PFM 1st Quarter 2013 Report

 

 

 

 

 

 

 

 

 

 

 

Public Financial Management, Inc.
PFM Asset Management LLC
PFM Advisors

Two Logan Square
Suite 1600

18th & Arch Streets
Philadelphia, PA 19103-2770

215 567-6100

215 567-4180 fax

www.pfm.com


 

 

 

 

Q1 FY2013 Financial Results

 

This report summarizes preliminary results for the period January through March 2013, based on financial data provided by the City. The data labeled “2012 Actual” is as of April 15, 2013 and is subject to change.

 

Overview

 

The City collected 17.9 percent of its budgeted revenues and spent 16.9 percent of its budgeted expenditures during the first quarter of 2013. The results compared to last year are positive thus far. The City collected $492,000 more and spent $95,000 (or 0.7 percent) less than it did through the same period last year, as shown in the table below.

 

 

 

2013 Q1

2013

Budget

% Spent/ Collected

 

2012 Q1

2012

Actual1

% Spent/ Collected

Revenues

13,782,110

76,932,310

17.9%

13,289,721

72,192,723

18.4%

Expenditures

13,037,949

76,932,310

16.9%

13,133,129

78,577,865

16.7%

Difference

744,161

0

N/A

156,592

-6,385,142

N/A

 

 

Both the percentage of revenues collected and percentage of expenditures spent are less than the one- quarter mark of 25 percent. This is mostly due to the seasonality of the City’s revenues and expenditures. On the revenue side, the City collected 17.9 percent of total budgeted revenues because real estate tax revenues, which represent 26.8 percent of the budget, are mostly collected around the due date of April 1. Revenue collections are also understated because state pension aid ($2.8 million) is not received until the second half of the year.

 

On the expenditure side, the City spent 16.9 percent of its total budgeted expenditures. Expenditures are understated because the City does not make its pension contribution (12.9 percent of the budget) until late in the year. The City also makes the majority of its debt principal and interest payments after the first quarter according to the established debt repayment schedule.

 

 

 

 

 

 

 

 

 

1 As the Q4 2012 report explains in detail, these preliminary 2012 results understate the revenues and overstate the expenditures. They exclude revenue associated with debt repayment to the City from the Greater Berks Development Fund and include additional payments toward the unfunded debt loan.


I.        Revenues

 

The City had $13.8 million in first quarter general fund revenues, 17.9 percent of the annual budgeted total. The table below shows 2012 actuals, 2013 budget and the amount collected during the first quarters in 2012 and 2013.

 

Category

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

Real Estate Taxes

2,201,776

20,606,517

10.7%

2,402,579

18,401,147

13.1%

Act 511 Taxes

5,041,627

20,986,686

24.0%

4,675,861

21,371,849

21.9%

Licenses, Permits, Fines

1,300,438

6,512,327

20.0%

1,488,432

5,391,300

27.6%

Intergovernmental

950,725

8,629,963

11.0%

1,262,522

8,959,007

14.1%

Charges for Services

997,715

6,192,233

16.1%

704,168

5,326,035

13.2%

Interest and Rent

184,339

1,113,000

16.6%

96,631

497,950

19.4%

Other

1,112,988

4,921,584

22.6%

754,528

4,625,435

16.3%

Transfers in

1,992,500

7,970,000

25.0%

1,905,000

7,620,000

25.0%

Total Revenues

13,782,110

76,932,310

17.9%

13,289,721

72,192,723

18.4%

 

The City collected 25 percent or less of its budget in all revenue categories through the first quarter of 2013. Of all the major revenue categories (except transfers revenue), Act 511 Taxes had the highest collection rate at 24 percent of the total annual budget.

 

I.A.  Real Estate Taxes

 

Real Estate Tax revenues represent 26.8 percent of Reading’s total revenues. The amount collected during the first quarter was 10.7% of budget, $200,803 less than last year. The approved 2013 General Fund millage rate was 15.689 mills. The majority of Real Estate Taxes will be collected after the City’s due date of April 1.

 

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

2,201,776

20,606,517

10.7%

2,402,579

18,401,147

13.1%

 

The $2.2 million shown above includes $351,000 in prior year Real Estate Tax revenue, which was

$311,000 more than the City received through the same period last year. The Berks County Tax Claim Bureau handles delinquent real estate tax collection and anticipates revenues will be higher than last year. The County uses a longer collection cycle than the City’s prior tax collector, which resulted in lower revenues last year when the County began delinquent collections.


