PFM 3nd Quarter 2015 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

 

 

Q3 2015 Financial Results

 

This report summarizes the City of Reading’s preliminary financial results for the period January 1, 2015 through September 30, 2015 based on trial balance financial data provided to PFM on October 23, 2015.

 

The City collected 77.6 percent of its budgeted revenues and spent 64.8 percent of its budgeted expenditures through September 2015. Revenues exceeded expenditures by $11.6 million mostly because the City has yet to make the majority of its debt payments. The table below compares revenues and expenditures through September 2015 with the budget.

 

Budget to Actual Comparison1

 

 

2015 Q3

2015 Budget

% Spent/Collected

Revenues

70,420,848

90,785,031

77.6%

Expenditures

58,825,758

90,785,031

64.8%

Difference

11,595,090

0

N/A

 

On the revenue side, the City collected $8.0 million (or 12.8 percent) more than a year ago through the same period. Much of that difference was due to a one-time increase in the Reading Parking Authority’s contribution to the City’s General Fund and the higher lease payment from the Reading Area Water Authority. Real estate and earned income tax revenues were also higher while revenue from the local services and per capita tax, housing inspections and business privilege licenses all trailed last year’s pace.

 

On the expenditure side, the City spent $11.9 million (or 25.4 percent) more than a year ago through the same period. The increase is mostly due to the City making its full $13.2 million pension contribution during the third quarter this year, instead of waiting until the fourth quarter like last year.

 

Year-to-Year Comparison

 

 

2015 Q3

2014 Q3

Difference ($)

Difference (%)

Revenues

70,420,848

62,424,239

7,996,609

12.8%

Expenditures

58,825,758

46,893,217

11,932,542

25.4%

Difference

11,595,090

15,531,022

(3,935,933)

N/A

 

 

 

 

 

 

 

 

1 The City’s General Ledger includes unbudgeted revenues and expenditures associated with the debt refinancing transactions completed early this year. There are $58.8 million in bond proceeds on the revenue side and $58.7 million in bond payments on the expenditure sides. These revenues and expenditures are generally offsetting the City received money from its new bonds to repay the old bonds –so they are excluded from all numbers and discussion in this report. Overall the debt refinancing will reduce the City’s total spending on debt service this year as discussed later in the report.


 

 

 

Eight Trends to Watch

 

Revenue

 

§  Through three quarters, current year real estate tax revenue was higher than a year ago. The collection rate for this tax is also higher through three quarters, though the  tax  base itself continues to slowly decline.

 

§  Total earned income tax receipts were $443,000 (or 2.9 percent) higher than a year ago. The last large distribution for 2015 arrives from the external tax collector in early December.

 

§  The City received $2.3 million in real estate transfer tax revenue, which already surpassed the

$1.9 million annual target and was 55 percent more than a year ago. We need to review this revenue more closely to understand the volatility and whether the strong performance translates to additional recurring revenue.

 

§  Other economically sensitive revenues had mixed performance. Business privilege tax revenue was  higher than last year, but revenues from the local  services tax  and business privilege licenses were lower.

 

Expenditures

 

§  Salary spending is generally on target with 71.4 percent of the total budget spent through September. Position vacancies throughout City government should keep total year-end spending below budget.

 

§  Through September, the City spent approximately the same amount on public safety overtime as a year ago. The Fire Department will likely spend more than budgeted on overtime, but that excess could be offset by lower spending than budgeted on salaries.

 

§  The City spent 74.4 percent of its $11.9 million budget for employee health insurance through September. That is $340,000 (or 4.0 percent) more than a year ago.

 

§  The City has already spent more than budgeted on two non-personnel operating items. Through September, the City spent $132,000 (or 14.6 percent) more than budgeted on street lighting and

$96,000 more than budgeted on the transfer to the Self-Insurance Fund that covers the actual cost of property, liability and worker’s compensation claims.


 

REVENUES

The City had $70.4 million in General Fund revenues through September 2015. The table below compares the City’s revenue performance through the third quarter to this year’s budget and last year through the same period.

 

 

2015

Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Real Estate Taxes

20,078,198

21,487,933

93.4%

19,955,840

122,357

0.6%

Act 511 Taxes

20,257,315

25,480,992

79.5%

19,076,225

1,181,091

6.2%

Licenses, Permits & Fees

4,091,879

5,420,027

75.5%

4,259,167

(167,288)

-3.9%

Intergovernmental

8,946,557

11,890,598

75.2%

4,999,176

3,947,381

79.0%

Charges for Services

3,550,110

5,398,842

65.8%

3,641,239

(91,129)

-2.5%

Interest and Rent

1,117,266

1,365,000

81.9%

927,534

189,732

20.5%

Other

3,173,273

5,041,639

62.9%

3,437,558

(264,284)

