City of Lawrence

City of Lawrence, Kansas

Third Quarter Report – 2008

Purpose of Report

The following information summarizes the financial activities of the City of Lawrence for the first three quarters of 2008 and advises the City Commission as to current budgetary issues that may become a concern.

The report provides budgetary highlights from the major funds of the City, including the General, Recreation, and Public Transportation Funds, which are partially funded by property taxes, and the Water & Wastewater, Solid Waste, Storm Water and Public Golf Course Funds, which are enterprise funds supported by user fees. The report also compares year to date financial activities to the budget and results for the same period in the two previous years. Finally, the report includes a summary of the City’s investment activities for the year and outstanding debt.

General Fund

Summary

The table below summarizes General Fund revenues by source and expenditures by category for three years. With seventy-five percent of the year lapsed, we have collected $43,203,510, or 78.4% of budgeted revenues. This is a slight increase from the same period in 2007. Expenditures to date total $39,940,503, which represents a 3.9% increase over this period last year. However, the expenditures to date represent only 68.1% of budgeted expenditures for 2008, compared to 71.4% in 2007 and 71.8% in 2006. It should also be noted that the revenues to date exceed expenditures to date by a larger margin for the second year in a row.

Historically, expenditures made in the fourth quarter have exceeded revenues received in the fourth quarter. Therefore, it is projected that the ending fund balance in the General Fund will be reduced by approximately $1.5 million.

Revenue Highlights

Highlights for each category of revenue are provided below.

Taxes. Revenues collected from taxes represent 89.2% of the budget and increased 6.5%, or $1,011,512, compared to this period last year. Property taxes increased $397,346, or 3.3%, from this period last year, while franchise fees increased 19.9%%, or $709,664. Payments in Lieu of Tax however, were down 89.9%, or $95,498 compared to the first three quarters of 2007. This can be attributed to the timing of the annual payment in lieu of property tax to be made by the Lawrence Douglas County Housing Authority for their properties.

Sales Tax. Local sales and use tax receipts increased $972,008, or 6.0%, from the same period in 2007 and represent 75.7% of the amount budgeted for 2008. The fourth quarter receipts may reflect the impact of national economic trends. However, we project that we will meet budget for sales tax revenues in 2008.

Licenses and Permit Fees. Revenue from licenses and permit fees increased 19.8% from the same period last year and represent 71.8% of budget. Rental Inspection fees collected to date are down almost 12%, however, occupational and professional licenses are up almost 41% over the first three quarters of 2007. Building permit and inspection fees were up 22.2%, or $111,446, from this period in 2007. The number of building permits is down, however, the value of the projects that are underway (i.e. Wal-Mart, the Exchange, the Oread Inn) is substantial.

Intergovernmental Revenues. Intergovernmental revenues received to date are 20.8% more than those received over the first three quarters of 2007 and represent 93.4% of budget. Liquor tax receipts have increased 13.5% over this period last year. Also included in the increase in intergovernmental revenues is $56,611 of state revenue sharing. Known as the slider, this revenue from the State is meant to offset the impact of the machinery and equipment exemption, however, the actual amount is significantly less than the loss of property tax revenue due to the exemption. The budget did not include any state revenue sharing for 2008.

Service Charges. Revenue from service charges decreased 3.5%, or $19,462, from the first three quarters of 2007 and represent only 66.4% of budget. Revenues from engineering fees were down 70.4% due to a decrease in the number of projects being reviewed. Reimbursements paid by non-City user groups (i.e. Kaw Valley Soccer, Lawrence Youth Football, and Douglas County Amateur Baseball) for the daily maintenance costs of the YSI complex declined 31.7% when compared to this period last year. Collection of this revenue varies each year according to the timing of fee collection from user group participants.

There were service charges that increased over the first three quarters of last year. Revenue from cemetery fees was up 14.4% while revenues from charges for maps, plans, and ordinances were more than double the amount collected during this period in 2007. Pursuant to our agreement with Grant Township, revenue from the township fire levy has increased 18.2% from last year.

Fines. Fines in the General Fund decreased by less than one percent, or $5,944, from the first quarters of last year and represent 73.8% of the amount budgeted for fines in 2008. Revenue collected from police officer tickets increased by $5,276, or 2.6%, however, municipal court fines and fees collected decreased by $11,220, or 0.7% compared to this period in 2007.

