Gahanna Financial Forecast

City of Gahanna Q3 2012

Financial Report to Council

Jennifer Teal Director of Finance October 22, 2012

Overview The purpose of this report is to provide Gahanna City Council, residents and interested parties an overview of the City’s General Fund through the third quarter of 2012. Overall, the General Fund’s performance through September 30, 2012 has been positive. Revenues have exceeded estimates in most categories, and expenses are well within appropriated amounts.

Revenue Through September 30, 2012, Gahanna collected $18,853,841 in General Fund revenues from all sources on a cash basis. This amount represents 84% of our planned General Fund Revenue for 2012. This amount is 5% or $1,041,698 less than our General Fund cash collections for the same period in 2011. If not for an extraordinarily large net profit filing from 2011 that was refunded in 2012, General Fund revenue would be approximately $172,000 or 0.8% less than the same time last year.

With the exception of Interest & Investment Income, collections in all General Fund revenue categories are above 75% of planned revenue through the third quarter. The table below details each of the General Fund revenue categories and their performance compared to plan for the reporting period.

REVENUE CATEGORY INCOME TAX REAL ESTATE TAXES FINES, FEES, LICENSES & PERMITS LOCAL GOVERNMENT FUND GRANTS INTEREST & INVESTMENT INCOME MISCELLANEOUS INCOME OTHER TAXES TRANSFERS TOTAL

Q3 YTD $ 11,286,719 $ 1,648,120 $ 2,951,996 $ 790,891 $ 610,786 $ 382,051 $ 607,416 $ 542,861 $ 33,000 $ 18,853,841

2012 PLAN $ 14,546,000 $ 1,573,214 $ 3,592,899 $ 970,000 $ 123,000 $ 675,000 $ 267,195 $ 697,900 $ $ 22,445,208

PCT OF PLAN 78% 105% 82% 82% 497% 57% 227% 78% 84%

Income Tax The local income tax remains Gahanna’s largest source of revenue. In the third quarter of 2012, it made up 60% of total General Fund revenue. Year-to-date, income tax collections are at 78% of plan for the year. While it is always challenging to predict the total income tax revenue for the year, the third quarter data is promising. Withholdings are up 9% from the same period in 2011, which supports the idea that Gahanna’s tax base has recovered from the 2008 financial crisis and is stabilizing.

Third Quarter YTD Income Tax Collections $14,000,000 $11,767,497 **

$12,000,000 $10,000,000

$9,666,692

$11,286,719

$10,595,402 *

$8,000,000 $6,000,000 $4,000,000 $2,000,000 $2009

2010

2011

2012

*includes one less month of collections due to transition to RITA **Includes erroneous $435K net profit return ultimately refunded in April 2012

Gahanna collects income taxes in three categories: business withholdings, individual/resident returns and net profit returns. The bulk of these collections, 72% through the third quarter, are from business withholdings. This underscores the City’s dependence on the financial success of local businesses.

Net Profit $427,979 4%

Individual $2,734,369 24%

Withholding $8,028,524 72%

Through the third quarter of 2012, employer withholdings increased 9% over the same time period in 2011. This rise in withholding indicates that there are more people working in Gahanna and paying income tax, people are earning more money and thus paying a larger amount in tax collections, or some combination of these two scenarios.

Individual returns decreased 2% from 2011 levels for the same time period. There was also a significant decrease seen in net profit returns for the third quarter. This is attributable to two extraordinarily large net profit returns received in early 2011. Ultimately, after audit, it was determined that a large portion of one of these returns, $435,000, was due to be refunded to the taxpayer. This refund took place in April 2012.

Real Estate Tax Total real estate tax revenue for the third quarter of 2012 was $1,648,120. This represents 105% of planned revenue for the year. Collections are down approximately 5% over the same period last year.

This reduction is attributable to a 6% reduction in the assessed values in the City based on Franklin County’s recent property revaluation process. The real estate tax is distributed twice a year to the City

by Franklin County. The second half distributions were received in August so no further revenue is expected in this category in 2012.

