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May 11, 2015 Honorable Mayor, Members of the City Council, and Citizens of Sioux City: It is my privilege to present to you the Approved Fiscal Year (FY) 2016 Operating Budget. This document, along with the Approved FY 2016-2020 Capital Improvement Program, sets the financial course for our City in the upcoming year. It balances City revenues and expenses, determines funding levels and sets priorities for City provided services. The FY 2016 Operating Budget includes a balanced, financially sound budget that maintains services while still preserving a responsible level of fund balance and sufficient flexibility for debt capacity. The budget includes all operating funds and is in compliance with both Iowa State law and City Council adopted fiscal policies. The Approved Operating Budget includes an expenditure increase of 2.05%, rising from $176.4 million in FY 2015 to $180.1 million in FY 2016. The budget is funded, in part, by a levy rate of $16.11034, a decrease of $.2541, or 1.55%, from the Approved FY 2015 levy rate of $16.36444. The impact to the typical homeowner is an increase of $9 which can be attributed to a change in the state mandated rollback. Taxes on $100,000 of commercial and industrial property valuation will decrease $105. The process of balancing the FY 2016 budget began in August when departments started formulating their budgets. It continued over the following months with numerous meetings, discussions, and in-depth financial reviews. The result was an initial budget projection that would have required an increase of $1.27 to the City’s levy rate, or 7.75%. Through additional financial review that included revenue maximization, expense reductions, and balances re- allocations, City staff was able to significantly decrease that number to the $16.6359 levy rate that was included in the proposed budget. The operating budget hearings that took place in January, February and March provided the City Council and Citizens of Sioux City the opportunity to review the entire budget, provide input and recommendations and work together with City staff to finalize a realistic and responsible budget to fund our City’s operations. During the work sessions, additional options for expenditure reductions and revenue increases were discussed and the result was Council action to reduce the levy rate to $16.11034. As always, the challenge was balancing the costs of services our residents desire with the property taxes required to fund these services. OFFICE OF THE CITY MANAGER 405 6th Street P.O. Box 447 Sioux City, IA 51102 PH 712-279-6102 FAX 712-279-6105 WEB www.sioux-city.org FY 2016 Budget Considerations The emphasis throughout the budget development process was to maintain or enhance services while limiting the financial resources needed. Challenges in the proposed budget included: Road Use Tax For FY 2016, Road Use Tax funding was programmed to increase $1 per capita, or a total of $139,567. However, in February, the Governor signed a bill which immediately increased the fuel tax by 10 cents. This increase resulted in approximately $1.36 million in additional funding for the City. The additional funds will be used for road maintenance and improvments. General Liability Insurance Costs Another challenge in the City’s budget this year is increased costs for general liability insurance. Costs for current and past litigation are projected to increase by $1.7 million in FY 2016. The premiums for general liability insurance are charged directly to department budgets and this year’s large increase required significant budget increases for several departments. Utility Infrastructure Costs The costs for maintaining the City’s water and sewer infrastructure continues to inflate which puts pressure on the City’s utility funds. The City’s portion of costs for relocating utility lines required with the reconstruction of Interstate 29 are now estimated at $48.7 million, significantly higher than the Iowa Department of Transportation’s (IDOT) original estimate of $24.8 million. As we begin repayments to IDOT, rate increases for our Water and Sewer funds will likely be required. Collective Bargaining Expenses The City Council and the City’s Unions have negotiated contracts that provide fair compensation while minimizing the annual cost of employee services. In FY2016, a 7.5% increase was required for employee health insurance premiums; an additional cost of $776,258. While the Approved FY 2016 Operating Budget presented challenges, several favorable conditions have eased the burden. After several years of challenging increases, the City’s required Municipal Fire and Police Retirement System of Iowa (MFPRSI) contribution rate decreased to 27.77% from 30.41%, resulting in a savings of $455,215. As a result of decreased claims, workers’ compensation premiums are projected to decrease in FY 2016 for a savings of $684,000. The City sales tax budget, which is a reflection of the City’s Economic Development