Increased revenue in budget amendment, forecast

July 20, 2018

Rochester Hills City Council on Monday, July 16, unanimously approved second quarter budget amendments that will increase the city's fund balance by nearly $5 million in 2018.

 

The approval was given after a presentation of the city's Seven-Year Financial Forecast, which shows a structural fund balance surplus and increased revenues through 2025.

 

The budget amendment included an increase in total revenues of about $7 million and increases in expenses by about $2 million, said chief financial officer Joe Snyder.

 

Snyder said the increase in revenues is primarily due to increases in the state's major road funding, which includes increases in returns from the state's gas tax, supplemental road funding, and secured funding for specific projects, including $1.3 million for the South Boulevard and Livernois reconstruction project; $920,000 for reimbursements of the Auburn Hills portion of the Hamlin Road project; $1.23 million for taking over a portion of the Auburn Road corridor from the state; about $1 million in transfers into the fund for the Hamlin Road project; and more than $500,000 in reimbursements from the Road Commission for Oakland County (RCOC) from lower than anticipated project costs.

 

Additional expenditures include increased capital improvement project funding and a $1.4 million increase in transfers out of the general fund, due mostly to cover the Hamlin Road project, which the city of Auburn Hills is reimbursing the city.

 

The budget amendments came on the heels of a long-term budget presentation that included estimated increases in property tax that came in higher than expected  over last year and maintaining the city's general fund millage rate without any increases through 2025.

 

"I'm very, very happy that the city experienced a 4.7 percent increase (in property values), and that carries into the future," Snyder said. "We also have an increase in interest rates from 1.5 percent to two percent in 2019... that creates greater investment returns for the city."

 

Property taxes in 2020 are expected to increase by about three percent.

 

Currently, property taxes make up about 33 percent of the city's general fund revenues, with state shared revenues accounting for about 27 percent of the general fund, and all other revenues (charges for services, licenses, permits, etc.) making up about 40 percent of general fund revenues. The budget forecast included maintaining a general fund surplus equal to 80 percent of total operating expenditures through 2025, starting in 2019.

 

In terms of general fund expenditures, Snyder said the city plans to maintain the current level of staffing, with 223 full-time employees and two-percent increases for cost of living adjustments. The staffing forecast included wage and salary increases included in a recently complete compensation study.

 

Personnel services account for about 49 percent of total expenditures from the general fund, with transfers out to other funds accounting for 26 percent and other expenditures representing the remaining 25 percent for the general fund.

 

Snyder said transfers out to other funds, such as the capital improvement fund or road funds, varied from year to year, but should even out after 2019, as transfers out to the capital improvement fund are included in each year's budget forecast as part of the city's new fund balance policy.

 

The seven-year financial forecast, Snyder said, isn't intended to be a formal plan or comprehensive plan for city council to adopt objectives, but rather a forecast to identify trends and issues that allows council to be proactive, rather than reactive.

 

"The fund balance policy is terrific," councilman Dale Hetrick said. "For me and other city council members, it lets us see how those fund balances are going to be maintained over time and see how we are keeping things consistent. I'm impressed at how that policy is playing out to ensure future city council members will feel the same way and feel confident on how the city will move forward."

 

Council president Mark Tisdel credited former councilman Thomas Wiggins for initiating discussions for the city's general fund balance policy, which sets to maintain a structural fund surplus of 80 percent of annual operating expenditures.

 

Hetrick also asked Snyder to discuss future stormwater funding needs.

 

Snyder cited a recently completed study of stormwater infrastructure needs, which he said indicated the city will need to begin additional funding around 2025 in order to maintain that system.

 

"The study said, 'you're in great shape now,' but those stormwater pipes underground don't get better over time. You have to have a proactive maintenance plan," Snyder said. "That will put more pressure on the general fund and capital improvement plan. In the mid- to long-term, we will need a solution. ... That's probably the biggest issue that needs to be solved."

 

Councilwoman Stephanie Morita recommended the city discuss the possibility of an increased millage proposal. She said the Older Persons Commission (OPC) recently discussed that, and how that will impact the OPC's debt fund millage.

 

Rochester Hills Mayor Bryan Barnett commended city council and Snyder on the development of the financial forecast.

 

"The fact that we can say, for example, five new ambulances in 2022, and they are all funded – most communities would say, 'How do you do that?'" Barnett said. "It's such a blessing to be in this position, and the importance of that here shouldn't be understated."

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