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HomeMy WebLinkAboutItem 8.2 Finance Trends LT Stability__ . . _ _ ~~,~ ~~'_DU~~ . : G . ~ ~G 19 ~1~\e2 ~~,~~% ; : :!1LIFOR . . . STAFF REPORT C I T Y C L E R K DUBLIN CITY COUNCIL File # ^ ,3^0~-~.^0 DATE: March 14, 2011 TO: Honorable Mayor and City Councilmembers FROM: Joni Pattillo, City Manager SUBJ • Special Budget Report: Financial Trends and Long Term Stability Prepared By: Paul S. Rankin, Administrative Services Director EXECUTIVE SUMMARY: Finance Staff have prepared a Special Report that examines revenue and expenditure trends experienced by the City over the past 10 years. In key areas the report discusses projected trends in the upcoming Fiscal Year 2011-2012 budget. This information is ~intended as an informational foundation to be considered as the City Council begins discussions related to the upcoming Budget process. FINANCIAL IMPACT: The report identifies that major discretionary revenue sources have been declining over the past few years. The recovery which is envisioned does not project rapid growth. Comparisons are provided on a per capita basis as well as a discussion of inflationary impacts. The historical comparisons also show that the City has reduced expenditures in order to respond to declining revenue. Although some of the declines in funding have stabilized, it is expected that growth during the economic recovery wi{I remain modest in the future as costs continue to escalate. RECOMMENDATION: Staff recommends that the City Council receive the report and presentation. ~ ,~ Submitted By: Administrative Services Director Reviewed Assistant City Manager Page 1 of 2 . ITEM NO. •`~ DESCRIPTION: The City's Annual Budget Study Session provides the City Council with an opportunity to: • Identify those programs and services the City Council would like Staff to analyze as part of the development of the City's Annuaf Operating Budget. • Identify those Projects that the City Council would like to see presented as part of the development of a new Five Year Capital Improvement Program, which will be presented with the Budget. • Receive ear{y information regarding preiiminary trends related to the City's revenues in Fiscal Year 2011-2012. • Have early input on the budget process reducing the potential for last minute budget issues for which there would be insufficient time to evaluate. The focus of this report is primarily informational and is intended to serve as background for the discussion by the City Council, in advance of the preparation of the Fiscal Year 2011-2012 Budget and Financial Plan. In order to prepare the upcoming budget, it is relevant to consider historical financial trends. Staff will provide an overview of key trends associated with the major discretionary General Fund Revenues and Expenditures. In prior years the City has benefited from the economic growth in the region. The trend information shows the deterioration of key discretionary revenues in the recent years, as well as the City's disciplined reduction in expenses. Staff has prepared a Special Report (Attachment 1) which places the current financial trends in context for the City of Dublin. It should be noted that this analysis has been prepared based on information available today, which is subject to change. As the preliminary budget and financial plan is developed, Staff will continue to incorporate the impact of any significant change(s). Staff will present an overview in order to prepare the City Council for consideration of key budget decisions. . NOTICING REQUIREMENTS/PUBLIC OUTREACH: None ATTACHMENTS: 1. SPECIAL BUDGET REPORT: Financial Trends and Financial Stability Page 2 of 2 i~b ~~ CITY OF DUBLIN SPEC Financial Trends / Long Term Stability MARCH 7, 2011 ~, a 3- l~- I I Attachment 1 a~~ i~' Page Left Intentionally Blank Page 2 of 18 ~ ~ 'L "Stay committed to your decisions, but stay flexible in your approach." Tom Robbins INTRODUCTION The purpose of this report is to serve as an update to a report prepared in 2010 that examined historical financial trends, with a specific emphasis on those which impact the General Fund. By reviewing trends the City can be better prepared to provide long term fiscal stability, which will have positive impacts on the quality of life for the citizens and residents we serve. In order to simplify the presentation the Fiscal Year stated is the second year e.g. Fiscal Year 2010 - 2011 is referred to as 2011. REVENUES HISTORICAL TRENDS OF MAJOR REVENUES The General Fund is the largest source