BN 2019/21 Adopted Budget

Budget Message

April 17, 2019


Dear Ashland Citizen's Budget Committee and Citizens of Ashland,


The City of Ashland (City) presents its Biennium 2019-21 (BN 19-21) proposed budget for your review. This biennial budget presented many challenges to balance but results in a framework for the long-term sustainability of City of Ashland municipal operations. The Budget development included an "everything on the table" approach while utilizing a zero-based budget. The "everything on the table" approach ensured that the City evaluated all current service levels, prioritized those services and ultimately budgeted for the top priorities based on City Council goals and objectives.


The City Council developed their goals and service level priorities through an open process with public engagement early in the internal budget development process. The City Council began the goal setting process with a clear understanding of the current financial situation, as well as anticipated future budget issues for the City, many outside of local control.


The tourism industry is a significant component of Ashland's economy and also plays a role in funding key public safety services for the community. The City and Chamber of Commerce have worked to diversify the local economy through outreach and recruitment process. The City also works closely with SOREDI (Southern Oregon Economic Development Inc.). The efforts have worked but are a long process. None the less tourism remains the major economic driver for the City. However, the community has experienced challenges that are outside of the City's control and have negatively impacted both business that relies on tourism as well as the City of Ashland budget. The City's General Fund, which funds Public Safety, Parks and Community Development relies in part, on tourism funds. With the recent summer smoke events, the City's Transient Occupancy Tax (TOT) and Food and Beverage Tax have not matched anticipated and historical growth rates. The BN 19-21 proposed budget forecasts no growth in either of these major revenue sources. The tourism industry also faces the challenges of a changing Oregon Shakespeare Festival (OSF), with its two executive positions in transition. OSF, with a current heavy reliance in the summer on its outdoor theatre, will continue to face potential smoke impacts to their operations. The OSF Board and its leadership team have been developing both short and long-term strategies to help address these concerns but the outcomes of the changes necessitate a conservative approach to the City's projected tourism revenue.


Wildfire smoke does not just harm tourism, but the greater population as a whole. The City of Ashland has been instrumental in working towards changing the model of forest management on the West Coast and how communities can work with the US Forest Service. The Ashland Forest Resiliency (AFR) project, working closely with many partners, has provided active management to the Ashland Watershed. This model provides a leading example that could be applied to greater areas to help reduce the impacts of wildfires. With two consecutive summers of smoke events, the City is cognizant that this might be a “new normal” with potential impacts to the overall population and is actively working with local, regional and federal partners to expand this successful model of fuels reduction and forest management.


The City, as with all public agencies in Oregon, also faces a Public Employee Retirement System (PERS) challenge moving forward. The City, provides a retirement program to current and retired employees through Oregon PERS. The Oregon PERS system, similar to many State Retirement Plans throughout the nation, does not have a fully funded plan. Because of this, the plan requires participating entities to collect more money from current employees (through the City's contributions) to remain solvent in the face of increasing payments to the existing retired members of the program.


Oregon PERS has implemented a "rate collar" which limits the maximum contribution rate to twenty-five percent (25%). The City hit the rate collar in the 2017-19 biennium and will be subject to the same rate in BN 2019-21 and is reflected in this budget. The overall impact to the City of the rate increase totals $2,115,868 Citywide and $976,869 in the General Fund. Funding PERS, and rate increases, will continue to impact City operations for several more biennia. City staff continue to monitor potential programs at the State level to help mitigate rate increases and will provide options to the City Council when they are available. It is important to note that the PERS rate not only pays for current employees but also for former employees unfunded portion of their pensions roughly in equal proportion.



The City also faces potential fiscal impacts due to the increasing costs of healthcare. Prior to July 1, 2018, the City provided health insurance to employees through a self-funded health plan. The self-funded health plan presented the City with many advantages for the five years it was in place. The City realized reductions in premiums (claims paid) and also was able to maintain the same benefit offerings to employees. However, the plan was never able to capitalize itself enough to weather unanticipated major claim years. In the last year of the plans existence, claims increased over $1 million. The City was faced with two options, stay self-funded and increase premiums by $1.25 million to every Department in the City or change to a more traditional insurance plan through City Insurance Services (CIS). With a move to CIS, premiums would be kept flat for 18 months with the same benefits, but a change to the standard plan after 18 months would be necessary. The City chose to move from the City's self-funded plan to the CIS plan. The CIS model charges premiums to the City and is a large collective style self-funded plan made up of Cities and Counties throughout Oregon. With collective bargaining agreements in place with Police and Fire during the transition, the benefit offerings for those two groups will remain in place for three years, instead of 18 months.


