Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
Fin Condition Eval FY92...99
Financial Condition Evaluation FY 92/93- FY 98/99 'Promoting the general well being and enhancing the quality of life for all citizens through the provision and delivery of the highest level of public service.' Five-Year Financial Forecast FY 99/00- FY 03/04 Albemarle County Mission Albemarle County, Virginia Acknowledgements: County of Albemarle staff'used the "Evaluating Financial Condition" handbook for local governments published by ICMA (copyright 1986) to develop the financial condition indicators contained in the "Financial Condition Evaluation" portion of this document. Much of the text used to preface each section, describe the 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 Financial 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, 1998 (~ 0 0 Table of Contents Introduction Financial Condition Evaluation Revenues Revenues Per Capita Restricted Revenues Intergovernmental Revenues Property Tax Revenues Assessment Ratios User Charge Coverage Revenue Surplus/Shortfalls 9 11 13 14 16 18 19 2O Expenditures Expenditures Per Capita Employees Per Capita 21 24 26 Operating Position Operating Surplus/Deficit Unreserved Fund Balances Liquidity 27 29 30 32 Debt and Unfunded Liabilities Current Liabilities Long-Term Debt Per Capita Long-Term Debt Debt Service Accumulated Employee Leave 33 35 36 37 38 39 Capital Plato Capital Outlay School Debt and Capital Outlay 41 43 44 Table of Contents (continued) Community Profile Population Growth School Enrollment (K- 12) Median Age Personal Income Per Capita Unemployment Rate Families in Poverty Growth in Real Property Values Residential Development Business Activity 45 46 47 48 49 50 51 52 53 54 Five-Year Financial Forecast: Introduction 55 Overview 55 Assumptions/Projections Economic & Demographic (Growth) Assumptions Revenue Assumptions/Projections Real Property Taxes Personal Property Taxes · Sales Tax Other Local Taxes Other Local Revenues State Revenues Federal Revenues School F.und Revenues Expenditure Assumptions/Projections 56 56 57 57 58 58 58 59 59 59 60 60 Expenditure/Revenue Scenarios Scenario I: General Fund; Expenditures Balanced with Revenues Scenario II: Total County Budget; Growth & Inflation Costs Only Mechanisms to AddreSs Shortfall in Scenario II 61 62 63 63 Table of Contents (continued) Scenario III: Total County Budget; with Expanded Costs Mechamsms to Address Shortfall in Scenario III Scenario IV: Total County Budget; with Expanded Costs & Additional State Revenues 64 65 65 Conclusion 66 Appendix Financial Management Policies Projected Capital Project Operational Costs 69 69 74 This page is intentionally blank. 0 · 0 Introduction I&Ttat is 'Financial Condition' and gtrhy Evaluate it? The term "financial condition" can have many meanings. In a narrow, accounting sense, it means "cash solvency," or a govern- ment's ability to generate enough cash over a thirty to sixty day period to pay all of its bills. In a budgetary sense, financial condi- tion 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-mn 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 weffare of the community. 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 re- gional 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 in good financial condition. This means accounting for public funds, managing the County's finances wisely and allocating resources efficiently and effectively in order to provide the services desired by citizens. To accomplish this, the Board of Supervisors adopted Financial Management Policies that provide financial practice guidelines and goals for the long term betterment and stability of Albemarle County. (These policies are presented in full in the Appendix to this document. Additionally, relevant section(s) of these financial policies are reproduced in each chapter.) One of these aforementioned policies states that "[t]he County will develop and annually update a financial trend monitoring sys- tem 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." By systematically monitoring and evaluating this trend information, the County will be 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 groups 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 pic- ture of the County's financial condition. These indicators pull together information from budgetary and financial repons as well as economic and demographic data and relate to various important aspects of County finances: external revenues, expenditures, fund balances, liquidity, unfunded liabilities and business activity. Where possible, these indicators also address specific elements of the County's financial policies. What is a 'Financial Forecast' and Why is it Important? A financial forecast is a projection of furore revenues and expenditure that localities can use to evaluate their future financial condi- tion. As such, financial forecasting is important for many of the same reasons that localities evaluate their current financial condi- tion: to gain a better understanding of its long-range financial picture; to identify projected revenue or expenditure trends or issues that could adversely affect or benefit the locality; to present a projection of future financial strengths and weaknesSes to the Board of Supervisors and public; to incorporate long-range considerations into the budget process; and to identify any potential difficulties ~n adhering to established financial policies. County financial policies state that: "...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 improvements and other 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 County revenues and expenditures. What is Albemarle County's Overall Financial Condition? Overall, the financial position of the County is positive. The County has enjoyed a large, growing revenue base which has en- abled 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, residents' incomes have grown faster than per capita net operating expenditures. Over the past five years, the County also has enjoyed end of year operating surpluses that have in- creased fund balances, generated adequate cash flow and provided a steady source of funding for one-time capital and opera- tional needs. Additionally, although substantial, long-term debt and debt service levels have remained within the target ratios set by the Board of Supervisors, and capital outlay has increased since FY 93. Finally, the County is a vibrant growing commu- nity with a young and middle-aged population, rising personal incomes'per capita, a strong employment base, and a robust busi- ness sector. However, over the past five to ten years, a number of financial and demographic trends have emerged that are likely to stress future County finances, given existing available resources and revenue trends. These include: · A growing reliance on property taxes to finance operations, which can make the County vulnerable to diminished growth in property values, or in the number and value of new vehicles sold; · Declining rate of re-assessment increases in the value of County real estate; · Declining state and federal funding for education; · Increasing levels of long-term debt and debt service that may be approaching target limits; and · Continued population and enrollment growth. A brief summary of the County's financial position with respect to revenues, expenditures, operating position, debt, unfunded liabilities, 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 increasing tax rates. Since FY 92, real per capita operating revenues (net of revenues collected from the split billing of property taxes and for the revenue sharing agreement with Charlottesville) have increased by 11.7%. Most of this increase is due to growth in general property tax revenues, which have increased by 11.6% since FY 93 (in constant dollars per capita), despite fiat or reduced 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 col- lections, and to aggressively collect tax revenues, also have contributed to this impressive revenue growth. Between FY 93-99, the County's assessment to sales ratio increased from 93.1% to 98.4%, exceeding the target rate of 95% in FY 94, FY 95, FY 96 and FY 97. 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 re- serves. Most of the revenue surplus was collected in the General Fund and reflects greater than anticipated property tax re- ceipts, 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 con- ditions, and protects the County against short-term revenue fluctuations. This flexibility is illustrated by the fact that restricted operating revenues (i.e., revenues legally earmarked for specific uses) account for only about 20.9% 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 42.7% of all net operating revenues, while other local revenues provide an additional 27.0%, and state and federal funds contribute the remaimng 30.3%. Since property tax revenues account for nearly half of total net operating 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. Over time, however, the County's revenue base has become relatively less flexible and diversified. Restricted revenues have come to account for a greater share of total net operating revenues. (Between FY 93-99, the share of restricted revenues has increased from 17.5% to 20.9%.) Most of this restricted revenue growth has occurred on the general government side, reflect- ing increases in revenues for social service programs, crime control, juvenile justice, recordation, and other government pro- grams. (Restricted revenues now account for approximately 25.4% of general government revenues, up from 17.7% in FY 93.) By contrast, restricted school operating revenues have grOwn much more modestly, increasingly from 17.4% of school net oper- ating revenues in FY 93 to 18.2% in FY 99. Additionally, the County's revenue base is becoming relatively less diversified over time. 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 42.7% of total net operating revenues. The share of state and federal funds, however, declined from 35.3% to 30.3% during the same period. This relative decline in in- tergovernmental revenues has been most pronounced for the School Division, where state and federal aid has fallen from 37.9% of total School Division operating revenues in FY 93, to 33.9% in FY 99 (a decline of 4.0 percentage points.) On the other hand, state and federal funding has increased for General Govermnent -- growing from 18.9% of total net operating revenues in FY 93 to 24.4% in FY 99. These large increases in general government intergovernmental aid primarily reflect increased So- cial Services funding (due to Weffare reform), as well as increases in recordation fees (which the County began collecting 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 con- ditions, particularly those effecting property tax growth. In fact, since the early 1990s, declining reassessment rate increases have led to increasingly slower growth in property tax revenues. In Tax Year 1991 (FY 92), the biennial reassessment in- creased 22.48%. By Tax Year 1997 ~ 98), however, the rate of increase in property values had slowed to 2.26%. Addition- ally, a decline in the value of new vehicles sold since 1998 has slowed personal property tax revenue growth considerably. 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 93, it has increased for the DeVelopment Departments. In FY 93, parks fees and charges offset 29.4% of associated expenditures, compared to 22.5% in FY 99. By contrast, permit and development fee revenues offset 64.2% of all development activities in FY 93, compared to 78.2% in FY 99. Expenditures: Since FY 93, real per capita net operating expenditures (net of Split Billing and Revenue Sharing) have increased by 12.6%. However, growth in expenditures has remained well below increases in residents' incomes. Between FY 93-97, real per capita personal incomes grew by 10.1%, compared to a 6.5% growth rate for per capita expenditures (in constant dollars.) However, expenditure growth has not occurred evenly between General Government and the School Division. Since FY 93, real per capita general government expenditures have grown much more rapidly than real per capita .school expenditures. Be- tween FY 93 and FY 99, real per capita expenditures on general government programs increased by 30.5%, compared to only 5.7% for school programs. Differences in the relative growth rates of general government and school division expenditures are explained, in part, by differ- ences in the growth rates of State and Federal funding. As discussed in detail in the revenue section, real per capita state and federal funding for general government activities has increased steadily and substantially since FY 93, rising from $83 in FY 93 to $132 in FY 99 -- an increase of 59%. Nearly all of this increase is due to growth in restricted operational revenues - that is, revenues received by the state and federal governments legally earmarked for use in specific general government programs. These revenues, which constitute about 94% of all general government interg0vemm~ntal revenues in FY 99, fund social serv- ices programs, law enforcement and commumty policing initiatives, juvenile justice, Section 8 housing subsidies, and constitu- tional officer reimbursements. Many of these programs are mandated and require local matching funds. By contrast, real per capita intergovernmental aid to the School Division has fallen since FY 93 (Between FY 93-99, real per capita state and federal revenue receipts declined from $320 in FY 93 to $302 in FY 99, a drop of 5.6%.) This overall growth rate reflects not only slower growth in intergovernmental revenues for education, relative to general government, but a change in the County's composite index, which caused a significant drop in state aid after FY 96. (Federal 'funds comprise a relatively small percentage of total education revenues.) Prior to FY 96, state and federal fimding for School operations had fallen by 1.9%, from $320 to $314. (This compares to 22.9% growth in total intergovernmental aid on the general government side.) After FY 96, however, per capita funding plummeted, dropping by an additional 3.8%. (Comparatively, general government experienced a 29.4% increase during this period.) Another indicator of total expenditures per capita is the number of total employees per capita, since salary and fringe costs are a major portion of a local government's operating budget. Since FY 93, the number of municipal employees per 1,000 County residents has grown by only 2.4 FTE's, or 9.1%. (In FY 93, there were 26.0 County employees per 1,000 residents. By FY 99, that number had grown to 28.4 FTE's/1,000.) Most of this increase is due to growth in the number of School Division employ- ees (including teachers, central office staff, bus drivers, food service workers and other school division employees.) Between FY 93 and FY 99, the number of number of school division FTE per 1,000 County residents grew from 20.9 FTE to 23.1 FTE, an increase of 10.1%. By contrast, the number of general government employees per 1,000 County residents grew from 5.1 FTE to 5.3 FTE in FY 99, an increase of 5.2%. (Growth in police officers and fire/rescue personnel accounted for over 75% of this in- crease -- about 4.0 percentage points of the 5.2% total increase.) Operating Position: Albemarle County's operating position is favorable. Between FY 93 and FY 97, the County enjoyed end-of-year operating sur- pluses, indicating that current revenues were sufficient to support operations. (These surpluses were due both to greater than anticipated revenue collections as well as expenditure savings, principally in the General Fund.) These surpluses have provided a steady source of funds to be held in reserve against unanticipated events and unforeseen emergencies, for cash-flow purposes, and to finance one-time capital and non-recurnng expenditures. Correspondingly, fund balances have been sizeable. Between FY 93 and FY 97, total undesignated fund balances increased from about $13.2 million, or 14.7% of total net operating revenues, to $20.9 million, or 17.4%: Most of these surplus funds were collected in the General Fund. In FY 97, approximately 78.1% ($16.3 million) of the $20.9 million overall undesignated fund balance was General Fund balance. Although General and School Fund balance may be used to finance operations, County financial policy 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 14.1% of net General and School Fund revenues (combined), 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 93, 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, demon- strating sufficient liquidity to meet short-term obligations, and providing substantial end-of-year cash reserves. Debt and Unlrunded Liabilities: Debt: Although the ratio of current liabilities to net operating revenues has increased, the County maintains sufficient liquidity to meet its obligations, and has nm operating surpluses since at least FY 93. Additionally, both long-term debt and the associated debt service payments have remained within the target ratios set in the Fi- nancial Policies. Since FY 93, net direct bonded long-term debt has equaled approximately one percent or less of the estimated market 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 1.02%, reflecting borrowing for the new Monticello High School.) Additionally, per capita debt has remained below the $1,000 maximum. (The largest amount of net long-term debt per capita was $840 in FY 98, also due to borrowing for the new high school.) Finally, the ratio of debt service expenditures to General Fund revenues (net of revenue sharing) remains below the 10% ceiling. (The largest values of this indicator occurred in FY 95, at 9.6%, and in FY 99, at 9.0%, reflecting the associated debt service costs of borrowing for the Sutherland Middle School in FY 94 and Monticello High School in FY 98.) However, long-term debt levels are increasing. Since FY 93, long-term debt, as a percentage of the estimated market value of taxable property, has grown from 0.8% of assessed value to 0.96%, a gain of 20%. Similarly, per capita long-term debt has in- creased substantially; growing from $558 in FY 93 to $814 in FY 99 (an increase of $256, or 46%.) The majority of this growth is due to borrowing in FY 94 and FY 98, for the construction of Sutherland Middle School and Monticello High School, respectively. Associated debt service also has increased substantially following years of large bond issues, although the trend has been for debt service, as a percentage of General Fund net operating revenues, to decline in years thereafter. As Previously mentioned, debt service costs reached 9.6% in FY 95 and 9.0% in FY 99, due to borrowing for the new middle and high schools. Unfunded Liabilities: Finally, the County's unfunded liabilities related to accumulated employee leave are at manageable levels. Although the con- stant dollar value of unused vacation and sick leave days per employee (FTE) has risen slightly since FY 93, this increase repre- sents the impact of regular compensation increases received by employees, and not a change in County policy related to accu- mulated leave. (In FY 93, the real cost of unused vacation and sick leave was $776 per FTE. By FY 97, that amount had risen to $817, an increase of $41/FTE, or 5.2%.) As such, vacation and sick leave policies have not placed an excessive burden on 4 County finances. Capital Plant: Albemarle County is committed to maintaining, replacing, and enhancing its physical plant both to protect its capital invest- ments and to minimize future maintenance and repair costs. Part of this commitment includes increased funding for mainte- nance/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 93, the mount of capital outlay, as a percentage of General Fund net operating revenues, has fluctuated. Between FY · 93-FY 95, the operating budget transfer to the County's Capital Improvements Program represented about 2.2% of General Fund net operating 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 in FY 96 to $2.7 million, or 3.5% of net operating revenues. In FY 96 and FY 97, the transfer percentage declined slightly to approximately 3%. In FY 99, however, the amount of capital transfer fell substantially to 2.1% of General Fund net operating revenues, due to operating budget con- straints and the transfer of some capital outlay to school operations. The impact of tight operational budgets also is evident when looking at the amount of net operating funds dedicated to School Division capital needs. Between FY 93- FY 95, the combined cost of debt service and capital outlay increased slightly from $6.1 million (9.4% of total school expenditures) to $8.4 million, or 11.3% of net School expenditures. Since then, however, the percentage of debt service expenditures and school capital outlay has fallen - declining to 8.5% ($7.9 million) in FY 99. 