of discretionary funds available to fund City operations. Although government finances can be confusing with the number of revenues collected, focusing at the largest components shows the concentration of revenue among a relatively few sources. Chart 1 graphically displays the high concentration of revenue derived from only a few sources. CHART 1- FISCAL YEAR 2010/2011 GENERAL FUND REVENUE DISTRIBUTION Property Taxes 48% All Other 13% Sales Tax 26% • A single Revenue Source - Property Tax - is nearly one half (48%) of all General Fund Revenue. • Two revenue sources make up 74% of the total revenue (Sales Tax and Property Tax). Page 3 of 18 Francnise Taxes guiiding Permits 6% 3% ~~~ i.~ Property Tax Trends As shown in Chart 2 the City has experienced significant growth in Property Taxes over the past ten years. However, starting with the Fiscal Year 2009 Tax Roll, the County Assessor reduced assessed values on numerous properties based upon market value trends. Annually the Assessor examines market values as required by law. The ability to increase property values used for tax calculations is limited under the law. CHART 2-10 YEAR TREND CITY OF DUBLIN GENERAL FUND PROPERTY TAX REVENUE (In Millions $ Actual Revenue For FY 2002-2010 and Budget For 2011) $25.00 $20.00 $15.00 $'~ ~. ~Q $5.00 $0.00 ~ M' N ~} _ ~ N ~ M O P o ~ ~ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 As reflected in Chart 2, Property Tax revenue reached a high point in FY 2008-9, decreased in FY 2009-10, and is projected to decrease in this current fiscal year. Under Proposition 13, which limits the increases in assessed values the law limits the annual increase in value to a maximum of 2% per year. The annual automatic adjustment made by the Assessor was a neqative factor for 2011. This occurred for the first time since Proposition 13 was adopted by the voters in the late 1970's. The 2012 automatic factor is expected to be a modest .75%. The City of Dublin is not unique in experiencing a decline in property tax revenue. The depression in housing values has occurred nationwide as the country has been negatively affected by unrealistic mortgage lending practices and the impacts of an economic recession. In Alameda County 11 of the 14 cities experienced a reduction in the assessed values used for 2011 property taxes. The City of Dublin decreased by 2.8%. Countywide the reductions ranged from a negative 0.7% to a negative 3.6%. The three cities that had positive growth were all below 1% in growth with two of them barely positive at less than 0.15%. Page 4 of 18 5~ i~ General Fund Property Tax has typically been viewed by the public as a primary funding source for core services (Police, Fire, etc.) received by the residents. In previous years, Property Taxes could be expected to completely cover the costs of Police and Fire services - that is no longer the case. It is also important to consider the change in Property Tax on a per capita basis. Chart 3 depicts the results if the Total City Property Tax Revenue was divided by the estimated population for the past 6 years. The population estimate is based on estimates of Household Population that are released annually by the California Department of Finance. CHART 3- CITY OF DUBLIN PROPERTY TAX REVENUE PER RESIDENT 2006-2010 (Actual 2006-2010; Budget 2011) ;600 ;580 $560 $540 $520 $500 $480 ;460 ;440 ;420 What is most dramatic about the comparison in Chart 3 is that the 2011 results are nearly identical to revenue received in 2006. If you were to look at results from ten years ago, in 2002 the per capita property tax revenue was only $305. Given that costs have increased befinreen 2006 and 2011 and the population increased, the City's number one revenue source has not kept pace with the growth. This puts pressure on examining opportunities for efficiency gains, examining other revenues, or reducing expenditures. A full discussion regarding trends in City property tax revenue should also note the impact the State government has taken on local agencies. As far back as 1994 the State changed the rules as to how property taxes were administered and shifted funds from cities to education. Traditionally the obligation for funding public K-12 schools has been a State responsibility. Through the Educational Revenue Augmentation Fund (ERAF) the State shifted funding from local property taxes to make up for the State funding requirements. In 2011 the shift of Dublin Property Taxes amounts to $2,034,563. In the past 5 years the City has contributed over $10.1 million to ERAF. Page 5 of 18 2006 2007 2008 2009 2010 2011 ~ ~ ~~ Future Trends For Property Tax Revenue Two factors wil! impact future growth in property taxes: 1) lncreases in property values; and 2) New development. Beacon Economics ("Beaconomics Quarterly forecast of the U.S. and California - Volume 3, No. 1 January 2011) has suggested that new residential development will remain slow throughout 2012 and the potential to pick up will not occur until 2013 and beyond. Because of the lower home prices in existing inventory this tends to dampen the demand for new construction. They also expect slow movement in the non-residential sector. The Fiscal Year 2012 assessed values will be established based on market values as of January 1, 2011. The County Assessor is just beginning to evaluate adjustments, as they utilize sales data through March before making adjustments. HdL Coren & Cone, the City's Property Tax Consultant, has projected that the upcoming year's property tax revenues may be relatively flat. Staff is scheduled to meet with the Assessor at the end of March to get preliminary trend information that will assist in finalizing the 2012 Budget. Chart 4 depicts the 2011 breakdown of the City of Dublin Assessed Valuation by category. This information is relevant in projecting upcoming adjustments. CHART 4- CITY OF DUBLIN 2010 / 2011 ASSESSED VALUATION BY CATEGORY ~tners 4% 72°/a Page 6 of 18 Commercial Vacant Land Unsecured 16% s'~° 2% ~~ ~ As shown in Chart 5 the days of double digit percentage increases have not occurred for several years. The reality is that we are looking towards the third consecutive year where the growth was potentially not even one percent. The factor used for the 2012 Estimate in this Chart is the 2012 automatic adjustment that can be applied by the Assessor. If the Assessor continues to make negative adjustments even this modest increase may not be achieved. CHART 5- CITY OF DUBLIN ANNUAL PERCENTAGE GROWTH IN ASSESSED VALUATION (Actual Rate For Fiscal Years 2006-2011 / Projected Rate For 2012) so.o~io ~ s.o~io ~ o.o°io s.o~io o.o~io -s.o~io Sales Tax Trends As noted earlier in the report Sales Tax is the second largest General Fund revenue source. Retail sales tax accounts for 26% of the General Fund discretionary revenue in the 2011 Budget. Given the large concentration of traditional retail and automobile dealers in the City, growth in this revenue will track the broader economic trends. Economists have suggested that the indicators seem to have bottomed out; however, growth has been slow. The sales tax category is also linked to the overall labor market conditions. If consumers have uncertainty in their employment it puts pressure on a savings mentality rather than making large purchases. Beacon Economics, in the publication previously referenced, noted that the unemployment rate in California has moved very little in the past several months. They also note that California has added back only 53,000 of the nearly 1.4 million jobs lost during the recession. Although this is not promising news, economists continue to refer to a job-less recovery which will take a longer period before we reach the pre-recession employment numbers. Page 7 of 18 g~ i~ Chart 6 provides a 10 year perspective of the annual sales tax for the City of Dublin. The most recent three years have been relatively flat and are off significantly from the nearly $14 mi4lion per year trend that existed consistently from 2004 - 2008. CHART 6-10 YEAR TREND CITY OF DUBLIN GENERAL FUND SALES TAX REVENUE (In Millions $ Actual Revenue for FY 2002-2010 and Estimate For 2011) 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 ~ _ r r if ~ ' ~- C+i .i.. i - i I 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Estimate The current year estimated per capita sales tax is $283. As shown in Chart 7 the trend for the past 5 years is less than $400. In the 7 years which preceded (2000 - 2006) the City's per capita sales tax revenue was never below $414. CHART 7- CITY OF DUBLIN SALES TAX REVENUE PER RESIDENT 2006 - 2010 (Actual 2007-2010; Estimate 2011) $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 ~ ~ b2 2007 2008 2009 2010 2011 Estimate Page 8 of 18 ~ ~~ ~ The composition of the retail sales tax outlets in the City also has a direct impact on the revenue decline. Chart 8 below shows that two categories ( Autos and Transportation, and General Consumer Goods) are the source of roughly 59% of the total retail sales transactions that occur in the City of Dublin. As