COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

FY2005 Revised and FY2006 Estimated General Fund Revenues and Preliminary Budget Guidance

 

SUBJECT/PROPOSAL/REQUEST:

FY05 and FY06 Revenue Discussion and Preliminary Distribution of FY06 Local Tax Revenues to General Government and School Division Operations

 

STAFF CONTACT(S):

Messrs. Tucker, Wiggans, Breeden, Walters,

Ms. White

 

LEGAL REVIEW:   No

 

AGENDA DATE:

November 3, 2004

 

ACTION:   X                          INFORMATION:     

 

CONSENT AGENDA:

  ACTION:                             INFORMATION:   

 

 

ATTACHMENTS:   Yes

 

 

 

REVIEWED BY:

 

 

BACKGROUND:

Each October, the Department of Finance prepares updated current year revenue projections and preliminary revenue estimates for the upcoming fiscal year.  These revenue estimates are the first step in the budget preparation process and form the basis of the recommended budget proposals to come before the Board of Supervisors next March.  Based on these preliminary revenue estimates, the Board also approves a preliminary allocation of the projected revenue growth, first to committed expenditures such as: revenue sharing, capital outlay, and debt service, and then between General Government and School Division operations. 

 

 

STRATEGIC PLAN:

4.2 Fund County services in a fair, efficient manner and provide needed county public facilities and infrastructure

 

 

DISCUSSION:

FY05 and FY06 Revenue Revisions and Preliminary Estimates:

Attachment A provides both the revised projections for FY05 and the preliminary estimates for FY06 General Fund revenues, transfers, and use of fund balance.  Overall, the latest projections for FY05 current year General Fund revenues, transfers, and use of fund balance are estimated to exceed the July 1, 2004 appropriated FY05 budget by $3.156 million, 2.0%.  Details of the specific revenue changes for the current FY05 fiscal year are presented with the September 30, 2004 Quarterly Financial Report under separate cover.  Due to the last minute adjustments to the FY05 budget resulting from the increased State revenues for the school division, the majority of this increase ($2.920 million) is use of fund balance.  Actual revenues are only projected to exceed budget by $0.236 million.

 

The preliminary FY06 estimate of General Fund revenues, transfers, and use of fund balance exceeds the current FY05 appropriated budget by $13.708 million, 8.6%.  Revenues excluding transfer and fund balance are estimated to exceed appropriated budget by $13.694 million, 8.7%, summarized as follows: Property Taxes $10.295, 9.6%, Other Local Taxes $2.247 million, 6.5%, Other Local Revenues $0.158 million, 3.6%, and State and Federal Revenues $0.994 million, 8.9%.  Transfers are estimated to exceed appropriated budget by $0.014 million, 0.6%.  There is no anticipated use of fund balance.

 

Real Estate Tax:

Real Estate Tax revenues are estimated to exceed current appropriated revenues by $9.755 million, 13.0%.  These revenues estimates include the 2nd half of the 2005 reassessment together with 2005 new construction as well as the 1st half of estimated 2006 assessment based on 2005 values without new construction.  The January 2005 reassessment is currently anticipated to be in the range of 15% to 20% due to very strong local real estate values.  For FY06 budget

preparation, a conservative 17.5% estimate is being used.  This is an increase from the 15.0% estimate used for the FY05 budget preparation.  The estimate was increased due to the continued strong market which had been originally anticipated to slow down by this time.  On the state and national level, real estate value increases have begun to level and could impact the 2007 reassessment.

 

Personal Property Tax, including PPTR (Personal Property Tax Relief):

Personal Property Tax revenues are estimated to exceed current appropriated revenues by $0.893 million, 3.2%.  The FY05 revised revenues were reduced due to a one time assessment methodology change by NADA described in the Quarterly Financial Report.  FY06 revenues have been conservatively increased due to the current moderate, but fragile, economic recovery.  New car purchases continue at a rapid pace which continues to depress used vehicle values.  Taking advantage of expiring tax breaks, business is beginning to purchase additional capital equipment.  New businesses will be coming on-line with the Hollymead Town Center and Pantops developments.  It is important to note that the FY06 estimate assumes the continuation of funding from the State for PPTR at current levels throughout the year.  Staff will continue to monitor this issue and inform the Board of further developments.

