Budget Simulation

Simulated Budget Report

C ITY

This report encompasses six essential steps to developing a City Budget. It includes: A City overview, Expenditure history, Revenue history, Revenue projections, Capital improvements, Expenditure estimates, and a final Budget.

2008

PA 450 Team Fresno Contributors: Wayne Fortin Anthony Taitingfong Michelle West Jacqueline Young

Table of Contents Memorandum to the Mayor................................................................................................................. .....1 Expenditure History Report............................................................................................ .........................3 Revenue History Report................................................................................................................. ...........6 Appendix 1: Questions/Answers Outline.......................................................................... ...................A-1 Appendix 2: Summary of Chapters................................................................................................... ...A-2 Appendix 3: Departmental Expenditure Matrices (Form 1)................................................ ..............A-3 Appendix 4: Part 2 Question/Answer Reviews......................................................................... ...........A-4 Appendix 5: Part 2 Summary of Chapters.................................................................... ......................A-5 Appendix 6: City Revenue Matrix (Form 2)................................................................................... .....A-6 Appendix 7: Revenue History Analysis.................................................................................... ............A-7 Appendix 8: Part 3 Question/Answer Review........................................................... ..........................A-8 Appendix 9: Part 3 Summary of Chapters.................................................................... ......................A-9

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ME MORANDUM

DATE: September 24, 2008 TO:

Mayor Salvador Espinosa, Assistant to the Mayor

FROM: Wayne Fortin, Staff, Budget Committee Anthony Taitingfong, Staff, Budget Committee Michelle West, Staff, Budget Committee Jacqueline, Staff, Budget Committee SUBJECT: City and Budget Overview This memorandum provides the information requested by the Mayor in the September 2, 2008 memorandum. All information herein, unless otherwise noted, is based on FY V.

Form of Government The City has a mayor-council form of government. The Mayor serves as the City’s chief executive officer. With assistance from his/her assistant and budget office, the mayor is responsible for the preparation of the annual budget for submission to the council. The Mayor is also responsible for the nomination of the City’s department heads and agency heads, subject to the council’s approval. The council serves as the Chief’s legislative and policymaking body. It approves the annual budget, passes city ordinances and confirms mayoral nominations for official positions.

Socioeconomic Characteristics The City currently has a population of 45,734. University students comprise 53% (23,963) of the population. The university provides an economic foundation for the city and the county. FYV budget reports $206 million dollars in direct/indirect expenditures in the local economy. Direct expenditures in the local economy from the university community equaled 35 percent of total sales. Currently, the university is the single largest employer in the county (6,700 jobs), ranking in size larger than all but two of the state’s manufacturing employees. An additional 8,300 jobs in the local economy are supported by universityrelated business. Because the university is a research center of considerable importance, more than a dozen state and federal research facilities have located in the county over the years. These installations employ more than 500 scientists and support personnel locally. The city has a total of 15,037.51 acres of land. Single-family units take up 3,586.90 acres, 23.87% of the space. Duplex units take up the least space, 89.50 acres (.59%). Open and vacant land total 6,985.97 acres (46.47%). The university alone takes up 4,921.20 acres (6.18%). The main natural resource in the city is water; two rivers traverse the county, creating a large river basin. The city uses the water as its public water supply and to provide power to the local community.

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Role of Local Government The local government can provide several goods and services to enhance the economic interests of its population. Since 41% of the current population is between the ages of 16-24, goods and services that target this age group would be ideal. Some examples include: more recreational opportunities (theme parks), zoning for the provision of social hot-spots (clubs, café’s). Government provision of goods and services can be carried out in several ways, to include: coordinated production, intergovernmental contracting, outsourcing, franchising and vouchering of services.

Tax Base The City relies on several tax bases for revenue. Sales and use taxes provide $5,278,580 in local revenue. Ad valorem taxes or property taxes bring in $2, 717, 57. Beer and Wine excise taxes bring in $1,368,79. Hotel/Motel tax accrues $189, 242 in revenue. Lastly, whiskey excise tax ($406,708), motor vehicles ($377,40) and intangibles ($855,160) also provide revenue. Based on total revenue of $30,489,534, these taxes and fees make up 21 percent.