part of the total sales tax distribution by the State cities also receive a share of pooled sales taxes, which are not included in the comparison below. CHART 8- CITY OF DUBLIN CALENDAR 2010 LOCAL RETAIL SALES TAX TRANSACTIONS BY MAJOR BUSINESS CATEGORY Fuel And Service Stations 8% Buildirtg And Construction 7% Autos And Transportation 33% Restaurants And Hotels 71% Business And Industry 13% The Autos and Transportation category is broader than strictly vehicle sales. It also includes transportation related outlets such as auto repair shops, vehicle rentals, etc. New automobile sales do account for approximately 75% of the sales in this category. As mentioned earlier consumer confidence can play a large role in decisions to undertake this type of purchase. Uncertainty in the economy also places pressure on the expansion of these sales. In recent months there have been positive reports regarding new car sales, which is certainly welcomed after months of declining numbers. However, it is important to look at the trend information for total sales and recognize that growth does not automatically mean we are back where we once were. The following Table shows a historical trend for automobile and light truck sales in the United States. AVERAGE NUMBER OF AUTOMOBILE SALES IN UNITED STATES 1990-2011 (2010 Estimate and 2011 Forecast) (in millions of units) 1990-99 2000-07 2009 2009 2010 Estimate 2011 Forecast 14.55 16.79 13.19 10.4 11.55 12.70 Source: Global Auto Report Scotiabank Group February 25, 2011 (www.scotiabank.com) Page 9 of 18 General Consumer Goods 26% ~o i~ ~ With auto dealers projected to continue to increase sales this will have a favorable impact on the City revenue. As with the recovery of the housing market and the economy in general, it is anticipated that growth will be sporadic and may take longer to get back to historical trends. The second largest category of retail sales tax generators in the City of Dublin is the General Consumer category which includes department stores, clothing stores, electronics, appliance stores, etc. The City has experienced declines in this category as a result of general economic trends as well as the closure of major retailers including: Mervyns, Circuit City, and Expo Design Center. The Mervyns and Circuit City properties have had vacant buildings since 2009 and the City does not expect to receive sales tax from replacement tenants until 2011 - 2012. The amount of sales tax is also likely to be fess based on the nature of the merchandise sold by the new tenants (Sprouts Farmers Market is a grocery store and all food items are exempt from sales tax). CHART 9- CITY OF DUBLIN SALES TAX REVENUE DERIVED FROM GENERAL CONSUMER CATEGORY SALES TRANSACTIONS 2007-2010 (in millions $) $3.8 $3.3 $3.1 2007 2008 2009 2010 Future Trends For Sales Tax Revenue Current projections for sales tax revenues are that there will be small increases based on the reuse of formerly vacant retail parcels. There will also be a positive impact from the Fallon Gateway Shopping Center (Target is the anchor store), however, the first full year of operation for the Target store will be 2012-2013. The overall economy will play a large role in how the sales tax revenue grows. In preparation for the FY 2012 budget, Staff will be developing a more precise estimate for Citywide sales taxes. At the present time the City only has actual sales data for the period July Page 10 of 18 ll i~ ~ 2010 - September 2010. The City will receive the second quarter data later in the month of March. Development Related Revenue Development related revenue provides funding for General Fund supported services associated with processing, permitting and inspecting new development. Although the timing of a building permit occurs towards the end of the development process, this data provides a relative sense of the volume of activity (Charts 10 and 11 below). CHART 10 - CITY OF DUBLIN VALUATION OF BUILDING PERMITS ISSUED 2001-2010 (In Millions $) 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Page 11 of 18 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 CHART 11 - CITY OF DUBLIN NEW RESIDENTIAL UNITS RECEIVING FINAL INSPECTION 2001-2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1z~ ~~ The overall trends are consistent with the revenue analysis earlier. The most recent years have been well below earlier activity. Although we are seeing some growth in activity it still remains below the levels prior to 2008. , In terms of organizational models the City of Dublin has been