 

Public Service Tax:

Public Service Tax revenues are estimated to be $0.404 million, 19.6%, less than current appropriated revenues.  Public Service assessments are prepared by the Virginia Department of Taxation (TAX) and the State Corporation Commission based on the capitalized value of their assets adjusted by the public service ratio.  The public service ratio is calculated by TAX and is similar to the medium real estate ratio.  As local assessments rapidly increase, the public service ratio decreases, thereby reducing taxable public service assessments.

 

Sales Tax:

Sales Tax revenues are estimated to exceed current appropriated revenues by $1.000 million, 8.7%.  The increase is primarily due to improved economic conditions as well as anticipated new retail business openings.  The current recovery continues at a moderate pace.  However, the recovery is fragile and can quickly change impacting this source of revenue.

 

Business License Fees:

Business License Fees are estimated to exceed current appropriated revenues by $0.624 million, 8.4%.  This source of revenue is primarily due to strength in the retail merchants and home improvement/repair sectors of local business activity.  However, it faces similar risks to those described above for sales tax.

 

Utility Taxes:

Utility Tax revenues are estimated to exceed current appropriated revenues by $0.216 million, 3.1%.  This source of revenue is based on consumption by utility companies and telephone and cellular gross receipts, as well as electrical and gas consumption by both business and residential customers.  The rate of increase is slowing as the cellular market begins to stabilize.

 

Meals Tax:

Meals Tax revenues are estimated to exceed current appropriated revenues by $0.350 million, 8.4% due to the continue shift from home prepared to convenience food preparation.  This increase is consistent with state and national trends.

 

Other Local Revenue:

Other Local revenues are estimated to exceed current appropriated revenues by $0.158 million, 3.6%.  Numerous items are in this category, many of which are increasing and some of which are decreasing.  The net increase is primarily due to increased development and court fees.

 

State Revenue, excluding PPTR:

State revenues are estimated to exceed current appropriated revenues by $0.507 million, 7.2%.  The net increase is primarily due to increased recordation tax allocations, 599 revenues, and reimbursement of constitutional officer salaries.

 

Federal Revenue:

Federal revenues are estimated to exceed current appropriated revenues by $0.487 million, 12.0%.  The net increase is primarily due to the continuing shift of reimbursement for Social Services expenses from state to federal sources.

 

Other Revenue Categories:

Mobile Home Tax, Machinery & Tools Tax, Delinquent Tax, Motor Vehicle License, Transient Occupancy Tax, and other miscellaneous revenues are estimated to show a net minor increase over current year appropriated revenues.

 

Transfers:

This line reflects transfers from other funds, such as the E-911, Tourism, and other funds, into the General Fund to support applicable general government program operations.

 

Fund Balance:

There is no anticipated use of fund balance at this time.

 

Preliminary Budget Guidance:

Based on the revenue estimates provided by the Department of Finance, the next step in the budget process is the preliminary allocation of new local tax revenues: first to committed expenditures, i.e., city-county revenue sharing, capital funds, and debt service, and then to general government and school operations on a 40/60 basis.

 

Attachment B shows a Preliminary Estimate of the FY 2006 local tax revenue increase as $12,541,944 over the FY 2005 Appropriated Budget amount, followed by the deduction of the increased payment to the City of $1,760,737 under the City-County Revenue Sharing Agreement, for a Net Projected Local Tax revenue increase of $10,781,207.

