Budget Message


City of Roseburg Budget Committee Members:

     Subject:  2017-2018 Budget Transmittal Memo

I am pleased to present the proposed FY 2017-2018 City of Roseburg budget for your consideration.  The budget is a tool used by Staff and Council to provide a roadmap for future operations and capital investments.  We have attempted to provide funding at a level consistent with current and projected operational service levels and incorporated strategies to achieve Council’s goals.  Staff worked extensively with the City Council to evaluate and eventually update our General Fund reserve policy in 2015.  Council adopted an updated policy which allowed for a budgeted ending General Fund reserve of as low as 20% after being held at 30% for the previous five years.  The prior policy led to somewhat arbitrary service level reductions at a time when our long-term projections did not indicate the necessity of those reductions.  While this General Fund budget continues to provide for services at a cost that exceeds our current year resources, our six-year forecast model continues to give us confidence that our proposed service levels can be maintained and enhanced over the next few years and still meet our Council policy objectives over the longer term.

Our local economy continues to trail the larger federal and state economies, but conditions have improved dramatically over the last two years.  In 2015, the State of Oregon unemployment rate dropped below the national rate for the first time in almost twenty years, driven primarily by Portland metropolitan area employment.  Many rural communities had been seeing significant reductions in property values and associated revenue due to a decline in residential property development.  In 2015, more building permits were issued in Roseburg than any year since 2007, and even more were issued in 2016.  The City property values are beginning to rise again and should return to historical levels over the next few years.  Assessed value growth has not met the 3% threshold allowed by state law the last few years, but increased over 2% in 2016-17 for the first time in a number of years.  We continue to be concerned that Real Market value and assessed value are not reaching levels that were anticipated.  We are beginning to see some new commercial construction, and housing starts have increased considerably in the last twenty four months. During the current fiscal year, we worked with the developers of the former Douglas Community Hospital site that now houses combined State of Oregon offices.  The project was complete around January 2017 and occupied by three different units of State government.  This development will add to the tax base and “Beautify” an area of the community that is directly off Interstate 5 at the south I-5 entrance to our community.

The City continues to work with state and local government partners to ensure that additional commercial development will occur within the City limits and allow for economic expansion and assessed value growth.  These steps, in addition to seeking greater efficiencies in our operations and leveraging local dollars with state and federal grants, have allowed us to make important capital investments in transportation and other infrastructure.

The City, our Urban Renewal Agency and the Oregon Department of Transportation entered into an agreement to undertake one of the largest public works transportation projects in recent memory.  ODOT is overseeing the Highway 138 Corridor project which will enhance pedestrian and bicycle travel as well as provide for better freight mobility and vehicular travel from the west end of the Oak and Washington Avenue bridges east and then north to  Diamond Lake Boulevard.  This $12 million project rebuilt eight intersections, three railroad crossings and five travel lanes through much of the project area.  The Highway 138 Corridor project is now anticipated to be complete on or around June 30, 2017.  At the same time, the City/Urban Renewal Agency constructed improvements in a five block section immediately east of this project on Oak and Washington in the downtown core area.  These two projects combined to provide an almost $15 million investment in beautification and infrastructure in the center of Roseburg and is a great example of governmental cooperation and the leveraging of scarce resources.  I would again like to thank Public Works Director Nikki Messenger and our partners at ODOT for making this project a reality for our community. 

The Urban Renewal Agency also constructed a Parking Structure project and an additional road improvement project adjacent to 138 last summer adding an additional approximately $1.5 million in infrastructure investment in this core area.  The Spruce/Parrot improvement added significant infrastructure to both the local residential street (Parrot) and commercial street (Spruce).  Spruce Street was realigned to match the 138 Corridor improvement and provides for better bicycle, pedestrian and freight access into the mixed use area.