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 93, the population of Albemarle has increased from 70,300 residents to a projected 81,170 residents in FY 99, an in- crease of nearly 15.5%. During this period, population growth has been relatively smooth and steady, averaging about 2.3% per year. School enrollment also has increased smoothly and steadily since FY 93, at an average rate of about 2.3% per year. (In FY 93, total public school enrollment was 10,436. By FY 99, it had increased to 11,981.) Although the median age of County residents has risen by 5 years since 1960, Albemarle remains a relatively young commu- nity. The current median age is 31.4 years. Over half of all residents are under 35 years of age and only about 10% of residents are over 65 years of age. This relatively youthful population is due in part to the large number of University of Virginia stu- dents residing in the area, which have lowered the median age of the community as a whole. Additionally, real, per capita personal incomes have increased, the number of families in poverty have declined, and the unem- ployment rate has fallen. Between FY 93 and FY 97, real per capita personal incomes grew from $23,051 in FY 93 to $25,381 in FY 97 - an increase of 10.1% (or about 2.6% per year, on average.) Additionally, the number of families in poverty have de- clined since 1970. (Between 1970-1990, the percentage of white families in poverty declined from 10.9% to 3.8%, and the per- centage of African American families in poverty dropped from 30.8% to 13.3%.) Finally, Albemarle has enjoyed a low and shrinking unemployment rate. Between FY 93-FY 98, the County's unemployment rate declined from 3.9% in FY 93 to 1.8% in FY 98. Throughout this period, the County's average unemployment rote of 2.5% was lower than that of the City of Char- lottesville (3.2%), the State (4.9%) and Nation as a whole (6.0%.) Additionally, property values have been increasing. Between FY 93-97, the combined value of residential and commercial property grew from $4.8 billion to $5.3 billion (11.1%,) in constant dollars. However, the rate of growth in property values has slowed dramatically, particularly for residential property. In FY 92, residential property values increased by 10.9% over the prior year (in constant dollars.) By FY 96, however, this growth had slowed to about 4.1%. This decline has more than offset the increase in commercial property values, which grew at 9.5% in FY 96, compared to 3.1% in FY 92. Since FY 93, the market value of new residential development, as a percentage of total development, also has declined. (The proportion of new development that is residential is important because the net cost of serving residential development.typically is higher than the net cost of serving either commercial or industrial development.) In FY 93, 86% of new County development was residential, compared to 68% in FY 97. However, residential development has come to represent a larger share of total de- velopment over the past ten years. (The average share of residential construction in the 1990s was 79%, compared to 75.3% in the latter part of the 1980s.) Finally, business activity in the County has been growing, as measured by per capita real sales tax receipts. Since FY 93, real per capita sales tax revenues have increased from $86 in FY 93 to $90 in FY 99, an increase of 4.7%. This increase reflects the period of economic recovery following the recession of the early 1990's, as well as the opening of several large retail stores in FY 95, which increased sales tax revenues. Given the inter-relationships between demographic and economic factOrs and revenues and expenditure growth, it is likely that a growing population, increased property values, rising personal incomes, low unemployment and a strong business sector have 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 on County government to meet the demands of growth within available resources, while still maintaining current service levels, particu- larly in the area of education. IVhat is the Overall Financial Forecast for Albemarle County? This updated long-range financial forecast for Albemarle County presents four possible scenarios of revenues and expenditures for the next five years FY 99/00 - FY 03/04. The first scenario focuses only on the General Fund (without school division in- tergovernmental revenues) and balances expenditures to available revenues. The second scenario shows the total county budget (including the school fund) and assumes that expenditures grow at the combined rate of growth and inflation. Itl this scenario, total County expenditures exceed available revenues by $8.2 million over the five-year period, the highest imbalance being $2.1 million in FY 03. The third scenario presents the total county budget as above with expenditures based on growth and infla- tion, plus the additional operating costs associated with planned capital projects. If all associated operating costs are funded as requested, the cumulative shortfall over the five-year period is projected to be $15.9 million. The fourth and final scenario shows what the overall imbalance would be if the County were to receive additional state revenues of approximately $2.37 mil- lion per year for public education, sheriff's deputy salaries and law enforcement, as proposed in Governor Gilmore's budget. In this scenario, the total County shortfall is reduced to $4.1 million, with the largest negative imbalance occurring in FY 04 at $2.1 million. Of this $4.1 million overall deficit, the general government shortfall is approximately $1.0 million, due to capi- tal-related operating costs. The School Division's shortfall is $3.1 million, and represents the operating budget impact of open- ing a new northern area elementary school in FY 02. Projected imbalances in the last three scenarios do not mean, however, that furore County budgets will be unbalanced. Not only do state laws ~eqnire the Board of Supervisors to adopt a balanced budget annually, but also the budget process demands an an- nual compromise of revenue enhancements and expenditure reductions to achieve a balanced budget. The projected shortfalls should not be viewed as a fait accompli, since 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. In fact, the revenue projections in this forecast are based on October, 1998 projections made by the Department of Finance, which may be viewed as conservative. It is quite possible that these revenues will ~ncrease over time, or that the County will receive addi- tional revenues from the State, based on Governor Gilmore's recent proposals. What the projected shortfalls do indicate is that the County's desired level of service or expenditure growth may not be afford- able over the next five years. Given existing financial policies, service levels, planned capital projects and revenue sources,, the County will need to make some difficult choices as it goes about balancing the budget over the next five years Some of the potential mechanisms by which the County may add~ess these shortfalls include: reducing expenditures by: *Funding operations at something less than the combined rates of inflation and growth; *Limiting growth in debt service costs by limiting the use of borrowed funds for capital projects; *Limiting growth in the amount of General Fund revenues transferred to the Capital Improvement Program; *Limiting growth in operating costs associated with planned capital facilities either by deferring or spreading out large capital projects; or *Absorbing any additional capital-related operating costs within existing departmem budgets, or increasing revenues through: *Expanded fee revenues; *The pursuit of other revenue sources, including public and private grants; or *An increase in the real property tax rate. This page as intentionally blank. · · © Revenue Indicators Why are Revenues Important? Revenues determine the capacity of a government to provide sermces 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 to the combined effects of inflation and population growth, and should be sufficiently free from spending restrictions to permit ad- justments to changing conditions. Additionally, the revenue base should be diversified -- not overly dependent on residential, com- mercial 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. What 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 an annual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 1st assess- ment 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 revenue 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 property 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 operating 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 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 if pre-established recovery goals are being met. I0. 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. 11. Local tax dollars will not be used to make up for losses of inter-governmental aid without first reviewing the program and its merits as a budgetary increment. 12 The County will attempt to recover all allowable costs - both direct and indirect - associated with the administration and implementation of programs funded through inter-governmental aid. In the case of state and federally mandated pro- grams, the County will attempt to obtain full funding for the service from the governmental entity requiring that the serv- ice be provided. Why 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 · Restricted 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 Constafit $) 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 $, FY93 =100) Population Warning Trend: Decreasing Net Operating Revenues Per Capita (in Constant $) Net Operating Revenues Per Capita (in Constant $, FY93 = 100) $1,450 $1,400 $1,350 $1,300 $1,250 $1,200 1993 1994 1995 1995 1997 1998 1999 Fiscal Year Data Chart: FY93 FY94 FY95 FY96 FY97 FY98 FY99 Net Operating Rev. (Millions) 90.0 96.5 102.9 112.2 120.4 128.7 135.1 CPI (FY93 = 100) 100.0 103.0 105.6 108.6 111.8 114.4 116.3 Constant $ 90.0 93.7 97.5 103.3 107.6 112.5 116.1 Population 70,300 72,400 74,300 75,900 78,400 79,500 81,170 $ Per Capita 1,281 1,294 1,312 1,360 1,373 1,416 1,431 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 prop- erty taxes (in FY 91 and FY 96) and 2) revenues that fund the revenue sharing agreement with Charlottesville. Per capita net operating 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 in real terms.. Decreasing levels of per capita revenues may signal possible difficulties in maintaimng existing service levels without the addition of new revenue sources, cost cutting measures or efficiency enhance- ments. Analysis: · ~ Since FY 93, real per capita net operating revenues have increased from $1,281 to $1,431 in FY 99 (11.7%). Most of this increase is due to growth in general property tax revenues, the County's principle source of revenue. Since FY 93, real per capita property tax revenues (net of Split Billing and Revenue Sharing) have risen by 11.6%, increasing from $547 inFy 93 to $610 in FY 99. Of these, per capita personal property tax revenues have grown the fastest - rising from $156 in FY 93 to $215 in FY 99 (38.5%,) in constant dollars. Constant per capita real estate tax revenues (net of Split Billing and revenue sharing) have grown more slowly - increasing from $351 in FY 93 to $361 in FY 99 (2.6%.) All of this growth in real per capita property tax revenues has occurred despite flat or reduced property tax rates and declin- ing real estate reassessment increases. Since FY 93, the real property tax rate has remained unchanged at $0.72/$100. The personal property tax rate, however, was reduced in FY 93 from $4.30/$100 to $4.28/$100, where it has remained ever since. Additionally, the biemal rote of appreciation increase in real estate values has slowed from 22.5% in FY 92 to 2.3% in FY 98, reflecting trends in the real estate market. Revenues Per Capita Net County Operating Revenues:. FY 87~88 (Net of Split Billing & Revenue Sharing) State Property 30.8% Tax Revenues 38.7% Feder~ 4.5% Other Local 26.0% Net County Operating Revenues: FY98/99 (Net of Split Billing & Revenue Sharing) State 24.8% Federal 5,5% Property Tax Revenues 42.7% Other Local 27.0% Analysis (continued): Although real per capita net operating revenues have increased, however, the County has become increasingly reliant on prope .r~y tax revenues to finance operations. As the above charts indicate, the share of net County revenues derived from property taxes has increased from 38.7% in FY 88 to 42.7% in FY 99. By contrast, state and federal revenues have de- clined from a combined share of 35.3% in FY 88 to 30.3% in the current year. (The same general trend is evident for FY 93-99, as well. During this period, the share of property tax revenues remained steady at 42.7%, while the percentage of intergovernmental revenues fell from 31.4% to 30.3%.) This relative slowdown in state and federal funding has occurred primarily in the School Division. Since FY93, the share of state and federal revenues for education fell from 37.9% to 33.9% in FY 99. State and federal funding for General Gov- ernment operations, however, increased from 18.9% to 24.4% of general govermnent net operating revenues. Since the schools receive a greater dollar amount of state and federal funding assistance that local government, the relative decline in state and federal funding for education has more than offset the increase in intergovernmental aid to General Government. · A more detailed discussion of trends in property tax revenues is found on page 14. Additional information about state and federal revenue trends is found on pages 12-13: 12 Restricted Revenues Formula: Restricted Operating Revenues Total Operating Revenues (Net of Revenue Sharing and Split Billing) Warning Trend: Increasing Amount of Restricted Operating Revenues, as a Percentage of Net Operating Revenues Restricted Revenues as % of Net Operating Revenues 35% 30% ~ 25% 20% 15% 10% 5% 0% 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Gen. Gov't. ~ School Div -'- Total Data Chart: Restricted Revenues (Millions) Net Oper. Revenues (Millions) % FY93 FY94 FY95 FY96 FY97 FY98 FY99 15.7 17.6 19.2 23.0 25.4 28.9 28.3 90.0 96.5 102.9 112.2 120.4 128.7 135.1 17.5% 18.2% 18.7% 20.5% 21.1% 22.4% 20.9% 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 ability to respond to changes in conditions and to meet citizens' needs and demands. Increases in restricted revenues also may indicate 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 revenues. Analysis: Currently, restricted revenues comprise less than one quarter (20.9%) of total operating revenues (net of Revenue Sharing and Split Billing.) However, since FY 93, the share of restricted revenues has increased from 17.5% of net operating reve- nues to 20.9% in FY 99. Most of this increase reflects growth in restricted operating revenues for General Government, which have increased from 17.7% of net general government revenues in FY 93 to 25.4% in FY 99 - an increase of 43.6%. Restricted school revenues, on the other hand, have grown much more modestly, increasing from 17.4% of School Division operating revenues in FY 93 to 18.2% in FY 99, an increase of 5%. The rapid growth in restricted general government revenues reflects increases in social services 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 increases in other state revenues. Since FY 93, revenues for social services have increased by 117.6% ($2.4 million), criminal justice and crime control funds have increased by 107.8% ($0.8 million,) recordation fees have increased