COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

FY06 Updated Revenue Projections

 

SUBJECT/PROPOSAL/REQUEST:

Update on FY06 Revenue Projections and Budget Guidance

 

STAFF CONTACT(S):

Messrs. Tucker, Wiggans, Breeden, Walters

Ms. White

 

 

LEGAL REVIEW:   Yes

 

AGENDA DATE:

February 02, 2005

 

ACTION:     X                       INFORMATION:     

 

CONSENT AGENDA:

  ACTION:                             INFORMATION:   

 

 

ATTACHMENTS:      Yes

 

 

REVIEWED BY:

 

 

 

BACKGROUND:

Each January, the Department of Finance updates the preliminary revenue projections for the current and upcoming fiscal years.  These revenue estimates are an additional step in the budget preparation process and update the basis of the recommended budget proposals to come before the Board of Supervisors next March.

 

References to the FY05 budget refer to the July 1, 2004 appropriation ordinance.

 

 

STRATEGIC PLAN:

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

 

 

DISCUSSION:

FY06 Revenue Categories:

Attachment A provides the updated revenue projections for the FY06 General Fund.  An explanation of Attachment A is located near the end of this executive summary.

 

In October 2004, FY06 revenues were projected to be $173.556 million.  This January update estimates that revenues, transfers, and use of fund balance will total $177.724 million, a $17.876 million, 11.2%, increase over the FY05 appropriated budget.  This is a $4.168 million, 2.4%, increase over the October projections.

 

The individual increases/decreases for FY06 are described below.  Variances of $0.100 million from the FY05 appropriated budget are detailed.  Other variances are combined.

 

Real Estate Tax:

Real Estate Tax revenues are estimated to exceed FY05 appropriated revenues by $13.168 million, 17.5%, a $3.413 million increase over previous projections.  These revenues estimate the 2nd half of the 2005 reassessment together with 2005 new construction, as well as the first half of 2006 taxable assessment based on 2005 values.  The FY05 budget was prepared based on a 15.0% 2005 reassessment rate.  This estimate was subsequently increased to 17.5% for the October projections.  The final 2005 reassessment rate is 27.2% without adjustment for land use values.  The biennial rate continues a general upward trend the County has been experiencing since 1997.  The increase was 2.3% in 1997, 3.5% in 1999, 12.8% in 2001, and 18.7% in 2003.  The local housing market continues to grow due to low interest rates, the economic recovery, and the shortage of available homes for sale.  However, 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, inclusive of PPTR, are estimated to exceed FY05 appropriated revenues by $0.914 million, 3.3%, a $0.022 million increase from previous projections.  The slight improvement appears to be due to taxpayers replacing older vehicles with newer higher valued vehicles.

 

Changes to state law regarding PPTR payments beginning in FY06 were approved by the 2004 General Assembly and have the potential of significant cash flow and income recognition problems.  However, a recent opinion by the State Auditor of Public Accounts regarding income recognition and Budget amendments expected to be approved by the 2005 General Assembly should mitigate the issue.

 

Public Service Tax:

Public Service Tax revenues are estimated to $0.404 million, 19.6%, less than FY05 appropriated revenues.  The Virginia Department of Taxation (TAX) and the State Corporation Commission (SCC) prepare the public service assessments.  The assessments are based on the statewide total of capitalized equipment, the percentage located in Albemarle, and the public service ratio calculated by TAX which varies directly with the statewide medium real estate sales ratio.  As local assessments rapidly increase, the public service ratio decreases, resulting in reduced taxable public service assessments.

 

Sales and Use Tax:

Sales and Use Tax revenues are estimated to exceed FY05 appropriated revenues by $1.000 million, 8.7%.  The increase is due to the economic recovery underway, as well as anticipated new retail business openings.  However, the recovery is still somewhat fragile with significant monthly swings.

 

Business License Fees:

Business License Fee revenues are estimated to exceed FY05 appropriated revenues by $0.812 million, 11.0%, a $0.188 million increase over previous projections.  The increase is primarily due to strength in the retail merchants and home improvement/repair sectors of the local business activity.  However, it faces similar risks to those for sales and use tax.

 

Utility Taxes:

Utility Tax revenues are estimated to exceed FY05 appropriated revenues by $0.440 million, 6.3%, a $0.224 million increase over previous projections.  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 and landline telephone receipts flatten out.

 

Meals Tax:

Food and Beverage Tax revenues are estimated to exceed FY05 appropriated revenues by $0.450 million, 10.8%, a $0.100 million increase over previous projections.  This increase is consistent with state and national trends as consumption patterns shift from home prepared to convenience food preparation. 