able to successfully provide services, despite these fluctuations, through the use of professional service contracts which allows the City to modify staffing from year to year. Future Trends For Development Related Processinq Revenue Because of its location and available land for new development it is anticipated that the City will continue to have an active Development Services component. The timing of the projects will be impacted by the overall economy. With projections for slower growth in the economy it is unlikely the City will see the trends established in the past 10 years. An example of how the development process has changed is that Developers now proceed with a small number of permits based on their sales activity. In the past, when there was greater demand, a developer might proceed to construction well ahead of having a sales agreement with a buyer. Capital Impact Fees As a growing community, the City has managed over the past ten years, the planned delivery of numerous public improvements including: streets, freeway inferchanges, parks, a library, and other community buildings. To the extent that the projects were to meet the requirements of new development they were either constructed directly by developers or by the City using Capital Impact Fees. Impact Fees are typically collected at the time of the building permit so the trends as they relate to collections are going to mirror that activity. Although the. City is experiencing some positive trends in building permits issued, as noted earlier they are being obtained in smaller groups. The financing of public improvements with impact fees creates a need to balance the delivery of the facilities when they will be needed and when there has been adequate growth in revenue to maintain the added inventory. The reality of impact fee financing is that because fees are allocated proportionately to all new development, the entire collection of the impact fees needed will not occur until all of the development which will pay the fees is complete. Impact Fee Trends Since most impact fees are collected at the time of building permit these collections.are similar to previous trends discussed earlier in the report. There are exceptions such as the collection of park land fees which are collected at the time of the final map and in some cases Development Agreements have provided a requirement for the developer to make payment of funds in advance of the building permit. Future Trend Capital Impact Fee Funds Impact Fee forecasting must take into consideration a longer window of time than just a single year. Estimating the timing of Capital Impact Fee collection requires assumptions regarding development timing. Staff is evaluating the projections based on input from the development community and the status of project approvals. This information will be used to assess projected cash flows and project timing for the Fiscal Year 2011 - 2012 Update to the Five Year Capital Improvement Program, which will be presented to the City Council in June 2011. Page 12 of 18 ~3~i~ Interest Revenue As shown in Chart 1, Interest accounts for approximately 2% of the 2011 General Fund budget. Although this is a small percentage compared to the dominating percentage of revenue collected from taxes, it is an important revenue source since it is a locally controlled and can be used for discretionary expenditures. Chart 12 provides a 10 year view of General Fund revenue derived from Interest earnings. Chart 12 also shows an overlay of the trend for the interest rate paid by the California Local Agency Investment Fund (LAIF). It is important to recognize that the reported interest revenue will fluctuate based both upon interest rates and the balance available for investment. In addition, the City strives for a mix of investments so the LAIF performance is not the rate earned on the total portfolio. This is merely indicative of how short term rates have performed for that investment. CHART 12 - CITY OF DUBLIN GENERAL FUND INTEREST REVENUE 2002- ESTIMATED 2011 REVENUE INCLUDING AN OVERLAY OF THE LOCAL AGENCY INVESTMENT FUND (LAIF) HISTORICAL INTEREST RATE (Note: 2011 Rate is an estimate based on 2 Quarters) (Interest Revenue In Millions $/ Interest Rate As a Percentage) $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Line displays average Local Agency Investment Fund Interest rate and the $2.62 $2,g2 scale is on the right. _ - Bars depict General Fund Interest Revenue in Millions $ 1.84 $1.49 ~~ 1.45 $0.49 