to $0.5 million, and reimbursements for state constitutional officers have increased by 14.6% ($0.2 million,) in constant dollar terms. Intergovernmental Revenues Formula: Intergovernmental Operating Revenues Total Operating Revenues (Net of Revenue Sharing and Split Billing) Warning Trend: Increasing Amount of Intergovernmental Operating Revenues, as a Percentage of Net Operating Revenues 40% 35% 30% 25o/0 20% 15% 10% 5% 0% Intergovernmental Revenues as % of Net Operating 1993 1994 1995 1996 1997 1998 1999 Fiscal Year --,e--Gen. Govt. ~ School Div. ---~-- Total J Data Chart: Intergov'tl. Revenues (Millions) Net Oper. Revenues (Millions) % FY93 FY94 FY95 FY96 FY97 FY98 FY99 28.3 30.3 32.2 34.3 36.6 38.5 41.0 90.0 96.5 102.9 112.2 120.4 128;7 135.1 31.4% 31.4% 31.3% 30.6% 30.4% 29.9% 30.3% 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, and the local government must either cut programs or pay for them out of the general fund. Nevertheless, inter-governmental revenues may be an ideal source of financing for mandated services or to fund one-time operating costs. Recognizing the need to use state and federal funding wisely, the County is committed to: · Identifying and evaluating all inter-governmental aid fimding possibilities. No grants will be accepted that incur manage- ment and reporting costs greater than the grant. · Not using local tax dollars to make up for losses in inter-governmental aid without first reviewing the program and its mer- its as a budgetary increment. · Recovering all allowable costs associated with the administration and implementation of programs funded through inter- governmental aid. The County will seek full funding from the state and federal governments for mandated services. Analysis: , Currently, state and federal revenues account for 30.3% of total net operating reveaues. However, since FY 88, the com- bined percentage of County funds coming from state and federal sources has declined from 35.3% of net operating revenues to 30.3% in FY 99. (The same general trend is evident for FY 93-99 as well. During this period, the share of intergovern- mental aid fell from 31.4% to 30.3%.) This general decline in state and federal revenue growth has occurred primarily in the School Division. Between FY 93- FY 99, intergovernmental aid to the schools fell from 37.9% of school division net operating revenues to 33.9%, a 10.6% decrease. Meanwhile, intergovernmental funding for local government operations has grown steadily, rising from 18.9% of general government net operating revenues to 24.4%. Since the schools receive a greater dollar amount of state and federal funding assistance than local government, the relative decline in intergovernmental aid for education has more than offset the increase in aid to General Government. Intergovernmental Revenues General Government Intergovernmental Revenues (Constant $, FY93 = 100) $12 $10 $6 ,,, $4 $2 ,$0 1993 1994 1995 1996 1997 1998 1999 Fiscal Year School Division Intergovernmental Revenues (Constant $, FY93 = 100) $26 $24 $22 $2O $18 $16 $14 $12 $10 1993 1994 1995 1996 1997 Fiscal Year Analysis (continued): The'above charts illustrate the differential growth rates in state and federal funding for General Government and the School Division. Since FY 93, intergovernmental revenues to General Government (in constant dollars) have grown smoothly and steadily from $5.8 million to $10.7 million (83.3%.) State and federal education funds, however, have in- creased much more slowly, growing by only 9.1% between FY 93 and FY 99. (In real per capita terms, school intergovern- mental aid actually decreased by 5.6% - falling from $320 in FY 93 to $302 in FY 99.) Most of the overall increase in intergovernmental revenues for General Government reflects increases in restricted revenues for social services programs, crime control and criminal/juvenile justice, recordation fees and reimbursements for constitu- tional officers. Approximately 93.7% of all state and federal revenues for general government operations (in the General and special revenue funds) were restricted in FY 99, up form 90.1% in FY 93. Less than ten percent of General Govern- ment intergovenunental revenues are "unrestricted" for general use. By contrast, intergovernmental aid to schools increased by only 9.1% (in constant dollars) between FY 93 and FY 99. This overall growth rate reflects not only slower revenue growth, 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.) As evident from the above chart, state and fed- eral revenues for education were increasing prior to FY 96, although the 6.1% cumulative real growth rate was less than the 33.1% cumulative growth experienced by general government. After FY 96, however, the constant dollar value of in- tergovermnental education revenues dropped slightly, although it is expected to pick up some in FY 99. (Comparatively, general government experienced a 37.7% increase after FY 96:) Property Tax Revenues Formula: Property Tax Revenues (Net of Revenue Sharing & Split Billing, in Constant $, FY93 = 100) Warning Trend: Decline in Net Property Tax Revenues (in Constant $) $5O $5O $40 $10 $0 Property Tax Revenues (Constant $, FY93 = 100) 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Data Chart: Net Property Taxes (Millions) CPI (FY93 = 100) Constant $ FY93. FY94 FY95 FY96 FY97 FY98 FY99 38.4 41.5 44.6 48,9 51.9 55.3 57.6 100.0 103.0 105.6 108.6 111.8 114.4 116.3 38.4 40.3 42.2 45.0 46.4 48.4 49.6 Description of lndicator: General property taxes are ad valorem taxes based on the assessed value of real and personal property owned by businesses, in- dividuals and public service corporations in the County. These revenues are derived primarily from real estate, personal prop- erty, 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) andof those revenues that go to support the revenue 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, adjust- merits 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 trucks in Virginia. The exemption, which will be phased in over a five-year period, applies to personal cars, trucks, and motorcycles, but not to boats, recreational vehicles or commercially-owned vehicles. The State has promised' to reimburse lo- calities 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; 16 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 93, increasing from $38.4 mil- lion to $49.6 million in FY 99, an increase of $11.1 million (28.9%.) Of these, personal property tax revenues have grown the fastest. In constant dollar terms, personal property tax revenues grew from $10.9 million in FY 93 to $17.5 million in FY 99, a $6.5 million (59.9%) increase. However, in 1998, the an- nual growth rate for these revenues began to slow considerably, due to a flattening out of new and used vehicle prices. As such, the amount of real increase for FY 99 - 2% - was much less than the 8% average annual real growth rate that had oc- CUrred since FY 93. By contrast, real property tax revenues (net of Split Billing and revenue sharing) have grown more slowly - increasing from $24.7 million in FY 93 to $29.3 million in FY 99, a constant dollar increase of $4.6 million (18.5%.) All of this growth in property tax revenues has occurred despite flat or reduced property tax rates and declining real estate reassessment increases. Since FY 93, the real property tax rate has remained at $0.72/$100. The personal prope~ thx rate, however, was cut in FY 93 from $4.30/$100 to its current value of $4.28/$100. Additionally, the biennial rate of ap- preciation increase in real estate values has slowed from 22.5% in Tax Year 1991 (FY 92) to 2.3% in 1997 (FY 98), re- flecting trends in the real estate market. A chart illustrating the declining rate of appreciation increases in real property val- ues appears below: Reassessment Year 1987 1989 1991 1993 1995 1997 F-iscal--Y-~a~ ! 9_~_~ ! 990 ! 99_~' ~ ! 996 ! 99~ Appreciation Increase (%) 10.69% 13.15% 22.48% 11.17% 5.24% 2.26% Over time, however, the County has become increasingly reliant on property tax revenues to finance operations. As the charts on page 10 indicate, the share of total net County revenues derived from property taxes has increased from 38.7% in FY 88 to 42.7% in FY 99. By contrast, the combined percentage of total revenues from state and federal sources declined from 35.3% in FY 88 to 30.3% in the current year. This dependency has increased the County's vulherability to changes in conditions effecting property tax growth, such as declining 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. Assessment Ratios Formula: Annual Assessment to Sales Ratio Warning Trends: · Declining Annual Assessment to Sales Ratios · Ratios of Less than the County's Prescribed Mini- mum (95%) lOO% 98% 96% 94% 92% 90% 88% 86% 84% 82% 8o% 78% A~_~essment Ratios 1993 1994 1995 1996 1997 Fiscal Year --B--Virginia --A---Albemarle Data Chart: Assessment to Sales Ratios- Albemarle County Assessment to Sales Ratios- Virginia FY93 FY94 FY95 FY96 FY97. 93.1% 96.6% 96.3% 97.2% 98.4% 91.7% 86.0% 91.3% 91.6% 91.5% Description of lndicator: The County's assessment to sales ratio relates assessed properly values to the market value of new property sold. It is an indica- tor of sound appraisal procedures to keep property values current. Declining assessment ratios may indicate that property value assessments 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 pro.cedures 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. Analysis: Since FY 93, the County's amgual assessment to sales ratio has increased. The FY 97 sales to assessment ratio of 98.4% was 5.3 percentage points higher than the FY 93 rate of 93~1%. Additionally, the assessment ratio has exceeded the County's prescribed minimum of 95% since FY 94. Finally, it has exceeded the State average throughout the five-year pe- riod. The results of the sales ratio studies also indicate that assessments in the County are both reasonably equitable and progres- sive. 18 User Charge Coverage Formula: Revenues from Fees and User Charges Expenditures for Related Services Warning Trend: Decreasing Revenues from User Charges, as a Per- centage of Total Expenditures for Related Services 90% 80% 70% LU ~ 20% ~ 0% User Charge Coverage 1993 1994 1995 1996 1997 1998 1999 Fiscal Year --m---Parks & Rec --e--Development Data Chart:' FY93 FY94 FY9$ FY96 FY97 FY98 FY99 Parks Fees & Charges (Mill.) 0.20 0.18 0.17 0.20 0.18 0.23 0.23 Parks Expenditures (Mill.) 0.66 0.69 0.72 0.77 0.85 0.96 1.02 % Coverage 29.4% 26.3% 23.4% 25.5% 21.6% 23.6% 22.5% Dev. Fees & Charges (Mill.) 0.67 0.77 0.75 0.73 0.84 0.79 1.02 Dev. Expenditures (Mill.) 1.04 1.03 1.11 1.13 1.17 1.39 1.31 % Coverage 64.2% 74.3% 67.5% 64.8% 72.1% 56.9% 78.2% Description of lndicator: 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 mount 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 costs, the coverage is 50%. As coverage declines, the burden of financing these operations falls on other revenues to sup- port these services. As developed, this indicator focuses on the County's two major sources of fee and user charge revenues: development activity and parks and recreation. The majority of permits, 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 93, user charge coverage has declined for the Department of Parks and Recreation, but has increased for the De- velopment Departments. In FY 93, park fees and charges offset 29.4% of associated expenditures, compared to 22.5% in FY 99. By contrast, permit and development fee revenues offset 64.2% of all development activities in FY 93, compared to 78.2% in FY 99. 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 coverage for the development departments generally reflects the fact that the fees collected are sufficient to offset associated expenditures. (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 municipal (County) building activity in FY 96. The decrease m FY 98 reflects an unusually high volume of permit activity in FY 97, and increased operational expenditures during FY Revenue SurpluS/Shortfalls Formula: Revenue Surplus or Shortfall Total Operating Revenue (Net of Split Billing & Revenue Sharing) Warning Trend: Increase in Revenue Shortfalls in the General and School Funds, as a Percentage of Net Operating Reve- nues in these Funds. Revenue Surplus/Shortfall in General & School Funds as % of Fund Net Operating Revenues 5% 3% 2% 1% 0% -1% 1 7 -2% Fiscal Year ---a-- Gen Govt. ~ Schools x Total Data Chart: FY93 FY94 · FY95 FY96 FY97 General Fund Surplus/Shortfall (Millions) 1.3 1.6 ~ 2.3 ~ 3.0 ~ 0.4 General Fund Net Operating Rev. (Millions) 61.8 66.6 71.2 77.0 83.2 % 2.1% 2.3% 3.2% 3.9% 0.5% School Funds Surplus/Shortfall (Millions) -0.1 -0.3 0.2 .03 .02 School Funds Op. Rev. (Net of Transfer, in Mil- 26.4 27.4 28.8 30.8 31.7 % -0.5% -1.1% 0.5% 1.0% 0.6% 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 pementage 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: Since FY 93, actual revenue collections in the General and School Funds (including school Self-Sustaining Funds) have exceeded budgeted receipts, resulting in revenue surpluses. Additionally, through FY 96, the size of these surpluses, rela- tive to net operating revenues in these funds, had increased. (In FY 93, thc overall Operating surplus was 1.4% of total net operating revenues. By FY 96, that percentage had risen to 3.1%.) In FY 97, the surplus fell rather significantly to 0.5%, reflecting smaller than anticipated collections of personal property tax revenues. · As evident from thc data chart above, most of these surplus revenues come from thc General Fund, and reflect greater than anticipated receipts in general property tax revenues, sales tax revenues, interest income, utility tax revenues and business licenses. Since thc school funds registered revenue deficits in FY 93 and FY 94, the General Fund accounted for 100% of the surplus in these years. Between FY 94-95, it accounted for an average of 92% of the total surplus., and about 69% of the overall surplus in FY 99. · Excess revenues in these funds have been used for One-time capital and operating expenditures, and to build reserves for emergency or unanticipated needs. 20. Expenditure Indicators Why are Expenditures Important? Expenditures are a rough measure of a local govenunent's service output. Generally, the more a local government spends (in constant 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 gov- ernment 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 importance 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 Government 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 associated county services. 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 off- set current year shortfalls. The County will prepare the capital improvement budget in conjunction with the development of the operating budget, in order to assure that the estimated costs and future impact of a capital project on the operating budget will be considered prior to its inclusion in the CIP. 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 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 after any in- creases in debt service, capital improvement program funding, City of Charlottesville revenue sharing, and the Board re- serve fund have been funded. This guideline will be reviewed annually. 10. 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. Priorities 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 to include analysis of long term fiscal impacts. · Proposed new programs also must 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 willbe 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 Supexwisors. · 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 30th 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 sec- tion 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. 