Sources of Revenue The City features a wide range of revenue-generating devices permissible under law. Devices include: taxes, grants, service charges, fees and enterprise funds. For an extensive list and underlying economic activities, please refer to Appendix-1. The City currently does not utilize the following sources to generate revenue: Madison Avenue construction, Sanitation department-container rental and lodal sales, Recreation department, Street department equipment rental and Thomas Street construction.

Changes in Current Revenue Sources: Special Conditions Placed on Use of Revenues and Indebtness Earmarks comprise 37 percent of the total revenue collected. Please review Appendix-1 for a detailed list of earmarked projects. With regard to tax rates and fees, the City has approved some changes which have resulted in changes of revenue. A Hotel and Motel tax was established, resulting in a steady increase in annual revenue. The Sales and use tax was reduced as a result of the Ad valorem property tax being paid. Other impacts from tax rate/fee modifications can include discouraged consumption, increased efficient usage of resources, and debilitating industries/imposition of social loss. The City currently has legal authority to raise revenue in the following areas: Animal services, Burglar alarm system services, cash bonds on fines and parking tickets, and lastly on container rentals. There are certain limitations on the various types of indebtedness. The state has imposed limits on General obligation bonds, which places a 7% limit on assessed valuation. Special assessment bonds can not exceed the life of the asset financed. Revenue bonds must not exceed the life of the asset financed, but no more than 40 years. Short-term notes cannot exceed 75% of the total general fund revenues for the preceding fiscal year; and leases may be entered into without it counting as part of the debt of the city, as long as the contract includes a “non-appropriation clause”. Details about these stipulations can be reviewed in Appendix-1.

REPORT

DATE: October 15, 2008 TO:

Mayor Salvador Espinosa, Assistant to the Mayor

FROM: Wayne Fortin, Staff, Budget Committee Anthony Taitingfong, Staff, Budget Committee Michelle West, Staff, Budget Committee Jacqueline, Staff, Budget Committee SUBJECT: 5-Year Budget Expenditure Report

Upon the Budget Committee’s review of the departments, which include: Parks and Recreation, Building Inspection, City Clerk-Treasurer, Sanitation, Police, Civil Defense, Streets and the Elective departments, valuable information was found that will inform you of the cities efficiency and fiscal statistical standings of each department, as a result better preparing us to plan for the future in each categorical aspect. For each of the departments listed, major spending categories of lined items listed in each department will be discussed. You will also be able to identify major variances and changes which may have occurred in the budget shares within each department. The aforementioned will be reviewed in great detail in which you will discover what may have accounted for any specific changes. You will also see the changes once price effects are removed from expenditure data. Furthermore, an analysis of the variance results and expenditure ratio analysis will also be discussed. Let us start with the Parks and Recreation department. If we analyze the parks and recreation department, we see that the major spending category and line item for this department’s five-year period tend to be ‘salaries.’ Major variances in the department resulted in a 14% increase from FY IV to FY V, while FY I to FY III fell under budget. We can see that the supply stock up forced a decrease in spending in the last two years for example; spending quadrupled, janitorial supplies went from $6,078 to $27,402 in five years. Other areas that changed in the Services were utilities, communications, repairs to equipment and printing services causing a major increase in services compared to the overall expenditures. As you look at past spending trends, you observe that they are likely to influence the following year’s budget plans and in the parks and recreation department indicate that expenditure on salaries will be increased; which may hint they will continue hiring more people. Atypical observations include that capital expenditures skyrocketed by 935% between fiscal year one and fiscal year two followed by a 275% increase in fiscal year three, thus causing a major expenditure decrease across the boards for fiscal year two with the exception of salaries, gas/oil, and travel. Next we shall examine the building inspection department; just like the parks and recreation department we see that salaries continue to be the main spending category of the line items for the five-year fiscal period. There has been a steady increase in the variance with the exception of fiscal year four, which was a 30% difference; the building inspection department did overspend their previously forecasted budget. For changes; we see that office supplies sky rocketed to a 181% increase in spending, overall the re-allocation of this money will be taken away from other department and which it may be taken away from capital improvements because we see a drop from 605% to 53%. According to trends we can confidently state that

major expenditures will go towards salaries and services, it will also indicate that there is a steady increase on expenditures on services. Atypical observations include supplies doubling within a single year (fiscal year four by 181%). Also dues and subscriptions increased by 126% between fiscal year one and two, capital improvements went up 605% between fiscal year one and two and went negative -22% percent years after.

