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Ladies and Gentlemen of the Budget Committee:

Subject:  2019-2020 Budget Transmittal Memo
We are pleased to present the proposed FY 2019-2020 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 provided 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 update our General Fund reserve policy in 2015.  This General Fund budget provides for services at a cost that approximates our current year resources and 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.

This proposed budget is the result of a collaborative leadership team effort and has resulted in a balanced approach to service provision that was supported by the entire team.  Last fiscal year we were challenged to add a new significant service to our community without negatively impacting other General Fund services.  We believe this budget clearly shows that current service levels can and will be provided at a level that Council supports and our community needs.

After many years of planning for the expiration of our North Roseburg Urban Renewal District, tax increment revenues from that District will not be collected in fiscal 2019-20 and almost $300 million in assessed value will be returned to the tax rolls.  General Fund services have been keyed to this change for the last three years as we have effectively managed our service levels to this higher amount of relative property taxes.

Our local economy has improved dramatically over the last few years but still lags federal and state economies.  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.  The Oregon and U.S. Unemployment rates are hovering around 4.3-4.4% while Douglas County is about 1.5% higher.  An unemployment rate around 5% is near the lowest since rates have been calculated and we continue experiencing difficulty enticing employees back into the job market.  Work force development and job training have become much higher priorities than company recruitment as our economy becomes more diverse.  The City, Douglas County, local school districts and the Partnership are collaborating more today than ever on job identification and work force development.

City property values are beginning to rise again and should exceed historical levels over the next few years.  Assessed value growth recently exceeded the 3% threshold allowed by state law the last few years on most properties and the real market value appears to be growing steadily, at least from a private sector perspective.  Real Market value and assessed value appear to be reaching levels that we anticipated based on the sales data we are collecting for the first time in four or five years.  We are beginning to see some new commercial construction, and housing starts have increased considerably in the last thirty-six months. During the last fiscal year, the former Douglas Community Hospital site that now houses combined State of Oregon offices came on to the tax rolls as did a few other commercial properties adding over 1% to the RMV.  A number of multi-family housing projects have taken out permits or are in the land use process as we go to press.  Two of these projects are located in our new Diamond Lake Urban Renewal District, which will jump start tax increment growth in that area.  A new assisted living project and renovation of the Roseburg Valley Mall should add significant value to the tax rolls as well.

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.  We are currently working with state and local partners to attract a new allied health/work force development college to Roseburg as well.

The Highway 138 Corridor project was completed during the previous fiscal year.  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.  The final major Urban Renewal phase of the Downtown project was completed during the current fiscal year, and staff advertised bid construction of additional lighting projects in the core area to complete Urban Renewal’s investment in downtown.

Over the last three valuation periods (2013-2017) the City has continued 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, 4% of payroll July 2017 and will increase an additional 4% of payroll in July 2019.  The rates imposed by PERS are effective for two year periods so the 4% increase will be effective through 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 very successful in moderating the cost of health care premiums, and may be able to avoid a premium increase again this year. Staff is currently working with multiple carriers to determine our costs for the upcoming year and determine if we will need to identify a new provider.  In addition, liability and property insurance premiums continue to increase at rates slightly higher than the CPI.

We are completing the final year of a collective bargaining agreement with our Police Department bargaining group. We did not reach an agreement to extend the three-year contract with IAFF, our Fire Department bargaining group prior to preparation of this budget and are awaiting the impact of arbitration unless an agreement is reached soon.  IBEW, our General Service collective bargaining group is completing the second year of a three year agreement.  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 and estimated cost increases have been included in departments for which a current agreement is not yet in place. Pay schedules for collectively bargained as well as non-represented employees have 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 year 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 fiscal year 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.  We anticipate that Council will revisit a goal setting process during this fiscal year to determine if we are still on course with Council priorities or if policy directions need to shift.

The proposed General Fund budget ending balance (combined with the operating contingency) will be about 26.03% of expenditures, still well above the General Fund Reserve policy, and our planned expenditures will exceed revenues by less than 0.5% this fiscal year.  Because our resource picture has improved dramatically as our Urban Renewal District plan expires in September 2019, current service levels were modified to meet our expected resource levels.  This new level of service has been incorporated in to our six-year forecast model and is sustainable for the forecast period.  We accomplished many things over the course of the last year, a few of which are included below.

Administration 
The Finance Department received its 26th consecutive Award for Excellence in Financial Reporting from the Government Finance Officers Association and its 4th award for the Popular Annual Financial Report. 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 department has also worked through the implementation of succession hiring in our office, the Fire Department and the Police Department. Last fiscal year we replaced our City Recorder, Fire Chief and Assistant Chief, Police Chief and Captain as well as four other employees with over 20 years of experience. We are currently working with Council to replace our current City Manager who is retiring April 30th

The Recorder’s Office worked to bring the final 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
As indicated previously, succession planning and implementation were important factors during the current fiscal year and will impact budgets and operations for many years to come.  We were excited to be able to promote leadership from within as each Chief and their second in command came from within the existing leadership structures.  July 1, 2018 Gary Garrisi was promoted to Fire Chief replacing Gregg Timm and Merrill Gonterman was promoted to Assistant Chief. We look forward to carrying on with the tradition and culture that we have instilled over the last many years and I have great confidence in our new leadership.