It should be noted that the City of Gahanna receives less than 3% of the real estate taxes paid by Gahanna property owners. The remainder is distributed between other publicly funded organizations such as the Gahanna-Jefferson school district, Mifflin and Jefferson townships, the Columbus Metropolitan Library system, Metro Parks and the Columbus Zoo. Local Government Fund The City received Local Government Funds (LGF) totaling $790,891 through September 30, 2012. This amount is 82% of what was initially planned for the year. LGF distributions are coming in higher than expected this year due to improvement to general revenue collection at the state level. That said, Gahanna’s LGF collections have been significantly affected by a phased reduction to the LGF allocation formula that was enacted as a part of the state’s 2010 biennial budget. Once the phased reduction is complete in 2013, the City will receive approximately half of its historical LGF revenue from before 2010, a reduction of approximately $825,000 per year.

Expense General Fund expenditures for the third quarter of 2012 were $20,101,102. Compared to total General Fund appropriations of $31,790,048 for the year (which includes initial and supplemental appropriations as well as budget authority from prior year Q3 2012 General Fund Expenditures encumbrances that were carried forward into 2012), the City has spent 63% of Transfers $2,979,508 appropriated funds. In total, just over half Capital Salaries 15% Outlay $7,896,226 of the City’s General Fund spending has $2,045,016 39% focused on the salaries and benefits of City 10% employees so far in 2012.

This is to be expected, as Gahanna City government is ultimately a service organization, with its primary focus being to deliver services to the residents and businesses of Gahanna. These services Contractual Benefits Services include public safety, engineering and $2,635,145 $2,202,854 13% maintenance of public infrastructure, 11% community and economic development and parks and recreation. In 2013, the City began reinvesting in capital assets and infrastructure through its adoption of the Community Investment Program (CIP). So far in 2012, the City has expended over $2 million on capital outlay in the General Fund and transferred another $2.8 million to the capital improvement fund for projects included in the CIP. Supplies & Materials $2,342,354 12%

Fund Balance All told, General Fund expenses exceeded revenues by $1,247,261 through the third quarter of 2012.

The resulting unencumbered balance of the General Fund is $13,514,951 as of September 30, 2012.

The City has a mandatory requirement to set aside 25% of the year’s planned General Fund revenue as an emergency reserve. For 2012, this mandatory reserve amount is $5,611,302. At the end of the third quarter, the General Fund unencumbered balance exceeded that mandatory reserve by $7,903,649.

Other Funds While the General Fund is the largest of the City’s funds, and is used as the primary source for governmental expenditures, Gahanna does maintain a number of other funds as well. The following table outlines each of the City’s funds and the revenue and expenditure activity associated with each.

City of Gahanna Q3 2012 Fund Report

Fund

Fund Title

2012 Beginning Balance

Unexpended Receipts-YTD Expenses-YTD Fund Balance

101 GENERAL FUND

$ 18,674,601

220 222 224 225 226 227 228 229 230 231 232 233 235 236 241 249 325 326 327 328 329 431 435 510 515 530 580 621 631 651 652 661 662 750 800 835 837 840 850 860 870 900