initiatives, has remained strong at $13.3 million. City staff is cautiously optimistic about recent decreases in national fuel prices and has planned for decreased fuel prices in the FY 2016 budget. A decrease of almost $400,000 in City-wide fuel costs is budgeted in anticipation of the continued lower prices. ii Future Considerations The primary long-term challenge the City will face in the coming years is the State mandated business property tax reform. Decreases in the percentage of assessed industrial and commercial property valuation that is taxable could result in significant reductions in property tax collections. While the State has committed to provide 100% backfill on lost revenues through FY 2017, the reimbursement will be capped at the FY 2017 backfill amount beginning in FY 2018 and continuing thereafter, as long as the State appropriates funding for the backfill. In addition, a new multi-residential property classification will be established beginning in FY 2017 that will decrease the taxable value of property containing three or more separate living quarters. No State backfill will be provided for lost tax collections. The City will continue to fund economic development projects in the FY 2016-2020 Capital Improvement Program in an effort to stimulate the economy and increase the City’s property tax base. These successful efforts will help offset the effects of the tax reform and reduce the unfavorable impact on residential taxpayers. Ongoing Considerations The City’s efforts to improve operations and lower costs did not start, nor do they end, with approval of the annual budget. The budget process for the City is not an annual procedure but is a daily, continuous progression that is conducted throughout the year. It is necessary to put into place the means to ensure that taxpayers receive the maximum value from their government for each dollar spent. During the course of each year, City staff continues to focus on ways to reduce costs and improve services. The FY 2016 Approved Operating Budget follows the City’s Strategic Plan which provides a guide and vision for the goals and priorities of the City. Priorities incorporated into the budget document are as follows: Expand Development Opportunities and Grow Sioux City Explore Destination Sioux City Enhance Public/Private Partnerships Grow Sioux City Pride The focus of the Approved FY 2016 Operating Budget is ultimately our residents and making a positive difference in their lives. It represents a commitment to the future well-being of the Sioux City community in a challenging budget climate. The City will make every effort to invest in the economy and responsibly manage our resources to make Sioux City a prominent community in which to live, work, and raise a family. iii I thank each of you for your continued support and guidance. I also wish to express my appreciation to the City Leadership Team, the Finance Department and our staff for their work in the development of the approved budget. We look forward to working with you, our residents, our business and not for profit leaders and our dedicated Sioux City staff during the financial year. Respectfully submitted, Robert K. Padmore City Manager iv Overview of Approved FY 2016 Operating Budget Fiscal Year 2016 Approved Budget The City of Sioux City FY 2016 Approved Operating Budget is $180,052,785, an increase of 2.05% from the Approved FY 2015 Operating Budget. The increase is due primarily to increases in employee wages, employee benefits, and general liability costs. Comparison of FY 2015 and FY 2016 Budgets FY 2015 FY 2016 Approved Approved Operating Budget$ 136,716,044 $ 141,556,948 Debt Service 39,724,273 38,495,837 Total Operating Budget$ 176,440,317 $ 180,052,785 The City-wide budget is made up of various fund groups. Taxes fund approximately 41% of the total budget, charges for services fund 43%, and a variety of other revenue sources make up the remaining budget. Fees for services are reviewed annually to ensure the amount charged is sufficient to cover the cost of providing these user-fee based types of services. Other revenue sources are also maximized whenever possible before the City levies property taxes. FY 2016 Approved Budget – Fund Expenditures Internal Service Trust Funds Funds 2% General Fund 15% 30% Enterprise Funds 21% Special Revenue Debt Service Funds Funds Capital Funds 17% 15% less than 1% v FY 2016 Departmental Allocation of Operating Property Taxes Art Ctr & Community Environmental Museum & Transportation Development Services Symphony 4% 2% 1% 3% Parks & Events Facilities Recreation Debt Service 2% 7% 16% Library Public Works 4% 1% Public Safety 60% As illustrated above, 60% of the operating property tax funds are devoted to the Police and Fire Departments and 16% is used for debt service payments. The remainder primarily supports our libraries, parks and recreation, art center/museum/symphony, and convention center/auditorium/tourism.

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