I.B.  Act 511 Taxes

 

Act 511 taxes are Reading’s other most important revenue source besides Real Estate Taxes, representing

27.3 percent of budgeted 2013 revenues.  Act 511 tax revenues are summarized in the following table. The City collected 24 percent of its budgeted Act 511 Taxes during the first quarter of 2013.

 

Act 511 Taxes

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

Earned Income Tax

4,071,745

16,271,686

25.0%

3,880,285

16,250,554

23.9%

Business Privilege Tax

335,722

1,550,000

21.7%

146,402

1,864,635

7.9%

Real Estate Transfer Tax

364,901

1,900,000

19.2%

349,285

1,972,840

17.7%

Local Services Tax

265,207

1,200,000

22.1%

297,259

1,215,025

24.5%

Per Capita Tax

4,052

65,000

6.2%

2,630

68,795

3.8%

Total

5,041,627

20,986,686

24.0%

4,675,861

21,371,849

21.9%

 

The Earned Income Tax is by far the largest of these taxes, making up 80.8 percent of total Act 511 Taxes during the first quarter. Berks EIT, Incorporated handles EIT collections for the City and all other governments in Berks County under the terms of Act 32 of 2010.

 

Business Privilege Tax (BPT) revenues are also ahead of last year’s pace. Like the Real Estate Tax, the BPT is due during the second quarter with a two percent discount available for early payment and penalties for late payment.

 

I.C.  Licenses, Permits & Fees

 

This category consists of housing and rental permit fees, franchise fees, traffic and court fines and other fee revenues. The City collected 20 percent of budgeted revenues in this category, which was $188,000 less than it did last year. The reduction in collections is mostly due to the Rental Housing Permits, New Construction Permits and Other Fees categories.

 

Licenses, Permits and Fees

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

Housing/rental permit

351,590

743,576

47.3%

414,464

891,217

46.5%

District court summary offenses

188,264

825,000

22.8%

159,481

868,031

18.4%

Franchise fees

-

725,000

0.0%

-

720,254

0.0%

New construction permits

30,174

596,000

5.1%

87,315

168,525

51.8%

Traffic fines motor codes

-

325,000

0.0%

-

343,502

0.0%

Business privilege licenses

187,083

350,000

53.5%

166,481

359,096

46.4%

Quality of life fines

108,873

390,000

27.9%

134,255

374,650

35.8%

Other fees

434,455

2,557,751

17.0%

526,436

1,666,025

31.6%

Total

1,300,438

6,512,327

20.0%

1,488,432

5,391,300

27.6%


 

I.D.  Intergovernmental Revenues

 

The City collected 11 percent of total budgeted intergovernmental revenues during the first quarter. The largest item in this category is the State pension aid, which the City receives in the second half of the year. This category also includes the Reading Parking Authority’s contribution to the General Fund, a portion of the Reading Area Water Authority (RAWA) contribution to the General Fund, and reimbursement for costs at the Reading Public Library.

 

Intergovernmental Revenues

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

State pension contribution

-

2,800,000

0.0%

-

2,701,960

0.0%

Meter Surcharge

283,333

1,700,000

16.7%

424,998

1,699,992

25.0%

RAWA Act 47

375,000

1,500,000

25.0%

375,000

1,500,000

25.0%

Parking Authority Supplement

135,000

810,000

16.7%

135,000

810,000

16.7%

Grants and Gifts

51,317

222,963

23.0%

40,483

779,261

5.2%

Reading Public Library

-

620,000

0.0%

-

706,041

0.0%

Other

106,075

977,000

10.9%

287,041

761,753

37.7%

Total

950,725

8,629,963

11.0%

1,262,522

8,959,007

14.1%

 

The City received a $2.7 million grant from the US Department of Homeland Security under the Staffing for Adequate Fire and Emergency Response (SAFER) program.  The City will receive approximately

$900,000 of the grant in 2013, which will increase the grant and gift revenue above the $222,963 budgeted amount. The City will use the grant to hire additional firefighters and offset higher-than- budgeted personnel costs in that department.