We continue to meet challenges associated with PERS rates, which increased by about 4% of payroll July of 2013 and 2 plus percent of payroll in 2015.  Overall rates will again be increasing effective July 1, 2017 by approximately 4% of payroll and likely will increase an additional 4% of payroll in 2019.  The rates imposed by PERS are effective for two year periods so the 4% increase will be effective for the next two fiscal years. Resources needed to operate City government are also stretched by rising health care premiums and property insurance costs.  We have worked closely with our agent and providers to keep the cost of all insurance premiums down.  We have been pretty successful in moderating the cost of health care premiums again this year, but we will experience a premium increase for the first time in three years. In addition, liability and property insurance premiums continue to increase at rates higher than the CPI.  We are completing the first year of a collective bargaining agreement with our Police Department bargaining group and the second year of the contract with IAFF, our Fire Department bargaining group.  We are currently in negotiations with the IBEW, our General Service collective bargaining group.  It is important to note that while the impacts of collective bargaining have financial implications related to our budgets each year, approval of collective bargaining agreements is the sole responsibility of Council, not the Budget Committee.  Information related to the impacts of collective bargaining has been included in the proposed budget.  Pay schedules have also been included in the appendices section.

CITY GOALS AND OBJECTIVES

In April 2017, the Council adopted four goals that have and will continue to provide direction to Staff over the next few years as we develop budgets and strategies to meet those goals.  Council chose to return to a goal setting process that provided direction related to the “big picture” rather than a listing of individual actions or activities.  The four goals for the next two fiscal years are as follows: 

  1. Develop and implement transportation funding policies to meet identified community needs.
  2. Support and adopt policy development and implementation to enhance housing and community development.
  3. Take a proactive role in community economic development and revitalization.
  4. Develop programs and policies to enhance community livability and public safety.

City Staff continues to outline activities and priority projects that will allow us to measure progress towards achieving these goals.  As you review the departmental and fund narratives you will see how these goal areas are being addressed through individual department goals and projects.

The proposed General Fund budget ending balance (combined with the operating contingency) will be about 23% of expenditures, still well above the General Fund Reserve policy, but our planned expenditures will exceed revenues in each of the next two fiscal years.  Because our resource picture will improve dramatically when our Urban Renewal District plan expires in September 2019, Council adopted the change in our reserve requirements as part of Council’s previous “operational sustainability” goal.  We have used the estimated available financial resources to continue to provide a high level of services that are needed and valued by City residents and are sustainable over the long run.  We accomplished many things over the course of the last year, a few of which are included below.

Administration

The Finance Department received its 24th consecutive Award for Excellence in Financial Reporting from the Government Finance Officers Association.  In addition to providing quarterly financial updates to Council, the Department completed the final phase of the migration of all financial systems to a new integrated financial software suite for financial reporting, court operations, human resources and utility billing.  The IT Department helped establish an archive email server and installed new wireless technology that allows the City to place our network in remote locations throughout the City.  The City Manager’s office continued to work closely with Council to implement goal related activities.  Human Resources completed the recruitment and hiring for a number of new employees throughout the organization and coordinated safety training.  The Recorder’s Office worked to bring additional departments into the electronic records management/archive system and to transfer microfilmed records to the system.  A number of administrative Staff participated in Economic Development activities through the Partnership, Industrial Development Board and the Umpqua Business Center.

Public Safety

The Police and Fire Department’s most notable efforts focused on resiliency and community healing aftermath of the UCC tragedy in October.  The preparedness of both departments was outstanding, and hopefully, the experience and lessons learned will assist us and other agencies in the future.  They and we continue to work with the Community Healing and Recovery Team (CHART) the Leadership Council (TLC) to help move the community forward in its efforts to regroup.

The Fire Department completed over 4,000 hours of training on issues ranging from apparatus operations to hazardous materials response and emergency medical services.  The department planned and coordinated a community safety training exercise in conjunction with the Great Oregon Shakeout which included participation by the City of Roseburg, Douglas County, Mercy Medical Center and a number of other local businesses.  Community awareness of how to respond during a natural disaster is an essential part of our preparedness program. 

The Police Department co-sponsored Crisis Intervention Team training along with the National Alliance on Mental Illness.  The training gives officers a greater understanding of how to handle situations involving emotionally disturbed individuals.  The department also partnered with the Community Health Alliance to provide response intervention services on an ongoing basis.  The department continues to operate the highly successful K-9 program and partners with the Volunteers in Police Service and the Roseburg Area Youth Services Program.  The City and Roseburg Public Schools continue to co-fund two School Resource Officers which is a very successful program.