Table 1: Departmental Expenditures

As you can see, for the police department, Salaries is the major spending category for the five-year fiscal period. Overall the department did a lot of overspending because they did overspend on their budget for every fiscal year. As for change over time we see that the police department stayed steady the whole way around, there were some unexpected line item spending that came from printing from fiscal year four to five and professional services and investigation in fiscal year five but over time none of these affected the total expenditure amount. As for predicting future expenditures by analyzing past trends we see that although everything was pretty consistent, an important observation to note was that the police department seemed to always go over their budget making almost every line item under budget. After this continuous trend we may see a larger increase for the budgeted money in upcoming years. We failed to find anything atypical in the police department’s budget but we may conclude that with continuous growth in each fiscal year we will only see the department grow. As we move on to the next department on the list we see that in the city the clerk’s treasurer department. The major spending categories include salaries and the federal air coordinator. Under variances we see that supplies declined by 13% and there was a 15-30% decline until fiscal year five where spending decreased by 13%. To offset the salaries steadily increasing by 30% spending on office supplies has decreased between fiscal year three and five, spending on equipment repairs increased substantially between fiscal years two and five and the service budgets overall declined by 50% between fiscal year two and five. As for capital improvements we see that spending was inconsistent, they only spent money in fiscal year two but the amount was very large so the possible reasons for the decrease in overall spending in services and supplies could have been a result of a policy decision to enhance or revitalize the departments infrastructure and could reflect regularly scheduled upgrades for the future as well.

Sanitation plays an important role in the city when it comes to cleanliness and as expected we see the major spending categories in the sanitation department are the salaries, office supplies, equipment repairs, field/lubricants as well as capital improvements. Variance wise there was a total increase of 35% in fiscal year for to fiscal year five, we also see that travel was over budgeted across the board. We can see change happening as well as predict what this is going to do to budget planning when we make the observation that since spending increased in fiscal year two through four by 35% the spending was offset by a 72% decrease in spending in office supplies in fiscal year five. For the next department we see that salaries and capital improvement was the leading spending category in the civil defense department, when it comes to variances we see that they budgeted well and kept their numbers stable across the board, and we also notice there was rarely any over budgeting. In fiscal year five the department overspent by three times of what their projected budget was and the main reason was because of capital improvement. As for line items changing over time we see that the real concern lies with in capital improvements in fiscal year five when the $95,572 spent was not budgeted at all, which caused a big hit in total expenditure amount that year, we see that such trends may call for greater re allocation of funds due to being under budgeted. In the streets department it makes sense that the major spending categories lie within the asphalt, equipment repairs, car allowances and salaries. Major variances include concrete, and education for the training. The only line items that change over time that have any real significance are the salaries as they are steadily increasing while everything stays pretty consistent. Capital improvements increase at a steady rate so it looks like it will stay constant but overall everything in the streets department seems pretty stable across the boards. In the Electives department, salaries, expense allowance, and legal services are the main contributors to spending, major variances from year to year include travel conferences and legal services. As travel conferences increased legal fees took a slight dip then significant rise again and ended up stabling out in fiscal year 5. As we review trends we see that influences for future budget plans include that services will continue to climb at a steady rate and look to stay constant as a service intensive department. One last atypical observation we made is that expenditures for advertising rose by 700% maybe due to a possible advertising campaign run by the electives department. In conclusion we can see that a simple budget can give us a complete story of past, present and future representations going on with the given department being observed at the time. Also when we observe the major spending categories we can tell what each departments priorities are, in addition to the prioritized line items in each budget we see that each department is salary intensive when it comes to expenditures due to the given fact that there has to be people running each department. We also learn that when one line item ends up spending more or less the projected budget we see that this has a push and pull effect on other line items when it comes to money allocation; for example for more money spent on supplies could mean less money allocated to salaries.

