increase the percentage of operational expenditures directly offset by fee revenues. Currently, fee revenues offset about 78% of related expenditures in the development departments, but only 22% of related parks and recreation expenditures. * Actively pursue other revenue sources, including public and private grants to provide expanded services. * Increase real property tax rate. Each penny increase in the real estate tax rate is expected to generate an average of $713,685 in additional property tax revenues over the next five years. 72 Scenario III: Total County Budget; With Additional General Government Debt Service and Operating Costs Associated with the FY 2000/01 - 2004/05 Recommended CIP The third projection scenario looks at the total County budget, assuming the additional debt service and operat- ing expenses proposed in the FY 00/01- 04/05 Recommended CIP. The Recommended CIP adds new General Government debt service of $240,000 per year, beginning in FY03 to fund the annual debt service payment on the.proposed lease purchase of a new fire/rescue station in FY02. Operating costs associated with the FY 01- 05 Recommended CIP are generally unchanged fi:om FY 00-04, with the exception of $0.3 million in addi- tional costs to accelerate the hiring of fire fighters to staff a new fire/rescue station by FY02, and $1.2 million in operations for the new southern area elementary school (the requested timing of which has been moved for- ward to FY04.) In this scenario, total County revenues are projected to increase by the same 25.0% as in the previous scenario, while expenditures are projected to increase by 28.2%, producing a cumulative shortfall of $11.0 million ove~ the five year period. (With the additional revenues for general obligation bond debt service, the cumulative shortfall would be reduced to $8.2 million.) The highest negative imbalance is projected to occur in FY 05 al $4.7 million. This budget scenario is summarized in the chart below: Total Budget - With FY01-05 Recomm Capital Operating ~;~iiu-r~;-ii-n $ ~lillion~) FY O0 FY 01 FY 02 FY 03 FY 04 FY05 TL FY01-05 Total Expenditures 146.48 154.23 161.87 170.33 179.61 187.79 Total Revenues 146.48 154.97 161.21 168.20 175.36 183.06 Surplus/Shortfall 0.00 0.74 (0.67) (2.12) (4.25) (4.72) (11.03)! Surplus/Shortfall - With Addtl. 0.00 0.74 (0.67) (2.12) (2.85) (3.26 (8.16) Resources for Debt Service on Proposed G.O. Bonds As before, all of the $11.0 million cumulative operating budget shortfall is due to the operating budget impac of planned capital projects. General Government accounts for $7.4 million of this shortfall, and the School Di vision accounts for the remaining $3.6 million. A breakout of projected operating costs fi:om the FY 2000/01 - 2004/05 Recommended CIP is presented in the appendix to this document. A chart identifying the source of the projected operating budget shortfall in this scenario is presented on th, next page. Scenario II1: Source of Operating Budget Sur.alus/(Shortfall) FY 01 FY02 General Government Surplus/(Shortfall) Surplus/(Shortfall) from Operations 0.5 0.3 Surplus/(Shortfall) from Capital Operating (0.8) (1.7) Subtotal General Government (0.3) (1.4) School Division Surplus/(Shortfall) Surplus/(Shorffall) from Operations Surplus/(Shorffall) from Capital Operating Subtotal School Division FY03 FY04 FY05 0.2 (0.2) (0.1) (1.8) (1.8) (2.0) (1.6) (2.1) (2.1 Overall Surplus/(Shortfall) FY 01-05 0.7 (8.1) (7.4) 1.1 0.9 0.6 (0.0) (0.4)I 2.2 (0.1) (0.2) (1.1) (2.1) (2.2)I (5.8) 1.0 0.7 (0.5) (2.2) (2.7)I (3.6) I 0.7 (0.7) (2.1) (4.3) (4.7)I (11.0) Given the continued large magnitude of projected shortfalls for General Government and the School Division, it is likely that some of the same shortfall resolution mechanisms addressed in Scenario II would be required under this scenario as well. It is clear that General Government and the School Division will find it difficult to absorb the additional operating costs associated with staffing new fire/rescue stations, general government in- frastructure or opening new schools, given existing financial policies, projected resource levels, and desired service levels. Additionally, none of the aforementioned scenarios address the additional capital needs of General Govern- ment or the School Division that are not funded in the CIP. Unfunded General Government projects in the FY 01-05 CIP total $10.6 million and include additional fire/rescue stations in the northern and western parts of the County; increased funding for traffic calming, neighborhood