Interest. Interest revenue in the General Fund was down significantly compared to the same period in 2007 due to the timing of our investments and having lower balances to invest. Only 48.8% of the budget for interest in 2008 has been collected as of the end of September. In 2007, 103.9% of the amount of interested budgeted had been collected by the end of September. In 2006, 266.5% of budget had been collected at this point in the year. Due to the dramatic reduction in short term interest rates, it is likely that interest revenue will be less than budget by at least $100,000.

Miscellaneous Revenues. Miscellaneous revenues collected to date have increased 10.0% when compared to the same period last year but represent only 59.3% of budget for this revenue source. Included in miscellaneous revenues are EMS charges, which were up $258,984 from last year. As of the end of September, 79% of the 2008 budget for EMS charges had been collected, compared to 80.0% of budget collected as of the end of the third quarter of 2007.

Expenditures

Overall, General Fund expenditures increased by $1,485,356 or 3.9% over the first three quarters of 2007 and represent 68.1% of the 2008 cutback budget. In 2007, expenditures through the end of the third quarter represented 71.4% of the 2007 cutback budget. As shown in Table 2, five divisions in the General Fund have expended more than 75% of budget at the end of the third quarter of 2008:

Risk Management (77.6%) due to the timing of payment of our insurance premiums.
Legal (86.1%) due to an increase in the hourly rate the City pays for outside legal fees.
Health (89.6.) due to the timing of the payment to the Lawrence Douglas County Health Department and an encumbrance.
Street Maintenance (79.7%) due to encumbrances for mill and overlay and other street repairs.
Airport (86.6%) due to costs related to overtime, repairs and maintenance, janitorial supplies, and equipment.

Highlights for each category of expenditure are provided below.

General Government expenditures include City Commission, City Manager’s office, Public Information, Planning and Development Services, City Clerk, Personnel, Risk Management, Finance, General Overhead, Information Systems, Legal Services, Human Relations, and Municipal Court. Expenditures in this category have increased $2.1 million, or 18.9%, over the third quarter last year. Some of this increase is due to including building inspection and code enforcement in this category of expenditures. Prior to 2008, these expenditures were reflected in the public works category. The majority of the increase however, is due to increased transfers. Over $1.3 million dollars more has been transferred from this fund to date than was transferred through the end of the third quarter last year. (In 2007, budget constraints meant no transfers were made to the equipment reserve, capital improvement reserve, liability reserve, or worker’s compensation reserve funds). Despite the increased transfers, total general government expenditures to date represent only 67.5% of the 2008 cutback budget, compared to 69.7% at the end of the third quarter in 2007, and 72.0% in 2006.

Public Safety includes Police, Fire Medical, and the City’s share of the Health Department operations and maintenance. Overall, public safety expenditures decreased $89,569, or 0.5% from this period last year and represent 68.4% of budget. Police expenditures in the General Fund increased $119,985, or 1.3%, over the first three quarters of 2007 due to increased fuel costs but represent just 67.6% of the 2008 budget. In 2007, police expenditures at the end of September represented 69.9% of budget. Expenditures in the Fire Medical department decreased $313,285 or 3.5%, and represent 67.6% of budget. In 2007, fire expenditures through the end of the third quarter represented 73.3% of budget. This can be attributed to the deferring of capital expenditures to the fourth quarter in 2008.

Expenditures related to the Health Department and maintenance of the Community Health building increased $103,731, or 13.2% over expenditures through the end of September 2007 and represent 89.6% of budget. In 2007, expenditures for the first three quarters represented 78.6% of budget. Part of this increase was due to an increase of $58,474, or 9.8%, in the City’s share of the Health Department operations. The remainder of the increase was due to increased expenditures related to the maintenance of the health building. A total of $237,228 has been spent this year to date on maintenance of the health building. This is an increase of 23.6%, or $45,257, compared to this period in 2007. The majority of this increase can be attributed to the contract for janitorial services. More than twice the amount spent on this contract through the end of the third quarter in 2007 has been spent this year to date.

Public Works includes Street Maintenance, Engineering, Traffic, Airport, Building Maintenance, Street Lights, Levee Maintenance, and Building Maintenance. At first glance, it appears Public Works expenditures decreased $572,417 from the first three quarters of 2007. However, in 2007 expenditures for building inspection and code enforcement were also included in the public works category. Beginning in 2008, these expenditures are now reflected in the general government category. After removing those two divisions however, expenditures in this category to date have actually increased $197,931, or 4.5%, over the same period in 2007. Despite the dollar increase, only two divisions have exceeded 75% of their budget with 75% of the year lapsed:

§ Street Maintenance (79.7%) due to encumbrances for mill and overlay and other street repairs. In 2007, 86.3% of the budget for this division had been spent or encumbered at the end of the third quarter.

