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HomeMy WebLinkAbout3. 2014 Property Tax Levy 11/11/2014Village of Mount Prospect Mount Prospect, Illinois INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: FINANCE DIRECTOR DATE: NOVEMBER 7, 2014 SUBJECT. 2014 PROPERTY TAX LEVY i�x�)lii1C �C4]5�7CC'i Built into the proposed budget for 2015 is a projected property tax levy increase of 4.42% for a total levy of $18,066,360. That portion of the tax levy allocated for operations is set to increase 3.8% or $372,557 from the prior year while the portion for debt service on municipal debt was essentially unchanged. The portion of the levy allocated to pensions increased $372,933 or 7.0% from the prior year. Normal anticipated growth attributed to the expected increase for pensions. Attachment I is a table showing the final 2013 levy and multiple alternatives for the 2014 levy. Alternative (a) is the tax levy as currently included in the proposed 2015 budget. Alternatives (b) through (e) present options for smaller increases to the levy. The top portion of the table in Attachment I show the actual levy amounts while the bottom portion of the table shows the dollar impact to the budget. The lower amounts reflected in the bottom portion indicate our receiving approximately 98.5% of the total levy. Of particular concern is the impact to the General Fund. Alternatives (b) through (e) reduce the overall levy by reducing the portion allocated to the General Fund. Below is a summary of the five levy alternatives for 2014. Levy Total % Increase Impact to GF Alternative Levy from 2013 Budget (a) 18,066,361 4.42% (b) 17,993,384 4.00% (72,000) (c) 17,819,984 3.00% (243,000) (d) 17,647,604 2.00% (413,000) (e) 17,474,204 1.00% (583,000) Reducing the levy to 4.0% from 4.42% would require reductions in the General Fund budget of $72,000. Each additional 1.0% reduction in the levy would require approximately $170,000 in reductions to the General Fund budget. See Attachment I for more detail on the various levy alternatives. 2014 Property tax Levy November 7, 2014 Page 2 Also included with this memo as Attachments II and III is a table showing fund balance history of the General Fund and a copy of the Village's Fund Balance Policy. The projected fund balance for the General Fund at December 31, 2014 is $12,038,893 which is equal to 25.5% of the proposed 2015 General Fund budget. Please review the information and let me know if you have any questions. David O. Erb Finance Director Attachment I Village of Mount Prospect, Illinois Property Tax Levy Alternatives - 2014 Levy Impact to Budget General Corporate Fund 9,205,000 9,914,000 2014 Levy Alternatives 9,671,000 9,501,000 9,331,000 2013 Levy (a) (b) (c) (d) (e) Impact to Levy Police Pension Fund 2,857,000 3,055,000 3,055,000 3,055,000 3,055,000 General Corporate Fund 9,345,540 10,064,897 9,991,920 9,818,520 9,646,140 9,472,740 Refuse Fund 346,800 - - - _ Police Pension Fund 2,900,278 3,101,345 3,101,345 3,101,345 3,101,345 3,101,345 Firefighters' Pension Fund 2,438,139 2,610,005 2,610,005 2,610,005 2,610,005 2,610,005 Debt Service Funds Series 2009C 118,000 132,000 132,000 132,000 132,000 Series 2009 425,608 425,607 425,607 425,607 425,607 425,607 Series 2009B 388,340 391,017 391,017 391,017 391,017 391,017 Series 2009C 119,358 134,136 134,136 134,136 134,136 134,136 Series 2011B 802,106 805,541 805,541 805,541 805,541 805,541 Series 2012 55,177 55,177 55,177 55,177 55,177 55.177 Series 2013 (abated) - _ - - - 126,000 Series 2014 480,092 478,635 478,635 478,635 478,635 478,635 Total Village 17,301,438 18,066,361 17,993,384 17,819,984 17,647,604 17,474,204 Percent Increase to Levy 4.42% 4.00% 3.00% 2.00% 1.00% Impact to Budget General Corporate Fund 9,205,000 9,914,000 9,842,000 9,671,000 9,501,000 9,331,000 Refuse Fund 342,000 - - - - Police Pension Fund 2,857,000 3,055,000 3,055,000 3,055,000 3,055,000 3,055,000 Firefighters' Pension Fund 2,402,000 2,571,000 2,571,000 2,571,000 2,571,000 2,571,000 Debt Service Funds - Series 2009 419,000 419,000 419,000 419,000 419,000 419,000 Series 2009B 383,000 385,000 385,000 385,000 385,000 385,000 Series 2009C 118,000 132,000 132,000 132,000 132,000 132,000 Series 2011 B 790,000 793,000 793,000 793,000 793,000 793,000 Series 2012 54,000 54,000 54,000 54,000 54,000 54.000 Series 2013 (abated) - - - - _ Series 2014 473,000 471,000 471,000 471,000 471,000 471,000 Total Village 17,043,000 17,794,000 17,722,000 17,551,000 17,381,000 17,211,000 General Fund Growth from Prior Year 709,000 637,000 466,000 