Appendix 1: Questions/Answers Outline Form of Government 1. What form of government does the City have? a. Mayor-Council form of Government b. Strong Mayor with some restrictions i. Can nominate heads of City departments and agencies upon Council’s approval c. Mayor can veto actions taken by vote in the council d. The Mayor prepares the budget for submission to and approval by the Council 2. What is the role of the City Council? a. The City’s Chief legislative and policymaking body i. 10-member council comprised of 2 representatives from all 5 City wards b. Pass City ordinances c. Approve the annual budget d. Confirms Mayoral nominations of officials 3. Who else has some responsibility in developing the budget? a. Assistant to the Mayor b. City Budget Office c. Departments/sub-divisions Socioeconomic Characteristics 1. Describe the City’s Population a. 45,734 population 2. Analyze the University’s contribution to the economic base a. University provides an economic foundation for the city and the county i. $206 million dollars in direct/indirect expenditures in the local economy ii. 3/5 of this total ($118 million) is in form of direct payments to university iii. Direct expenditures in the local economy from the university community equaled 35% of total sales. iv. Local business volume generated by university-related expenditures raises this proportion to 60%. b. University is single largest employer in the county (6,700 jobs) i. An additional 8,300 jobs in the local economy are supported by university-related business c. University also has enhances the quality of life in the city and county i. Because the university is a research center of considerable importance, more than a dozen state and federal research facilities have located in the county over the years. ii. These installations employ more than 500 scientists and support personnel locally d. Improved recreational and cultural opportunities 3. Describe the City’s land use a. City and County land combined b. City land is 15,037.51 acres i. Single-family units take up 3,586.90 acres, 23.87% of space ii. Duplex units take up the least space, 89.50 acres (.59%) iii. Open and Vacant land take up 6,985.97 acres, 46.47% c. County land is 79,633.70 acres

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i. Open and vacant lands take up 63,870.40 acres (80.22%) ii. University property is included in the Public and Semipublic category, which makes up 4,921.20 acres (6.18%) 4. Describe the City’s natural resources a. Large river basin i. A result of two rivers that traverse the county ii. Waterways and conditions favor an abundant year-round supply of surface water iii. City uses the water as its public water supply b. River water provides power for the community c. Private recreational lake for fishing and boating Role of Local Government 1. What goods and services can a local government provide to enhance the economic interests of its population? a. National Defense i. Can appropriately use land to build military installations ii. Will also reduce unemployment iii. Provide a safety-net for local community b. Recreation i. Improve public parks ii. Allow for the construction of theme/water parks c. Improved Public Facilities d. Social Services e. Subsidies 2. How can public goods and services be produced without direct public deliver? a. Coordinated production b. Intergovernmental contracting c. Private contracting (outsourcing) d. Franchising e. Vouchering Tax Base 1. Describe the tax base on which the City depends for raising local revenues. a. Ad valorem taxes-Property tax ($2,717,57) b. Ad valorem taxes-Motor vehicles ($377,40) c. Beer/Wine excise tax (1,368,79) d. Hotel/Motel tax ($189,242) e. Intangibles ($855,160) f. Sales and use tax ($5,278,580) g. Whiskey excise tax ($406,708) Sources of Revenue 1. What revenue sources are currently used in the City and what is the economic activity underlying that revenue source? a. Ad Valorem (Property Tax) – real and personal property purchases and ownership b. Ad Valorem (Property Tax) for Motor Vehicles – mileage on vehicle purchases c. Animal Services – Pet care: immunizations, impound/board and care d. Beer and Wine Excise Tax- wholesaler purchases e. Building Inspection Fees –new and rehab construction A-1

f. g. h. i. j. k. l. m. n. o.