$ 439,270 $ 1,168,683 $ 656,906 $ 951,047 $ $ 138,910 $ 74,529 $ 46,480 $ 166,959 $ $ 2,950,201 $ 1,928,295 $ 880,387 $ 3,998,109 $ $ 20,436 $ 277,711 $ 36,646 $ 261,502 $ $ 37,050 $ 2,194 $ $ 39,244 $ $ 2,980 $ $ $ 2,980 $ $ 1,095,100 $ 20,490 $ $ 1,115,590 $ $ 152,504 $ 23,706 $ 11,641 $ 164,569 $ $ $ $ $ $ $ 162,501 $ $ 4,700 $ 157,801 $ $ 23,527 $ $ $ 23,527 $ $ $ $ $ $ $ 149,048 $ 127,155 $ 142,210 $ 133,993 $ $ 4,733 $ $ $ 4,733 $ $ 220,000 $ 15,100 $ $ 235,100 $ $ 15,718 $ $ $ 15,718 $ $ 2,402,170 $ 2,782,680 $ 494,049 $ 4,690,801 $ $ 246 $ $ $ 246 $ $ 21,291 $ 15,500 $ $ 36,791 $ $ 49,980 $ $ $ 49,980 $ $ 130,321 $ 14,810 $ $ 145,131 $ $ 1,186,757 $ 463,125 $ 691,692 $ 958,190 $ $ 22 $ $ $ 22 $ $ 885,321 $ 656,911 $ 656,911 $ 885,321 $ $ 4,581 $ 1,061 $ 1,434 $ 4,208 $ $ 7,816 $ $ $ 7,816 $ $ 4,793 $ 35 $ 1,569 $ 3,259 $ $ $ $ $ $ $ 1,958,631 $ 742,796 $ 621,778 $ 2,079,649 $ $ 3,343,460 $ 4,235,907 $ 5,004,502 $ 2,574,864 $ $ 2,135,430 $ 500,574 $ 339,614 $ 2,296,390 $ $ 9,334,676 $ 3,559,927 $ 5,913,526 $ 6,981,078 $ $ 3,661,045 $ 313,565 $ 424,046 $ 3,550,565 $ $ 1,269,826 $ $ 48,354 $ 1,221,472 $ $ 30,349 $ $ $ 30,349 $ $ 6,821 $ 380 $ 1,381 $ 5,820 $ $ 9,253 $ 1,014 $ 1,402 $ 8,865 $ $ $ $ $ $ $ 428,591 $ 1,465,558 $ 1,456,529 $ 437,620 $ $ 436,230 $ 37,750 $ 43,705 $ 430,275 $ $ 63,487 $ 106,086 $ 146,804 $ 22,769 $ $ 113,275 $ 127,230 $ 164,907 $ 75,598 $ $ 51,570,949 $ 37,516,613 $ 37,892,273 $ 51,195,289 $

STREET STATE HIGHWAY TAX INCREMENT LAW ENFORCEMENT TRUST ENFORCEMENT & EDUCATION PARKS & REC DONATION PERMANENT IMPROVEMENT COURT STORM WATER MANAGEMENT COUNTY PERMISSIVE CUL-DE-SAC MAINTENANCE COMMUNITY DEVELOPMENT FEDERAL LAW ENF SEIZURE LAW ENF TRUST RIGHT OF WAY FEMA CAPITAL IMPROVEMENTS PARK IMP & ACQ PARK PARK-IN-LIEU OF FEES COURT BUILDING GENERAL BOND RETIREMENT SPECIAL ASSESSMENT GBR POLICE PENSION POLICE DUTY WEAPON PUBLIC LANDSCAPE TRUST VENDING MACHINES PARKING GARAGE STORMWATER WATER WATER SYSTEM CAPITAL IMP SEWER SEWER SYSTEM CAPITAL IMP RESERVE FOR SICK/VACATION UNCLAIMED FUNDS SENIOR ESCROW VETERANS MEMORIAL LANDFILL ESCROW REFUSE ESCROW DEVELOPERS ESCROW TIZ REAL ESTATE ESCROW SELF INS WORKERS COMP FUN ALL FUNDS TOTAL

$ 18,853,841

$ 20,101,102

$ 17,427,339

Increase / (Decrease) in Unexpended Fund Balance

$

Encumbrance

(1,247,261) $ 3,912,388 511,777 28,049 1,047,909 241,065 2,194 20,490 12,065 (4,700) (15,055) 15,100 2,288,632 15,500 14,810 (228,566) (373) (1,534) 121,017 (768,595) 160,960 (2,353,598) (110,480) (48,354) (1,001) (388) 9,029 (5,955) (40,719) (37,677) (375,660)