improvements, sidewalks and streetlights; as well as public safety technology and equipment. On the school side, "unfunded" capital projects total $14.9 million over the next several years and include funds needed to meet space needs associated with reducing pu- pil to teacher ratios and the implementation of differentiated staffing; major school expansions/renovations, and other school projects. The County must consider the additional debt service and operational costs associ- ated with these projects as well, in selecting a strategy to address projected operating budget shortfalls. Conclusion: This five-year financial forecast for Albemarle County presents three different projection scenarios. In the first scenario, general government and school division expenditures are assumed to increase with growth and infla- tion, resulting in a projected surplus of $3.6 million. The second scenario adds the additional operating costs associated with approved capital projects, resulting in a shortfall of $8.8 million. (If additional resources are added to fund the debt service on the proposed General Obligation debt, this deficit would drop to $5.9 mil- lion.) The last scenario considers the impact of the FY 01-05 recommended CIP on the County's overall budget. In this scenario, an $11.0 million shortfall is the result (reduced to $8.2 million with additional reve- nues for debt service.) All of the operating budget shortfalls projected in the last two scenarios are due to the additional operating costs associated with planned capital facilities over the next five years. Major expenses on the general govern- ment side include the regional jail expansion and operating costs of a new juvenile detention facility, staffing a new southern area fire/rescue station in southern Albemarle County, as well as the cost of maintaining park fa- cilities and fields and technology support. The School Division shortfall reflects the operating budget impact of opening two new northern elementary schools after FY02, as well as the cost of technology maintenance and support, and maintenance on renovated or expanded school facilities. 74 Several mechanisms to address these operating budget shortfalls were discussed: Expenditure Reduction Strategies: · Reduce expenditure growth rates by funding operations at something less than the combined rates of infla tion and growth. · Limit growth in debt service costs by limiting the use of borrowed funds for capital projects. · Limit growth in the mount of General Fund revenues transferred to the Capital Improvement Program. · Limit growth in capital associated operating costs by deferring or spreading out large capital projects, sucl as new schools. · Assume capital associated operating costs will be absorbed within a department's budget. Revenue Enhancement Strategies: · Expand fee revenues, to increase the percentage of operational expenditures directly offset by fee revenues · Actively pursue other revenue sources, including public and private grants to provide expanded services. · Increase the real property tax rate. Of course, projected imbalances in the last two scenarios do ,not mean that future County budgets will b unbalanced. Not only do state laws require the Board of Supervisors to adopt a balanced budget annuallj but the budget process also demands an annual compromise of revenue enhancements and expenditure re ductions to achieve a balanced budget. Additionally, revenue and expenditure projections may change ove a five-year period depending on enrollment and population growth projections, state mandates, reassest ment estimates, revenue decisions at both the state and local level, and the local economy. What the projected shortfalls do indicate, however, is that desired levels of service and infrastructure growt may not be affordable, given existing financial policies and revenue sources. The County will need to mak some difficult choices as it goes about addressing the projected operating budget deficits associated with planned capital improvement projects and balancing its budget over the next five years. Additionally, none the aforementioned scenarios address the large number of general government and school projects that are m funded in the either the current or recommended CIP's, including additional fire/rescue stations, expanded u ban infrastructure improvements, public safety equipment and technology, road projects, library facilities, pm and recreational facilities, and future school needs. The County will need to address how, or whether, to ftm these projects in the future as well. This page is intentionally blank. 