Community Development

Community Development welcomed a new Director, Stuart Cowie this year, who is bringing a fresh perspective and new ideas to CDD and our organization.   Department Staff worked with ODOT toward adoption of the Interchange Area Management Plan for Exit 127 and the initiation of a new Transportation System Plan.  The proposed budget continues the increase of the Compliance Officer position from part-time to full-time as was done last year.  This continued commitment to compliance will allow the department to enhance the community service level substantially by providing more opportunity to respond to code violations and compliance issues.  This increase is consistent with the Council’s goal relating to community livability and public safety.  The compliance program was very successful this year after going back to a full time position and will be instrumental in carrying portions of Council’s goals.

Public Works

Public Works developed and oversaw a number of projects during the last year including the Spruce/Parrot improvements, the parking structure improvements, continued coordination with ODOT for the Highway 138 improvements, Harvard and Chestnut Storm Drainage and Parks multi-use path improvements.  The Five-Year Pavement Maintenance report was recently completed with the assistance of a consultant, and the City Council will soon need to adopt long-term funding options to implement the street resurfacing and improvement programs which is part of Council’s goal relating to transportation funding.  Staff from Public Works, Finance and Administration recently completed a water and storm drainage utility rate studies that were adopted by Council setting the framework for our implementation of the City’s Water and Storm Drainage Master Plans.  Revenues from both utilities continue to provide resources in line with our projections and are providing sustainable resources to invest in our community’s infrastructure. We will continue to work with Council to evaluate transportation and parks funding.

Current Operations

We made every effort to provide a proposed budget that continues current operations in the General Fund and enhances levels of service in some of the enterprise funds.  After working with City Council, we established an updated six-year forecasting model and revised our General Fund Ending Fund Balance/Future Year reserve policy in 2015 which was incorporated into the 2015-16 budget.  This 2017-18 includes some minor additions to operational budgets to help meet recently adopted Council goals related to community livability, public safety and housing.

In the Fire Department, the additional .5 FTE office staff last year allowed us to better utilize our administrative staff and allow the Department to begin working more closely with our Administrative Department to ensure the records management program can be implemented with fidelity in a timely manner.  We are adding additional hours to this position again this year in an effort to more efficiently utilize management resources in the department

The Police Department budget includes the addition of 1 FTE to provide for a specific “community policing” position to work directly with businesses and individuals where criminal incidents are proliferating that impact business opportunities and quality of life.  This will increase the department FTE from the current service level, increasing to 41 FTE.  In 2015 we reached an agreement with Roseburg Public Schools to return to providing two School Resource Officer positions with their funding support.  During the recession, the District was unable to continue to fund their portion of two positions, so one position was reduced.  With the financial support of RPS, we were able to fill the second SRO position as an assignment from current staffing levels.  We are budgeting to continue the two SRO positions with RPS, and have also entered into an agreement with Glide Public Schools to provide a contract part-year SRO at the Glide campus.

We continue to evaluate the effectiveness of all areas of service provided through the Department.  Last year was the fourth full year with the multiple K-9 units, and we look forward to continuing the programs in which these units are involved.  We transitioned our previous narcotics/drug dog to the Sheriff’s office to utilize at the Douglas County jail effective July 1, 2015 and acquired an additional K-9 to partner with one of our officers.  We work closely with the DC Sherriff’s office K-9 units for support and training.  Our K-9 operations have, and continue to be supported by the generous support of a local community member as well as support through donations from many others in our community.

The 2016-17 Proposed Budget included an increase of one FTE to reinstate the Engineer position reduced in 2014-15 and normal cost increases for collectively bargained increase and ongoing materials and supply cost increases.  The entire cost of the Engineering FTE addition was offset by additional transfers/charges for service from the Transportation, Water, Storm and Urban Renewal budgets.  That position has been critical in allowing us to carry out our current capital project.  Our current Capital Improvement Plan indicates that we will be developing and overseeing $10-$12 million in projects annually through 2019 and additional Engineering staff may be required to meet our time frames.  Again, there is no net impact to our General Fund as the entire cost of this additional FTE is being paid through other funding mechanisms.