296,000 126,000 Change from Proposed Levy - (72,000) (243,000) (413,000) (583,000) v 0 04 M O O N OMO LO 1 LO C Q- = LQ 000 N co 0) H LL m N N `-' M N O O O O O O o C C O 9 N N N In LL M N N N N m C 0 E o G! w Ono LO LA 000 M le d CN m CO co O co M M 00 ti d LL m O T C T r T r T T T N T N T IC o =C O CO r O 01 O M 01 1f� CO OD T N �LL m N co Im N N N 7 1p N N C U. 7 N � V O � Q C T N f- O CO N M O M r d O 0),C 0) 00 r� LO N LO W 0) 0) CA Do C) 00 00 � M N M ch 00 0o TMI O H C ti CO V O V 'IT00 O 00 00 I� CD a C T It 00 M O co Ln r- CO M r M ti Co CO M O M O M 1� O CYC m O O T r N N N T T T T T T T d � N Cd �d T V N Q M C 0) LO C m V m U U U U U U LL C 7 7 U. LL 7 7 7 7 0 0 Q- a a a a a ~ cnn in (nin c U) N M Ln C0 C Coo N N t N N N N ma 0 0 0 0 0 E fh It O ti O C 0 _ LL 9 N Cfl M N N M CY) 00 N !a +'' � O LL i «� C C O I- r f- Lf� � 11i N M 00 M r N " � cc 0 LO 00 r N M LO CO I- 0)I m} N N N N N N N v 0 04 Attachment III VILLAGE OF MOUNT PROSPECT, ILLINOIS FUND BALANCE/NET ASSETS POLICY Purpose A Fund Balance/Net Assets Policy establishes a minimum level at which the projected end -of -year fund balance/net assets must observe, as a result of the constraints imposed upon the resources reported by the governmental and proprietary funds. This policy is established to provide financial stability, cash flow for operations, and the assurance that the Village of Mount Prospect will be able to respond to emergencies with fiscal strength. More detailed fund balance financial reporting and the increased disclosures will aid the user of the financial statements in understanding the availability of resources. It is the Village's philosophy to support long-term financial strategies, where fiscal sustainability is its first priority, while also building funds for future growth. It is essential to maintain adequate levels of fund balance/net assets to mitigate current and future risks and to ensure tax rates. Fund balance/net asset levels are also crucial in long-term financial planning. Credit rating agencies carefully monitor levels of fund balance/net assets and unassigned fund balance in the General Fund to evaluate the Government's continued creditworthiness. Definitions Governmental Funds The fund balance will be composed of three primary categories: 1) Nonspendable Fund Balance — portion of a Governmental Fund's fund balance that is not available to be spent, either in the short-term or long-term, or through legal restrictions (e.g., inventories, prepaid items, land held for resale and endowments). 2) Restricted Fund Balance — portion of a Governmental Fund's fund balance that is subject to external enforceable legal restrictions (e.g., grantor, contributor and property tax levies). 3) Unrestricted Fund Balance — is made up of three components: a. Committed Fund Balance — the portion of a Governmental Fund's fund balance with self- imposed constraints or limitations that have been placed at the highest level of decision making through formal Board action. The same action is required to remove the commitment of fund balance. b. Assigned Fund Balance — the portion of a Governmental Fund's fund balance to denote an intended use of resources but with no formal Board action. c. Unassigned Fund Balance — available expendable financial resources in a governmental fund that are not the object of tentative management plans. Some funds are funded by a variety of resources, including both restricted and unrestricted (committed, assigned and unassigned). The Government assumes that the order of spending fund balance is as follows: restricted, committed, assigned, unassigned. 1 Proprietary Funds Proprietary funds include enterprise and internal service funds. The net assets will be composed of three primary categories: 1) Invested in Capital Assets, Net of Related Debt — portion of a proprietary fund's net assets that reflects the fund's net investment in capital assets less any amount of outstanding debt related to the purchase/acquisition of said capital assets. Related debt, for this purpose, includes the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of capital assets of the Government. 2) Restricted Net Assets — portion of a proprietary fund's net assets that are subject to external enforceable legal restrictions (e.g., grantor, contributor and bond covenants). 