$ 242,009 $ 8,959 $ 144,341 $ 42,302 $ $ $ $ 6,668 $ $ 148,381 $ $ $ 17,603 $ $ $ $ 501,046 $ $ $ 180 $ $ $ $ 12,876 $ 3,666 $ $ $ $ 382,745 $ 2,426,831 $ 75,293 $ 3,648,653 $ 311,189 $ $ $ $ 1,735 $ $ 638,196 $ 990 $ $ $ 12,526,051

Unencumbered Fund Balance

$ 13,514,951 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

709,038 158,000 3,853,768 219,200 39,244 2,980 1,115,590 157,901 9,420 23,527 116,390 4,733 235,100 15,718 4,189,756 246 36,791 49,800 145,131 958,190 22 872,445 542 7,816 3,259 1,696,903 148,033 2,221,097 3,332,424 3,239,376 1,221,472 30,349 5,820 7,130 (200,576) 429,285 22,769 75,598 38,669,238

Conclusion As 2012 comes to a close, the Administration is finalizing its five-year revenue and expense forecast for the General Fund as well as its 2013 Appropriations recommendations. State reductions to multiple revenue sources along with economic volatility in tax collections and investment earnings will pose significant challenges to the City in 2013 and beyond. These declining revenues and anticipated increases in the cost to maintain the City’s aging assets and infrastructure will make it critical for the City to manage its available resources conservatively and maintain accountability and transparency to the public.

Additional Resources The Finance Department has posted this report along with numerous supporting documents to the Financial Publications portion of the City’s website. These include both revenue and expenditure status reports for each account and fund, and a detailed listing of all budget transfers completed within the appropriations through the third quarter.

These documents can be found in the Quarterly Financial Reports section at http://www.gahanna.gov/departments/finance/financialpublications.aspx

3rd Quarter Overview & Five-Year Forecasting Finance Department Presentation to Council October 22, 2012

GENERAL FUND REVENUES & EXPENDITURES

General Fund Revenue Collected

Planned

Pct Collected

$18,853,841

$22,445,208

84%

2011 YTD

Variance

Pct Diff

$19,895,670

<$1,041,829>

<5%>

Factoring out the large Net Profit filing from 2011 that was refunded in 2012, we would be $172K or 0.8% down from the same time last year.

Revenue by Source

General Fund Expenses Expended

Appropriated

% Expended

$20,101,102

$28,842,978

70%

2011 YTD

Variance

Pct Diff

$16,813,140

$3,287,962

20%

â&#x20AC;&#x153;Expendedâ&#x20AC;? includes $2.8M transfer to Capital Improvement Fund Excluding transfer, would be $505K or 3% above 2011

General Fund-Summary In the Third Quarter, General Fund expenses exceeded revenue by $1.2 million

Revenue Expense Variance

$18,853,841 <$20,101,102> <$1,247,261>

If not for the $2.8M transfer to the Capital Improvement Fund, revenues would have exceeded expenses by $1.5 M.

General Fund Balance Beginning Fund Balance $18,674,601

YTD Revenue $18,853,841

YTD Expenditure $20,101,102

Encumbrance $3,912,388

Q3 Unencumbered Fund Balance: $13,514,951 Mandatory Reserve based on 25% of planned revenue: $5,611,302 Balance in Excess of Reserve: $7,903,649

Ending Fund Balance $13,514,951

General Fund: Ending Fund Balance

GENERAL FUND FIVE-YEAR FORECAST

Revenue Forecast 1. Estimate Year-End Performance 2. Identify Reductions and Trends

3. Develop 2013 Estimate for Appropriations 4. Apply Trends for 2014 - 2017

Revenue: 2012 Year-End Estimate 2012 Plan (Nov 2011)

YTD Receipts (10/15/12)

Revised Estimate

Variance

% Change

$22.4M

$20.3M

$23.9M

$1.5M

6.7%

Increased by: • One-time funds (Creekside, grants) • Estate Tax • Strong Summer

General Fund Forecast

Revenue Forecast Focus on volatile/declining sources Income Tax Local Government Fund Interest & Investment Income Estate Tax Property Tax TIZ

Income Tax Importance Since 2000, has ranged between 50 – 65% of total General Fund Revenue Uncertainty—What is the “New Normal” Great Recession RITA Transition