When the 18-month period expires on January 1, 2020, all City employees, outside of Police and Fire, will be faced with a change in the benefit offerings. The current available CIS plans shift a greater portion of the overall healthcare cost onto the employee, away from the City, at a similar premium rate. The new plans require a higher deductible and employee co-pay, as well as an increase in the percent of cost the employees pay for the services they receive. The employee premium contribution rates are not forecasted to change in the BN 2019-21 proposed budget as employees will be financially impacted with the above noted plan changes.


With an understanding of the current financial model, the City Council developed the following goals and service level priorities.

1. Develop current and long-term budgetary resilience

2. Analyze City departments/programs to gain efficiencies, reduce costs and improve services

3. Enhance and improve transparency and communication

The BN 2019/21 Budget, as currently presented, implements these goals and service level.


Personnel

As a service organization, the cost of employees has been and continues to be the largest expense category in the budget. It is through employees that the majority of the City services are accomplished.


The BN 2019/21 proposed budget includes no new positions and calculates and includes the full cost of all positions. Knowing the current and future financial challenges faced by the City, several potential new positions were requested that ended up not being included in the budget due to City-wide service level priorities and funding concerns. These positions included a Fire Inspector, Water Utility Worker and Parks Maintenance Technicians.


The BN 2019-21 proposed budget includes the elimination of six positions; two Police Officers, an Administrative Services position, an Administration position, a Court position, and a position in Community Development. These staff reductions further constrain already lean operations in these Departments but are proposed due to the City's financial situation. The Budget is also balanced under the presumption that three Firefighters are not eliminated but paid through a $5 increase in the Public Safety Support Fee. More information in regard to cut can be found in the General Fund Balancing Proposal following the Budget Message.


The BN 2019-21 proposed budget includes the following Cost of Living Adjustments, as included in the collective bargaining agreements.

Fiscal Year 2020 Fiscal Year 2021

Police 3% 3%

Fire 2% 2%

IBEW – Electric 3% 3%

IBEW - Clerical 2% 2%

Parks 2.5% 2.5%

Non-Represented 2% 2%

Laborers 2% 2%


Below is breakdown of Salary and Wages and Benefits for the City as a whole. The Salary and Wages line items increase 15 percent for the Biennium, or roughly seven percent a year. The number is higher than BN 2017/19 Amended Budget as the amended budget currently does not reflect the additional cost of two Police Officer positions approved by the City Council nor reimbursements for some Fire Overtime that was spent in mutual aid.


Citywide Personnel





Full Time Employee Wages





Personnel By Department





As mentioned, the City's contribution to PERS is a major component of the City's overall personnel costs. The PERS contribution rates for each position includes several rates. The rates charge for normal costs, or the cost of that specific employee's retirement, but also a rate for the systems unfunded actuarial liability (UAL Rate). The table below provides the rate breakdown.

When we separate these items, the City pays far less for current employees' retirement program contributions. The contributions for those employees that have retired is greater due to PERS prior yearsoverall underfunding of the retirement system. The table below provides a breakdown of the City contributions based on each component of the PERS rate.

Material and Services

The cost of staff comprises the largest portion of the City's budget. In order to carry out City operations, the City must purchase materials and services as well. Consistently required items included in the Materials and Services category include water treatment chemicals, professional services, fuel for vehicles, computer technology and software and the City’s 911 dispatch contract, to name a few. All City Departments were diligent in ensuring that their Materials and Services requests remained as close to flat as possible while still maintaining an acceptable level of service.


The major change in the cost of Materials and Services citywide is an increase in internal charges for Citywide Overhead, which is primarily contained in the Central Service Fund and with Equipment Replacement charges. The Insurance line items include the increase cost of the premium payments for health insurance. Departments pay into the Health Benefits fund and the Health Benefits Fund pays the actual premium bill for the insurance. Material and Services include several areas that, due to governmental accounting requirements, result in being accounted for twice in the budget. This creates an inflated budget total compared to actual expenditures. Health insurance is one of these areas, as is property and liability insurance. The cost of the insurance is allocated to departments under internal charges and fees and then the insurance premiums are paid from the insurance fund.



Overall Material and Services



Departmental Material and Services



Materials and Services also includes internal service charges. The City charges all departments, and funds, an equitable amount for Citywide Overhead, Equipment Replacement, Fleet Maintenance, Facilities Use, and Insurance. The City completed a Cost Allocation analysis to ensure a fair and equitable allocation of all Central Service (Citywide Overhead) charges. The City last year completed a comprehensive Cost Allocation Plan update in 2010. The new methodology ensures that the City is not overcharging for services to Departments. The new methodology showed the City has overcharged the enterprise funds for the last ten years and the new plan correctly identifies the usage of Central Services. With the changes to the Cost Allocation Plan affecting Departments differently, the City plans to implement the full plan over the next two biennium budget cycles to provide a more gradual impact on each department's individual budgets.