76 Financial Management Policies Approved by the Board of Supervisors October, 1994 Statement of Purpose: The County of Albemarle has a responsibility to its citizens to account for public funds, to manage its finances wisely, and to allocate its resources efficiently and effectively in order to provide the services desired by the public. The prima~y objective of establishing f'mancial management policies is to provide a framework within which sound f'mancial decisions may be made for the long term bet- termem and stability of Albemarle County. These financial policies will provide the guidelines and goals to guide the financial prac- tices of Albemarle County. Policy Goals: A fiscal policy that is adopted, adhered to, and regularly reviewed is recognized as the cornerstone of sound financial management. An effective fiscal policy should: Insulate the County from fiscal crises; Enhance the County's short term and long term financial credit ability by helping to achieve the highest credit rating and bond rating as possible; · Promote long term financial stability by establishing clear and consistent guidelines; · Provide the total £mancial picture of the County rather than concentrating on single issue areas; · Provide a link between long-range £mancial planning and current operations; and · Provide a framework for measuring the fiscal impact of govermnent services against established fiscal parameters and guidelines. Operating Budget Policies: 1 The annual budget will be prepared consistent with guidelines established by the Government Finance Officers Association (GFOA) and will annually seek the GFOA Distinguished Budget Presentation Award. 2 The budget must be slxuctured so that the Board and the public can understand the relationship between revenues, expendi- tures and the achievement of service objectives. 3 The goal of the County is to fund all recurring expenditures with recurring revenues and to use non-recumng revenues onl~ for non-recurring expenses. 4 The County will maintain an updated fiscal impact model to assess the impact of new development on the future costs ol associated county services. 5 Utilizing the fiscal impact model, the County will develop and annually update a long range (3-5 year) £mancial forecasting system, which will include projections of revenues, expenditures, as well as future costs and £mancing of capital improve- ments and other projects that are included in the capital budget. 6 When revenue shortfalls are anticipated in a fiscal year, spending during the fiscal year must be reduced sufficiently to offse' current year shortfalls. 7 The County will prepare the capital improvement budget in conjunction with the development of the operating budget, i~ 6rder to assure that the estimated costs and future impact of a capital project on the operating budget will be considere¢ 10. 11. prior to its inclusion in the CIP. The County will develop and annually update a financial trend monitoring system which will examine fiscal trends from the preceding five years. Where possible, trend indicators will be developed and tracked for specific elements of the County's fiscal policy. The County shall establish a Memorandum of Understanding with the School Board regarding the amount of annual gen- eral fund support received each year, which has currently been established at approximately 60% of all new available local tax revenues. Available revenues are revenues that can be used for County and School Division operations alter any increases in debt service, capital improvement program funding, City of Charlottesville revenue sharing, and the Board reserve fund have been funded. This guideline will be reviewed annually. The operating budget preparation process is conducted to allow decisions to be made regarding anticipated resource lev- els and expenditure requirements for the levels and types of services to be provided in the upcoming fiscal year. The fol- lowing budget procedures will insure the orderly and equitable appropriation of those resources: Operating budget requests are initiated at the department level within target guidelines set by the County Executive. Priorities of resource allocation of divisions within a department are managed at the department level. In formulat- ing budget requests, priority will be given to maintaining the current level of services. New services will be funded through identification of new resources or reallocation of existing resources. Proposed program