April 7, 2014 Honorable Mayor, Members of the City Council, and Citizens of Sioux City: On behalf of our dedicated City Staff, we present the Approved Fiscal Year 2015 Operating Budget. Our primary consideration in developing this budget was the ongoing commitment to provide Sioux City residents with quality, cost-effective services in a safe and attractive community. It includes all operating funds and is in compliance with both Iowa State law and City Council adopted fiscal policies. The FY 2015 budget is the result of months of tireless effort from your City staff. Internally, departments made difficult decisions in formulating their budget proposals. Reductions were achieved through re-structuring operations, eliminating personnel, curtailing costs and absorbing inflation. The result is an Operating Budget that increases less than 1%, rising slightly from $175.7 million in FY 2014 to $176.4 million in FY 2015. Funding the budget proved to be a challenge. While most revenue sources remained stable or experienced modest growth, the State of Iowa’s desire to limit the use of traffic enforcement equipment will result in the loss of the RedFlex speed camera funds. These funds have been used in the past few years to fund public safety capital projects and reduce the taxes required to fund our essential services. Other financial pressures in this budget include decreased support from federal and state governments, eliminated revenues, rising service demands and a continued desire for limiting growth in property taxes. This budget reflects a continued willingness to make difficult decisions to address the City’s both short and long-term financial challenges. Other short-term challenges include lost revenue due to State changes in the taxation formula of telecommunication and railroad property, insufficient Road Use funding, and limited growth in the valuation of residential, industrial, and commercial taxable property. While the City Council and the City’s Unions negotiated contracts which minimized the annual cost of employee services, an additional challenge includes the increased City responsibility for pensions and benefits for our employees. 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 The total Operating Budget reflects a .71% increase in the levy rate, from $16.248 in FY 2014, to $16.364 in FY 2015. The impact to the typical homeowner is an increase of $31, with $25 attributed to the state mandated rollback. Taxes on $100,000 of commercial/industrial property will decrease $70 per year. This levy rate is $1.49 lower than FY 2010. Long-term 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 business property valuation that is taxable could result in dramatic reductions in property tax collections. While the State has committed to provide 100% backfill on lost revenues for FY 2015 and FY 2016, reimbursement will be capped at the FY 2016 backfill amount beginning in FY 2017 and continuing thereafter, as long as the State appropriates funding for the backfill. Also, a new multi-residential property classification will be established beginning in FY 2017 that would decrease the taxable value of property primarily intended for human habitation containing three or more separate living quarters. No State backfill will be provided for lost tax collections. In addition to the property tax changes noted above, beginning in FY 2015, the maximum growth in taxable valuation allowed for residential and agricultural property will decrease from 4% to 3%, or whichever is lowest of the two classes. Other long-term challenges include shrinking State and Federal funding and increasing costs of providing services. In the past few years, public safety pension costs have created an additional financial burden. However, relief is expected to begin in FY 2016 as the State public safety pension fund stabilizes and the City’s contribution rate decreases, based on current trends. Additional Considerations While the FY 2015 Operating Budget presented challenges, several favorable conditions have eased the burden. The City sales tax budget, which is a reflection of the City’s Economic Development initiatives, has increased 10.1%, from $12.08 million in FY 2014 to $13.3 million in the Approved FY 2015 budget. Additionally, an estimated increase in franchise fee revenues of $1.2 million will assist in the loss of other revenue sources. 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. In keeping with our ongoing cost reduction efforts, the FY 2015 Budget includes elements of each of the following ongoing objectives: Application of Technology – Continued efforts to apply technologies to lower costs and enhance public services. Consolidation – Continual review of programs and services to determine if redundancies exist or if consolidations can produce cost-savings and efficiencies, first internally within the City organization, and second with other local governments. ii Fees for Services – Considerable efforts have been applied to ensure that users of services pay appropriately for those services. We recommend continued analysis of all fees to help relieve the burden on property tax payers. Privatization/Contracting – A commitment to continued competition in operation and pricing of governmental services to determine those services which are best and most economically provided by City departments and those where the private sector are best able to provide service. This budget includes the reorganization of our Events Facilities Department which is projected to result in savings of almost $200,000. The FY 2015 Operating Budget follows the City’s Strategic Plan which provides a guide and vision for the goals and priorities of the City. To ensure the Strategic Plan is successful, the budget must reflect the same values and priorities. 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 FY 2015 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. We sincerely 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 dedicated staff for their tireless work in the development of the approved budget. We look forward to working with you, our residents, and businesses and not for profit leaders, and our dedicated Sioux City staff during the financial year. Respectfully submitted, Robert K. Padmore Interim City Manager iii Overview of FY 2015 Operating Budget Fiscal Year 2015 Operating Budget The City of Sioux City FY 2015 Operating Budget is $176,440,317, an increase of .43% from the Adopted FY 2014 Operating Budget. The slight increase is due primarily to increases in employee wages, benefits, and increased utility costs. The City-wide budget is made up of various fund groups. Taxes fund approximately 30% of the total budget, charges for services fund 44%, 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 the user-fee based types of services. Other revenue sources are also maximized whenever possible before the City levies property taxes. FY 2015 Operating Budget – Fund Expenditures Internal Service Trust Funds Funds 2% 15% General Fund Enterprise Funds 30% 20% Debt Service Special Revenue Funds Capital Funds Funds 16% less than 1% 17% iv FY 2015 Departmental Allocation of Operating Taxes Art Ctr & Community Museum & Development Environmental Transportation Symphony 2% Services 2% 3% Events Facilities 1% 1% Parks & Recreation Debt Service 6% 19% Library 0% Public Works 1% General Governmental 4% Public Safety 61% As illustrated above, 61% of the total tax funds are devoted to the Police and Fire Departments. The remainder primarily supports our libraries, parks and recreation, art center/museum/symphony, and convention center/auditorium/tourism. The FY 2015 General Fund Budget has increased 3.69% totaling $50,385,042. v Impact of Taxes on the Residential Property Tax Owner in Sioux City $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 City Taxes Total Taxes The FY 2015 Operating Budget includes a tax levy amount proposed to increase .72%, for a tax levy rate of $16.36 per thousand dollars of valuation. Residential property taxes are proposed to increase $31, with $25 of the increase attributed to the State mandated roll-back factor. Commercial and industrial property taxes, which were affected by the new 95% roll-back provision, will see a decrease of $70 per $100,000 of taxable valuation. History of Property Tax Allocations $20.000 $18.000 $16.000 $14.000 CITY $12.000 SCHOOL $10.000 $8.000 COUNTY $6.000 OTHER $4.000 $2.000 $0.000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 The graph above shows the allocation of the property tax bills to the applicable taxing entities.