Proper and equitable funding of Central Services became a priority focus in fiscal year 2018-19. In order to balance the BN 2017-19 Budget, the City transferred $1.7 million of one time facilities reserve money into Central Services to cover the accumulated under-charging to many Departments. The purpose of this transfer was twofold: 1) to fill a negative fund balance in Central Services; and 2) to ensure no operational impacts/service level reductions to the General Fund. With a very lean existing citywide overhead structure, the City remains limited in its options to reduce costs without noticeable impacts to current service levels. The vast majority of the Central Services Fund budget remains mission critical and reduction would harm overall citywide operations. The elimination of positions, and the new methodology to fund Central Services develops a sustainable system to fund Central Service in the BN 2019-21 and into the future.



Capital

The City completed a 20-year Capital Improvement Plan approved by Council in March, 2019. The proposed budget document includes only the BN 19-21 component of the overall 20-year plan. Each project is provided within the fund that it is associated with. The overall capital budget decreases significantly in the BN 2019-21 proposed budget primarily due to a philosophical change in budgeting methodology for capital projects. The BN 2019-21 proposed budget reflects only the actual expenditures the City plans to expend within that budget timeframe, rather than the entire project cost. A more detailed discussion of the projects can be found in the Capital Improvement Plan section of this budget.



Debt Service

The City utilizes debt to pay for most major capital projects. The BN 2019-21 Proposed Budget continues to meet our annual repayment obligations.



Property Taxes


Property Taxes are the largest revenue source for the General Fund. The City portion of the overall property tax rate for properties within the City Limits is 4.2422 per $1,000 of assessed valuation. In addition, the citizens of Ashland also passed two General Operating Levies to fund Fire Station No. 1 and No. 2 in the amount of $0.1895 (FY19 Rate) per $1,000 of assessed valuation for a total City of Ashland Property Tax Rate of $4.4317.


Assessed property valuation can only increase a maximum of 3.5 percent per year, per State law. The City has experienced a larger than 3.5 percent assessed valuation growth over the last several years due to added tax assessments from new construction and major remodels. The BN 2019-21 proposed budget forecasts a four percent assessed valuation growth, and a collection rate of 95 percent which are both consistent with the past several years' actual results.


Historically the City has provided the Parks and Recreation Commission an equivalent of $2.09 per $1,000 of assessed valuation as a contribution from the General Fund. The current budget reduces the contribution from property tax revenue to Parks by over $750,482. The new contribution to Parks is equivalent to $1.89 per $1,000 of assessed valuation. Recognizing the current economic condition, the Parks and Recreation Commission has recommended that a portion of the Park Commission component of the Food and Beverage Tax revenues be transferred in the Parks General Fund to fund parks maintenance, rather than its historical use for parkland/open space land acquisition for this budget cycle.

Transient Occupancy Tax


The City of Ashland receives just under $3 million in Transient Occupancy Tax (TOT) collections annually. By State law, the TOT collections yield a combination of restricted and unrestricted funds. On an aggregate level, 70% of the tax collected remains unrestricted and funds General Fund operations.


The majority of the City's TOT revenue is generated during the peak tourism months, May through September. With the impacts of wildfire smoke the City experienced a five percent decrease in TOT collections last year. With the unpredictability of summer smoke events, the BN 2019/21 proposed budget forecasts no increase in TOT collections over the current projected FY 2019 estimate. TOT remains a closely monitored revenue source. If tax collections exceed the budget, the City has the ability to revisit options to utilize the increased revenue.


Franchise Fees


The City charges all utilities for use of the City's rights-of-way. These fees are called Franchise Fees. The current franchise fee amounts are:

Rate

City of Ashland Electric 10%

City of Ashland Water 8%

City of Ashland Wastewater 8%

Ashland HomeNet 2%

Avista 7%

Charter 5%


The revenue collected through the Franchise Fees are dependent on the total revenue from each utility, typically meaning that the more consumption of the product (water, electricity, natural gas, etc.) the more franchise tax revenue is received.


Charges for Services


The City charges customers for the use of various City services and the charges are then used to cover the cost of the service. These charges include both those that are used by the citizens of Ashland like Electricity and Water, to those that are used by staff like the health benefits fund. The assumption used to calculate charges for service is the amount that has been historically collected.

The Proposed Budget includes several assumptions in regards to enterprise fund rate increases. A summary of the changes can be found below.

Change

Electric 3.65%

Water 4%

Wastewater 4%

Streets 3%

Stormwater 3%

Conclusion

The BN 2019/21 proposed budget incorporates the theme of setting the City of Ashland on a path to long term financial sustainability. The BN 2019/21 proposed budget represents a challenging budget to balance with tough decisions to be made to ensure that the City of Ashland maintains and continues the superior level of service provided to the residents of Ashland.