 

I.E.  Charges for Services

 

The City collected 16.1 percent of budgeted  charges for services. Out of all  the Charges revenue categories, Police Service/Copy Service had the highest first quarter collection rate of 30.8 percent.

 

Charges for Services

2013 Q1

2013

Budget

%

Collected

2012

Q1

2012

Actual

%

Collected

EMS User Fees

412,247

2,836,638

14.5%

374,229

2,764,506

13.5%

Housing Inspection

197,098

1,311,643

15.0%

-

515,326

0.0%

Kenhorst Police Contract

104,645

418,581

25.0%

102,593

410,374

25.0%

Admissions Fee/Tax

106,461

510,000

20.9%

3,318

387,648

0.9%

Police Srvc/ Copy Service

52,280

170,000

30.8%

38,787

336,159

11.5%

Police Reimb. - RSD

-

-

0.0%

103,766

280,292

37.0%

Other

322,082

2,257,014

14.3%

81,475

631,730

12.9%

Total

997,715

6,192,233

16.1%

704,168

5,326,035

13.2%


 

EMS User Fees is the largest portion of this category, representing 45.8 percent of all charges for services. The City collected $38,000 (or 10 percent) more in Q1 2013 than it did in Q1 2012. The collection rate for Q1 2013 (14.5 percent of budget) is also comparable to last year (13.5 percent of actual) when the City collected $374,000. Still, the City needs to monitor this revenue to make sure it stays on target, especially since increased EMS revenue is assumed to fund the planned addition of a fourth ambulance unit.

 

I.F.   Interest & Rent

 

The City collected 16.7 percent of all budgeted interest and rent. Nearly all the revenue in this category comes from the Parking Authority’s payments to lease the meters from the City, which are made monthly (the March payment had not yet been posted to the accounting system when data for this report was downloaded).

 

I.F. Interest & Rent

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

Rental - Parking Authority

166,666

1,000,000

16.7%

66,666

399,996

16.7%

CD Bond Interest

379

26,000

1.5%

420

-

0.0%

Rent Other Property Bldgs

17,295

65,000

26.6%

18,544

68,747

27.0%

Other

-

22,000

0.0%

11,000

29,207

37.7%

Total

184,339

1,113,000

16.6%

96,631

497,950

19.4%

 

I.G.  Other Revenues

 

In the Other Revenues category, the City collected 22.6 percent of total budget, $358,000 more than last year. Revenues included in this category include indirect and direct cost reimbursements, delinquent collections, CDBG revenue to fund codes, and employee contribution to medical insurance, among others.

 

2013 Q1

2013

Budget

%

Collected

2012 Q1

2012

Actual

%

Collected

1,112,988

4,921,584

22.6%

754,528

4,625,435

16.3%

 

Employee contributions to medical insurance totaled $387,000 in the first quarter of this year, compared to $186,000 in Q1 2012. Employees represented by the Fraternal Order of Police are now making more significant contributions as required in the November 2012 arbitration award and other employees may also be contributing more, depending on the level of coverage selected.


II.        Expenditures

 

The City had $13.0 million in General Fund expenditures during the first quarter of 2013, which is 16.9 percent of the $76.9 million budget. The percentage spent during the first quarter is $95,000 (or 0.7 percent) less than last year.

 

The table below shows 2013 budget and 2012 actuals, major expenditures, and the percentage spent during the first quarters of 2012 and 2013.

 

Category

2013 Q1

2013

Budget

% Spent

2012 Q1

2012 Actual

% Spent

Personnel

7,757,260

30,172,984

25.7%

7,992,998

31,916,225

25.0%

Benefits

2,291,576

21,016,487

10.9%

2,306,009

17,617,098

13.1%

Operating Cost

1,650,802

8,770,024

18.8%

1,764,264

9,390,148

18.8%

Other Expenses

204,432

577,137

35.4%

141,544

713,047

19.9%

Debt Service

473,481

12,774,079

3.7%

506,390

17,245,181

2.9%

Transfer Out

658,996

2,635,984

25.0%

421,923

1,687,693

25.0%

Contingencies

1,401

985,615

0.1%

0

8,473

0.0%

Total Expenditures

13,037,949

76,932,310

16.9%

13,133,129

78,577,865

16.7%

 

 

II.A.   Personnel

 

The majority of the Personnel budget is for the “regular” pay of City employees -- salaries, temporary wages, and holiday pay. These categories make up 91 percent of the 2013 Personnel budget and 88 percent of actual first quarter 2013 Personnel expenditures. Overtime pay represents another 7.2 percent of budget, but a larger share, 9.3 percent, of actual first quarter Personnel expenditures. Components making up the remaining 1.8 percent of the 2013 Personnel budget include Longevity, Settlement, Uniform/ Clothing Allowance, and Partnership Expense. The 2013 budget covers 574 full time employees.