22 This page is intentionally blank. Expenditures Per Capita Formula: Net Operating Expenditures (Constant $, FY 93 =100) Population Warning Trend: Increasing Net Operating Expenditures Per Capita (in Constant $) $1 $1,400 $1,200 $1,000 $8OO $6OO $~00 $2OO $0 Expenditures Per Capita (Constant $) 1993 1994 1995 1996 1997 1998 1999 Fiscal Year [] Gen.' Gov't. [] public Safety [] Schools Data Chart: FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 Net Operating Exp. (Millions) 89.4 93.7 102.3 109.5 118.7 128.7 135.1 CPI (FY 93 = 100) 100.0 103.0 105.6 108.6 111.8 114.4 116.3 Constant $ 89.4 90.9 96.8 100.8 106.1 112.5 116.1 Population 70,300 72,400 74,300 75,900 78,400 79,500 81,170 $ Per Capita 1,271 1,256 1,303 1,329 1,354 1,416 1,431 Description of lndicator: 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 expen- ditures 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 pac- ing the community's ability to pay, especially if spending is increasing faster than residents' collective incomes. Analysis: , Since FY 93, real per capita net operating expenditures have increased by 12.6%, or $160. · However, growth in expenditures has remained well below increases in residents' incomes. Between FY 93-97, real per capita personal incomes grew by 10.1%, compared tO a 6.5% growth rate for real per capita County expenditures. However, expenditure growth has not occurred evenly between General Government and the School Division; real per cap- ita general government expenditures have grown much more rapidly than real per capita spending in the School Division. Between FY 93 and FY 99, real per capita expenditures on general government programs increased by 30.5%, compared to only 5.7% 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. Constant per capita state and federal funding for general government operations (including state/federal grant funds) has increased steadily and substantially since FY 93, rising from $83 in FY 93 to $132 in FY 99 -- an increase of 59%. Nearly all of this increase is due to growth in restricted operational revenues - that is, 24. Expenditures Per Capita revenues received by the state and federal governments legally marked for use in specific general government programs. These revenues, which constitute about 94% of all general government intergovernmental revenues in FY 99, fund social services programs, law enforcement and community policing initiatives, juvenile justice, Section 8 housing subsidies, and constitutional officer reimbursements. Many of these programs are mandated and require local matching funds. By contrast, real per capita intergovernmental aid to the Schools has fallen from $320 in FY 93 to $302 in FY 99, a decline of 5.6%. This decline reflects slower growth in state and federal education revenues, relative to general government in- creases, as well as a change in the County's Composite Index, which caused a significant drop in state aid after FY 96. (Federal funds comprise a relatively small percentage of total education revenues.) Before FY 96, real per capita intergov- enunental aid to Schools had fallen by only 1.9% (from $320 in FY 93 to $314 in FY 96.) After FY 96, however, real per capita state and federal revenue receipts fell by an additional 3.8%. (Comparatively, general govermnent experienced a 29.4% increase during this period.) As evident from the chart below, most of the 30.5% overall increase in real per capita general government expenditures is due to growth in operations of the General Fund, the federal/state grant funds, and the E-911 Fund. Only 1.75 percentage points of the 30.5% overall increase represent growth in capital outlay and debt service on general government purchases. Amount of Total Increase Explained by Increases in Different Categories of Expenditures: FY 93 - 99 General Govt. 28.78% 0.93% 0.82% 30.53% Schools 6.15% -0.45% 0.04% 5.74% * Includes General Fund. state/federal grant fund, and E-911 Fund operational expenditures, Within the General Fund, the fastest grovang expenditure are human services, public safety and judicial operations. Since FY 93, real per capita expenditures in these areas have increased by 53.2%, 24.0% and 20.4%, respectively. The large in- crease in human services after FY 96 reflects growth in social services expenditures due to Welfare Reform, Comprehen- sive Services Act increases, Bright Stars, and the re-structuring of several large programs from a County-only direct pay- ment to an up-front payment of the State share to be reimbursed by the State. Increases in public safety expenditures reflect additions to police and fire/rescue personnel as well as the cost of constructing a new E-911 facility. Growth in the judicial area is due, in part, to salary supplements for State employees, additional personnel in the Sheriff and Commonwealth At- torney's offices and expanded Juvenile and Domestic Relations Court services (financed by state VJCCCA funds.) Expenditures funded outside of the General Fund also have increased significantly, growing from $27 in FY 93 to $50 in FY 99 (in constant dollars per capita.) Most of this increase reflects growth in grant-fnnding for social services, other hu- man service programs, and public safety. Of these, funding for social service and other human services has grown the most rapidly, increasing from $2 in FY 93 to $20 in FY 99, reflecting the receipt of Comprehensive Services Act grant funds, beginning in FY 94. Expenditures on public safety and juvenile justice also have increased substantially (inc~reasing from $0 in FY 93 to $8 in FY 99), reflecting the receipt of an increasing number of public safety and criminal justice grants. Real per capita expenditures on housing programs have decreased, however (from $20 in FY 93 to $17 in FY 99), reflect- ing a freeze in the number of federally funded Section 8 units and the loss of federal pass-through funds for AHIP. On the other hand, almost all of the 5.7% overall increase in school division expenditures reflects increased operational costs. (Increases in real per capita expenditures on capital outlay for school projects contributed a modest 0.04 percentage points toward the overall increase, reflecting the fact that most school capital projects are financed by borrowed funds, which are not reflected in this expenditure data.) A 0.5 percentage point decrease in real per capita debt service expendi- tures actually depressed the overall growth rate slightly. Employees Per Capita Formula: Total County Employees (in FTE's) Population Warning Trend: Increasing NUmber of County Employees Per Capita 30.0 ~ 25.0 ~ 20.0 o 15.0 *' 10.0 [u 5.o I,,t,. 0.0 Employees Per Capita 1993 1994 1995 1996 1997 1998 1999 Rs cai Year lEI Gen Govt [] Schools Data Chart: Total Employees (FTE's) Population (in Thousands) FTE's Per Capita FY 93 .FY 94 FY 95 FY 96 FY 9'7 FY 98 ' FY 99 1,828 1,884 2,020 2,094 2,128. 2,170 2,303 70.30 72.40 74.30 75.90 78.40 79.50 81.17 26.00 26.02 27.19 27.58 27.14 27.30 28.37 Description of lndicator: Employees per capita relates total municipal employees to pOpulation, for a measure of thc total number of County employees per resident. The nUmber of municipal employees is measured by the number of Full-Time Equivalent positions (FrE'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 em- ployee 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 54% of general government operations and 83% of school operations in FY 99.) Analysis: Since FY 93, the number of municipal employees per 1,000 County residents has grown by only 2.37 FTEs, or 9.1%. In FY 93, there were 26.0 County employees per 1,000 residents. By FY 99, this number had grown to 28.37 FTE/1,000. Most of this overall increase reflects growth in the nUmber of school division employees (including teachers, central office staff, bus drivers, food service workers and other school employees.) Since FY 93, the nUmber of School Division employ- ees per 1,000 County residents has grown from 20.94 FIE in FY 93 to 23.05 FTE in FY 99, an increase of 2.11 FTE (10.1%.) By contrast, the number of general government employees per 1,000 County residents has increased by only 0.26 FTE (5.2%) since FY 93 (increasing from 5.06 FTE in FY 93 to 5.32 FTE in FY 99.) Growth in police officers and fire/ rescue personnel alone has accounted for over 75%.of the overall increase in general government employees -- about 4.0 pementage points of the 5.2% total increase.) 26 0 © JBI~ · © 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 deficits 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 uninten- tionally, due to the difficult task of predicting revenues and expenditures exactly. Reserves provide a financial cushion against unexpected events such as the loss of a revenue source, an economic downturn, unan- ticipated operating expenditures due to a natural disaster (for example), unexpected capital expenditures or other non-recurring ex- penditures, or an uneven cash flow. Reserves are built through accumulating operating surpluses and may be budgeted in a contin- gency account, or carried as part of one or more fund balances. Albemarle County maintains both "designated" and "undesignated" fund balances. Designated fund balances are reserves set aside for a particular use -- such as capital or inventory. Undesignated fund balances 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 current operations. The fund balance is built over years from savings to provide the County with working capital to enable it to fi- nance 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 pos- sibility 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- tures, 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 current revenues are sufficient to support current operations, whether adequate reserves are being maintained for emergencies, and/or whether .the government has sufficient 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. 28 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: Increasing Net Operating Deficits, as a Percentage of Net Operating Revenues 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Operating Surpluses as %of Net Operating R~venues .9% 1.4 1993 1994 1995 1996 1997 Rs cai Year Data Chart: Net Operating Revenues (Millions) Net Operating Expenditures (Millions) Operating Surplus (Millions) Net Operating Revenues (Millions) % FY 93 FY 94 FY 95 FY 96 FY 97 90.0 96.5 102.9 112.2 120.4 89.4 93.7 102.3 109.5 118.7 0.7 2.8 0.7 2.6 1.7 90.0 96.5 102.9 112.2 120.4 0.8% 2.9% 0.6% 2.3% 1.4% Description of Indicator: An operating deficit occurs when a government is spending more than it is earmng, i.e., when current expenditures exceed revenues. An operating surplus occurs when current revenues exceed expenditures. Operating deficits are usually funded with reserves (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 policy goal aimed at building reserves, or be unintentional, due to inaccurate estimates, fre- quent operating deficits may indicate that current revenues are not sufficient to suPPort current expenditures and that serious fiscal difficulties lie ahead. Analysis: · Since FY 93, the County has earned more in current revenues than it has spent on operations, generating annual operating surpluses. The smallest operating surplus occurred in FY 95, at $0.7 million, or 0.6% of net operating revenues. The larg- est surplus occurred in FY 94, at $2.8 million, or 2.9% of net operating revenues. These surpluses were due both to higher than anticipated revenue collections and to expenditure savings within County departments. · 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: · 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) Unreserved Fund Balances as % of Net Operating Revenues 20% 18% 14% 12% 10% 8% 6% 4% 2% 0% 10% IVinimum 1993 1994 1995 1996 1997 Rscal Year Data Chart: Unreserved Fund Balances (Millions) Net Operating Revenues (Millions) % FY 93 FY 94 FY 95 FY 96 FY 97 13.2 16.3 17.4 19.1 20.9 90.0 96.5 102.9 112.2 120.4 14.7% 16.9% 16.9% 17.0% 17.4% 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 minimize the 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 amount of unreserved fund balances, as a percentage of total net operating revenues are an indicator of a local govenunent's ability to withstand financial emergencies or finance unforeseen or one-time expenses. 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 li- quidity 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 93-99, total unreserved fund balances have increased from about $13.2 million, or 14.7% of net operating revenues, to $20.9 million (17.4%) in FY 97. (The large increase in FY 94 reflects a better than anticipated revenue year for the County, due to the opening of several large retail stores in the area, as well as significant expenditure savings within various departments.) Since then, unreserved fund balances have remained relatively steady at about 17% of net operating revenues. As evident in the chart on the next page, almost all of these surplus funds are accumulated in the General Fund. In FY 97, 78.1% ($16.3 million) of the overall fund balance was General Fund balance, another 11.2% ($2.3 million) represented fund balance in the general government special revenue funds (including federal/state grant funds), and 10.7% ($2.2 mil- 30 Unreserved Fund Balances Undesignated County Fund Balances (in Millions): FY 93-99 Gen. Govt. General School Grant & E-911 1993 12.0 1.2 0.0 13.2 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 (1) Includes Serf-Sustaining School Funds Fund balances of the General and School Funds may be used for operations, although County financial policy requires that ap- proximately $13 million of the General Fund balance be retained as fund balance to meet ongoing cash flow reqmremems. Al- though "undesignated," fund balances in the school and general government special revenue funds may not be used for opera- tions, only for cash flow within those funds. Ratio of General Fund Balance to Net Operating Budget (in Millions) ;Y 93 F-Y-94 FY 95 FY 9~_ FY 97 ~ Genera Fund Balance 12.0 13.2 14.3 15.7 16.3 Net Operating Budget (1) ~_~.3 94& ! 00.0 ! 07.9 1-14.9 % 13.6% 14.0% 14.3% ' 14.5% 14.2% 14.1% (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 fi- nancial policy, averaging about 14.1% per year. Liquidity Formula: Cash and Short-Term Investments Current Liabilities Warning Trend: Decreasing Amount of Cash and Short-Term Invest- ments, as a Percentage of Current Liabilities 400% 350% 300% 2so% 200% 150% 100% 50% 0% Cash and Cash Equivalents as % of Currant Liabilities 1993 1994 1995 1996 1997 Fiscal Year Data Chart: Cash & Short-Term Investments (Millions) Current Liabilities (Millions) % FY 93 FY 94 FY 95 FY 96 FY 97 16.6 25.1 21.2 26.8 36.5 6.9 7.2 7.9 9.9 12.2 240.0% 347.4% 269.7% 269.7% 298.6% Description of lndicator: "Liquidity" is synonymous with cash position. Cash position, which includes cash on hand, cash in the bank, and other assets easily converted to cash, determines a govermnent's ability to pay its short-term obligations. The immediate effect of insuffi- cient liquidity is insolvency-- the inability to pay bills. Low or declining liquidity may indicate that a government has over- extended itself in the long mn. To measure liquidity, a standard measure called the "quick ratio" is used. It takes cash, short-term investmems and accounts receivable as a percentage of current liabilities. (Current liabilities are defined as short-term debt, currem 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 93, 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, cash and short-term investments, as a percentage of current liabilities, have in- creased. In FY 93, the quick ratio was 240%. By FY 97, it had risen to 299%. (The large increase in FY 94 reflects greater than anticipated revenue collections, including a large, unanticipated 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. 32¸ JB~m~ · Debt & Unfunded Liability Indicators What are Debt and Unfunded Liabilities and Why 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 financial problems. Generally, there are two types of debt: short and long-term debt. In short-term borrowing, a government incurs a debt that it must repay within twelve months. Governments often use short-term debt to finance uneven cash flows. However, ff revenue shortfalls or 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 interest on the loan and not the pnncipal. This practice effectively tums short-term debt into long-term debt and, if continued over a number of years and the amount of outstanding debt increases, may be an indication that debt is being used to finance oper- ating deficits.. 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 debt are general obligation, special assessment and revenue bonds. General obligation bonds are bonds backed by the full faith, credit and taxing power of the government. Revenue bonds are backed only by the revenues from a specific enterprise or project, such as a hospital or toll-road. Special assessment bonds are bonds financed by special charges levied on specific properties within a special assessment district. (Albemarle County's long-term debt is in the form of general obligation bonds through VPSA and state liter- ary fund loans.) Under ideal circumstances, a local government's debt: 1) should be proportional to the size and the rate of growth of the tax base; 2) should not extend past the useful life of the facilities that it finances; 3) should' not be used to balance the operating budget;. 4) should not require re-payment schedules that place excessive burdens on operating expenditures, and 5) should not be so high as to jeopardize a government's credit rating. Even a temporary inability to repay debt can damage a government's credit rating, which in turn can 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. However, an unfunded liability is simply a liability that has been incurred during the current or a prior year, which does not have to be 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 ordinary financial records in a way that makes their impact easy to assess, and because they tend to accumulate sloWly over time. These types 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 falls 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. 7. Recognizing the importance of underlying debt to its overall finantial condition, the County will set target debt ratios, whidh 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%. IKhy 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 affordable 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 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 Sen, ice Payments, as a Percentage of General Fund Net Operating Revenues. Unfunded Liability Indicator: · Accumulated Leave Description: Accumulated (Unpaid) Employee Vacation and Sick Leave, per Municipal Employee. 34 Currem Liabilities Formula: Current Liabilities Total Operating Revenues (Net of Revenue Sharing & Split Billing) Warning Trend: Increasing Current Liabilities, as a Percentage of Net Operating Revenues 12% 10% 8% 6% 4% 2% 0% Current Liabilities as % of Net Operating Revenue 1993 1994 1995 1996 1997 Fiscal Year Data Chart: Currant Liabilities (Millions) Net Operating Revenues (Millions) % FY 93 FY 94 FY 95 FY 96 FY 97 6.9 7.2 7.9 9.9 12.2 90.0 96.5 102.9 112.2 120.4 7.7% 7.5% 7.6% 8.8% 10.2% Description of lndicator: Current liabilities are defined 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 is an important indicator of potential liquidity and future operating budget health. Although short-term debt may be used to 'smooth' uneven cash flows, an increasing amount of short-term debt outstanding at the end of successive years may signal liquidity problems, deficit spending or both. Analysis: · Between FY 93-97, the ratio of current liabilities to net operating revenues increased from 7.7% of net operating revenues in FY 93 to 10.2% in FY 97. Most of this increase occurred in FY 96 and FY 97, reflecting the split billing of real estate tax revenues in FY 96 (and a corresponding incre~/se in deferred revenues.) However, this increase in current liabilities does not indicate either liquidity problems or deficit spending. As discussed on page 30, the County maintains sufficient liquidity to meet its current obligations. (Since FY 93, the County has held more than twice the amount of cash and short-term investments as current liabilities.) Additionally, since FY 93, the County has mn operating surpluses. Long-Term Debt Formula: Net Direct Bonded Long-Term Debt Assessed Valuation Warning Trends: · Increasing Net Direct Bonded Long-Term Debt, as a Percentage of Assessed Valuation · A ratio of Long-Term Debt to Assessed Valuation in Excess of 2% (County Maximum) Net Direct Bonded Long-Term Debt as % of Assessed Valuation 2.5% 2.0% 1.0% 0.5% 0.0% · 2.0% Maximum 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Data Chart: Long-Term. Debt (Millions) Assessed Valuation (Millions) % FY 911 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 39.3 50.3 46.3 48.2 50.3 66.8 66.1 4,920.8 5,581.1 51737.7 6,160.8 6,378.3 6,561.9 6,901.9 0.80% 0.90% 0.81% 0.78% 0.79% 1.02% 0.96% Description of Indicator: Net' direct debt is bonded debt for Which the local government has pledged its full faith, credit and taxing power, net of any self- supporting debt (bonded debt that the governmem has pledged t° repay from a source other than general tax revenues.) An increase in 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 93, long-term debt as a percentage of the estimated market value of taxable property has increased slightly, al- though it remains well below the 2% maximum imposed by the Board of Supervisors. In FY 93, long2term debt repre- sented 0.80% of assessed value. By FY 99, that ratio had risen to 0.96%, mainly due to borrowing for the new Monticello High School. (The large increases in FY 94 and FY 98 correspond to borrowing for the construction of Suthefland Middle School and Monticello High School, respectively.) 