3) Unrestricted Net Assets — portion of a proprietary fund's net assets that is neither restricted nor invested in capital assets (net of related debt). Authority Governmental Funds Committed Fund Balance — A self-imposed constraint on spending the fund balance that must be approved by ordinance or resolution of the Board. Any modifications or removal of the self-imposed constraint must use the same action used to commit the fund balance. Formal action to commit fund balance must occur before the end of the fiscal year. The dollar amount of the commitment can be determined after year end. Assigned Fund Balance — A self-imposed constraint on spending the fund balance based on the Government's intent to use the fund balance for a specific purpose. The authority may be delegated to members of the management team by the Board. Minimum Unrestricted Fund Balance/Net Assets Levels Governmental Funds General Fund Purpose — The General Fund is a major fund and the general operating fund of the Government. It is used to account for all activities that are not accounted for in another fund. Fund Balance — Unrestricted fund balance shall be maintained at a level between 20% and 30% of the subsequent fiscal year's expenditures. Should the unrestricted fund balance drop below the 20% level, notification will be given to the Village Board and a plan developed to return the balance to the minimum level within a reasonable period of time. Planned drawdown of fund balance below the 20% level will be permitted for operational purposes to cover extraordinary expenditures or bridge a revenue shortfall. Reductions in fund balance are meant to be short term only and must be resolved through the implementation of a new permanent revenue source or reduction in expenditure levels. Surplus fund balance above the 30% level may be transferred to another operating or capital fund to cover expenditures. Any fund balance not transferred for the purpose of funding an operational shortfall or one-time expense must be transferred to the Capital Improvement Fund to support future capital projects. Fund balance for the General fund will be capped at 50% of the subsequent fiscal year's expenditures. If at any time this fund balance exceeds the cap, the Village Board will be mandated to transfer excess funds in an amount sufficient to bring fund balance below the cap. 2 Special Revenue Funds (excluding CDBG, Asset Seizure, DEA Shared Funds, DUI Fine and Business District Funds) Purpose - Used to account for and report the proceeds of specific revenue sources that are legally restricted or committed to expenditures for specified purposes other than debt service or capital projects. Financing — Special revenue funds are provided by a specific annual property tax levy or other restricted and/or committed revenue source. Financing may also be received from other charges for services, etc. Fund Balance — Derived from property taxes (or other restricted revenue source); therefore, legally restricted. The portion of fund balance derived from property taxes will be legally restricted. The remaining fund balance amount (restricted and/or committed) will be targeted at level of between 10% and 25% of the subsequent year's annual budgeted expenditures, not including capital, debt service and transfers. This will be adjusted annually with the adoption of the annual budget. The CDBG Fund is a separate reporting fund where financing is provided through direct grants from the U.S. Department of Housing and Urban Development (HUD). Reporting guidelines for HUD do not permit any balance at year end. As such, there will be no target fund balance level. The Asset Seizure Fund, DEA Shared Funds Fund and DUI Fine Fund do not have a reserve requirement. The recommended fund balance will be equal to the subsequent year's total operating expense. The Business District Fund is used strictly as a pass-through for payments made in conjunction with maintenance of the business district. As such, there will be no target fund balance level. Debt Service Fund Purpose — Established to account for financial resources that are restricted, committed, or assigned to expenditures for principal and interest. Financing — The municipality levies an amount or transfers in an amount close to the principal and interest that is anticipated to be paid. Fund Balance —Fund balance derived from property taxes is legally restricted. Fund balance for debt service supported by property taxes shall be maintained at a level equal to 50% of the next interest payment. Any fund balance accumulation should not exceed the amount of the next principal and interest payment due. Fund balance for debt service supported by alternative revenues shall be maintained at a level equal to 50% of the next year's principal and interest payment. Should fund balance drop below the minimum level, notification will be given to the Village Board and a plan developed to return the balance to the minimum level within a reasonable period of time. Planned draw down of fund balance for debt service funds is permitted only to account for fluctuations in the bond repayment schedule. Surplus fund balance above the minimum level can be used to reduce the Debt Service portion of the property tax levy or the amount of alternative revenues needed to meet the current year's budgeted expenditures. 