expansions above existing service levels must be submitted as a budgetary increment requiring detailed justification. Every proposed program expansion will be scrutinized on the basis of its relationship to the health, safety and welfare of the community to include analysis of long term fiscal impacts. ~ Proposed new programs must also be submitted as budgetary increments requiring detailed justification. New pro- grams will be evaluated on the same basis as program expansions to include analysis of long term fiscal impacts. · Performance measurement and productivity indicators will be integrated into the budget process as appropriate. The operating budget is approved and appropriated by the County Board of Supervisors at the department level. Total expenditures cannot exceed total appropriations of any department within the General Fund. Changes to the approved operating budget during the fiscal year can be accomplished in any of the following ways: · Transfers between Divisions and line-item expenditures within a department are approved by the Director of Fi- nance. · Transfers between expenditure accounts in different departments are approved by the Board of Supervisors. · Encumbered funds for active purchase orders will be carried forward into the next fiscal year with the approval of the Board of Supervisors. · The County Executive will require monthly budget reports, monthly financial statements, and annual financial re- ports. · The Board of Supervisors will adopt the budget no later than April 30. Capital Budget Policies: . 1. The County will approve an annual capital budget in accordance with an adopted Capital Improvements Program. 2. The Board of Supervisors will accept recommendations from the Planning Commission for the five-year Capital Improve- ments Program that are consistent with identified needs in the adopted Comprehensive Plan and Capital Facilities Plan. 3. The County will coordinate the development of the capital budget with the development of the operating budget so that future operating costs, including annual debt service associated with new capital projects, will be projected and included in operat- 78 lng budget forecasts. Emphasis will continue to be placed upon a viable level of "pay-as-you-go" capital construction to fulfill needs in a Board. approved Capital Improvement Prograr~ The County believes in funding a significant portion of capital improvements on a cash basis and will, therefore, increase in- crementally the percentage of its capital improvements financed by current revenues. The County's goal will be to dedicate a minimum of 3% of the annual General Fund revenues allocated to the County's operating budget to the Capital Improvement Program. Financing plans for the five-year capital program will be developed based upon a five-year forecast of revenues and expendi- tures coordinated by a capital improvements technical management team. The County will begin to inventory capital facilities and estimate remaining useful life and replacement costs. Upon completion of any capital project, remaining-appropriated funds in that project will be returned to the undesignated capital project fund. Any transfer of remaining funds from one project to another must be approved by the Board of Supervi- sors The County will develop a Memorandum of Understanding with the School Board regarding the development and coordina- tion of the County's Capital Improvement Program, which will address the following areas: a) plan for required capital im- provements; b) debt ratio targets; c) debt issuance schedules. ~lsset Maintenance, Replacement and Enhancement Policies: The County will maintain a system for maintenance, replacement and enhancement of the County's and School Division's physical plant. This system will protect the County's capital investment and rnimmize future maintenance and replacement costs: · The operating budget will provide for minor and preventive maintenance. Within the Capital Improvement Program, the County wig maintain a Capital Plant and Equipment Maintenance/ Replacement Schedule, which will provide a five-year estimate of the funds necessary to provide for the structural, site, major mechanical/electrical rehabilitation or replacement to the County and School physical plant requnS_ng a total ex- penditure of $10,000 or more with a useful life of ten years or more. · To provide for the adequate maintenance of the County's capital plant and equipment, the County intends to increase the percentage of maintenance/repair and replacement capital improvements financed with current revenues. Revenue Policies: 1. Reassessment of real property will be made every two years. 