36 Per Capita Long-Term Debt Formula: Net Direct Bonded Long-Term Debt Population Warning Trends: · Increasing Amounts of Net Direct Bonded Long- Term Debt Per Capita; · Per Capita Long-Term Debt in Excess of $1,000. $1,200 $1,000 $8OO $6OO $4OO $2OO $0 Per Capita Net Direct Bonded Long-Term Debt 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Data Chart: FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 Long-Term Debt (Millions) 39.3 50.3 46.3 48.2 50.3 66.8 66.1 Population 70,300 721400 741300 75,900 78,400 79,500 81,170 $ Per Capita 558 695 623 635 641 840 814 Description of lndicator: Another indicator of a government's ability to repay its long-term debt is the ratio of net direct bonded long-term debt to. popu- lation, 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 popu- lation 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 93, per capita net direct bonded long-term debt has increased significantly, although the level of debt per capita remains below the $1,000 maximum set by the Board of Supervisors. In FY 93, per capita long-term debt was $558. By FY 99, it had grown to $814 (an increase of $256, or 46%, over FY 93.) The large increases in FY 94 and FY 98 correspond to borrowing for the construction of Sutherland Middle School, and Monticello High School, respectively. Debt Service Formula: Net Direct Debt Service (Actual Pawnents) General Fund Operating Revenues (Net of Revenue Sharing & Split Billing) Warning Trend: · 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) 12% 10% 8% 6% 4% 2% 0% Debt Service as %of Net General Fund Revenues ]u% Maximum 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Data Chart: Debt Service Payments (Mill.) Net General Fund Rev. (Mill.) % FY 93 5.3 61.8 8.5% FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 5.6 6.8 5.9 6.5 6.7 8.6 66.6 71.2 77.0 83.2 91.0 94.7 8.4% 9.6% 7.7% 7.8% 7.4% 9.0% Description of Indicator: Debt Service is the amount of principal and interest that a local governmem must pay each year on its long-term debt. Debt service is a fixed cost paid out of the operating budget. This indicator addresses actual debt service payments on School Divi- sion 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 financial condition, Albemarle County has established that the ra- tio of debt service expenditures to net General Fund revenues should not exceed 10%. Analysis: Since FY 93, 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 93, debt Serv- ice costs equaled approximately 8.5% ($5.3 million) of General Fund net operating revenues. The following year, that per- centage declined to 8.4%. By FY 95, however, 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 percent- age had risen again to 9.0% ($8.6 million) due to borrowing for the new Monticello High School in FY 98. 38. Accumulated Employee Leave Formula: Dollar Value of Unused Vacation and Sick Leave Days (in Constant $) Total Number of County Employees 'Warning Trend: Increasing Dollar Value of Unused Vacation and Sick Leave Days (in Constant $), Per County Employee Accumulated Employee Leave $850 $8O0 $750 $7oo $650 $600 $550 $500 1993 1994 1995 1996 1997 Fiscal Year Data Chart: Total Compensated Absences (Millions) CPI (FY 93 = 100) Constant $ (Millions) Total County Employees (FTE's) Constant $ Per Em ployee FY 93 FY 94 FY 95 FY 96 FY 97 1.42 1.54 1.65 1.81 1.94 100.0 103.0 105.6 108.6 111.8 1.42 1.50 1.56 1.66 1.74 1,828 1,884 2,020 2,094 2,128 776 795 772 794 817 Description of lndicator: Accumulated employee leave represents the total unused vacation and sick leave of all County employees at the end of each fis- cal year. Although uncompensated absences initially represent the opportunity cost of work not having been completed, these benefits become a real cost when paid during employment or upon termination or retirement. (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, uncompensated absences by the number of Full-Time Equivalent positions CFTE's") to obtain the total value of unused vacation and sick leave per full-time employee. Increasing leave balances per capita may indicate that vacation and sick policies are contributing to an excessive increase in unfunded li- ability. Analysis: Since FY 93, the constant dollar value of unused vacation and sick leave days per employee (FTE) has risen slightly. In FY 93, the constant dollar cost of unused vacation and sick leave was $776 per FTE. By FY 97, that amount had risen to $817, an increase of $41/FTE, or 5.2%. This increase rep~sents normal increases in the dollar value of compensated absences (due to annual scale adjustments and merit increases,) relative to employee growth, and does not reflect changes in vacation or sick leave policies. This page is intentionally blank. 40 Capital Plant Indicators }Vhat is 'Capital Plant' and }Fhy is it Important? Most of a local govenunent'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 busi- ness may decline. I/F'hat 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. The Board of Supervisors will accept recommendations from the Planning Commission for the five-year Capital Improvemems 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 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. 6. 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. 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 capi- tal 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 coordination 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 ~ssuance 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 physical plant. This system will protect the County's capital investment and minimize future 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, major mechanical/electrical rehabilitation or replacement to the County and School physical plant requiring 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. (Unofficially, the target amount of increase is $500,000 after every re-assessment year.) Why Develop Capital Plant Indicators? Capital plant indicators are important for assessing how well the capital assets of a community are being maintained. The indi- cators included in this section show the relative amount of capital outlay devoted to building and maintaining the existing capi- tal 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 42 Capital Outlay Formula: Capital Outlay General Fund Operating Revenue (Net of Revenue Sharing & Split Billing) Yearning Trend: · 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 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% General Fund Transfer to CIP as %of Net General Fund Revenue 5% 2.1% 1993 1994 1995 1996 1997 1998 1999 Fis cai Year -' Actual % ---e-- Prior To Transfer to Operations Data Chart: FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 Capital Outlay (Millions) 1.3 1.5 1.6 2.7 2.7 2.7 2.0 Net General Fund (Millions) 61.8 66.6 71.2 77.0 83.2 91.0 94.7 % 2.1% 2.3% 2.3% 3.5% 3.2% 3.0% 2.1% Description of lndicator: "Capital outlay" are operating budget funds used for capital expenditures. These funds finance General Government capital projects, School Division technology purchases and the repair and maintenance of existing School assets, although they also may be used to help finance the purchase or construction of new facilities or equipment. 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 indicate that capital needs are being deferred, which can result in the use of inefficient or obsolete equipment. Recognizing the importance of funding capital improvements on a cash basis, particularly maintenance and replacement proj- ects, Albemarle County will: · dedicate a mimmum of 3% of the net General Fund revenues annually to the County's operating budget to the Capital Im- provement Program (CIP); and · increase the percentage of maintenance/repair and replacement projects financed with current revenues. Analysis: Since FY 93, the annual operating budget transfer to the County's CIP, as a percentage of General Fund net operating reve- nues, has fluctuated. Between FY 93-FY 95, 2.2% of General Fund net operating revenues were transferred on average. In an effort to meet the goal of dedicating a minimum of 3% of General Fund net operating revenues to the CIP, the transfer was increased substantially in FY 96 to $2.7 million (3.5%.) Since then, however, the transfer percentage has declined slightly to approximately 3% of net General Fund revenues. In FY 99, however, the transfer amount fell below 3% to 2.1%, due to operating budget constraints, as well a decision by the School Board to shift $0.2 million from school capital outlay to operations, and a decision by the Board of Supervisors to spend $0.1 million of general government capital outlay on debt service for a new 800 MHz Communication System. School Debt Service & Capital Outlay Formula: School Debt Service & Capital Outlay School Division Net Operating Expenditures Warning Trend: A Rapid Increase or Decrease in the Amount of School Division.Debt Service and Capital Outlay, as a Percentage of School Division Net Operating Expen- ditures o o ~.. Capital & Debt Expenditures as % of School Net Operating ExPenditures 3O% 25% 20% 15% 10% 5% 0% 8.5% 1993 1994 1995 1996 1997 1998 1999 Fiscal Year [.-al---W~th Split Billing · W~thout Split Billing Data Chart: FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 School Debt Service (Millions) 5.9 6.1 7.7 7.0 6.8. 7.4 7.6 School Capital Outlay (Millions) .0,~2 0.2 0.6 0.__~8 0.7 ,.1,.4 0.3 School Net Op. Exp. (Millions) 64.8 67.6 74.0 77.1 80.8 87.4 92.0 % 9.4% 9.3% 11.3% 10.0% 9.2% 10.1% 8.5% Description of lndicator: School Division capital needs constitute a large portion of annual capital budgets. In FY 99, school division projects totaled $5.3 million, or 47% of all County capital projects. Approximately 81% of these projects are financed by borrowed funds, which are repaid gradually through annual debt sermce 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 19% of school projects are funded with current revenues, including capital outlay from the General Fund. This capital outlay primarily funds school technology purchases, and maintenance and repair projects, but may be used to fund other capital projects as well. 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 op- erating budget, especially since debt service is a fixed cost. A rapid decrease may signal that school capital facilities are not being adequately maintained, or that the existing capital stock is insufficient to meet the needs of the community. Analysis: · Since FY 93, the combined cost of debt service and capital outlay has fluctuated. Between FY 93-FY 95, school debt serv- ice and capital outlay (net of Split Billing) increased from $6.1 million (9.4% of total school expenditures) to $8.4 million, or 11.3% of net School expenditures. Since then, however, the percentage of debt service expenditures and school capital outlay has declined to $7.9 million (8.5%) in FY 99, reflecting the impact of operating budget constraints, as well as a deci- sion by the School Board to shift $0.2 million from capital outlay to operations. (Had these funds not been reallocated, the combined percentage would have been 8.8%.) With Split Billing, expenditures on debt service and capital outlay, as a percentage of total School Division expenditures increased to 24.6% in FY 97. (In FY 97, an additiOnal $16.5 million from the split collections of real property taxes was allocated to the construction of Monticello High School. ) 44 ~ ~ ~.~ 0 Community Profile What Defines Community Profile and Why Is It Important? In the same way that the tax base determines a community's ability to generate revenues, the economic and demographic character- istics of a community shape its demand for services. In fact, changes in community needs and resources are related in a continu- ous cycle of cause and effect. For example, a decrease in population may lower the demand for housing, causing a corresponding decline in the market value oi~housing, which in turn, reduces property tax revenues. However, since it is not always possible for a government to balance declining revenues with equivalent reductions in expenditures, the government may be forced to raise prop- erty taxes to make up for lost revenues, thereby placing an even greater burden on the remaining population. As economic condi- tions decline, 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 $.) P°pulation Gr°wth Formula: Total County Population Warning Trend: A Rapid Change in Population Size. 82,000 80,000 78,000 78,000 74,000 72,000 70,000 68,000 66,000 64,000 Population Growth 993 '1994 1995 1996 1997 1998 1999 Fis cai Ye ar Data Chart: FY 93 FY 94 FY 95 'FY 96 FY 97 FY 98 FY 99 (Proi! Population 70,300 72,400 74,300 75,900 78,400 79,500 81,170 % Increase 1.2% 3.0% 2.6% 2.2% 3.3% 1.4% 2.1% Description of Indicator: Population growth is an important determinant of financial condition because sudden changes in population size Can have an adverse 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 gov- ernments 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 middle- 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 thc ef- fects on employment, income, housing, and business activity. Analysis: · Since FY 93, the population of Albemarle County has grown smoothly and steadily from 70,300 in FY 93 to 79,500 in FY 98 at an average annual growth rate of approximately 2.3% per year. Based on an assumed future growth rate of approxi- mately 2.1%/year, the County's population could reach 81,170 by FY 99, an increase of 15.5% over FY 93. 46. Enrollment Growth Formula: Total Public School Enrollment (1<[-12) Warning Trend: A Rapid Change in Enrollment Size. 12,500 12,000 11,500 11,000 10,500 10,000 9,500 School Enrollment (K-12) 1993 1994 1995 1996 1997 1998 1999 Fiscal Year Data Chart: Sept. 30 Enrollment (K-12) % Increase FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 10,436 10,581 10,889 11,123 11,344 11,644 11,981 2.4% 1.4% 2.9% 2.1% 2.0% 2.6% 2.9% Description of Indicator: Since expenditures on education account for nearly 70% of the total County budget, changes in enrollment can have a signifi- cant impact on the expenditure profile of a community. In general, enrollment growth requires ever increasing expenditures on education. 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 pres- sure on expenditures, governments may not be able to produce corresponding reductions in expenses, due to the presence of fixed costs in the budget. Analysis: · Since FY 93, County enrollment also has grown smoothly and steadily from 10,436 in FY 93 to 11,981 in FY 99 an in- crease of 1,545 (14.8%.) The average annual enrollment grow. th rate during this period was about 2.3%. Median Age Formula: Median Age of Population Warning Trend: Increasing Median Age of Population 35 30 25 n 20 lo o Median Age 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 the County's population. A high median age of fifty or more indicates that a commumty is comprised primarily of senior citizens or older families without children. This indicator is important because an aging population and an increase in the number of senior citizens residing in a commu- nity, 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. Analysis: · Although thc median age of County residents has increased by approximately 5 years since 1960, thc County's population remains relatively young. Thc current median age is 31.4 years. This relatively youthful population is duc in part to thc large number of University of Virginia students residing in thc area, which have lowered the median age of the community as a whole. · Although thc County's population is relatively young, thc increase in median age since 1960 reflects the rapid growth of the 40-60 and 60+ age groups that has occurred since 1970, due, in part, to the aging of the post-war baby boom genera- tion. During thc 1970s and 1980s, both of these groups grew by between 37-47% per decade. By contrast, growth in thc 0- 20 age group slowed during these two decades, from 21% in thc 1970s to 8% growth in the 1980s. · Recent Year 2000 age cohort estimates from the Virginia Employment Commission indicate, however, that thc growth rates of thc 40-60 and 60+ age groups will slow to about 20%/decade during thc 1990s, while the growth rate of the 0-20 population bracket will increase (also to about 20% for thc 1990s.) 48 Personal Income Per Capita Formula: Personal Income (FY 93 = 100 Constant $) Population Warning Trend: Decline in the Level, or Growth Rate, of Personal In- come Per Capita (Constant $) 26,000 o 25,500 . 