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Using the LAIF rates as an indicator during the 10 year period rates have been as high as 5.1 % and in the current year the annual rate is projected by Staff to be approximateiy 0.5%. Page 13 of 18 ~~~ ~s Future Trend For Interest Revenue Based on recent market conditions it is expected that interest rates are no longer declining and there are small increases from the historic low points. However, most projections do not forecast any kind of a rapid increase in rates. The market may also experience changes as the Federal Government establishes a long term plan for the quasi-public entities that have been used to create funding for home loans (Federal National Mortgage Association and Federal Home Loan Mortgage Corporation). Both of these entities have required Federal bail- outs and in the past they have provided investment opportunities for government funds. Given that the City is investing public monies there is a requirement that the investments meet the requirements of State law and the local investment policy. The expected trend for interest revenue is that we will continue in a low interest rate environment, which is not going to result in significant new revenue for the General Fund. EXPENDITURES GENERAL FUND EXPENDITURE TRENDS As a growing community the City of Dublin's General Fund Expenditures have increased as the City has matured and the population served has increased. The long term 10 year historical trend of General Fund Operating Expenditures reflects the growth in the City. With increasing population there will be increased cost of service. The changes occurring between 2003 and 2005 include the impact of changes resulting from an additional Fire Station. Chart 13 provides a view of the Operating expenditures with an overlay trend line that reflects the City population growth. CHART 13 - CITY OF DUBLIN GENERAL FUND OPERATING EXPENDITURES INCLUDING A TREND LINE SHOWING GROWTH IN CITY POPULATfON 2002 ACTUAL - BUDGET 2011 (Operating Expenditures in Million $/ Population in 1,000's) $5~.00 $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $- 2002 2003 2004 2005 2006 2007 2008 2009 Page 14 of 18 2010 2011 Budget ~~ o-~ ~~ Similar to the analysis of revenue it is also helpful to review the composition of the City General Fund expenditures. Chart 14 provides a view of the distribution of 2011 General Fund Operating Expenditures by major program area. As shown in the Chart over half of the • General Fund Operating costs relates to the core service of Police and Fire. CHART 14 - CITY OF DUBLIN GENERAL FUND OPERATING EXPENSE - BUDGET 2011 Police & Fire 51% General Government 14% ~lic Safety % ansportation 4% Community Culture & Leisure Health 8 Welfare Development Services Less than 1% 11 °/, 17% ~ Similar to the analysis of revenue it is also appropriate to compare the General Fund Operating expenditures on a per capita basis. The declining trend in per capita spending reflects a combination of efficiency adjustments as well as reductions in services showing a decrease of 9 percent over the 5 years depicted in Chart 15. CHART 15 - CITY OF DUBLIN GENERAL FUND PER CAPITA OPERATING EXPENSE 2007 ACTUAL - BUDGET 2011 (In million $) $,,2~0 $1.'I 50 $1,100 $1,050 $1,000 ~ $950 Page 15 of 18 2007 2008 2009 20'10 20'I'I Budget l ~ o~ I 8` Abilitv of Propertv Tax To Fund Core Services As shown above in Chart 14, Police and Fire services represent approximately half of the City operating expenditures, and the remaining half are spread across several categories also ~ typically viewed by residents as core services (Park Maintenance, Recreation Programs, Street Maintenance, Library, Senior Citizen and Youth Programs, etc.). As mentioned earlier in this report a common public perception is that all core service costs can be funded solely from Property Tax revenue. In order to simplify the presentation, Chart 16 graphically shows a comparison of Property Tax revenue to only the cost of Police and Fire services. CHART 16 - CITY OF DUBLIN POLICE DEPARTMENT AND FIRE DEPARTMENT GENERAL FUND OPERATING EXPENDITURES COMPARED TO PROPERTY TAX 2007 ACTUAL - BUDGET 2011 (In Million $) $24.00 $22.40 $20.00 • $18.00 $16.00 As shown above for both of the last two years the cost of just Police and Fire services exceeded all property tax revenue. Keeping in mind that the Property Tax revenue is not expected to see significant growth the difference between these two is expected to widen unless there are additional revenues generated or operating costs