2. The County will maintain sound appraisal procedures to keep property values current. The County's goal is to achieve an an- nual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 1st assessment is compared to sales in the succeeding calendar year when that year is a reassessment year. 3. The County will maintain a diversified and stable revenue structure to shelter it from short-term fluctuations in any one reve- nue year. 4. The County will estimate its annual revenues by an objective, analytical process. 5. The County will monitor all taxes to insure that they are equitably administered and collections are timely and accurate. 6. The County will follow an aggressive policy of collecting tax revenues. The annual level of uncollected eurrem property o 10. 11. 12. taxes should not exceed 4% unless caused by conditions beyond the County's control. To the extent possible, the County shall attempt to decrease the dependency on real estate taxes to finance the County's oper- ating budget. The County will, where possible, institute user fees and charges for specialized programs and services in the county based on benefits and/or privileges granted by the County or based on the cost of a particular service. Rates will be established to re- cover operational as welt as capital or debt service costs. The County will regUlarly (at least every 3 years) review user fee charges and related exPenditures to determine if pre-estab- lished recovery goals are being met. The County will identify all inter-governmental aid funding possibilities. However, before applying for or accepting either state or federal funding, the County will assess the merits of the program as if it were to be funded with local dollars. No grant will be accepted that will incur management and reporting costs greater than the grant. Local tax dollars will not be used to make up for losses of intergovernmental aid without first reviewing the program and its merits as a budgetary increment. The County will attempt to recover all allowable costs - both direct and indirect - associated with the administration and im- plementation of programs funded through intergovernmental aid, In the case of state and federally mandated programs, the County will attempt to obtain full funding for the service from the governmental entity requiring that the service be provided. Investment Policies: The County will invest County revenue to maximize the rate of return while maintaining a low level of risk. The County will conduct an analysis of cash flow needs on an annual basis. Disbursements, collections, and deposits of all funds will be scheduled to insure maximum cash availability and investment potential. 2. The Director of Finance shall maint,Sin a system of internal controls for investments, which shall be documented in writing and subject to review by the County's independent auditor. 3. Contractual consolidated banking services will be reviewed regUlarly. ~lccounting, ,,tuditing and Financial RePorting POlicies: The County will establish and maintain a high standard of accounting practices in conformance with the Uniform Financial Reporting Manual of Virginia and Generally Accepted Accounting Principals (GAAP) for governmental entities as Promul- gated by the Governmental Accounting Standards Board. 2. RegUlar monthly financial statements and annual £mancial reports will present a summmy of financial activity by governmen- tal funds. ° An independent fn'm of certified public accountants will perform an annual financial and compliance audit according to gen- erally accepted auditing standards; Government Auditing Standards issued by the Comptroller General of the United States; and Specifications for AUdit of CountieS, Cities and ToWn isSued by the AUditOr of Public AcCounts of the Commonwealth of Virginia. The County will maintain an audit comm/ttee comprised of the COunty Executive, or his designee, the Director of Finance and two members of the Board of Supervisors. The committee's responsibility will be to review the financial statements and results of the independent audit and to Communicate those results to the Board of Supervisors. 5. Annually seek the GFOA Certificate of AchieVement for ExCellence in Reporting. 80 Debt Policies: 1. The County will not fund current operations from the proceeds of borrowed funds. 2. The County will manage its financial resources in a way that prevents borrowing to meet working capital needs. 