Wages and Salaries

 

The table below shows totals by department for Salaries, Temporary Wages, and Holiday Pay.

 

Personnel

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Police

3,190,717

12,949,255

24.6%

3,532,386

13,373,569

26.4%

Fire

1,983,857

7,708,755

25.7%

1,899,167

7,673,087

24.8%

Public Works

360,676

1,455,686

24.8%

413,946

1,667,242

24.8%

Administration*

459,374

1,845,694

24.9%

465,882

1,831,240

25.4%

Community Development

501,540

2,082,784

24.1%

413,382

1,878,551

22.0%

Other

337,788

1,444,563

23.4%

379,208

1,356,302

28.0%

Total

6,833,952

27,486,737

24.9%

7,103,971

27,779,991

25.6%

* This Category includes Finance, the Managing Director, and Human Resources.

 

Combined, all City departments spent 24.9 percent of the budget for Salaries, Temporary Wages, and Holiday Pay, which was $270,000 (or 3.8 percent) less than the first quarter of last year. Each department spent close to 25 percent of their budget for Salaries, Temporary Wages, and Holiday Pay in the first quarter. As noted earlier, the Fire Department will exceed its $7.7 million salary budget because of additional hires funded by the SAFER grant. There will be additional grant revenues to offset the expenditures.

 

Overtime

 

The City’s overtime expenditures a major component of the Personnel budget category are high relative to budget: the Police and Fire Departments both spent about one-third of their total overtime budgets during the first quarter, and Public Works spent 38 percent of its total annual overtime budget. The City spent $10,000 more this year than during the first quarter last year in its overtime budget. The table below shows overtime expenditures for the three departments with significant overtime costs: Police, Fire, and Public Works.

 

Overtime

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Police

479,269

1,479,063

32.4%

392,282

1,899,901

20.6%

Fire

216,537

640,000

33.8%

306,796

1,707,489

18.0%

Public Works

20,840

54,500

38.2%

9,435

42,590

22.2%

Other

2,247

2,000

112.3%

18

2,815

0.7%

Total

718,892

2,175,563

33.0%

708,532

3,652,795

19.4%


 

 

The Police Department spent $87,000 (or 22 percent) more in Q1 2013 than in Q1 2012. PFM is reviewing police overtime spending and trends more closely since this remains an area of concern.

 

The Fire Department spent $90,000 (or 29 percent) less in Q1 2013 than in Q1 2012, but as noted has also spent a third of its overtime allocation at the year’s one-quarter mark.

 

II.B.   Benefits

 

Pension (MMO)

 

The State requires the City to make a Minimum Municipal Obligation (MMO) payment to each of the City’s three defined benefit plans, and these payments make up a significant portion of the Benefits budget category. The MMO is determined by an annual actuarial valuation by the respective actuary for each plan. The State requires that the MMO calculation be completed by September 30 of each year and incorporated into the following year’s budget. The State also requires that the City make the MMO payment to each plan by December 31 of each year.

 

Budgeted FY2013 pension contributions are $3.5 million or 55 percent more than FY2012 contributions. Because the practice of the City is to pay the three MMO payments in December, there are no pension contributions to date.

 

Pension

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Police

-

6,057,187

0.0%

-

3,663,428

0.0%

Fire

-

2,286,857

0.0%

-

1,903,873

0.0%

Employees & Officers

-

1,575,682

0.0%

-

824,710

0.0%

Total

-

9,919,726

0.0%

-

6,392,011

0.0%

 

Fringe Benefits

 

Fringe Benefits, another component of the Benefits budget category, includes Medicare, medical benefits, dental insurance, prescription insurance, vision insurance, and unemployment compensation expenses.