The Fire Department again 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.  As new development occurred we were able to take advantage of training in the former Windmill Inn prior to demolition that allowed 25 local and regional agencies to train for over 2,750 hours.  

The Police Department continues to co-sponsor 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.  We received a Department of Justice Mobile Crisis intervention grant that allows the department to co-deploy with a crisis intervention specialist to mitigate the impacts of individuals with mental illness in our community.  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.  For the last three years we have also co-funded an SRO position with Glide School District.  The Districts funds the position during the school year and the City funds the position during the summer months and utilizes the position for community policing activities in the downtown area and our community park system.

Community Development
Department Staff worked with a consultant on a Pine Street waterfront overlay project and the initiation of a new Transportation System Plan. Both these projects should be completed early in the next fiscal year.  With the addition of staff last year, CDD also took on a buildable lands update with a housing needs analysis and a component to include impacts of homelessness on our community housing inventory.  This project should also be complete early in the new fiscal year and should lead to new policy discussions involving housing, land use and public investments in incentivizing different types of housing.  CDD staff is working on a conceptual model for an Urban Growth Boundary “land swap” as part of the buildable lands inventory process as well. Our current undeveloped land inventory does not lend itself to cost effective housing development so CDD is looking at options to exchange more costly developable land for less costly developable land in the future.

The proposed budget continues the increase of the Compliance Officer position at 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 out portions of Council’s goals.

Public Works
Public Works developed and oversaw a number of projects over the last few years, the most visible and impactful being the realignment of and improvements to Stewart Parkway south of Garden Valley to the YMCA and the intersection of Stewart Parkway at Garden Valley.  They continued coordination with ODOT to complete the Highway 138 improvements, which when combined with the City’s Urban Renewal Projects, may be the single largest construction infrastructure project in the last 30 years.

Public Works staff was instrumental in delivering facility improvement projects at the new Roseburg Public Library as well as seismic retrofit projects at Fire Station #2 and Fire Station #3.  The Library project was completed in December after a short fundraising process and resulted in an approximately $2 million renovation in partnership with Douglas ESD.  The Library and shared space component was about $850,000 with around $1 million in renovations for the ESD component of the project.  The seismic rehabilitation projects were primarily funded with about $1.5 million in state grants and about $250,000 in local funding.  None of these projects were originally in our five-year CIP so staff did an exceptional job of being flexible and incorporating these important and time consuming projects into their workload during the last year.  

Public Works Administration and Engineering worked diligently over the last twelve months to allow us to move forward with a number of City and Urban Renewal infrastructure projects.  Once again, we will be delivering over $12 million in projects this year ranging from multiple transportation projects, storm drain upgrades, park improvements, water utility upgrades and airport projects.

Current Operations
During the current fiscal year, the new Roseburg Public Library opened in the former headquarters library building.  The facility is also be occupied by the administrative staff of the Douglas Educational Service District who will provide some direct services to the Library and will also share operational and improvement costs prior to opening and after the building renovation is complete.  The current budget is the first full year of library operations.

The Police Department budget last year included 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 year we have added two “civilian” part time positions to provide additional support that does not require a certified law enforcement officer.  That increased the department FTE to 42, which is continued in this budget.  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.  Police went through a leadership transition with retirement of our Chief and Captain just prior to the current fiscal year. 

Effective July 1 2018, Gary Klopfenstein was promoted to Police Chief and Jeremy Sanders was promoted to Captain.

We continue to evaluate the effectiveness of all areas of service provided through the Department.  Last year was the fifth 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 Sheriffs 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 General Fund Budget includes total expenditures of 26.01 million, which exceeds our operating revenues of $25.91 million by about $100,000 or less than 0.5%. The City’s 6 years forecast, which factors in budgetary performance, projects reserves increasing and remaining over 30% of expenditures for the next five years.

Significant Budgetary Changes
There is one major service level change in the General Fund that has carried over from the prior year and there continues to be budget pressure that is beyond our control relating to some personnel costs. Those will be discussed in the next section.

For a second year, the General Fund budget includes a Library Department.  Douglas County closed the county wide system due to funding restrictions in 2016.  During that process, City Council tasked staff with putting together a business plan and budget to reopen the facility in Roseburg as the Roseburg Public Library, a stand-alone library that meets state statutory standards.  A full-time Librarian was hired at the start of fiscal year 2018-19.  During the past year, under experienced library leadership, library services and programs were developed and are being implemented.  As services are fine-tuned, staffing levels were finalized resulting in a couple changes in the 2019-20 budget which provides funding to move the Youth Services Librarian from part-time to full-time, and to add four Library Aides that combined add one FTE.  To supplement the General Fund’s library activities, we have included a Library Special Revenue Fund which provides additional resources to purchase collection materials and contracted services.