3 Capital Projects Fund Purpose - Established to account for and report financial resources that are restricted, committed, or assigned to expenditures for capital outlay including the acquisition or construction of capital facilities and other capital assets, excluding those types of capital related outflows financed by proprietary funds. Financing — Debt financing, grants, or interfund transfers are used to finance projects. Fund Balance — Considered segregated for maintenance, construction and/or development; therefore, considered committed, restricted, or assigned depending on the intended source/use of the funds. Fund balance shall be maintained at between 25% and 50% of the five-year average for capital expenditures supported by this fund to a maximum of $1 million. Should the fund balance drop below the minimum level, notification will be given to the Village Board and a plan developed to return the balance to the minimum level within a reasonable period of time. Planned drawdown of fund balance below the minimum level will be permitted to cover extraordinary expenditures or high cost projects that occur infrequently. Surplus fund balance above the minimum level can be used to support ongoing capital projects, transferred to support projects in other capital funds or transferred to other funds as designated by the Village Board. Fund balance may be permitted to grow beyond the maximum level to cover anticipated high-cost projects in future years. Proprietary Funds Enterprise Fund Purpose - Established to account for and report financial resources that are invested in capital assets, net of related debt, restricted, or unrestricted for future spending related to the fund. The focus of enterprise fund measurement is upon determination of operating income, changes in net assets, financial position, and cash flows. The generally accepted accounting principles applicable are those similar to businesses in the private sector. Enterprise funds are required to account for operations for which a fee is charged to external users for goods or services and the activity (a) is financed with debt that is solely secured by a pledge of the net revenues, (b) has third party requirements that the cost of providing services, including capital costs, be recovered with fees and charges or (c) establishes fees and charges based on a pricing policy designed to recover similar costs. Financing — User fees, debt financing, or grants are used to finance operations, capital outlay and improvements, and debt service retirements. Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital assets, less the outstanding debt related to the acquisition of said assets). Restricted net assets relate to bond covenant reserves as outlined in the bond ordinance. Unrestricted net asset targets should represent no less than three months of the subsequent year's operating expenses (excluding debt service and capitalized asset expenses). Planned drawdown of the unrestricted net asset balance below the three-month level will be permitted for operational purposes to cover extraordinary expenditures or bridge a revenue shortfall. Reductions in the balance are meant to be short term only and must be resolved through a fee adjustment dictated by a water and sewer rate study, implementation of a new permanent revenue source or reduction in expenditure levels. Surplus balances in unrestricted net assets above the three-month level can be used to support ongoing water and sewer capital projects or to defer or decrease future rate increases. 