Burglar Alarm System – new and rehab bus/home rental, lease, purchases Cash Bonds on Fines – police patrol; public safety Cash Bonds on Parking Tickets – police, city meter patrols; public safety Civil Defense – County Share – n/a based on apportioned rate of responsibility Civil Defense-Federal Share -- n/a based on apportioned rate of responsibility Container Rental – business and residential County Fire Protection – public safety County Fire Station – public safety County Planning Commission – sharing, co-op government; planning and land use County Supplement (Water-Sewer Enterprise Fund) - sharing, co-op government; infrastructure p. Court Fines – public safety; court actions q. Equipment Rental – construction and maintenance r. Fi.Fas. and Interest – government, regulatory/oversight of business and personal income and property s. Fire Alarm System – new business rentals, lease, purchases t. Gross Earnings-Cable Television – city residential and business subscribing u. Gross Earnings-Gas Company – city business and residential usage v. Gross Earnings-Power Company – city business and residential usage w. Hotel and Motel Tax - tourism x. Housing Authority payment – government fee in lieu of property taxes y. Intangible Taxes – tied to purchases z. Interest Earned – investment activity by city aa. Leaf and Limb Pickup – residential services bb. Lodal Sales – business services cc. Miscellaneous Sales – misc sales activities dd. Other Reimbursements – residential light improvements service ee. Parking Meters – public safety ff. Paving and Paving Cuts – local development gg. Planning Commission Miscellaneous Revenues – sale and distribution of literature hh. Recreation Department-County – tourism ii. Recreation Department-Pools – recreational usage jj. Recreation Dept-Program Revenues – recreational usage kk. Sales and Use Tax – general sales activities ll. Sanitation Service – industry contracts mm.Special Taxes and Licenses – professional and business fees nn. Sprinkler and Hydrant Rent (Water-Sewer Enterprise Fund) – public safety; special services fee oo. State Contracts – special government projects; public construction pp. State Transportation Department Contract: Maintenance – public service; construction qq. Tap and Meter Charges -Water and Wastewater (Water-Sewer Enterprise Fund) – new construction (business, industry, residential) rr. Transportation Bond Program – public construction; special projects ss. Wastewater Charges (Water-Sewer Enterprise Fund) – water consumption; sales tt. Water and Wastewater Connection Fees (Water-Sewer Enterprise Fund) – new construction uu. Water Revenue (Water-Sewer Enterprise Fund) – sales; residential + non-residential vv. Whiskey Excise Tax –wholesaler purchases ww.Alternative Revenue Source: Income Tax – wages and investments 2. List any legally permissible revenue sources the City does not utilize currently. A-1

a. b. c. d. e. f.

Madison Avenue Construction Sanitation department-Container rental Sanitation department-Lodal sales Recreation department Streets dept. equipment rental Thomas Street construction

Changes in Current Revenue Sources: Special Conditions Placed on use of Revenues and Indebtedness 1. Concerning scope and limitations on use, which revenues are earmarked for specific uses and which are not, what percentage of total revenues collected consists of earmarked revenues? a. Police Department i. Parking meters ii. Court fines iii. Cash bonds on fines iv. Police planner v. Burglar alarm system b. Streets department i. State contracts ii. Paving and paving cuts iii. Equipment rental iv. Thomas Street and Madison Avenue construction projects v. Transportation bond vi. State transportation department vii. Contract-maintenance c. Water and Sewer i. Water meter installation ii. Sprinkler and hydrant rental iii. Tap and meter charges iv. Wastewater charges v. Water and wastewater connection fees vi. Water revenue vii. County supplement viii. Construction funds d. Sanitation i. University rent ii. Miscellaneous sales iii. Lodal sales iv. Sanitation service v. Container rental vi. Leaf and limb pickup e. Recreation Department i. Pools ii. Program revenue iii. County recreation f. Fire department i. Fire alarm system ii. County fire protection iii. County fire station g. Civil Defense i. County A-1