25,000 ~ 24,500 "24,000 -- 23,500 ~ 23,000 ~ 22,500 22,000 21,500 Personal Income Per Capita 993 1994 1995 1996 1997 Fiscal Year Data Chart: Per Capita Personal Incomes CPI (FY 93 = 100) Constant $ Annual % Increase FY 93 FY 94 FY 95 FY 96 FY 97 23,051 24,781 25,544 27,130 28,384 100.0 103.0 105.6 108.6 111.8 23,051 24,061 24,182 24,976 25,381 3.3% 4.4% 0.5% 3.3% 1.6% Description of lndicator: 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 community'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 93, real per capita incomes have grown more or less steadily in Albemarle and Charlottesville. Between FY 93 and FY 97, real per capitffpersonal incomes grew'from $23,051 in FY 93 to $25,381 in FY 97, an increase of 10.1%. (The average annual growth during this period was about 2.6% per year.) This increase reflects, in part, the economic recovery that occurred during the early 1990's, and thc relative economic prosperity that has followed. Unemployment Rate Formula: Local Unemployment Rate Warning Trend: Increasing Rate of Local Unemployment 8% g, 7% O ~. 6% O e~ a. 1% Unemployment Rates 1993 1994 1995 1996 1997 1998 Fiscal Year +Albemarle ~-- Charlottesville X Virginia X United States Data Chart: Albemarle County Unemployment Rate Charlottesville City Unemployment Rate Virginia Unemployment Rate U.S. Unemployment Rate FY 93 FY 94 3.9% 2.7% 4.9% 3.2% 6.4% 5.1% 7.4% 6.8% Description of lndicaWr: FY 95 FY 96. FY 97 FY 98 2.4% 2.0% 2.2% 1.8% 3.3% 2.7% 2.9% 2.4% 4.9% 4.5% 4.4% 4.0% 6.1% 5.6% 5.4% 4.9% The unemployment rate, or number of unemployed people actively seeking work, as a percentage of the total potential workfome, is an indicator of the employment base of a community. Additionally, since changes in the unemployment rate are related to changes in personal income, the unemployment rate also is an indicator of a community's ability to support its busi- ness sector and a govermnent's ability to generate revenues. An increasing proportion of unemployed people in a community may lead to declining personal 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 downtums in the general economy, the rate of local unemployment in Albemarle County has declined since FY 93. This decline, froTM 3.9% (FY 93) to 1.8% in FY 98, reflects, in part, the economic recovery that has occurred since the early 1990s and the relative economic prosperity that has followed. · Moreover, the County's unemployment rate during this period 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: Unemployment Rates: FY75 - FY98 -- 10% ~ Albemarle 4% '-'~'-- Virgha' 50 Families in Poverty Formula: Families in Povert~ Total Families Warning Trentk A Rapid Increase in the Number of Families in Pov- erty 35% 30% 25% 20% 15% 10% 5% 0% Families in Poverty 1970 1980 Year 1990 [] White [] African 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 lndicator: 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 sig- nal of declining personal incomes, as well as an indicator of possible future increases in the level and unit cost of assistance sereices, 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 poverty 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 Y-ear Wh~e _ ., ,.- _: 1970 10.9% '30.8% 1980 5.5% 21.6% 1990 3.8% 13.3% eYe-Dee, tease .Wh!te . -- _ - ' - _ 1970 - 1980 -49.54% -29.87% 1980 - 1990 -30.91% -38.43% Growth in Real Property Values Formula: Change in Property Value (FY 93 = 100, Constant $) Property Value in Prior Year (FY 93 = 100, Constant $) }Farning Trend: Declining Growth or Drop in the Market Value of Residential or Commercial Property (Constant $) Growth in Real Property Values 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% Fiscal Year Residential + Commercial Data Chart: Market Value Residential (in millions) CPI (FY 93 =100) Constant $ % Increase Market Value Commercial (in millions) Constant $ % Increase 546. -1.1%ii.ii',iiii. i.ij.[i.i.i.i. FY 97 5,240.0 111.8 4,685.6 -1.6% 704.1 629.6 -1.3% 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 municipalities depend on property taxes for a substantial portion of their revenues. This is especially true in communities like Albemarle County with a stable or fixed tax rate, since m these areas, the higher the aggregate property value, the greater the revenues earned. 52 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, the FY 93 reassessment caused property values to increase significantly in FY 94.) · Although overall (residential and commercial) property values have increased annually since FY 93 (with the exception of FY 97, when a slight decrease of 1.5% was recorded,) the rate of increase has slowed dramatically, particularly for residen- tial property values. In FY 92 (a non-reassessment year), residential property values grew by 10.9% over the prior year (in constant dollar terms.) By FY 96, however, this annual growth had slowed to about 4.1%. This decrease has more than offset the ~ncrease in commercial property values from 3.1% (FY 92) to 9.5% (FY 96.) · The slowdown in property value increases follows the general slowdown in biennial reassessment ~ncreases registered by the County since 1991. These increases (which exclude the impact of new con- struction) are presented at right (in cur- ' ....................................................... rent dollar terms): Reassessment Year 1987 1989 1991 1993 1995 1997 ~i~,-~ ve~_r !988 !990 !992 !994 !996 !998 Appreciation Increase (%) 10.69% 13.15% 22.48% 11.17% 5.24% 2.26% Residemial Development Formula: Market Value of New Residential Development Market Value of Total New Development Warning Trend: Increasing Market Value of Residential Development, as a Percentage of the Market Value of Total New De- velopment lOO% 80% 50% 10% 0% Residential Development 1993 1994 1995 1996 1997 Fiscal Year Data Chart: Market Value New Residential (in Millions) Market Value Total New Development (in Millions) % FY 93 FY 94 FY 95 FY 96 FY 97 59.5 88.6 65.3 82.8 93.0 69.3 109.2 75.9 110.5 136.3 85.9% 81.1% 86.0% 74.9% 68.2% Description of lndicator: 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 de- velopment typically is higher than the net cost of serving either commercial or industrial developmem. (Residential develop- ment typically creates more expenditure demands than revenue receipts.) Conversely, commercial and industrial development tend either 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 93, the market value of new residential development, as a percentage of the value of total new development, has declined from 86% in FY 93 to 68% in FY 97. · Generally, however, the value of residential development, as a percentage of the value of total new residential and commer- cial development, has been higher in the 1990s than during the last half of the 1980s, indicating a possible long-term in- crease in the proportion of new development that is residential. Between FY 87-FY 89, residential development repre- sented an average of 75.3% of total new development (in market value terms.) Between FY 90-FY 97, however, that aver- age had increased to 79.0%. The ten-year trend in residential development is depicted below: Res Ide ntlal Developm em 100% 60% 7 40% :20% 1987 1988 1989 1990 1991 1992 1993 1994 19~5 19~6 1997 Rscal Year Business ActiVity Indicator: Per Capita Sales Tax Revenues (in Constant $, FY 93 =100) Formula: Local Option Sales Tax Revenues (in Constant $, FY 93 = 100) Population Warning Trend: Declining Per Capita Sales Tax Revenues (in Con- stant $). $95 $90 $85 $80 $75 $70 $65 Per Capita Sales Tax Revenues (Business Activity) 9o $75 $75 1991 1992 1993 1994 1995 1995 1997 1998 1999 Fiscal Year Data Chart: FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 Sales Tax Revenues (in Millions) 6.0 6.4 7.0 7.3 7.8 8.1 8.5 CPI (FY 93 =100) 100.0 103.0 105.6 108.6 111.8 114.4 116.3 Constant $ (in Millions) 6.0 6.2 6.6 6.7 7.0 7.1 7.3 Population 70,300 72,400 74,300 75,900 78,400 79,500 81,170 Real Per Capita 86 85 89 88 89 89 90 Description of Indicator: Local sales and use taxes are revenues received by the County from the 1 cent of the 4 1/2 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 reflecf weak business activity and a possible decline in personal incomes, property values and employment. Analysis: Real per capita sales tax receipts have increased dramatically since FY 91. Between FY 91-FY99, real per capita sales tax revenues grew from $75 to $90 -- an increase of 20%. Most of this increase occurred in FY 93, reflecting economic recov- ery after the recession of the early 1990's, and in FY 95, reflecting the impact of several large retail stores opening in the area, which increased sales tax revenues. Since then, real per capita sales tax revenues have remained more or less con- stant at $89. 54 · © (~ Five-Year Financial Forecast Introduction: A financial forecast is a projection of furore revenues and expenditures that localities can use to evaluate their future financial con- dition. In conjunction with the FY 1992/93 - FY 1998/99 Financial Condition Evaluation, included in the first part of this docu- ment, the purpose of this five-year financial forecast is to help the Board of Supervisors and the School Board take a comprehen-' sive look at the financial condition of the County, and weigh the impact of future decisions and policies in light of projected reve- nues and expenditures. Additionally, it provides a framework for County staff to review current and future services in light of pro- jected availfible revenues. Finally, it enables the citizens of Albemarle to better understand future policy and budget decisions by making them more knowledgeable about projected County resources. This five-year forecast fulfills one of the stated goals of the County's Financial Management Policy, which is to "develop and annu- ally update a long range (3-5) year financial forecasting system, which will include 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." It also up- dates earlier five-year financial forecasts made in September, 1996, October, 1996, March, 1997 and June, 1997. Overview: This updated long-range financial forecast for Albemarle County presents four possible scenarios of revenues and expenditures for the next five years FY 99/00 - FY 03/04. The first scenario focuses only on the General Fund (without school division intergov- ernmental revenues) and balances expenditures to available revenues. The second scenario shows the total County budget (including the school fund) and assumes that expenditures grow at the combined rate of growth and inflation. In this scenario, to- tal County expenditures exceed available revenues by $8.2 million over the five-year period, with the highest imbalance being $2.1 million in FY 03. A third scenario presents the total County budget as above with expenditures based on growth and inflation, plus the additional operating costs associated with planned capital projects. If all associated operating costs are funded as re- quested, the cumulative shortfall over the five-year period is projected to be $15.9 million. The fourth and final scenario shows what the overall imbalance would be ff the County were to receive additional state revenues of approximately $2.37 million per year for public education, sheriff's deputy salaries and law enforcement, as proposed in Governor Gilmore's budget. In this sce- nario, the total County shortfall is reduced to $4.1 million, with the largest negative imbalance occurring in FY 04 at $2.1 million. Of this $4.1 million overall deficit, the general government shortfall is approximately $1.0 million, du~ to capital-related operating costs. The School Division's shortfall is $3.1 million, and represents the operating budget impact of opening a new northern area elementary school in FY 02. Projected imbalances in the last three scenarios do not mean, however, that future County budgets ~ill be unbalanced Not only do state laws require the Board of Supervisors to adopt a balanced budget annually, but also the budget process demands an annual compromise of revenue enhancements and expenditure reductions to achieve a balanced budget. The projected short- falls should not be viewed as a fait accompli, since 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.' In fact, the revenue projections in this forecast are based on October, 1998 projections made by the Department of Finance, which may be viewed as conservative. It is quite possible that these revenues will increase over time, or that the County will receive additional revenues from the State, based on Governor Gilmore's recent proposals. What the projected shortfalls do indicate is that the County's desired level of service or expenditure growth may not be affordable given existing resources, financial policies, service levels and planned capital projects. The County will need to make some diffi- cult 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: tics, revenues and expenditures. economic and demographic chamcteris- Economic & Demographic (Growth) Assumptions: Inflation rates reflect the annual average Consumer Price Index for all.urban residents (CPI-U.) Projected inflation rates are based on a combined average of the CPIU estimates provided by the Congres- sional Budget Office (CBC) and the Office of Management and Budget (OMB.) The average rate of inflation for FY 00~04 is pro- jected to be 2.4%, which is slightly less than the average since FY 93 of 2.6%. Historical and projected inflation rates are depicted in the chart on the right. 3.5% Inflation Rates 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Rscal Year Population I--.4~--Actual ~ Projected 100,000 90,000 80,000 70,000 60D00 50,000 40,000 30,000 20,000 10,000 Fiscal Year * Population projections for FY 99-04 are based on an average annual growth rate of 2.1%, which reflects a combination of historical trend analysis since 1990 and the Virginia Employment Commission's popu- lation projection for the Year 2000. (The historical average rate of population growth since FY 93 has been 2.3%.) Historical and projected population growth rates are depicted in the chart on the right. Enrollment Actual ~ Projected Projected enrollment figures were provided by the SchOol DiviSion. Between FY 00-04, annual enrollments are projected to grow by an average of 1.6% per year, which is less than the 213% historical av- erage during FY 93-99~ Historical and projected enrollment growth rates are depicted in the chart on the left. 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Fiscal Year $ Actual --B--projected These economic and growth assumptions are summarized in the chart on thc next page: 56 Economic & Growth Assumptions FY 98/99 General Government Inflation (1) 1.7% Population Growth(2) 2.1% School Division Inflation (I) 1.7% Enrollment Growth (3) 2.9% Population (2) 81,170 Enrollment (3) 11,981 FY 99~00 FY 00101 FY 01102 FY 02~03 FY 03~04 2.3% 2.4% 2.5% 2.4% 2.4% 2.1% 2.1% 2.1% 2.1% 2.1% 2.3% 2.4% 2.5% 2.4% 2.4% 1.9% 1.7% 1.7% 1.4% 1.3% 82,874 84,614 86,391 88,206 90,058 12,205 12,417 12,627 12,805 12,967 (1) Based on average of CBO & OMB estimates. (2) Based on 2.1% average annual growth rate, using historical trend analysis and VEC Year 2000 projection. (3) Based on School Division enrollment projections, 10/98. Average FY 00-04 2.4% 2.1% 2.4% 1.6% Revenue Assumptions/ t>ro. iections: · Tax rates and tax structures are not expected to change. The Department of Finance projects General Fund revenues based on a combination of historical trend analysis and deter- ministic factors that show an average 4.1% increase in revenues over the next five years, compared to an average of 7.3% since FY 93 Real estate taxes continue to constitute the largest revenue source, although their share of total revenues is projected to decrease from 29.4% in FY 99 to 28.7% in FY 04. Personal property taxes are projected to assume a relatively larger share of the revenue stream (from 15.1% to 16.3%), as are other local taxes. State revenues in the General Fund are projected to grow at 3.7% annually, while federal revenues are expected to decline on average, by approximately 1.1%. School Fund revenues, most of which are intergovernmental revenues, are projected to grow at an average of 4.0% 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 the composite index have signifi- cantly underestimated the amount of actual revenues received, which have averaged 3.9% annually since FY 92. As such, School Fund revenues in this analysis are projected bhsed on an average annual growth rate of 4.0% Projections related to the major revenue sources are presented below: Real Property Taxes Real property tax revenues should grow at an average of about 3.6% per year over the next five-year period, compared to about 5.8% per year during the preced- ing five year period. These projections are based on increased reassessment values of 2.25% in 1999, 3.65% in 2001, 3.5% in 2003 and 3.5% in 2005 and an estimated $100 million per year in new construc- tion value. Projected real property tax revenues are depicted in the chart at right: $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Real Property Tax Revenues Fiscal Year --la~ Actual ~ Projection Personal Property Taxes Personal property taxes will continue to be a source of increasing revenue, although growth in this revenue source also is projected to diminish, due to a general slowdown in both the volume and sales prices of new vehicles sold. Between FY 00-04, personal property tax revenues are projected to grow at approximately 5.7% per year, on average, compared to the 10.2% average annual growth rate experienced since FY 93. Projected personal property tax revenues are depicted in the chart at right: $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Personal Property Tax Revenues Fiscal Year I--"- ^c,ua,--,-- Projection Sales Tax Revenues Sales Taxes Sales tax revenues are projected to increase by ap- proximately 5.3% per year over the next five years, down from the 7.7% average annual increase experi- enced since FY 93. This decline reflects the loss of some retail sales to newly constructed retail centers in surrounding Counties, as well as the absence of any major new retail development since FY 93. Projected sales tax revenues are depicted in the chart at right: $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,00O $0 Rscal Year ---~--Actual ~ Projection 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 (which the County began collecting in FY 99.) These tax revenues are pro- jected to increase by an average of 4.2% per year over the next five years, down from the 6.6% annual average since FY 93. (The higher growth rate in prior years 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.) Projected other local tax revenues are depicted in the chart at nght: $25,000.000 $20,000,000 $15,000,000 $10.000,000 $5,000,000 $0 Other Local Taxes Fis cai Year I --B-.