4 Internal Service Fund Purpose - Established to account for and report financial resources that are invested in capital assets, net of related debt, restricted, or unrestricted for future spending related to the fund. The focus of internal service fund measurement is upon determination of operating income, changes in net assets, financial position, and cash flows. The generally accepted accounting principles applicable are those similar to businesses in the private sector. Internal service funds are used to account for the financing of goods or services provided by an activity to other departments, funds or component units of the Government on a cost -reimbursement basis. Financing — User fees charged to other departments, funds, or component units, or debt financing are used to finance operations, capital outlay and improvements, and debt service retirements. Net Assets — Considered invested in capital assets net of related debt (for amounts capitalized as capital assets, less the outstanding debt related to the acquisition of said assets). Restricted net assets relate to bond covenant reserves as outlined in the bond ordinance. Unrestricted net asset targets should represent appropriate levels given the activity of the fund and the discretion of the Board and management (excluding debt service and capitalized asset expenses). Fund balance for the Risk Management Fund shall be maintained at a level equal to unpaid claims liability (as prepared by enrolled actuary), plus 33% of the self-insured retention level for general liability claims, plus 33% of the subsequent fiscal year's expenditures for workers' compensation claims. Should the unrestricted balance drop below the minimum level, notification will be given to the Village Board and a plan developed to return the balance to the minimum level within a reasonable period of time. Planned drawdown of fund balance below the minimum level will be permitted for operational purposes to cover extraordinary expenditures or to reduce the impact of increasing premiums or claims experience from health, workers' compensation or liability coverages. Reductions in the fund balance are meant to be short term only and must be resolved through rate adjustments, implementation of a new permanent revenue source or reduction in expenditure levels. Surplus fund balance above the minimum level may be used to defer or reduce payments needed to support risk management operations. Fund balance for the Vehicle Maintenance Fund shall be targeted at level of between 10% and 25% of the subsequent year's annual budgeted expenditures, not including capital, debt service and transfers. This will be adjusted annually with the adoption of the annual budget. Fund balance for the Vehicle Replacement and Computer Replacement Funds shall be maintained at a level sufficient for the ongoing maintenance of computer and motor vehicle machinery and equipment. Sufficiency shall be deemed the amount required to support the replacement of machinery and equipment according to its designated replacement schedule. Should fund balance drop below the minimum level, notification will be given to the Village Board and lease payments by the departments will be adjusted to return balances to the minimum level within a reasonable period of time. Surplus fund balance above the minimum level can be used to reduce future lease payments. 5 Other Considerations In establishing the above policies for unrestricted fund balance/net asset levels, the Government considered the following factors: • The predictability of the Government's revenues and the volatility of its expenditures (i.e., higher levels of unrestricted fund balance may be needed if significant revenue sources are subject to unpredictable fluctuations or if operating expenditures are highly volatile) • The Government's perceived exposure to significant one-time outlays (e.g., disasters, immediate capital needs, state budget cuts) • The potential drain upon General Fund resources from other funds as well as the availability of resources in other funds (i.e., deficits in other funds may require a higher level of unrestricted fund balance be maintained in the General Fund, just as, the availability of resources in other funds may reduce the amount of unrestricted fund balance needed in the General Fund) • Liquidity (i.e., a disparity between when financial resources actually become available to make payments and the average maturity of related liabilities may require that a higher level of resources be maintained) • Commitments and assignments (i.e., governments may wish to maintain higher levels of unrestricted fund balance to compensate for any portion of unrestricted fund balance already committed or assigned by the government for a specific purpose) If any of the above factors change, the Government should readdress current unrestricted fund balance/net asset levels to ensure amounts are appropriate. M.