ii. Federal h. Animal services i. City/County Planning i. County planning commission ii. Planning commission miscellaneous revenues j. Building inspection i. Building inspection fee 1.1Earmarks represent approximately 37% of the total revenues collected. 2. What are the impacts of a change in a tax rate of fee level, and have there been any recent changes? a. Impacts of change can include: i. An increase or decline in revenue sources ii. An increase or decrease in sales and usage iii. Discourage consumption iv. Increase efficient usage of resources v. Handicapping industries/imposition of social loss b. Recent changes include i. Hotel and Motel tax was established, resulting in a steady increase within each fiscal year. ii. Sales and use tax was reduced as a result of the Ad valorem property tax being paid. Revenue steadily increased thereafter. iii. Ad valorem property tax suffered a one-time increase since FYIII but has remained steady at 96% since. 3. Are there any revenue items whose rates the City has the legal authority to raise? a. Animal services b. Burglar alarm system c. Cash bonds on Fines and parking tickets d. Container rental 4. What special conditions are placed on the different types of indebtedness? a. State imposed limits on General obligation bonds: i. Debt limit is equal to 7% of assess valuation ii. Majority vote of citizens is required to impose the property tax as security iii. Maturity of bonds must not exceed the life of the asset financed, but no less than 2 years and no more than 30 years b. Limits on Special assessment bonds i. Special assessments (property tax) levied on property owners must be approved by them ii. Maturity bonds not to exceed the life of the asset financed, but no more than 20 years c. Revenue bonds i. Maturity of bonds must not exceed the life of the asset financed, but no more than 40 years d. Short-term notes i. The aggregate amount cannot exceed 75% of the total general fund revenues for the preceding fiscal year or 75% of the anticipated revenue of the year in which issued ii. Notes must be paid within fiscal year of issue e. Leases A-1

i. When the contract includes “non-appropriation” clause, a lease may be entered into without it counting as part of the outstanding debt of the city

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Appendix 2: Summary of Chapters The required readings from Budgeting: Formulation and Execution1 played an integral role in the successful completion of Assignment 1. It provided an educational foundation to 1) understand the political structure and intricacies of government, and 2) to develop the appropriate mind frame for the simulated development of a City budget. Below is a brief synopsis of each chapter. Chapter 2. Local Government Structure The core issue discussed in Chapter 2 is the organizational structures of municipalities. The types of government include: Weak Mayor, Strong Mayor, Council manager, and the Commission form. In each type, the legislative and policymaking powers vary. This information is useful to understanding important elements of the government and public finance/budgeting process. Combining the knowledge from this chapter and assignment 1, one can conclude that the City has established a Strong-Mayor with very few restrictions. The budget is primarily developed by departments and subsidiaries and then submitted to the Mayor’s assistant for review/modifications/recommendations; finally being submitted to the Mayor. After his/her editions, the budget is reviewed and approved by the council. Chapter 3. States and their Local Governments Chapter 3 focuses on the role of state government in regard to local government operations. In summary, the state government influences many aspects of local government to ensure viability. Some elements of state interest include: decision-making efforts, administrative oversight, economic and operational improvements, finance and quality assurance (equity, effectiveness, efficiency and accountability). Overall, this reading was not as useful as the other chapter but did provide a basic understanding of state influence on local government. Chapter 4. Principles of Fiscal Federalism The issue discussed in Chapter 4 is how finances play an integral role in our nation’s federalism. It explains the basic concepts, structural responsibilities, and the implementation of those responsibilities as a framework for federalism. It also discusses in detail how these concepts are integrated into the processes for spillovers, disparities, and income maintenance. It explains how intergovernmental relations mostly influence the municipal budgets and economic decision-making. When pertaining to the assignment, this information was valuable in understanding the list of earmarks that were highlighted in the City report. Chapter 5. Local Public Economies: Provision, Production, and Governance The core issue discussed in Chapter 5 is the methodologies of government provision of goods and services. Particularly, it focuses on provision, production, and their governance. The government should strive to effectively and efficiently provide goods/services; be it through privatization, self-production, coordinated production, joint production, franchising, or vouchering. With a basic understanding of these methodologies, one can clearly analyze the logic behind resource allocation; which makes this chapter very important to completing the assignment. It helps the reader conclude what the public values and how the government has allocated those resources and services to fulfill these requests. Chapter 8. Economic Base: What our Jobs Are Tied To Chapter 8 explains the methodologies for determining the size and composition of the economic base of a local economy. It shows how to apply these calculations in interpreting the export activity (known as the economic base) and imports (other economic activity). This concept is known as the Theory of Economic Base. In brevity, use the SIC to select and calculate the location quotients for the desired industry: 1