 

Other Local Tax Sources:

The remaining local tax sources (recordation, short term rental, motor vehicle registrations, bank franchise) are estimated to exceed FY05 appropriated revenues by $0.266 million, 13.8%, a $0.174 million increase over previous projections.  The increase is primarily due to recordation and seller taxes resulting from the strong real estate market.

 

Other Revenue Categories:

Other Local Revenue receipts combined are estimated to exceed FY05 appropriated revenues by $0.091 million, 0.9%, a reduction of $0.084 million from previous projections.  Numerous items are in this category, many of which are increasing while some are decreasing.  The net increase is primarily due to increased revenues from service charges, permits, and fees.

 

State Revenue, excluding PPTR:

State Revenues, excluding PPTR, are estimated to exceed FY05 appropriated revenues by $0.524 million, 7.4%, a $0.017 million increase over previous projections.  Numerous items are in this category, many of which are increasing while some are decreasing.  The net increase is primarily due to increased recordation tax allocations, estimated 599 revenues, and reimbursement of constitutional officer salaries.

 

Federal Revenue:

Federal Revenues are estimated to exceed FY05 appropriated revenues by $0.572 million, 14.0%, a $0.084 million increase over previous projections.  Numerous items are in this category, many of which are increasing while some are decreasing.  The net increase is primarily due to the continuing shift of reimbursement for Social Services expenses from state to federal sources.

 

Transfers:

Transfers are estimated to exceed FY05 appropriated revenues by $0.045 million, 2.1%, a $0.031 million increase over previous projections.  Transfers are strictly speaking not revenues but rather shift of resources 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.

 

Revised Allocation of New Local Tax Revenues:

Attachment B is provided to point out three things: one, changes in local tax revenues since the October 2004 projection; two, the revised allocation of new revenues to the Capital Improvement Program based on the Board’s approved capital funding policy; three, the distribution of those revenues between the school division and local government based on the 60/40 split.

 

Several factors have changed since October 2004 that impact revenue projections and the 60/40 split:

1.                   The 2005 Real Estate Reassessment completed in December 2004 resulted in a biennial increase of 27% compared to the 17.5% projected in October. This increase, at the current tax rate, will increase FY06 revenue by $3.4 million.

2.                   The projection of Other Local Taxes (non-property) has increased by $0.745 million since the October projection.

3.                   Based on the Superintendent’s proposed school division budget, their FY06 non-local transfer revenues, i.e. state and federal revenues, have increased from 3% to 7% since their initial October projection. This increase results in a larger allocation of local revenue growth to capital/debt service, since the capital allocation formula is calculated on the combined revenue growth of the General Fund and the School Fund.

4.                   Based on the guidance provided by the Board at the January 19, 2005 budget work session, $2.893 million has been reserved for decisions to be made during the budget process. This amount of $2.893 million results from increased reassessment revenues of $3.4 million reduced by the increased allocation to capital/debt service of $520,166 based on the capital/debt service funding policy.

 

The combined impact of the above factors results in $10.0 million in additional FY06 funds over FY05 to be shared by general government and the school division, an increase of $838,067 since the October 2004 projection. Based on the 60/40 revenue allocation policy, the school division allocation increased by $502,841 to $6.0 million and general government increased by $335,227 to $4.0 million compared to the October 2004 projected allocation.

 

Due to the cumulative impact of the various policies on revenue allocations and the 60/40 split, the amounts referenced above and on Attachment B may change significantly should the Board elect to adjust the tax rate with a portion of the $2.893 million reserve referenced in item 4 above.

 

 

RECOMMENDATIONS:

Staff recommends that the Board:

 

  

UNDERSTANDING ATTACHMENT A

 

Attachment A provides the updated General Fund revenue projections for FY06.

 

Column A shows the initial FY05 appropriated revenues as of July 1, 2004.  Column B is the October, 2004 preliminary projection of FY06 revenues. Column C is the January 2005 updated estimate of FY06 revenues. 

 

Column C-B shows the difference between Column C, this January update, and Column B, the October preliminary projection.  These are additional FY06 revenues estimated since the preliminary October 2004 projections were presented to the Board of Supervisors in November 2004.

 

Column C-A shows the difference between Column C, this January update, and Column A, the initial current FY05 appropriated revenues.

 

Each individual revenue source can be analyzed in this same manner as a way of understanding the basis of the projected budget to budget increase, however, individual percentage changes may not add to the total percentage change due to rounding of the percentage changes to one decimal point.

 

 

 

ATTACHMENTS

 

A – Updated General Fund Revenue Projections as of January, 2005

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