Income Tax Analysis 2011 2012

12 Month Trailing Average On a rolling basis, sum the most recent 12 monthsâ&#x20AC;&#x2122; income tax collections

Jan Feb Mar Apr May June July Aug

Advantages: -More data points make trends easier to spot -Minimizes impact of outliers

Sept Oct Nov Dec

Income Tax Analysis

Income Tax Analysis

Income Tax Forecast 2012 = Base Year 2013 Correct for 2011/2012 net profit anomaly Anticipated COUG & Niagara withholdings 2013 â&#x20AC;&#x201C; 2017 1% growth to base per year

Income Tax Forecast

Local Government Fund Formula Based Revenue Sharing from State Fluctuates with State revenues Cut by the State to balance State budget in 2010 2013 first year with full reductions in place

Impact of State reductions <$825,000>/year

LGF Reduction Schedule By 2013, Gahannaâ&#x20AC;&#x2122;s LGF allocation will be reduced by 50% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

2011 100% 100% 100% 100% 100% 100% 75% 75% 75% 75% 75% 75%

2012 75% 75% 75% 75% 75% 75% 50% 50% 50% 50% 50% 50%

2013 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

Local Government Fund Forecast

Interest & Investment Income Earnings and Interest from Cityâ&#x20AC;&#x2122;s ~$50M Investment Portfolio Great Recession led to drop in available interest rates for City investments Historic Average $1.7M/year

Impact of reductions <$1.2 Million>/year

Interest & Investment Forecast

Estate Tax Tax on Estates of Deceased Residents – State eliminated Estate Tax effective 1/1/13 – Average receipts of $350,000/year – Anticipate final cash distribution in early 2013

Impact of reductions <$350,000>/year

Estate Tax Forecast

Property Taxes Tax on the Assessed Values of Real Property – Gahanna receives 3% of tax paid by residents – 2011 Revaluation reduced assessed property values by 6% ($100K/year) – Tangible Personal Property Tax cut in 2009 (average ~$70K/year)

Impact of reductions <$170,000>/year

For a home valued at $185,100, the City would receive $118 out of a $3,940 tax bill

Source: City of Gahanna Income Tax Distribution for 2012

Property Tax Forecast

TIZ TIF Payments TIZ TIF Payments in Lieu of Taxes – Industrial Zone (TIZ) TIF payments were used from 1979 to 2009 to pay for General Operating Expenses – City used approx $700K/year in 2000’s to offset General Fund expenses

Impact of reductions <$700,000>/year

Summary of Revenue Reductions The net impact of these changes to Gahannaâ&#x20AC;&#x2122;s revenue sources is over $3 Million/year

Expense Forecast Operating Expenses • Basis is 2013 Tax Budget • Captures the “true” cost of current City operations-No pushing needs forward or cutting in the short-run at the expense of the long-term • Includes anticipated contractual and reasonable market increases • Includes maintenance costs previously captured as capital expenses

Operating Capital • Identified in Capital Needs Assessment as items/investments required to operate and maintain current City operations

Priority I, II & III Capital Improvements • Costs estimated in Capital Needs Assessment

Expense Forecast

2013 Expense Snapshot Cumulative Shortfall Priority III Cap: <$6.1M> Priority II Cap: <$5.6M> Priority I Cap:

<$3.1M>

Operating Cap: <$2.7M> Operating Exp: <$1.5M>

Bridging the Gap Historical methods = unsustainable Zero out capital Operating reductions Deferred maintenance Use of reserves

2013 Appropriations ď&#x192; Short-term solution

Long-term strategy needed

• Appropriations Request to Council • Appropriations Presentation

Jan 2

• Council Discussion • Public Forum • Staffing Study Report • Resident Survey Report • Long-Term Financial Strategy Presentation & Discussion • Appropriations Vote

Feb

Dec / Jan

Nov / Dec

Nov / Dec

Nov 13

Nov 2

Next Steps

• Parks & Recreation Master Plan Report