Budgeting: Formulation and Execution. Edited by Jack Rabin, W. Bartley Hildreth, and Gerard J. Miller. Carl Vinson Institute of Government, Athens. 1996.

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Location Quotient = % local employment % national employment If the result is <1, the designated industry is an export industry If the result is >1, the designated industry is an import industry If the result is =1, the designated industry is neither export/ import This information was not useful in the successful completion of assignment 1, but will be in the near future. Chapter 10. Mandates: Cases in State-Local Relations Chapter 10 focuses on the issues of mandates and the controversial aspects of state-local relations. With increasing concern, states have been mandating functions, standards, tax limits, and other rules for local governments with little to no financial support. The issue brings into question the viability of the local government. How can the municipality work with big demands and little resources? The chapter highlights issues such as funding, local autonomy, and state mandating policies. This reading was not useful for assignment 1 but did provide understanding on how mandates are likely to affect city budgets and resource allocation. Chapter 15. Criteria for Evaluating a Tax (Revenue) System Chapter 15 identifies the generally accepted criteria for evaluating a given tax or tax system. The primary purpose of a tax system is to produce revenues; however, some key characteristics should be ensued: neutrality (accomplishing certain intended objectives) and equity (objectivity). The readings also briefly discuss the affects of taxes on capital growth, feasibility of implementation, costs and tradeoffs. This information is very useful in that it brings reasoning to the City’s selection of tax and revenue base. This is of most importance as it sets criteria for policy decisions made regarding the imposition, expansion or repealing of taxes.

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APPENDIX 4: Part 2 Question/Answer Reviews

EXPENDITURES ANALYSIS: PARKS AND RECREATION AND BUILDING INSPECTION DEPARTMENTS 1. What are each department’s major spending categories and line items for the five year period? Both Building Inspection and Parks and Recreation department’s major spending categories and line items are SALARIES. Over the 5-year period, salary expenditures were 83% of the total budget for Building inspection and 63% for Parks and Recreation department.

2. What are the major variances from year to year? For FY V, the Parks and Recreation department experienced a 112% over-budget; a 14% increase from FY IV (98%). FY I thru IV was below budget. Capital Improvements, an increase in gas prices and unforeseen repair expenses caused an increase in expenditures for FY V. Over the 5 year period, the City has obtained a 98% average in variance. The Building Inspection department was under budget for FY I, but went over budget thereafter. Several instances caused a 30% variance increase between FY II and FY III. An increase in employees and supplies caused a jump. Most importantly, Capital Improvements wasn’t budgeted for in FY IV, but the City had to pay $2,400 that year. This affected its budget expenditures for FY V as well.

3. What changes occurred in the budget shares within each department? For the Parks and Recreation department, the “common size form” or budget shares were predominantly in Salaries and Capital Improvements. Over the 5 year period, Salaries decreased the past three years by 4% and then jumped by 12% and steady for the last two. With the unexpected capital improvements, money was being allocated for FY I thru III, but declined thereafter. For the Building Inspection department, there was a decline by 6% in Salaries over the 5-year period. Services remained steady the first few years until in FY IV money was increased, taking 12% of the budget for FY IV thru FY V. Supplies and Capital improvements were versatile in priorities through the years.

4. What might account for the specific changes noted? The increase in proportions for Salaries in the Parks and Recreation department can be attributed to hiring new members for ground maintenance. Furthermore, the procuring of irrigation equipment may have been the cause to a shift in Capital Improvement proportions. For the Building Inspection department, perhaps there was no longer a need for building inspectors; which caused the decrease in Salary expenditures.

