Title
Five-Year General Fund Forecast
Description
This report transmits the preliminary status for the General Fund (GF) fiscal year (FY) 2018-19 budget and a five-year GF forecast through FY 2022-23 (Attachment A). The five-year forecast is being presented to the Mayor and City Council for the seventh consecutive year and provides an essential tool in long-term budget discussions and decision making. The forecast currently shows a balanced budget for FY 2018-19.
THIS ITEM IS FOR INFORMATION ONLY.
Report
Summary
The February 2017 Five-Year Forecast projected that without any action, the City of Phoenix would have a GF budget deficit of ($43M) to ($64M) for 2018-19. With sustained effort, several steps have led to a projected balanced budget for FY 2018-19 (this assumes no actions by the State to change revenue from existing projections). These include accumulating one-time savings of $14.4 million in FY 2016-17 and proactive steps in 2017-18 to reduce ongoing costs and to defer and reduce spending wherever possible.
Over the last few years the City Council has taken necessary actions to protect City services while facing very challenging financial conditions. The City Council has led important fiscal reform measures, including:
• $134 million in innovation and efficiency savings to date since 2010
• Elimination of approximately 2,700 positions since FY 2007-08; resulting in the smallest government per capita since 1970-71
• Consistently raising the contingency fund to its highest level in our history
• Balancing the deficit in the Public Safety funds without sworn layoffs and the planned hiring of more than 465 Police Officers and 79 Firefighters between now and the end of FY 2018-19.
With this strong fiscal planning and early action, the projected funding gap for 2018-19 has been eliminated. Over the next few weeks, staff will continue to refine both revenue and expenditure estimates until we have a final status in March for the City Manager’s Trial Budget.
FY 2018-19
The preliminary expenditure estimates may change as cost estimates are further refined in the coming weeks, however at this time the preliminary FY 2018-19 GF expenditures are projected to be $1.296 billion. This compares to the adopted GF expenditure budget of $1.278 billion for FY 2017-18. The increase is due to slightly increased costs, primarily resulting from employee concession restorations, and additional expenditures for capital projects and vehicle replacements.
Total COPERS pension costs are expected to increase next year. However, the GF portion is expected to decrease by about $8 million as compared to the current year budget due to a structural change in the budget for the Street Transportation Department. Positions for which costs had previously been directly charged to the GF and subsequently transferred to the Arizona Highway User Fund are now being directly charged to that fund. There is no adverse impact to the Street Transportation Department budget as a result of this accounting change. GF COPERS costs are expected to increase slightly throughout the remainder of the forecast period. However, the increases are projected to be less than what was projected in the 2017 Five-Year Forecast due to the continued impact of pension reform and strong plan performance last year.
GF costs for sworn Police and Fire (PSPRS) pension costs are expected to decrease by about $4 million compared to the current year budget due to strong plan performance and the change from a 20-year to a 25-year amortization period. If a 20-year amortization period were used, the GF public safety pension costs would be projected to increase about $25 million next year and by a total of approximately $158 million for the forecast period. This would have not only impacted our ability to balance next fiscal year without either additional revenue or difficult cuts to existing programs, but would have increased the likelihood for projected deficits throughout the forecast period.
As the five-year forecast shows, pension costs will continue to add significant pressure to the GF budget going forward. However, the pension reform measures for COPERS and PSPRS enacted by the State Legislature, City Council and approved by Phoenix voters mean these short-term increases are anticipated to slow over time and are expected to result in significant savings over the next two decades.
There are also other cost increases not within our control including:
• State charges for the implementation of Transaction Privilege Tax (TPT) Reform are expected to increase from approximately $3 million this year to $3.9 million in FY 2018-19.
• The jail per diem rates charged by the Maricopa County Sherriff's Office (MCSO) for the incarceration of Phoenix prisoners will result in an increase of approximately $1.5 million in FY 18-19. Next year’s booking rate is $341.57 per inmate, an increase of 4.9 percent, and the housing rate is $100.04 per day, a decrease of 1.6 percent.
Overall, non-pension costs have been stable and manageable.
FY 2019-20 and Beyond
This year's forecast shows considerable improvement over last year's forecast. The baseline (midpoint) forecast for each year from FY 19-20 through the end of the forecast period reflects a balanced budget. As we look ahead the areas of concern for the GF budget are service costs, service levels, capital needs, and revenue. Service costs include employee compensation levels, use of technology and other ways to do our existing work more efficiently, and capital needs. Service levels involve the amount of services, hours and the number of facilities we keep open to serve the public. Revenues consider taxes, fees, economic growth, and the impact that the 2020 Census may have on the City's relative population share. The current forecast assumes no changes to existing labor contracts. These contracts expire at the end of FY 2018-19 and contract negotiations will begin in the Fall of 2018. Any changes to these contracts would impact FY 2019-20 and beyond. Additionally, the current forecast assumes no changes to existing service levels.
The Phoenix City Charter requires a balanced budget each year. On March 20, a balanced City Manager’s Trial Budget will be presented for Council and Community discussion along with the Preliminary Five-Year Capital Improvement Program (CIP). The budget will present options for debt service payments and one-time capital requests. Community Budget Hearings will begin in April.
Department
Responsible Department
This item is submitted by City Manager Ed Zuercher and the Budget and Research Department.