3. The County will confine long-term borrowing and capital leases to capital improvements or projects that cannot be financed by current revenues. 4. To the extent feasible, any year that the debt service payment falls below its current level, those savings will be used to fi- nance one-time capital needs. 5. When the County finances capital improvements or other projects through bonds or capital leases, it will repay the debt within a period not to exceed the expected useful life of the projects. 6. The County's debt offering documents will provide full and complete public disclosure of financial condition and operating results and other pertinent credit information in compliance with municipal finance industry standards for similar issues. 7. Recognizing the importance of underlying debt to its overall financial condition, the County will set target debt ratios, which will be calculated annually and included in the annual review of fiscal trends: · Net Debt per capita should remain under $1,000. · Net Debt as a percentage of the estimated market value of taxable property should not exceed 2%. · The ratio of debt service expenditures as a percent of General Fund revenues should not exceed 10%. Fund Balance or Reserve Policies: The County does not intend, as a common practice, to use General Fund equity (undesignated fund balance) to finance cur- rent operations. The fund balance is built over years from savings to provide the County with working capital to enable it to finance unforeseen emergencies without borrowing. 2. The County Will maintain a fund balance for cash liquidity purposes that will provide sufficient cash flow to minimize the possibility of short term tax anticipation borrowing. 3. The undesignated fund balance, plus the designation for fiscal cash liquidity purposes, at the close of each fiscal year should be equal to no less than 10% of the County's total operating budget. 4. Funds in excess of the required undesignated fund balance may be considered to supplement "pay as you go" capital expendi- rares or as additions to the fund balance. FY 2000/0J - 2004~05 RECOMMENDED CAPITAL IMPROVEMENT FUND OPERATING BUDGET IMPACT GENERAL GOVERNMENT Administration & Courts County Coroputer Upgrade Ongoing Subtotal Ongoing Jail Expansion Ongoing Juvenile Detention Facility Ongoing Fire/Rescue Building & Equip. Fund Ongoing Public Safety Mobile Crud. Cfr. Ongoing Police Technology Upgrade Ongoing Transport Vehicle for Arrests Ongoing Police Video Caroeras for Patrol Ongoing Subtotal Ongoing Highways & Transo~rtation Airport Road Sidewalk Ongoing Georgetown Road Sidewalk Ongoing Neighborhood Plan Implementation Ongoing Sidewalk Construction Program Ongoing Streetlighting Program Ongoing Subtotal Ongoing New Library Construction On.cloing Subtotal Ongoing Parks & Rec. Pro_iects Cashier Booth Improvements County Athletic Field Study/Dev. Crozet Park Athletic Field Dev ivy Landfill Recreation Access Dev. Community Recreation Facilities New Urban Area Gymnasium School Athle~'Field irrigation Scottsville CC Improvements So. Albemarle Organization Park Dev. Towe Lower Field Irrigation Walnut Creek Park Improvements Subtotal GENERAL FUND SUBTOTAL TOURISM FUND CIP Ivy Road Landscaping Rivanna Gmenway Access & Path River Access Improvements Route 29 North Landscaping Subtotal STORMWATEp. FUND ClP Ston~water Control Program Subtotal SCHOOL FUND CIP Administrative Technology Brownsville Addition Holtyroead Gym Restrms Instructional Technology Monticello High Addition Northern Elementary Budey Addition/Renovation Jouett Addition/Renovation Scottsville Library Add. Southern Urban Elero. Subtotal GRAND TOTAL Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Total Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Total Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing FY 00/01 FY 01/02 FY 0~0~ FY 03/04 FY 04/05 130,000 143,000 157,300 133,1iX} 146,410 t30,000 143,000 157,300 397,730 819.320 843,900 - 80,160 159.488 150,375 460,310 468,990 548,105 63.045 15.210 20.425 6,950 7,125 112,755 790,860 FY 00/01 1,7OO 14.280 15,980 FY 00/01 7.000 7,000 FY 00101 43,750 87,500 131,250 945,090 3,460 1,363,t90 5,000 5,000 70,370 39,760 14.810 21.040 7.470 7,485 500 720 162,155 1,673,345 FY 01/02 15,000 3.400 14,705 33,105 FY 01/02 10.000 10,000 FY 01/02 48,875 97,750 85,000 231,625 1,948,075 3,500 1,475,878 5.150 5,000 10,150 600 76.960 20.495 15,255 21,670 10,500 11 190 7, 555 515 3,740 168,780 1,612,108 15.450 5,100 15,145 35,695 FY 02~3 15.000 15,000 55,000 17.200 