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5. After calculations of the Constant Dollar Expenditures, it appears that that the City has

experienced drastic price changes in the “market basket”. Parks and Recreation CURRENT $ IPD CONSTANT $

Building Inspection CURRENT $ IPD CONSTANT $

539,576 100 539,576 YEAR I 104,598 100 104,598 805,150 110 731,954 YEAR II 119,472 110 108,611 YEAR II 1,528,410 120 1,273,675 YEAR III 131,682 120 109,735 YEAR III 1,472,332 130 1,132,563 YEAR IV 177,398 130 136,460 YEAR IV 1,626,840 120 1,355,700 YEAR V 224,232 120 186,860 YEAR V It is evident that the City has experienced inflation over the 5-year period; with the Implicit Price Deflator increasing by 10 for three years. This has caused the City to pump out more money, by the thousands, for the same expenditures. However, the influx may also be attributed to the population increase. Within a 5-year period, the City experienced a 5% increase in population. YEAR I

6. The variance analysis for each department is demonstrated below. Parks and Recreation YEAR I

YEAR I SPENT

555,094 YEAR II

YEAR III

1,762,872 YEAR IV

YEAR V

97% VARIANCE

805,150 YEAR III SPENT

80% VARIANCE

1,528,410 YEAR IV SPENT

1,495,140

VARIANCE

539,728 YEAR II SPENT

1,012,656

Building Inspection

87% VARIANCE

1,472,332 YEAR V SPENT

98% VARIANCE

YEAR I

YEAR I SPENT

114,646 YEAR II

104,598 YEAR II SPENT

118,708 YEAR III

119,472 YEAR III SPENT

130,604 YEAR IV

131,682 YEAR IV SPENT

135,686 YEAR V

177,398 YEAR V SPENT

VARIANCE

91% VARIANCE

101% VARIANCE

101% VARIANCE

131% VARIANCE

1,457,396 1,626,840 112% 210,488 224,232 107% The variance for the Parks and Recreation indicates that for the first 4 years, the department was underbudgeted; with the exception of the last year, which increased by 14%. The Building Inspection overbudgeted for 4/5 years, with a steep increase in unexpected spending for Capital Improvements for FY IV.

7. What observations emerge from the use of these ratios? Ratios indicate the piece of the pie that each person in the populations contributes to the total expenditure.

APPENDIX 4: Part 2 Question/Answer Reviews A-4

EXPENDITURES ANALYSIS: CIVIL DEFENSE AND POLICE DEPARTMENTS 1. What are the departments major spending categories and line items for the five year period? In Salaries, there was an increase from $28,000 - $47,000 throughout the five year period. Travel was the third highest line-item, remaining under 3,000 through all years but still consistently high throughout. Capital Improvements were the highest of all categories when examining spending. None in the first year examined but then reaching as high as $171,000.

2. What are the major variances from year to year? Some of the more notable variances occur from FYIII to FYIV. In areas of: office supplies, dues and subscriptions, travel and capital improvements. These than resulted in a high variance between the total amounts spent from FYIII to FYIV.

3. What changes occurred in the budget shares within the department? When examining budget shares within the Civil Defense Department it becomes difficult to examine over the course of each year because of the lack of information throughout each year. However, as expected, we see that there is a correlation between the increase in money spent on office supplies with the money spent on salaries. The more workers, the more office supplies needed.

4. What might account for the specific changes you noted (new positions, one-time expenditures, etc)? When examining salaries, we see that it gradually increases each year. However, total money spent spikes in FYIV. The shares relating to the spike are accounted for by the increase in capital improvements and equipment leasing. This is not usual to me. I expect that it is just simple growth the department is undergoing in its FYIV. As salaries rise, the department needs to expand.

5. Constant Dollars: Conclusion #1: As the inflation goes up, the REAL (or constant) value of a dollar goes down. Conclusion #2: The percentage change in any object of expenditure will tend to be lower once we take into account inflation.

6. Variance

7. Ratio

A-4

A-4