The General Fund Budget includes operating expenditures of $22.22 million which exceeds our operating revenues of $21.37 million by about $852,000.  Total General Fund expenditures, including transfers and capital outlay total $23.08 million and exceed current year revenues by approximately $1.71 million or about 8.0% of revenues.

We will accommodate this shortfall by utilizing a portion of our reserves/beginning fund balance while still leaving an ending fund balance/contingency of over $5.34 million, or 23.1% of expenditures, well above the current policy of 20% and within the parameters outlined to Council during our policy discussions.  As I indicated earlier in this message, the new ending fund balance policy was revisited with Council as part of our organizational sustainability goal.  Adequate reserves are essential to the operations of any local government, but the amount should be tempered with the reliability and availability of future resources and the need to provide service.  Reductions in the ending fund balance/reserves will occur this year and next year in an effort to continue our high level of service to the community.  After two years the Urban Renewal Agency plan will expire and the property tax generated in the District (currently about $2.2 million) will go back on the general tax rolls and will be distributed to the City of Roseburg.  Based on our current six-year forecast, this level of General Fund service is sustainable throughout the forecast period and beyond in accordance with Council’s fund balance policy.

Significant Budgetary Changes

There are no major service level changes in the General Fund this year, however there continues to be budget pressure that are beyond our control relating to some personnel costs.  Those will be discussed in the next section. 

As indicated above, most of the changes relate to small increases in FTE in a few areas of the budget that will allow us to carry out current and prior Council goals.  Each of these additions will be evaluated over time as we attempt to provide a baseline service level to which we will compare long term resources for sustainability.  The current proposed General Fund budget contains about $21.37 million in current year resources and $23.08 million in current year expenditures.  Again, I want to emphasize that this imbalance continues a high level of service to our community while we plan for the 2019 addition back to the tax rolls of the Urban Renewal assessed value.

The primary reason expenditure increases outstrip resource increases is the continuing increase in PERS rates and the overall impact of personnel costs (including the increase of 2 FTE).  Over 91% of the projected increases in cost in the proposed budget related to Personnel Service costs.  We are primarily a service organization, and we will always need to balance the cost of personnel in relationship to the services we provide.  Philosophically, it is important to match current resources and expenditures over time so that the implications of revenue or cost shifts can be evaluated against organizational baseline service standards.  As we move forward in fiscal 2017-18, we will be monitoring our projections relating to operational and infrastructure sustainability.  While we continue to provide a very high level of service, we must evaluate how to maintain those services in the future.  Our six-year forecast model continues to indicate that our operations will be sustainable and within Council policy as a result of the inclusion of over an additional $2.5 million in property tax revenues beginning in 2019-20 at the end of our Urban Renewal plan area designation.

One other notable budgetary impact carried over from prior years relates to the issuance of Pension Obligation Bonds (POBs) during 2014 of almost $4.9 million which was a one-time resource influx and is not included in this budget.  This was a one-time issuance, and the proceeds were paid to PERS to reduce our ongoing obligation related to the transition liability which was part of our unfunded actuarial liability.  The payment in 2014 will result in savings of approximately $1.04 million over the 15 year repayment period and a net present value savings of more than $800,000.  Issuance of the POBs and the ongoing debt service necessitated creation of a Pension Obligation Debt Service Fund.  It was created using a supplemental budget process in 2014 and now shows in the budget document with only debt service costs and interdepartmental charges. 