 

The second section of Attachment B shows the increased amount for committed new non-departmental expenditures. For capital outlay and debt service, the increase is $1,276,464, which is subtracted from the increase in local tax revenues. This amount reflects the assumption of an estimated overall growth rate of 7.1% in county local tax revenues and school revenues for FY 2006. The preliminary increase for the transfers to debt service and to the ongoing capital projects is based on this 7.1% growth factor. In addition, there is a capital reserve fund amount based on 1 cent of the projected real property tax revenue in FY 2006 ($1,140,008), and the one-half of a percentage point of the projected overall net revenue growth earmarked to be dedicated to capital projects ($748,689). This formula was proposed by the County’s financial consultants and approved by the Board to fund the County’s 10-year capital program.

 

The next three committed expenditures subtracted from the increase in local tax revenues are to provide amounts for the Board’s Reserve at $300,000, Tax Relief for the Elderly and Disabled at $478,638, and $125,000 for refunds.

 

After making the above deductions, the remaining uncommitted local tax revenues are estimated to be $9,161,663. Of this net new local tax revenue available for operating programs, 60% ($5,496,998) is allocated to the School Division operations and 40% ($3,664,665) to General Government operations for FY 2006.

 

Below the allocation of new tax revenues, other new General Government revenues are listed. Committed new expenditures for FY 2006 are deducted from these new revenues. These committed expenditures include $336,811 for four new police officers, $108,333 for a full year of positions which were funded for a half year in FY 2005, and $242,279 for the firefighter positions that were funded midyear in FY 2005. After these adjustments, the amount of new revenue available to General Government is $3,662,957.

 

The final section includes other potential new expenditures for FY 2006, including a 4.4% merit pool and 3.0% scale increase, $400,913 for health and dental expenses, vehicle replacement expenses, increased federal expenditures, department and agency increases, and a VRS Group Life Insurance contingency.

 

Attachment C shows the impact on the FY06 revenue allocations should the Board elect to reserve one additional cent of the real estate tax for new or expanded initiatives.   This is based on various discussions that indicated an interest in setting aside funds for transportation, affordable housing, storm water, and permanent funding of the ACE program.  This option would reduce funding for both general government and schools for the FY06 operating budget.

 

 

RECOMMENDATIONS:

Staff recommends that the Board approve the preliminary FY06 allocation of local revenues to the Capital Improvement Program in accordance with the guidelines recommended by the financial advisors and to the School Division and General Government funds for operating costs.

 

UNDERSTANDING ATTACHMENT A

 

Attachment A provides both the revised General Fund revenue projections for FY05 and preliminary revenue estimates for FY06.

 

Column A shows the initial current year appropriated budgeted revenues as of July 1, 2004.  Column B is the October, 2004 revised projection of FY05 revenues. Column B-A shows the difference between Column A (the original FY05 budgeted revenues) and Column B (the October revised FY05 revenue projection). To determine the total change in estimated current year revenues, you will see that Column B-A shows the projected Total General Fund Revenues, Transfers, and use of Fund Balance amount to increase $3.156 million, 2.0%, from the initial FY05 appropriated budget revenue amount (as of July 1, 2004).

 

Column C shows the preliminary revenue estimates for FY06 at a total of $173.556 million. Column C-B is the difference between Column C (the preliminary FY06 estimate) and Column B (the FY05 revised revenue projection), and shows that total General Fund revenues, transfers, and use of Fund Balance are estimated to increase by $10.553 million, 6.5%, (shown in Column C-B) over the FY05 revised projection in Column B.

 

The comparison of the preliminary estimate of FY06 revenues to the initial FY05 appropriated budgeted revenues is shown in Column C-A. This column shows the difference (increase or decrease) between Column C (the preliminary estimated FY06 revenues) and Column A (the FY05 initial budgeted revenues).

 

Column C-A shows that budget to budget total General Fund revenues, transfers, and use of Fund Balance are projected to increase by $13.708 million, 8.6%.

 

 

ATTACHMENTS

A – General Fund Revenue Projections

B – Preliminary Allocation of New Local Tax Revenue Between General Government and Schools

C – Allocation of New Local Tax Revenue with 1 Cent Tax Rate Dedication
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