- Actual ~a,.--. Projection I 58 · 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 2.1% per year over the next five years. (This average is less than the 8.4% annual average experienced since FY 93, which reflected an increase in investment income due to relatively higher investment rates, as well as the collection of E-911 surcharge revenues to offset operational expenditures of the Emergency Commu- nication Center, and the Engineering and Planning Departments.) Other local revenue projections are depicted in the chart at right: $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Other Local Revenues Fiscal Year Actual a, Projection State Revenues State Revenues Revenues from the State are projected to grow by 3.7% per year over the next five years. (This aver- age is less than the 11.5% average annual increase experienced since FY 93, 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.) State revenue projections are depicted in the chart at right: $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 Fiscal Year --B--Actual ~ Projection Federal Revenues Federal Revenues Federal revenues are projected to decrease slightly, by an annual average of 1.1%, based largely on in- formation from the Department of Social Services that reflects a re-allocation of social services reve- nues~ from less federal revenues for social services to more state revenues for social ser~Sces. Federal revenue projections are depicted in the chart at right: $3,000,000 $2,500,000 ~ $2,000,000 $1,500,000 $1,000,1300 $500,000 $0 Fiscal Year --~--Actual ~-~ Projection ] School Fund Revenues School Fund revenues are projected to increase at an average of 4.0% per year, based on an historical trend. (Since FY 92, School Fund revenues have grown by approximately 3.9% per year, on average.) 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 com- posite index have significantly underestimated the amount of actual revenues received. As such, School Fund revenues are projected based on an av- erage annual growth rate of 4.0%, as displayed in the chart at right: $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $1o,000,0o0 $5,000,000 $0 SchoolFund Revenues Fis cai Year Actual --~--Projection Expenditure Assumptions/Projections: Operating cost increases are based on the Board of Supenrisors' implicit policy decision of the past several years of k6eping operational increases within the combined rates of inflation and growth. As such, baseline general government operating expenditures are projected to increase by a Cost of Government Index, which is a combined factor of inflation and popula- tion growth. For general government, the average annual factor is projected to be 4.6% between FY 00-04. 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 4.0%. These combined inflation and growth indices are illustrated in the charts below: General Government Combined Rate of Growth: Population & Inflation 7.0% 6.0% 5.0% 4.0% 4.0% 3.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% , 0.0% Fiscal Year [] Actual [] Projected Population [] Projected Inflation j School Division Combined Rate of Growth: Enrollment & Inflation Rs cai Year E~Actual [] Projected Enrollment [] Projected Inflation (Continued on next page.) 60 These growth factors are slightly less than the annual averages experienced since FY 93. Between FY 93-99, the aver- age annual increase in inflation and growth was 4.9% for general government and 5.0% for the School Division. These higher prior year averages generally reflect faster population and enrollment growth rates, as well as higher an- nual inflation rates. For example, the average annual growth in County population was 2.3% per year between FY 93- 98, compared to the 2.1% rate projected for FY 00-04. Enrollments grew at approximately 2.3% per year as well, which is higher than the 1.6% average annual increase expected after FY 00. Finally, inflation rates averaged about 2.6% between FY 93-99, compared to a projected increase of 2.4% per year over the next five years. The General Fund transfer to the School Division continues to be based on the historical 60/40 split between the School Division and General Government. It equals the prio. r year allocation plus 60% of new local tax revenues, net of any in- creases in revenue sharing and tourism revenues, as well 'as increases in other committed expenditures such as capital out- lay, debt service, contingencies and refunds. Capital operating costs for general government and the school division represent additional operating costs associated with new or expanded capital facilities in the Approved FY 99-03 Capital Improvements Program (CIP,) updated, where appli- cable, to reflect new cost information. General government capital projects are expected to add approximately $2.7 million to the operating budget over the next five years. School-related capital projects are expected to add an additional $5.0 mil- lion in operational expenditures. School debt service expenditures are based on projected VPSA bond issues for school projects in the Approved FY 99-03 CIP. General government debt service costs are based on approved debt service expenditures associated with borrowing for two general government projects, the new Juvenile Detention Facility and an 800MI-lz Radio Communication System. Capital outlay for the next five years are based on approved transfers from the General Fund to the Capital Improvement Funds for capital projects, net of any expenditures on general government debt service. (Debt service on the County's 800 MHz Communication System continues to be funded with capital outlay re-allocated to debt service. Debt service on the Juvenile Detention Facility is assumed to be funded with savings realized from a reduction in budgeted interest rates on VPSA bond issues.) These capital transfers reflect the County's financial policy of transferring at least 3% of current Gen- eral Fund revenues to the capital program, and were approved by the Board of Supervisors as part of the Approved FY 99- 03 CIP. Revenue sharing projections for Fir 00 and FY 01 come from the Department of Finance and are based on the projected fair market value of all real estate and the 10% cap. Projections for FY 02-04 are calculated based on pre-prior year in- creases in real estate tax revenues. Board of Supervisors' contingency reserves are estimated to be $50,000 in FY 00, and $0 thereafter. (Budgeted reserves for FY 99 were $184,913.) Refunds are' projected to remain constant in FY 00, and then to increase at the same rate as real estate tax revenues begin- ning in FY 01. Expenditure/Revenue Scenarios: Four expenditure and revenue projection scenarios have been prepared: one which focuses on the General Fund only and is bal- anced with available revenues; a second which projects total County expenditures based on growth and inflation; a third which projects total County expenditures plus estimated operating expenditures linked to new and expanded capital facilities; and a fourth which looks at projected County revenues ~n light of potential additional revenues from the State proposed by Governor Gilmore. These alternative scenarios are presented in detail on the following pages. Scenario I: General Fund; Expenditures Balanced with Available Revenue, The first projection scenario focuses on the General Fund only and shows expenditures balanced to available revenues. In this scenario, general government operations are projected to increase by an average of 4.2% per year, reflecting 40% of the overall increase in net local tax revenues, plus increases in other local revenues, state, and federal funding. The General Fund transfer to the School Division is projected to grow by about 3.6% per year, reflecting the remaining 60% of the increase in net local tax revenues, annually. (This scenario excludes other school revenues and self-sustaining funds, which also are used to fund school division operations.) The largest average annual expenditure increases are seen in the transfers to the CIP (at 14.5% per year), reflecting the County's current policy of dedicating at least 3% of annual General Fund revenues to the capital program, and to general gov- ernment debt service (36.1% per year), reflecting debt service cos~ associated with the new Juvenile Detention Facility and the 800 MHz Commmcation System. This expenditure SCenario is depicted below: General Fund Only Expenditures (in $ Millions) FY 99 General Government 35.5( School Transfer 49.0, Capital Transfer 2.21 School Debt Service 7.56 Gen Govt. Debt Service 0.11 Revenue Sharing 5.59 Contingency 0.18 Refunds 0.08 Non-Departmental 15.74 Total General Fund Exp. 100.33 Total General Fund Rev. 100.3~ Surplus/Shortfall - FY 00 FY 01 FY 02 FY 03 36.98 38.33 50.77 52.49 FY 04 39.96 41.72 43.61 54.46 56.46 58.63 2.79 3.04 3.13 3.80 4.30 7.85 8.15 8.50 8.80 9.15 0.11 0.28 0.32 0.36 0.37 5.85 6.06 6.33 6.54 6.75 0.05 0.08 0.08 0.09 0.09 0.09 16.74 17.61 18.36 19.59 20.66 104.48 108.44 112.78 117.77 122.90 104.48 108.44 112.78- 117.77 __1_2Z~ TL FY 00-04 As previously mentioned, this expenditure scenario assumes that general government operations and the School Division trans- fer payment increase with available revenues. However, the 4.2% average annual growth in general government operations and the 3.6% average annual growth in the School Transfer assumed in this scenario do not keep pace with projected increases in growth and inflation, which average 4.6% for General Government and 4% for the School Division over the next five years. A comparison of expenditure increases based on available revenues and projected increases reflecting the combined rates of in- flation and growth are presented in the chart below: Based on Available Revenues (Scenario I) Based on Inflation & Population Growth FY O0 FY 01 FY 02 FY 03 FY 04 3.99% 3.67% 4.24% 4.39% 4.54% 4.49% 4,58% 4.63% 4.55% 4.55% Based on Available Revenues (Scenario t) 3.53% 3.39% 3.76% Based on Inflation & Enrollment Growth 4.26% 4.21% 4.21% 3.67% 3.84% 3.84% 3.70% AVG 00-04 4.17% 4.56% 3.64% 4.04% 62 Scenario II: Total County Budget; Growth & Infla~on Costs Only The second scenario looks at the total County budget under the assumption that operational costs for both General Governmem and the School Division increase at the combined rates of growth and inflation. In this scenario, total County revenues are pro- jected to increase by 22.3% overall, while expenditures are projected to increase by 23.8%, producing a cumulative shortfall amount of $8.2 million over the five-year period. The highest negative imbalance is projected to be $2.1 million in FY 03'. In this scenario, general government operations increase by an average of 4.6% per year (the average combined rate of inflation and population growth), while school operations increase by 4.0% per year (the average combined rate of inflation and enroll- ment growth.) Projected non-depamnental expenditures remain the same under all three scenarios. This budget scenario and resulting County budget shortfalls are depicted in the chart below: Total Budget - No Capital Operating Expenditures (in $ Millions) FY 99 General Government 35.56 School Operating Self-Sustaining Capital Transfer School Debt Service Gen Govt. Debt Service Revenue Sharing Contingency Refunds Non-Departmental 2.21 7.56 0.11 5.59 0.18 0.08 15.74 Total Expenditures 135.03 Total Revenues 135.03 Surplus/Shortfall FY O0 FY 01 FY 02 FY 03 FY 04 37.15 38.86 40.65 42.50 44.44 80.48 83.86 87.39 90.75 94.11 6.81 7.08 7.36 7.66 7.96 2.79 3.04 3.13 3.80 4.312 7.85 8.15 8.50 8.80 9.15 0.11 0.28 0.32 0.36 0.37 5.85 6.08 6.33 6.54 6.75 0.05 0.00 0.00 0.00 0.0( 0.08 0.08 0.09 0.09 0.09: 16.74 17.81 18.36 19.59 20.66 141.17 147.41 153.77 160.51 167.17 140.57 145.97 151.81 158.36 165.12 (0.60) (1.45) (1.96) (2.14) (2.05) TL FY 00-04 (8.20) Mechanisms to Address Shortfall in Scenario II: As noted in the overview to this section, projected operating budget shortfalls do not imply that future County budgets will be unbalanced. In fact, State law requires the Board of Supervisors to adopt a balanced 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, projected resource levels, and desired service levels. Some of the potential mecha- nisms 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 inflation and growth. Base scenarios either would be to level-fund operations, and to fund only personnel costs with inflation, or to re- quire that total operational increases remain within available revenues. (Scenario I illustrates the latter option for the Gen- eral Fund.) Limit growth in debt service costs by limiting the use of borrowed funds for capital project& VPSA bonds currently fund 83% of school capital projects. Borrowed funds also fund 23% of general government capital projects. Limit growth in the amount of General Fund revenues transferred to the Capital Improvement Prograt~ The General Fund transfer to the CIP currently funds all technology projects, all general government repair/maintenance expenses, and about half of. school maintenance and replacement projects. It also is the major source of funding (66%) for general gov- ernment capital projects. County financial policy suggests that the annual transfer to the CIP be at least 3% of General Fund revenues. In FY 99, the CIP transfer comprised about 2.2% of General Fund revenues. Based on updated revenue projections and previously approved transfer amounts for the next five years, this percentage is projected to increase to: 2.6% (FY 00), 2.8% (FY 01 & FY 02), 3.2% ~ 03), and 3.5% (FY 04.) (The percentage increases in FY 03 and FY 04 were at 3% until the most recent revenue projections, which reduced projected General Fund revenues for those years.) 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 23% of related parks and rec- reation 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 $632,671 in additional property tax revenues over the next five years. Scenario III: Total County Budget; I~rtth Expanded Costs The third projection scenario looks at the total County budget with the above growth and inflation costs for current County ex- penses, plus the additional operating costs related to future school division and general government capital projects. Including 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 operation.q. In this scenario, revenues are projected to increase by the same 22.3% overall, while expenditures are projected to increase by 25.6%, producing a cumulative shortfall amount of $15.9 million over the five-year period. The highest negative imbalance is projected to be $4.5 million in FY 04. In this scenario, general government operations are projected to grow by an average of 5.0% per year and School Division op- erations are projected to increase by 4.4% per year, on average, reflecting the impact of the additional capital project operating costs. Major capital costs for General Government include the addition of up to 9 new firefighters by FY 04 to staff a new County fire/rescue station ($1.1 million over the five-year period,) $0.7 million in additional costs associated with athletic field development and renovating/upgrading existing park space, and $0.3 million in additional operating costs for the new Juvenile Detention Facility. School division capital-related operating costs include $2.5 million to staff and equip a new northern area elementary school, $1.4 million in additional instructional technology costs, and $0.6 million in additional costs related to school building expansions or renovations. A list of projected capital operating costs appears in the appendix to this document. Projected non-departmental expenditures remain the same under all three scenarios. This projection scenario and the resulting County budget shortfalls are depicted in the chart below: Total Budget - With Capital Operating Expenditures (in $ Millions) FY 99 General Government Gen. Govt Capital Exp. Total General Govt. 35.5( 0.00 35.56 School Operating School Capital Exp. Total School Operating 77.19 0.iX 77.1.c Self-Sustaining 6.55 Capital Transfer School Debt Service Gen Govt. Debt Service Revenue Sharing Contingency Refunds Non-Departmental 2.21 7.5E 0.11 5.5~ 0.18 0.08 15.74 Total Expenditures Total Revenues Surplus/Shortfall 135.03 135.03 FY O0 FY 01 FY 02 FY 03 FY 04 37.15 38.86 40.65 42.50 44.441 0.11 0.36 0.61 0.75 37.27 39.22 41.27 43.25 45.341 80.48 83.86 87.39 90.75 94.11 0.26 0.47 1.28 1,47 1.51 80.74 84.33 88.67 92.22 95.62 6.81 7.08 7.36 7.66 7.96 2.79 3.04 3.13 3.80 '4.30 7.85 8.15 8.50 8.80 9.15 0.11 0.28 0.32 0.36 0.37 5.85 6.06 6.33 6.54 6.75 0.05 0.00 0.00 0.00 0.00 0.08 0.08 0.09 0.09 0.09 16.74 17.61 18.36 19.59 20.66 141.55 148.24 155.66 162.72 169.58 140.57 145.97 151.81 158.36 165.12 (0.98) (2.28) (3.85) (4.36) (4.46) TL FY 00-04 2.73 4.99 (15.93) 64 Mechanisms to Address Shortfall in Scenario III: In addition to the mechanisms previously mentioned under Scenario II, the following may be used to address the projected shortfalls caused by the addition of capital project operational costs. Reduce Expenditures Limit growth in capital associated operating costs by deferring or spreading out large capital projects, such as new schools. Since school openings have the largest associated operating costs, spacing 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 addi- tional funding. However, there are limits on how long departments 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 investment of new computers in the schools. Scenario IV: Total County Budget; I~tth Expanded Costs and Additional State Revenues 'The fourth projection scenario looks at the total County budget (including capital-related operating costs,) under the assumption that the County receives the additional revenues for education, sheriff's deputies and law enforcement that Governor Gilmore is expected to propose in his 1999 amendment to the 1998-2000 biennial budget. At present, these additional revenues include an estimated $1.4 million per year for school operations or construction (beginning in FY 99), $1.0 million in supplemental law enforcement/H.B. 599 funds (beginmng in FY 00), and $0.03 million per year