110,000 774,050 66,000 90.000 1,112~50 2,975,053 133,100 869.220 170.868 483,030 4,500 3,605 1,531,223 5,305 5,150 10,455 620 79,960 20,955 15,710 22,320 10.815 11,520 8.095 530 765 171,290 1,846,068 ~"y03104 15.915 6,800 31,200 53,915 FY 03104 20.000 20,000 FY 03/04 61.250 17,715 4,100 122,500 797,270 67,980 38,400 1.017.700 2,t26,915 4,046,898 146,410 895,300 182,702 497,520 4,635 3,715 1,583,872 5,465 5,305 20.000 32,000 62,770 640 90.985 21,430 16,190 22.990 34,620 11,140 14.730 11 ,O75 545 79O 225,135 2,018,187 FY04/05 16,390 8,500 48,205 73,095 FY 04/05 25.000 25,000 FY 04~05 67,750 18.245 4,225 135,500 821,190 70,020 39,550 2,500 1.048.230 2,207,210 4,323,492 Total 01.05 709,810 709,810 3,825,470 593,218 2,060,225 9,135 6,502~.68 20,920 15.455 20,000 32,000 88,375 1,860 381,320 117.850 61,965 108,445 34,620 32.455 51,860 41,635 2,090 6,015 840,115 8,140,568 Total01.05 62,755 25,500 123,535 211,790 Total 01.05 77.000 77,000 Out-Year 1,542,005/yr 1,542,005/yr 1,542,005/yr Out-Year 89,300 89,300 1,665,305 Total 01.05 276.625 53,160 8,325 553,250 2,477,509 204,000 77,950 2,500 2,155,930 14.000/yr 14,000/yr Out-Year 20_000/yr 20,000/yr Out-Year 5,809,250 14,238,608 82 FY 1999100 -2003/04 APPROVED CAPITAL IMPROVEMENT PROGRAM -ALL FUNDS OPERATING BUDGET IMPACT GENERAL GOVERNMENT Administration & Courts County Computer Upgrade Subtotal Admin. & Courts Public Safety_ Jail Expansion Juvenile Detention Facility Fire/Rescue Building & Equipment Fund Transport Vehicle for Arrests Public Safety Mobile Command Center Subtotal Public Safety Highways & Transportation Route 29 North Landscaping Greenbrier Dr. Ext. Bike/Peal. Path Airport Road Sidewalk Georgetown Road Sidewalk Sidewalk Construction Program Subtotal Hwys. & Transportation Parks & Recreation Walnut Creek Park Improvements Scottsville Community Ctr. Outdoor Imp. Crozet Park Athletic Field So. Albemarle Organization Park Dev. County Athletic Field Study / Dev. School Athletic Field Irrigation Towe Lower Field Irrigation New High SchQol Recreation Facilities Chris Greene Lake Property Purchase Urban Area Gymnasium Cashier Booth Improvements Ivy Landfill Recreation Access Dev. Subtotal Parks & Recreation School Division Northern Area Elementary School Rec. Subtotal Schools/Parks Op_ooinc_ Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Onooina Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Subtotal - General Government On~loin~ TOURISM FUND Rivanna Greenway Access & Path River Access Improvements Ongoing Orlaoina Subtotal Tourism On~loing SCHOOL DIVISION Hollymead Gym/Restrooms Ongoinc~ Brownsville Addition Ongoin.c Burley Library Add/Renov. Ongoinc. Administrative Technology (Scho~)ls) Ongoing; Instructional Technology (Schools) Ongoing Jouett Addition/Renovation Ongoing Northern Area Elementary Ongoing Scottsville Library Addition Ongoing Southern Urban Elementary Ongoing Subtotal School Division Ongoing GRAND TOTAL - ALL ClP FUNDS On~loin~l FY 00101 FY 01102 FY 0~03 FY 03~04 FY 04~05 130.000 143.000 157.300 133.100 146.410 130,000 143,000 157,300 133,100 146,410 397,730 819,320 843,900 869,220 895,300 80,160 15g,488 170,868 182,702 150,375 254,950 366,770 485,030 497,520 3,400 3,500 3,605 3,715 4.500 4.635 548,105 1,157,830 1,373,658 1,533,223 1,583,872 709.810 709,810 3,825,470 593,218 1,754,645 14,220 9.135 6,196,688 5,000 5,150 5,305 5,465 5,630 5,000 5,150 5,305 5,465 - 5,000 5,000 10,150 10,455 10,770 16,095 26,550 20,920 5,000 227,430 52,470 720 3,740 765 790 6,015 6,950 7,470 11,190 11.520 14,730 51,860 15,210 39,760 20,495 20,955 21,430 117,850 7,125 7,485 7,855 8,095 11,075 41,635 63,045 70,370 76,960 79,950 90,985 381,320 10,500 10,815 11,140 32,455 500 515 530 545 2,091 20,425 21,040 21,670 22,320 22,990 108,445 1,815 1,870 3.685 34,620 34,620 600 620 640 1,860 13.930 14.630 15.365 16,130 16,615 76,670 126,685 161,975 168,890 173,525 8,920 9,370 9,835 10,130 8,920 9,370 9,835 10,130 809,790 1,481,875 1,719,673 1,860,454 1,983,937 FY 00101 FY01102 FY 02~03 FY 03104 FY 04105 1,700 3,400 5.100 6,800 8,500 14,280 14.705 15,145 31,200 48,205 15,980 18,105 20,245 38,000 56,705 4,100 4,225 17,715 18~245 67,980 70,020 61,250 67,750 122,500 135,500 38,400 39,550 797,270 821,190 2,500 90.000 817,790 43.750 48.875 87.500 97,750 85,000 17,200 66,000 55,000 110,000 774,050 858,505 38.255 38,255 7,855,729I TL 01-05 25,500 123.535 149,035 8,325 53,160 204,000 276.625 553.250 77.950 2,477,510 2,500 907,790 131,250 231,625 1,022,250 1,199,215 1,976,771 4,561,1111 957,020 1,731,605 2,762,168 3,097,669 4,017,413 12,565,875I