April 10, 2017 Honorable Council Chair and Members of the City Council: The attached budget is submitted to you in accordance with the applicable provisions of the Charter of the City of Bangor and under the tax levy limitations of State law. While it represents a complete spending plan for the coming year and may be adopted as presented, it should be seen as a starting point for Council review and deliberation and as a vehicle for the presentation and discussion of numerous issues. Background As with any municipal budget there are three key components: expenditures, revenues and assessed value. The primary component of the budget where the City has the most significant level of control is expenditures. In general, proposed expenditures are fairly well defined; however, certain costs may be subject to further refinement due to changing market conditions. Additionally, the City has control over the taxes raised to support services however, a majority of non-tax revenues are highly dependent upon the economic climate as well as the budgetary decisions made by the State of Maine. Assessed value, which is established as of April 1st of each year, is also directly related to the local economic climate. The proposed budget is based on the current approved state budget and the best information we have at this time. Budget Summary The total combined City/School proposed budget expenditures are approximately $97,613,662 million, which is an increase of 2.3% over the previous year. On the municipal side, expenditures are up $1,287,061 or 2.5% and include increases attributed to the municipal operating budget ($952,915) capital expenses ($53,837), and debt service ($280,309). The total proposed increase in the school budget is approximately $945,664 or 2.1%. Operating increases for both the City and School are in large part due to wage and benefit adjustments and fuel increases. The budget for Penobscot County has increased by $114,713 or 3.5%. Total non-tax revenues for the combined City/School proposed budget are approximately $44,772,448 million, which is an increase of 1.8% or $803,576 over the previous year. The increase in the non-tax revenue for municipal operations includes excise taxes and a small increase for Revenue Sharing to be collected based on the current formula, both indicators of a strengthening economy. Non-tax revenues for school funding increased by $180,220, which is slightly less than 1%. Under the current state proposal, state aid to education will increase approximately $30,000. The remainder of revenues in the School Department are from other sources such as tuition. As always, the combined budget assumes certain revenues for the State transfers for school and municipal operations, such as Revenue Sharing. Should changes in funding occur before the end of the legislative session, the final proposed budget may change. For example, the State has yet to finalize school funding and how it will handle taxes and revenues attributed to the state ballot measure approved in November. Should the state implement that measure as voters approved it, Bangor may get an additional $3 million in non-tax revenues, which translates into $1.20 on the mil rate. As the City contemplates the final school budget, included should be an order that allows excess revenues to lower the mil rate and offset capital expenditures. For the upcoming fiscal year, revenues from most federal programs including CDBG, Airport, and Health and Community Services have been budgeted to remain flat. Currently, the proposed federal budget calls for the reduction and elimination of many of these programs. For example, under the federal budget proposal, CDBG is eliminated. At this point, we will continue to monitor these programs and bring changes forward as they become known. General Fund The General Fund budget is comprised of two parts: the operating budget and the new program and capital budget. The operating budget has historically been based upon maintaining existing programs and services at their current level. The new program and capital budget covers both capital expenditures as well as such items as new equipment, programs, or personnel that have been requested. The City has 11 bargaining units representing approximately 65% of city employees. At this time, the City has four collective bargaining agreements that expire on June 30. The budget includes an estimated cost to settle these agreements. In accordance with the settled collective bargaining agreements, the budget includes a one and a half percent (1.50%) cost of living adjustment. Additionally, the proposed budget includes a 1.50% cost of living adjustment for all fulltime non-unionized employees. In 2017, the Police and Fire collective bargaining agreements did not include a cost of living increase. Instead, the City agreed to amend the negotiated pay scale in 2018, to drop the first step and add a last step. As a result, funding for this increase was carried over from money set aside the previous year to settle these agreements. As always, personnel costs consisting of cost of living, wage adjustments, and health insurance premiums represent the largest increases to the general fund budget. The proposed overall budget for health insurance premiums is down slightly due to plan changes made by existing and incoming city employees. However, the city does anticipate an increase in the cost of premiums and has budgeted an 8% increase in health insurance premiums. Each department has prepared a detailed five-year capital plan. A summary of the general fund, enterprise funds and by department has been included in the FY 2018 proposed budget to highlight the significant investment necessary to maintain core services and infrastructure over the near term. A number of capital requests have either not been funded or are recommended for partial funding only. A complete listing of new programs and capital requests, including both funded and unfunded requests, is attached. In summary, the proposed budget includes over $14.1 million in requests for new capital expenditures, new programs, and downtown improvements to be funded from a variety of sources including the TIF funds, reserve accounts, trust accounts, grants, operating funds, and bonds. The proposed capital budget includes funding for equipment, paving, and building maintenance. Highlights of the proposal include the following: $175,000 for a new ambulance; $72,000 for a city-wide access control and video system; $293,000 for police vehicles; $75,000 to replace Fairmount Park playground; $750,000 for continued remediation of coal tar in the Penobscot; $100,000 to continue the Energy Smart Program; and $5 million in infrastructure improvements including $1.5 million in for pavement maintenance as well as sidewalk improvements; as well as other building and equipment purchases. Finally, the budget anticipates flat funding for outside agencies including the library, CVB, Snowmobile Club, Bangor 4th of July, and the Cultural Commission. School Department The total proposed School Department operating budget is estimated to increase by $885,431 or 2.1%, while State Aid to Education is projected to remain relatively flat. The proposed budget also includes an increase in debt service of $60,223 or 3.9%. This includes new debt service was the result of improvements to Cameron Stadium, 14th Street School and others. This new debt was approved in the 2017 budget process by the City Council. The total estimated budget for the school is approximately $945,664 or 2.1%. Currently, the proposed budget will increase the mil rate by .31 cents or 3.1 %. As was mentioned above, State EPS formula currently shows that Bangor will receive approximately $30,000 more in revenues. However, if all or part of the measure approved by voters in November is honored, Bangor could additional state revenues. As has been done in the past, this potential increase will be noted in the school budget validation ballot question and City Council action, that if we are to receive additional funds from the State, those funds can be applied to reduce the mil rate needed for the school or to offset future capital expenses. In accordance with State law, the City is required to hold a referendum on the school budget. Adoption of the school budget is scheduled for May 22, 2017 with the ratification election being June. 14 2017 at the Cross Insurance Center. County Tax The County tax has increased by approximately $114,713, or 3.5% to $3,381,124. The change on the mil rate is estimated to be .04 cents. Changes in the County budget can be attributed to shifting valuations countywide, changes in operations, or changes in state funding. It is important to note that funding for the county jail comes from property taxes and the State revenue. The State continues to debate jail funding and it is not clear how it is to be resolved. Because the City pays approximately 24% of the County budget this could be a significant shift to the municipal tax rate if the state does not fund its share of the county jails. Estimated Tax Rate Included within the budget document is a preliminary estimate for the tax rate for 2018. The preliminary tax rate is estimated to be $23.12, which is .62 cents more than the previous year. As noted above, the tax rate does not include changes in state funding and assessed valuation. The final tax rate will be determined based on Council approved expenditure levels within the General Fund, assessed valuations and any known changes in state and federal funding. Last year, the State approved increases to the homestead exemption, the second of which will take effect in FY 2018. The homestead exemption exempts a portion of value associated with owner occupied residential housing.