§ Airport (86.6%) due to costs related to overtime, repairs and maintenance, janitorial supplies, and equipment. In 2007, only 65.3% of the budget for this division had been spent or encumbered at the end of the third quarter.

Parks and Recreation expenditures from the General Fund decreased $43,493, or 1.9%, compared to this period last year. Expenditures to date in 2008 represent only 64.7% of budget compared to 71.0% of budget spent at the end of the third quarter in 2007.

Special Revenue Funds

Recreation Fund

Revenues. Table 3 shows Recreation Fund revenues increased $147,926, or 5.4%, over the first three quarters of 2007.

As shown on Table 3a, almost half of the revenues in the Recreation Fund are from service charges. Service charges increased 7.2%, or $94,812, over this period last year due in part to an increase in aquatics and other class fees. More than one-third of the revenues in the Recreation Fund are sales tax transferred from the General Fund. State law requires all sales tax revenue to be deposited in our General Operating Fund before it can be transferred to other funds. Transfers through the end of September have increased 3.4% in 2008, and represent 75.0% of budget. The remaining revenues in this fund come from property taxes, which are up 4.7% over the same period last year.

Expenditures. Table 3 shows Recreation Fund expenditures to date increased less than one percent over the same period last year and represent 66.6% of 2008 budget. In 2007, 68.2% of the budget had been expended as of the end of September, while 69.6% of budgeted has been expended at the end of the third quarter in 2006.

Public Transportation Fund

Revenues. Revenues collected in the first three quarters of 2008 represent 85.2% of budget. Revenue from property taxes increased $339,516 over the same period last year due to an increase in the levy for the Public Transportation Fund from 0.746 mills in 2007 to 1.171 mills for 2008. Fare box revenues also increased over this period last year by $64,501, which represents an increase of 41.5%. This can be attributed to an increase in fares from $0.50 to $1.00. Table 4a shows the upward trend in cumulative fare box revenue since 2006.

Expenditures. Expenditures in the Public Transportation Fund are only 52.6% of budget (not including the encumbrance to MV Transportation) and have decreased less than one percent when compared to the first three quarters of last year.

Enterprise Funds

Summary

Table 5 compares revenues and expenses to date for the City’s four major Enterprise Funds. Revenues collected to date in the Public Golf Fund are slightly greater than expenses to date as of the end of the third quarter. Expenses to date in the Water and Wastewater Fund, as well as the Solid Waste and Storm Water funds have exceeded revenues collected through the end of September.

Table 6 compares 2008 revenues and expenses to date with the same period for the two prior years.

Highlights for these four Enterprise Funds are also provided below.

Water and Wasewater Fund

Revenues. Despite an increase in water and sewer rates for 2008, revenues collected to date have decreased $303,268, or 1.4%, compared to the same period last year and represent 72.1% of budget. This decrease can be attributed to a decline in consumption due to the rainy and relatively mild summer.

Expenses. Water and Wastewater Fund expenses decreased 7.2%, or $1.7M, over the first three quarters of 2007 and represent 56.1% of budget. Like revenues, the City’s water and wastewater rate plan uses slightly different assumptions than the budget for expenditure levels. Using those assumptions, 70.2% of the expenditures have been made as of the end of the third quarter of 2008. We will be closely monitoring expenditures in the remaining months of 2008 to ensure they do not exceed available revenues.

Solid Waste Fund

Revenues. Revenue in the Solid Waste Fund was up $246,933, or 3.5%, from the third quarter of 2007 and represent 75.5% of budget. This is slightly less than in 2007, when 77.1% of budgeted revenues had been collected as of the end of the third quarter, and in 2006, when 79.1% of budget had been collected at this point.

Expenses. Expenses to date represent 71.4% of budget and decreased less than one percent from this period last year. Expenses to date exceed revenues to date by $608,187, due to significant encumbrances ($877,829). This deficit is smaller however, than the deficit in the fund at the end of September in the two previous years. In 2007, expenses exceeded revenues by $866,245 at the end of the third quarter, and in 2006, the deficit was $740,004.