 

The City spent approximately the same amount on fringe benefits during Q1 2013 as it did a year ago. The table below summarizes budget and expenditures in the first quarter by department.


 

Fringe Benefits

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Finance

79,677

565,693

14.1%

100,650

446,414

22.5%

Public Works

98,045

688,005

14.3%

168,493

730,397

23.1%

Police

1,167,048

4,709,012

24.8%

1,093,917

5,229,349

20.9%

Fire

521,534

2,706,153

19.3%

468,672

2,621,160

17.9%

Community Development

100,454

764,450

13.1%

113,271

586,276

19.3%

Other

91,323

535,115

17.1%

118,017

504,926

23.4%

Total

2,058,081

9,968,428

20.6%

2,063,019

10,118,522

20.4%

 

All of the departments, except Police and Fire, spent a lower percentage of their fringe benefits budget during the first quarter of FY2013 than it did last year. The police budget assumes that the City will be able to remove some retired officers from its  coverage rolls this year. That issue is currently in arbitration.

 

II.C.   Debt Service

 

The City spent 3.7 percent of its Debt Service budget in the first quarter of FY2013. The 2013 Debt Service Budget does not include the Public Works lease revenue bonds that are included in the Operating Cost category. For most outstanding bonds, loans and notes, the City makes one payment in the second quarter (May or June) and a second payment in the fourth quarter (November or December).

 

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

473,481

12,774,079

3.7%

506,390

17,245,181

2.9%

 

II.D.   Operating Costs

 

Operating Costs, representing 11.4% of the total budget, is the category for materials and services that are used in regular government operations. It includes utility costs, legal services, equipment, and building maintenance costs. Overall, first-quarter expenditures in this category were below the 25 percent first- quarter mark except Maintenance Agreements. The City spent 29.1 percent in Maintenance Agreements during the first quarter of FY2013.


 

Operating Costs

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Contracted Services

459,267

1,937,376

23.7%

504,903

2,266,740

22.3%

Maintenance Agreements

248,100

853,635

29.1%

218,455

965,979

22.6%

Light & Power

88,647

612,723

14.5%

118,063

777,321

15.2%

Gas

100,915

575,000

17.6%

117,363

777,659

15.1%

Other Operating Cost

753,874

4,791,210

15.7%

805,481

4,602,449

17.5%

Total

1,650,802

8,770,024

18.8%

1,764,264

9,390,148

18.8%

 

 

II.E.   Contingencies

 

Contingencies represents the City’s fund balance. Rather than budgeting revenues higher than expenditures and showing a fund balance, the City budgets expenditures equal to revenues, with the difference appearing in the Contingencies line. The City theoretically should not spend much in these lines, which has been the case so far in FY2013.

 

 

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Contingencies

1,401

985,615

0.1%

-

8,473

0.0%

 

 

III.   Interfund Transfers

 

III.A.Transfers In

 

There are two components to this category, both of which are paid in monthly installments.

 

From Fund:

Amount

Notes

Sewer Fund

$3,000,000

Annual transfer, restricted by the Consent Decree of November 2005.

RAWA

$4,970,000

Annual financing fee payment from the water system.


The City received 25 percent of both transfers during the first quarter and is expected to receive them per budget for the fiscal year. The $200,000 Transfer from Solid Waste shown in the table below was a one- time payment in FY2012 and therefore was eliminated in the FY2013 budget.

 

Transfers

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

From RAWA

1,242,500

4,970,000

25.0%

1,105,000

4,420,000

25.0%

Transfer from Sewer Fund

750,000

3,000,000

25.0%

750,000

3,000,000

25.0%

Transfer from Solid Waste

-

-

0.0%

50,000

200,000

25.0%

Total

1,992,500

7,970,000

25.0%

1,905,000

7,620,000

25.0%

 

III.B.Transfers Out

 

The only item in this category is a transfer of $2,635,984 to reimburse the Self Insurance Fund for the actual cost of property, liability and workers compensation claims and associated administrative costs. The amount budgeted for this transfer in FY2013 is 56 percent higher than actual 2012 expenditures.

 

Transfers

2013 Q1

2013

Budget

% Spent

2012 Q1

2012

Actual

% Spent

Self-Insurance Fund

658,996

2,635,984

25.0%

421,923

1,687,693

25.0%