to increase deputy sheriff salaries (starting in FY 00.) Although proposed by the Governor, the exact amount and type of additional state revenues for the County will not be fi- nalized until the budget is adopted by the General Assembly next spring. In this scenario, total County expenditures are projected to increase by growth and inflation, as above, while revenues are pro- jected to increase by 22.8%, producing a cumulative shortfall of $4.1 million over the five year period. (This shortfall does not include the $1.4 million in additional education revenues received in FY 99, which if carried over to FY 00, would reduce the cumulative shortfall to $2.7 million.) The highest negative imbalance is projected to occur in FY 04 at $2.1 million. This budget scenario is presented in the chart below: Total Budget - With Capital Operating & Additional State Revenues Expenditures {in $ Millions) General Government Gen. Govt Capital Exp. Total General Govt. School Operating School Capital Exp. Total School Operating Self-Sustaining Capital Transfer School Debt Service Gen Govt. Debt Service Revenue Sharing Contingency Refunds Non-Departmental Total Expenditures Total Revenues Surplus/Shortfall FY 99 35.5E O.OC 35.5E 77.1.c 0.0l: 77.1.c 6.55 2.21 7.56 0.11 5.59 0.18 0.08 15.74 135.03 136.43 1.40 FY 00 FY 01 FY 02 FY 03 FY 04 37.15 38.86 40.65 42.50 44.44 0.11 0.36 0.61 0.75 0.90 37.27 39.22 41.27 43.25 45.34 80.48 83.88 87.39 90.75 94.11 0.26 0.47 1.28 1,47 1.51 80.74 84.33 88.67 92.22 95.62 6.81 7.08 7.36 7.66 7.96 2.79 3.04 3.13 3.80 4.30 7.85 8.15 8.50 8.80 9.15 0.11 0.28 0.32 0.36 0.37 5.85 6.06 6.33 6.54 6.75 0.05 0.00 0.00 0.00 o.oa 0.08 0.08 0.09 0.09 0.09 16.74 17.61 18.36 19.59 20.66 141.55 148.24 155.66 162.72 169.58 142.94 148.33 154.18 160.73 167.4§ 1.39 0.09 (1.48) (1.99) (2.09) TL FY 00-04 2.73 4.99 (4.08) The majority of the $4.1 million cumulative operating budget shortfall occurs in the School Division. As evident from the chart below, the five-year school shortfall is $3.1 million, while General Government's cumulative shortfall is $1.0 million. All of the School Division shortfall occurs after FY .01, reflecting the operating budget impact of opening the new northern area ele- mentary school in FY 02. The general government shortfall occurs largely after FY 00 and reflects the impact of equipping and staffing a new County fire/rescue station, as well as other capital-related operating costs. Breakout of Shortfall: Total Budget with Capital Operating & Additional State Revenues (in $ Millions) General Govt. Expenditures General Govt. Revenues Surplus/Shortfall School Expenditures School Revenues Surplus/Shortfall Total Surplus/Shortfall FY 99 51.29 0.00 83.74 85.14 1.40 1.40 FY O0 FY 01 FY 02 Fy 03 FY 04 54.00 56.83 59.63 62.84 65.99 54.66 56.90 59.27 62.26 65.22 0.66 0.07 (0.36) (0.58) (0.771 87.55 91.41 96.04 99.88 103.58 88.27 91.44 94.91 98.47 102.26 0.73 0.03 (1.12) (1.41) (1.32) 1.39 0.09 (1.48) (1.99) (2.09) TL FY 00-04 (0.98) (3.10) (4.08) Given the relatively small magnitude of the general government shortfall amounts, it is likely that the deficits in FY 02, FY' 03 and FY 04 could be made up either by greater than anticipated revenue receipts or by expenditure savings. However, the much larger shortfalls on the school side will require some of the shortfall resolution mechanisms addressed in Scenarios I1 and Ill. It is clear that the School system will find it increasingly difficult to absorb the additional operating costs associated with opening the new school, given existing financial policies, projected resource levels, and desired service levels. Additionally, none of the aforementioned scenarios address the additional capital needs of General Government or the School Division that were not funded in the approved CIP. On the general government side, these projects total between $12-22 mil- lion over the next several years and include a new courthouse complex, a new public safety facility, traffic calming, neighbor- hood improvement and other initiatives. Other major projects facing the County are potential library facilities in the northern part of Albemarle or Crozet, and the provision of additional office space. On the school side, "unfimded" capital projects total $20.7 million over the next several years and include major school expansions/renovations, the construction of a new southern area elementary school, and an addition to the Monticello High School. The County must consider the additional debt service and operational costs associated with these projects as well, in selecting a strategy to address projected operating budget short- falls. Conclusion: This five-year financial forecast for Albemarle County presents four different projection scenarios. The first scenario shows a balanced General Fund budget in which the School Transfer grows with available revenues, and where general government and school division operational costs increase more slowly than the combined rates of growth and inflation. In the second scenario, 'which depicts the total County budget (including the School Fund,) general government and school division expenditures are assumed to increase with growth and inflation, resulting in a projected shortfall of $8.2 million. The third scenario adds the additional operating costs associated with planned capital projects, resulting in a shortfall of $15.9 million. The fourth sce- nario, however, considers the impact of potential new state revenues for education, sheriffs deputies and law enforcement, which, if received, would reduce the County's cumulative operating budget shortfall to $4.1 million. Most of this $4.1 million overall shortfall (or $3.1 million) occurs in the School Division, reflecting the operating budget impact of opening the new northern area elementary school in FY 02. General government capital-related operating costs account for the remaining $1.0 million of the $4.1 million total shortfall.. 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 combine~! rates of inflation and growth. * Limit growth in debt service 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. 66 * Limit growth in capital associated operating cosls 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 no._~t mean that future County budgets will be unbalancea[ Not only do state laws require the Board of Supervisors to .adopt a balanced budget annually, but the budget process also de- mands an annual compromise of revenue enhancements and expenditure reductions to achieve a balanced budget. ~lddi- tionally, revenue and expenditure projections may change dramatically over a five-year period depending on state man- dates, 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 expenditure growth may not be afford- able, given existing financial policies and revenue sources. The County will need to make some difficult choices as it goes about balancing its budget over the next five years. Should the County receive the additional state revenues described in Sce- nario IV, the general government shortfall of $1.0 million described in that scenario could be addressed either by greater than anticipated revenue receipts or by expenditure savings. The larger, $3.1 million, school shortfall would be much more difficult to address, however, given current financial policies, service levels, and revenue sources. Additionally, none of the aforemen- tioned scenarios address the large number of general government and school projects that are not funded in the either the cur- rent or recommended CIP's, including a new courthouse complex, a new public safety facility, library facilities, County office space needs, major school expansions/renovations, a new southern area elementary school and the Monticello High School Ad- dition. The County will need to address how, or whether, to fund these projects in the future as well. This page is intentionally blank. 68 (~ · 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 allo- cate its resources efficiently and effectively in order to provide the services desired by the public. The primmy objective of establish- ing 'financial management policies is to provide a framework within which sound financial decisions may be made for the long term betterment and stability of Albemarle County. These financial policies will provide the guidelines and goals to guide the fi- nancial practices 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 financial picture of the County rather than concentrating on single issue areas; · Provide a link between long-range financial planning and current operations; and · Provide a framework for measuring the fiscal impact of government services against established fiscal parameters and guide- lines. Operating Budget Policies: The annual budget will be prepared consistent with guidelines established by the Government Finance Officers Associa- tion (GFOA) and will annually seek the GFOA Distinguished Budget Presentation Award. The budget must be structured so that the Board and the public can understand the relationship between revenues, expen- ditures and.the achievement of service objectives. The goal of the County is to fund all recurring expenditures with recurnng revenues and to use non-recurring revenues only for non-recurring expenses. The County will maintatn an updated fiscal impact model to assess the impact of new development on the future costs of associated county services. Utilizing the fiscal impact model, the County will develop and annually update a long range (3-5 year) financial forecast- ing system, which will include projections of revenues, expenditures, as well as future costs and financing of capital im- provements and other projects that are included in the capital budget. When revenue shortfalls are anticipated in a fiscal year, spending during the fiscal year must be reduced sufficiently to offset current year shortfalls. 11. The County will prepare the capital improvement budget in conjuncfio, n with the development of the operating budget, in order to assure that the estimated costs and future impact of a capital project on the operating budget will be consid- ered 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 general fund support received each year, which has currently been established at approximately 60% of all new avail- able 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/ypes of services to be provided in the upcoming fiscal year. The following 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 Execu- tive. Priorities 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 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 S.upervisors 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 reports. · 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 ~dopted Comprehensive Plan and Capital Facilities Plan. 70 The County will coordinate the development of the capital budget with the development of the operating budget so that fu- ture operating costs, including annual debt service associated with new capital projects, will be projected and included in operating 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 Program. The County believes in funding a significant portion of capital improvements on a cash basis and will, therefore, increase incrementally the percentage of its capital improvements financed by current revenues. The County's goal will be to dedi- cate a minimum of 3% of the annual General Fund revenues allocated to the County's operating budget to the Capital Im- provement Program. Financing plans for the five-year capital program will be developed based upon a five-year forecast of revenues and expen- ditureg coordinated by a capital improvements technical management team. The County will begin to inventory capital facilities and estimate remaimng 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 Super- . visors The County will develop a Memorandum of Understanding with the School Board regarding the development and coordi- nation of the County's Capital Improvement Program, which will address the following areas: a) plan for required capital improvements; b) debt ratio targets; c) debt issuance schedules. Asset 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 minimize future 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/ 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 requiring a total ex- penditure of $10,000 or more with a useful life often years or more. · To provide for the adequate mairitenance 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 annual assessment to sales ratio of at least 95% under current real estate market conditions, when the January 1st assess- ment 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 revenue 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 current property taxes should not exceed 4% unless caused by conditions beyond the County's control. 7. To the extent possible, the County shall attempt to decrease the dependency on real estate taxes to finance the County's op- erating 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 recover operational as well as capital or debt service costs. 9. The County will regularly (at least every 3 years) review user fee charges and related expenditures to determine if pre-established recovery goals are being met. 10. 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. 11. 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. 12. The County will attempt to recover all allowable costs - both direct and indirect - associated with the administration and implementation 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 pro- vided. 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 maintain 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. Accounting, Auditing 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 financial reports will present a summary of financial activity by govern- 'mental funds. An independent firm of certified public accountants will perform an annual financial and compliance audit according to generally 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 Common- wealth of Virginia. ~ 72 The County will maintain an audit committee 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 i.n Reporting Debt Policies: The County will not fund current operations from the proceeds of borrowed funds. The County will manage its financial resources in a way that prevents borrowing to meet working capital needs. The County will confine long-term borrowing and capital leases to capital improvements or projects that cannot be fi- nanced by current revenues. 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. 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 c~ondition 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 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 expen- ditures or as additions to the fund balance. Projected Capital Project Operating Costs (Based on Approved FY 99-03 CIP) County Computer Upgrade Subtotal Admin. & Courts Ongoing Fire/Rescue Building & Equipment Fund Ongoing Transport Vehicle for Arrests Ongoing; Juvenile Detention Facility Ongoing Public Safety Mobile Command Center ©~_~J~ Subtotal Public Safety Ongoing Hi~nh~"~_ y~_ ~ Tr~_?_p,,,~*_!o- Route 29 North Landscaping Ongoing Greenbrier Dr. Ext. Bike/Ped. Path Ongoing Greenbrier/Hydraulic Road Streeflights Ongoing Airport Road Sidewalk Ongoing Georgetown Road Sidewalk Ongoing FY 99!_~_n FY 9~!_A! FY 01!02 F--Y--02/O~ FY ~1~0 4~ i~ 7~1~ 91.00n_ ! ! _~ .O_nO 28,000 49,000 70,000 91,000 112,000 1331505 229,185 330,480 437,655 3,400 3,500 3,600 16,500 96,520 99,420 102,400 150,005 329,105 433,400 548,160 - 14,000 14,420 14,855 15,301 5,000 5,150 5,305 3,600 3,710 3,520 3,935 4,055 - 5,000 5,150 5,300 5,465 - 5,000 5,150 5,300 5,465 8,600 32,860 38,845 40,018 41,221 Sidewalk Construction Program ©,=_~!,C Subtotal Hwys. & Transportation Ongoing Walnut Creek Park Improvements Ongoing Scottsville Community Ctr. Outdoor Imp. Ongoing Crozet Park Athletic Field Ongoing So. Albemarle Organization Park Dev. Ongoing County Athletic Field Study / Dev. Ongoing School Athletic Field Irrigation Ongoing Towe Lower Field Irrigation Ongoing New High School Recreation Facilities Ongoing Stone Robinson Playfield Repl./Dev. Ongoing Chris Greene Lake Property Purchase Ongoing Cashier Booth Improvements Ongoing Ivy Landfill Recreation Access Dev. - 720 3,740 765 1,495 6,950 7,470 11,190 11,525 9,395 15,210 39,760 20,495 20,955 6,825 7,1 25 7,485 7,855 8,095 20,630 63,045 70,370 76,950 88,775 - 10,500 10,815 - 500 515 530 19,830 20,425 21,040 21,670 22,320 2,115 2,220 2,330 2,445 2,520 - 1,815 1,885 1,960 2,035 630 660 695 730 750 !3,930 !~,_~__n !5,_~_5 16.130 16.615 74,760 132,080 167,620 174,190 185,701' Subtotal Parks & Recreation Northern Area Elementary School Rec. Subtotal Schools/Parks Subtotal - General Government Rivanna Oreenway Access & Path I Subtotal Tourism $CH_n_nL Burley Library Addition/Renovation Brownsville Addition Cale Addition / Alterations Technology Education Labs Administrative Technology (Schools) Instructional Technology (Schools) WAHS Building Renovations Henley Addition Red Hill Expansion Northern Area Elementary Stone Robinson Addition Subtotal School Division IGRAND TOTAL - ALL ClP FUNDS Ongoing Ongoing Ongoin! On.qoinfl TL * Ongoing Onaoina Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoing Ongoinq Ongoinf Onqoinq 8.920 9,365 9.645 8,920 9,365 9,645 111,360 363,945 614,490 747,970 896,726 FY QgLnn FY -n~-!-n! FY n-!!-n-~ FY _n_~!_n? FY 8.000 9 700 11.400 13.100 14,800 8.000 9.700 . 11.400 13.100 14.800 - 17,000 17,510 - 17,200 17,715 - 3,570 3,680 3,790 5,300 5,465 5,630 5,800 5,975 69,000 90,000 1 00,000 111,000 114,330 89,362 ' 183,993 284,372 390,452 402,165 27,500 28,325 29,180 30,055 30,955 38,010 39,105 40,160 41,365 42,605 - 17,200 17,715 85,000 774,050 797,270 821,190 34,800 35,845 36,920 3~,030 39,170 263,997 467,733 1,278,882 1,469,052 1,513,120 383,357 841,378 1,904,772 2,230,122 2,424,646 3_qt3.000 350,000 1,130,825 10,505 314,840 1,460,670 58,576 15,455 19,120 20,920 20,920 161,541 5,225 38,540 100,815 37,385 319,780 21,315 1,545 105,285 11,630 7,695 3,465 76,67~ 734,351 27.930 27,930 2,734,4911 TL 99-n? 57,000 57.000 ] 34,510 34,915 11,040 28,175 489,330 1,350,364 149,015 201,245 34,915 2,477,510 184,765 4,992,784 I 7,784,275 · 74