Storm Water Fund

Revenues. Revenue in the Storm Water Fund increased less than one percent from the first three quarters of last year and represent 77.4% of budget. Revenues collected in the same period last year represented 77.8% of budget.

Expenses. Year to date expenses as of the end of September 2008 represent 81.2% of budget but decreased $131,324, or 4.4%, over this period in 2008. Even without encumbrances, year to date expenses represent 76.4% of budget with 75% of the year lapsed. This is due largely to expenses related to capital improvements made at the intersection of 19^th and Louisiana.

Public Golf Course Fund

Revenues. Public Golf Course Fund revenue increased 1.5%, or $12,383, over revenues collected through the end of September of 2007 and represents 81.1% of 2008 budgeted revenues. Service Charges are up $21,353, or 2.6%, over this period last year, however, miscellaneous revenues are down 76.9%, or $9,463.

Expenses. Public Golf Course Fund expenses to date represent 67.6% of budget and have increased $55,465, or 9.2%, over year to date expenses at the end of nine months of 2007. Included in 2008 expenses are a number of encumbrances including golf course equipment, chemicals and gas.

INVESTMENTS

Short-term investment rates have been considerably lower in the first three quarters of 2008 compared to last year. Because of longer term investments, maturities in 2008 are less than in previous years. As a result, recognized interest earnings are lower than the first half of 2007 for most funds. Interest revenue will likely be less than the budget in 2008 for most funds.

As of September 30, 2008, the City of Lawrence had over $109 million in cash and investments. More than $89 million was invested in securities and $20 million in a money market fund pending investment. Approximately 40% of our investments were in certificates of deposit, 55% in government agencies, and 5% in Treasuries. The City’s investment policy limits the portfolio to a maximum of 30% in any one financial institution’s certificates of deposit. The City’s certificates of deposit are with the Bank of Kansas City and U.S. Bank. The average rate of return on our investments during the third quarter was 3.51%.

The City’s entire portfolio has an original maturity of less than twenty-four months. Approximately 35% of the City’s investments mature in over one but less than two years. More than 33% of investments mature between six months and one year. The City plans to hold its investments to maturity and has sufficient cash and short-term investments to avoid a liquidity crisis that would force the sale of the longer-term investments.

DEBT ISSUANCE

The City closed on its most recent general obligation debt issuance in September of 2008. The issues included an $11,890,000 general obligation bond and a temporary note totaling $10,635,000. The debt was issued to pay for fire equipment and various street improvements, two of which involve benefit districts. In addition, the issue advanced refunded two prior issues from 2000. The City also issued a $4,270,000 water and sewer revenue bond to pay for a water storage tank and water transmission lines.

The following table shows the current total outstanding debt for the City and the different funding sources. A preliminary analysis has shown that the City can issue approximately $4.5 – 5.0 million in at-large general obligation annually without having an adverse impact on the debt levy.

City of Lawrence Estimated Debt 9/30/08
		GO Debt		Enterprise Fund Debt		Less Enterprise Portion of GO Debt		Total
Long term debt, 1/1/08		$ 86,775,000		$92,425,315		$(6,513,268)		$172,687,047

Debt, added Fall 2008		3,970,000		4,270,000		-		8,240,000

Debt, added, Kansas Water Supply Loan		-		-		-		-

Less: Principal paid in 2008		(9,755,000)		(2,302,643)		1,029,848		(11,027,795)

Total long term debt, 9/30/08		$80,990,000		$94,392,672		$ (5.483,420)		$ 169,899,252

Total long term debt is composed of:
	Enterprise fund portion		$5,483,420		$88,909,252		$ -		$94,392,672
	Sales tax portion		9,240,2278		-		-		9,240,227
	Benefit District Debt (estimated)		15,546,735		-		-		15,546,735
Net long term debt, city at large, 9/30/08		$50,719,618		$5,483,420		$(5,483,420)		$50,719,618
Total long term debt, 9/30/08		$80,990,000		$94,392,672		$(5,483,420)		$169,899,252

Future long term debt will result from:
Notes currently outstanding which will be bonded (includes fall note issue)		$10,635,000		$ -		$ -		$10,635,000

CAPITAL BUDGET

As of September 30, 2008, expenditures for active projects in the capital improvement budget totaled $30.0 million. Funding for the projects came from $10.6 million in temporary notes along with $13.3 million in general obligation bonds and $6.1 million in grants and reimbursements.