Collective Impacts – Outside Influences

As indicated previously, the increase in our PERS rates, initially estimated at almost 6% of payroll effective July 1, 2013-15 (and 4% biennially thereafter) made it very difficult to balance our operational budget.  PERS reform was passed during the 2013 legislative session that reduced the increase to closer to 4.5% of payroll.  The City issued Pension Obligation Bonds to pay off a transition liability that was accruing interest at 8% annually, reducing our PERS cost by an additional .25% of payroll after debt service.  The legislative reforms were challenged in court and oral arguments in front of the Oregon State Supreme Court were heard during fiscal 2015. The Supreme Court decision overturned the majority of the cost saving measures outlined in the statutory changes and PERS increases will once again have a dramatic impact on governmental entities throughout the state.  As previously stated rates increased again in July 2015 and will again July 2017 for the current two-year period.  We now anticipate that PERS rates will continue to increase 3% to 4% of payroll each biennium for the next six to eight years and stay at the higher rates for another 20 years.  We are in the system, and only the legislature and eventually, the courts can impact the PERS system.  We have an obligation to pay the rates as determined by the actuary in accordance with state statute.  If no changes are forthcoming, rates will likely stabilize around 30% of payroll, or about 20% of payroll higher than rates were throughout the 1990’s.

During the current fiscal year, Douglas County implemented plans to discontinue funding for the county wide library system.  The headquarters library and largest branch library is located in Roseburg and is scheduled to close the end of May.  At this time one Roseburg City Councilor sits on a County appointed task force to evaluate the future of the library system.  No decisions have been made nor can we identify the financial impacts of the closure.  We continue to budget $50,000 towards support of the library, but Council will need to develop some policy around the future of the City’s participation in a local or regional library.  Douglas County currently owns the buildings and assets related to the library system, at least in Roseburg.  We will continue to work on how a library looks in the future and what role the City of Roseburg will play in that future.

OVERALL BUDGET SUMMARY

The total FY 2017-2018 proposed budget, including General Fund and all other fund expenditures, is proposed at $64.20 million compared to the current year adopted budget of $61.89 million.  This represents an increase of approximately 3.7% which based on our projections for all funds continues to be sustainable.  There are significant capital expenditures ($13.65 million) included in the overall budget, primarily almost $2.5 in the Transportation Fund, over $2 million in the Water Enterprise Fund, over $460,000 in the Equipment Replacement Fund and almost $1.9 million in the Storm Drainage Fund. We have also included almost $2.25 million in the Facilities Fund and $1.75 million in the Grant Fund, most of which is contingent on state grants.  Each of these fund expenditures represents scheduled projects and acquisitions from our five-year Capital Improvement Plan which is an important planning document that is updated every two years.  Information in the CIP is influenced by a number of master plans developed for our water and storm utilities, parks and streets.

Resources budgeted in the Facilities and Grant Funds include a CDBG Grant to participate in building a new Head Start facility in the community ($1.5 million) as well as the seismic upgrade of both of our Fire Department substations ($1.5 million)  We have been awarded the CDBG grant and should receive final award information on the two seismic grant opportunities by the time we hold our first Budget Committee meeting.

GENERAL FUND SUMMARY

Basic operations in the General Fund include Parks, Public Works, Police, Fire, Community Development, Finance and Management Services, Municipal Court and Administration.  The General Fund provides funding for most direct operational services that residents recognize and use frequently.  The FY 2017-2018 General Fund is proposed at $28,414,888 (up 3.7%) including reserves of approximately 23.1% of General Fund expenditures or $5.34 million.

GENERAL FUND REVENUES

Total operating revenues are proposed at $21,368,080. This is a 6.55% increase from the total resources budgeted last year.  The most significant General Fund resource continues to be current and prior year property taxes.  Property taxes are estimated to increase to $764,000 or almost 6% from the 2016-17 adopted budget of $12,823,550.  As recessionary impacts subside and new construction continues, we anticipate property taxes should continue to increase above the three percent benchmark allowed by statute for existing property values.  We will continue to monitor values very closely to determine if the local assessment and taxation function is reflective of the local market and real market values.  There are currently proposals in various stages of planning or development that could provide an increase in assessed value next year of between $15 and 20 million, or about an additional 1%. 

With the passage of Measure 50 in 1997, the property tax system changed from a levy based system to a modified tax rate system.  A permanent tax rate was established at $8.4774 for the City of Roseburg.  As an example, a home with an assessed value of $150,000 will pay $1,272 in property taxes to the City.