decreased. Impacts of Inflation On Expenditures The City operating expenditures are not immune from the impacts of increased costs of doing business. One example is the utilities required to operate City facilities. In 2007 the total expenditures related to utilities in the General Fund were approximately $0.9 million. The budget in 2011 is nearly $1.5 million - a 67% increase over the five years. Although this increase is not entirely related to inflationary costs as the City has also added new facilities ~ during this time period, the impacts of increased costs are a real challenge for the City. Page 16 of 18 2007 2008 2009 2010 2011 BUDGET -~ ~~' ~~ Chart 17 combines both the per capita cost with a trend line adjusted for inflation. The trend line is calculated by starting with the 2006 Actual General Fund Per Capita Operating Expenditures (the 2006 per capita number was $1,160) and adjusting that number each year ~ by the change in the Consumer Price Index (CPI). As noted there was actually a small decrease in the CPI between 2009 and 2010. Despite that negative year the 2011 per capita spending is over 20% less than what the expected spending would be if it had progressed by the change in CPI befinreen 2006 and 2011. CHART 17 - CITY OF DUBLIN GENERAL FUND OPERATING EXPENSE PER CAPITA 2007 - 2011 BUDGET WITH TREND LINE ASSUMING 2006 ADJUSTED BY ANNUAL CHANGE IN CPI $1,400 $1,200 $1,000 $800 ~ $600 $400 $200 $- - - --- ,~. .,.,. The difference between the inflation adjusted per capita expense and the actual 2011 per capita expense demonstrates that very real reductions have been made reducing operating costs. When inflation is factored in the reductions are even greater. General Fund Capital Expenditure Trends Capital project expenditures due not typically follow a linear trend. Very similar to a family budget, there may be some years that a large capital renovation project occurs, but it would not be expected to occur every year. The City approaches its funding of capita- projects by looking at needs over multiple years. Not unlike the family situation the decision needs to consider questions like: How important it in terms of priorities? Do we have the funding • available? Can we afford to maintain it after we complete the project? In order to have the revenues necessary to complete some of these projects, the City has historically placed unspent funds in reserves to finance special projects and amenities. This Page 17 of 18 2007 2008 2009 2010 2011 Budget ~go~~ ~ has allowed the City to approach several capital projects on a pay-as-you-go basis without incurring debt. Examples of recent projects which included major funding from the General Fund are: Historic Park Expansion; Reconstruction of Shannon Community Center; and ~ Acquisition of a City Maintenance Yard site. Chart 18 displays the historical use of General Fund revenue for Capital Projects. CHART 18 - CITY OF DUBLIN GENERAL FUND CAPITAL EXPENDITURES 2007 ACTUAL - BUDGET 2011 (In Million $) $, 2.00 $i o.oo $a.oo $s.oo $4.00 $2.00 ~ $- 2007 2008 2009 2010 20~1 Budget Consistent with the overall financial picture the City has had to decrease funding allocated to capital projects. This reduction places pressure on the City's ability to complete capital projects which, in some cases, are designed to address a public health and safety condition or to improve efficient operations. For example, the annual sidewalk safety repair program and technology improvements are two items that have been funded in the past primarily from the General Fund. With less operating funding available it also becomes necessary to consider the on-going operating costs of new capital projects. Balancing these competing interests will continue to be a challenge in the coming years. CONCLUSION The historical trends are a helpful reminder of the days when trends were on an upward climb. In the more recent years we have seen the drastic decline in revenue and the corresponding decrease in expenditures. The message of most forecasters is that the return to growth will require more patience as the economic recovery is not repeating the past where recessionary periods were followed by very robust growth. If the past history is an example, the City of Dublin has a strong commitment to plan a course of action and respond to the challenges and opportunities the City will face. The decisions will require creativity and a recognition that a great deal can be achieved if the City maintains fiscal , soundness in serving our constituency. Page 18 of 18