After balancing staffing level needs with service level delivery, additional staffing modifications are incorporated in this budget.  A part-time IT Helpdesk position that was funded in the 2018-19 budget through contracted services is now funded through personnel services.  Expanded Park services over the past several years (such as the addition of the Spray Park) has necessitated the addition of a new Park Maintenance II position.  In an effort to maximize sworn officers time out in the community, two part-time (one FTE) Community Service Officers (CSO) are added to handle low-level crimes that are not in progress and to provide victim outreach.  Finally, the Fire Department Secretary moves from three-quarter time to full-time.   Each of these additions will be evaluated over time as we attempt to provide baseline service levels to which we will compare long term resources for sustainability. The additional positions were evaluated and included in our General Fund six-year forecast and are sustainable given our current assumptions.

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 4.25 FTE). Over 87% of the projected increases in cost in the proposed budget relates 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 2019-20, 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 a projected additional $2.5 million in property tax revenues beginning in 2019-20 at the end of our Urban Renewal plan area designation.

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, July 2017, and again July 2019 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.

City Council adopted a new Urban Renewal Plan Area in 2018. The new area, which follows the Diamond Lake corridor from Stephens to almost the City limits, will generate revenue in this budget year as our current North Roseburg Urban Renewal plan area expires. Once again, Urban Renewal was a strategy and action item for Council’s transportation funding goal.

OVERALL BUDGET SUMMARY
The total FY 2019-20 proposed budget, including General Fund and all other fund expenditures, is proposed at $73.73 million compared to the current year adopted budget of $70.54 million.  This represents an increase of approximately 4.5%, most of which relates to the increases in the General Fund resources and the Water Fund.  Outside of the grant and externally funded projects, our projections for all funds continue to be sustainable.  There are significant capital expenditures ($12.99 million) included in the overall budget, about $2.25 in the Transportation Fund, over $4.9 million in the Water Enterprise Fund, $1 million in the Airport Fund, almost $800,000 in the Equipment Replacement Fund and almost $1.6 million in the Storm Drainage Fund. 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.

GENERAL FUND SUMMARY
Basic operations in the General Fund include Parks, Public Works, Police, Fire, Community Development, Finance and Management Services, Library Services, Municipal Court and Administration.  The General Fund provides funding for most direct operational services that residents recognize and use frequently.  The FY 2019-20 General Fund is proposed at $32,780,068 (up 11.8%) including reserves of approximately 26% of General Fund expenditures or $6.77 million.  General Fund operating expenditures will increase $1.89 million, which is an 8.1% increase, almost 70% of which relates to increases in Public Safety departments.

GENERAL FUND REVENUES
Total operating revenues are proposed at $25,870,080. This is a 14.81% increase from the total operating revenues budgeted last year.  The most significant General Fund resource continues to be current and prior year property taxes.  Property taxes are estimated to increase $3.07 million or almost 22% from the 2018-19 adopted budget to a total of $17.089 million. Over $2.5 million of the increase in property taxes in a result of the scheduled closure of the North Roseburg Urban Renewal District, which as mentioned earlier, added back almost $300 million in assessed value to the general City tax base.

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.  Real market value increased almost 10% from the prior fiscal year according to the Douglas County Assessor’s office and we anticipate that RMV will continue to grow at a faster than 3% pace for the next few years.  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 commercial and housing development proposals in various stages of planning that could provide an increase in assessed value next year of between $15 and 20 million, or about an additional 1%.  Our six-year forecast model continues to include conservative assessed value growth so if growth does approach 4% for the next few years it will provide more flexibility to deal with future service needs.

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.  Assessed value on existing property and development is limited to no more than 3% annually in accordance with the Oregon constitution.  In recent years, the value of individual residential property has not gone up 3%, however it appears that in the current year, and likely again for the next few years, RMV will allow for the annual 3% change.

GENERAL FUND EXPENDITURES
Total General Fund expenditures are proposed at $26,010,736, exclusive of reserves, which is a $1.84 million (7.6%) 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 comprise the majority (almost 54%) 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, Library Special Fund 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 that 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 that generates almost $7 million annually.  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 million annually.  While we are not generating resources to allow us to meet the $1.5 million each year, the increase in gas tax at the state level will allow us to get much closer to this level over the next few years.  Once again Council has adopted a goal around transportation funding and a new Urban Renewal Plan area is in the process of being adopted. 

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.  The Storm Drainage utility is now generating in excess of $2 million annually, over half of which is directed each year towards capital needs in the system.

These two enterprise funds and the Transportation capital projects fund budgets total over $22 million and comprise 30% 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 $73.73 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.

We look forward to reviewing the proposed budget with you and I 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
Gary Klopfenstein, Police Chief
Amy Sowa, City Recorder
Stuart Cowie, Community Development Director
Debbie Keller, Accountant
Tonya Iannuzzo, Accountant
Nikki Messenger, Public Works Director
Gary Garrisi, Fire Chief
John VanWinkle, Human Resources Director