GENERAL FUND EXPENDITURES

Total General Fund expenditures are proposed at $23,077,540, exclusive of reserves which is a $1,37 million (6.3%) increase.  The proposed expenditures have been included in our updated six-year forecast model and appear to be sustainable through the forecast period.  It is essential that we continue to monitor both revenues and expenditures in our model to ensure that we can continue to provide high levels of service to citizens.

ENTERPRISE, SPECIAL REVENUE, AND CAPITAL PROJECTS FUNDS

Enterprise Funds, Special Revenue Funds and Capital Projects Funds actually comprise the majority (almost 56%) of the City’s overall budget.  Enterprise Funds include the Water Fund, Storm Drainage, Off Street Parking and Airport.  Special Revenue Funds consist of Grants, Hotel/Motel Tax, Bike Trail, Street Lights and Sidewalk Funds, Housing Rehab, Golf, Economic Development and the Stewart Trust.  Capital Project Funds consist of Transportation, Park Improvement, Equipment Replacement, Assessment Improvement and Facilities Replacement.

We spend most of our time discussing our General Fund as it provides many of the basic services that people in a community come to rely on in their day to day lives.  However, the City also provides the basic infrastructure for our community which provides many quality of life supports that people take for granted.  The City provides water to over 10,000 customers through our water utility fund at an annual cost of approximately $11 million.  Pumping water from the pristine North Umpqua River, the water is then filtered and treated before being pumped through an extensive distribution and storage system prior to finding its way into individual homes and businesses.  Potable water is an important component of our community system and continued good stewardship of the water system is critical to our future.

Likewise, the local transportation system is essential for our citizens as we provide a system to meet recreational and business needs throughout the City.  An efficient inter-connected multi-modal system is also critical for quality of life and economic development in a community.  We have recently completed a system analysis of our street systems condition and will be discussing public policy issues surrounding appropriate transportation service levels and conditions and how to appropriately share the cost burden of providing a first class transportation system.  Our annual pavement maintenance needs are now in excess $1.5 annually and we are currently unable to meet those annual requirements.  Once again Council has adopted a goal around transportation funding and we hope to have something in front of the voters during this calendar year. 

The Storm Drainage Fund is the third largest fund outside of the General Fund and was created to provide a funding mechanism to develop and improve our community storm drainage system in 1989.  Over the last 25 years, significant progress has been made to manage and improve the drainage system throughout the community.  Over the last few years, a comprehensive rate study was completed and implemented by Council to insure that the City would continue to have resources to maintain and upgrade our facilities and to remedy high priority system issues.

These two enterprise funds and the Transportation capital projects fund budgets total almost $20.4 million and comprise 31.8% of the City’s total expenditures.  Each of the remaining funds are provided to carry out important community services and functions and when taken together, the overall $64.2 million budget allows us to carry out both operational and infrastructure related projects and services on behalf of the community.  The funds included in the Water, Storm and Transportation Funds are not generally discretionary but are required to be utilized for the specific purposes that the fees and charges were developed to carry out.

I look forward to reviewing the proposed budget with you and wish to thank the many City Staff members responsible for preparation of this proposed budget.  A budget of this magnitude and complexity could not be developed without the policy direction from our City Council and the ongoing support and efforts of each of our volunteer commissions and our dedicated staff.  Special thanks go to Ron Harker, Director of Finance and Management Services and his entire team.  As in past years, the Department spent many long hours putting the budget together and making sure it represents the collective wisdom of all the Staff involved in development of the budget.  I would like to individually thank the following Finance staff and Department Heads for their efforts in putting together a budget that will allow us to continue to provide exceptional service to our community.

Ron Harker, Finance and Management Services Director
Jim Burge, Police Chief
Sheila Cox, City Recorder
Stuart Cowie, Community Development Director
Debi Davidson, Management Technician
Debbie Keller, Accountant
Tonya Iannuzzo, Accountant
Nikki Messenger, Public Works Director
Gregg Timm, Fire Chief
John VanWinkle, Human Resources Director

Respectfully submitted,

 

C. Lance Colley
City Manager