-7.7%

Transfers in

9,206,250

14,700,000

62.6%

6,127,500

3,078,750

50.2%

TOTAL REVENUES

70,420,848

90,785,031

77.6%

62,424,239

7,996,609

12.8%

 

Real estate taxes

The real estate tax generates about a quarter of all General Fund revenues and is the City’s largest revenue source. The General Fund real estate tax rate has been 15.489 mills since 2013.2

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Current Year

18,711,555

19,637,933

95.3%

18,549,671

161,884

0.9%

Prior Years

1,388,018

1,800,000

77.1%

1,424,355

(36,337)

-2.6%

Penalties and Interest

302,172

375,000

80.6%

305,615

(3,443)

-1.1%

Early Payment Discount

(323,548)

(325,000)

99.6%

(323,800)

252

-0.1%

Property Tax Subtotal

20,078,198

21,487,933

93.4%

19,955,840

122,357

0.6%

 

Through September 2015, the City collected 0.9 percent more in current year real estate tax revenue than a year ago. The collection rate through three quarters in 2015 was higher than it was through the same period in the last two years as shown in the table below. Note that the City’s tax base has dropped by 1.1 percent over this period according to the assessment information maintained by Berks County.

 

 

 

 

2 The City has an additional 0.2 mills for its Shade Tree Fund.


Real Estate Tax Collection Rates through Third Quarter3

 

 

Q3 2013

Q3 2014

Q3 2015

Total assessed value

2,098,317,500

2,093,997,600

2,091,057,900

Less exemptions and utilities

(668,698,300)

(670,698,600)

(677,358,600)

Total taxable value

1,429,619,200

1,423,299,000

1,413,699,300

General Fund Millage Rate

15.489

15.489

15.489

Gross tax due

22,143,372

22,045,478

21,896,788

Amount collected through Q3

18,156,370

18,549,671

18,711,555

Collection rate

82.0%

84.1%

85.5%

 

Prior year real estate tax revenues, which are collected by the Berks County Tax Claim Bureau, were $36,000 less than a year ago but more than twice the amount received in 2013. That is partly due to the timing of prior year receipts that year. The City finished 2013 with $1.4 million in prior year revenue, but most came in the fourth quarter.

 

The increase over prior years is also due in part to the 9 percent tax increase enacted in 2013, which eventually translates to higher prior year receipts once the County starts collecting on the delinquent accounts from 2013 and later. The table below compares current and prior year property tax revenues collected through the third quarters of the last three years.

 

 

2013 Q3

2014 Q3

2015 Q3

% Change from 2013 - 2015

Current Year

18,156,370

18,549,671

18,711,555

3.1%

Prior Years

679,966

1,424,355

1,388,018

104.1%

Total

18,836,336

19,974,026

20,099,573

6.7%

 

Act 511 Taxes

 

Act 511 taxes are the City’s largest revenue category.   The City collected 79.5 percent of budgeted revenues for this category through September 2015.

 

 

 

 

 

 

 

3 Assessment and tax exemption information provided by Berks County. Note that the collection rate differs in this table from the prior table because these collection rates are relative to the total amount due, and not the amount budgeted


 

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Earned Income Tax

15,579,898

20,565,992

75.8%

15,137,081

442,817

2.9%

Business Privilege Tax

1,477,309

1,600,000

92.3%

1,444,066

33,243

2.3%

Real Estate Transfer Tax

2,253,687

1,900,000

118.6%

1,453,969

799,718

55.0%

Local Services Tax

753,759

1,200,000

62.8%

828,235

(74,476)

-9.0%

Per Capita Tax

192,663

215,000

89.6%

212,874

(20,211)

-9.5%

Total

20,257,315

25,480,992

79.5%

19,076,225

1,181,091

6.2%

 

The earned income tax (EIT) is by far the largest item in this category and the City’s second largest source of revenue after the real estate tax. Berks EIT, Incorporated collects the EIT for the City and all other governments in Berks County according to the terms of Pennsylvania Act 32 of 2008. EIT revenues outpaced last year’s level through the third quarter by 2.9 percent.

 

Other Act 511 taxes have had mixed results. The City collected $1.5 million in business privilege tax revenue, which was $33,000 (or 2.3 percent) more than through the same period last year. The City also collected $2.3 million in real estate transfer tax revenue, which was $800,000 (or

55.0 percent) more a year ago. We need to review this revenue more closely to understand the volatility and whether the strong performance translates to additional recurring revenue.

 

Two other Act 511 taxes, trailed last year’s results. The City collected $754,000 for the local services tax, which was $74,000 (or 9.0 percent) less than last year. Per capita tax receipts were also lower. The City collected $193,000, which was $20,000 (or 9.5 percent) less than last year. With $174,000 in current year revenue from this $20 head tax, the City has only collected revenue from about 8,700 of its 69,000 residents over the age of 18.4

 

Licenses, Permits and Fees

 

This category includes rental housing permit fees, cable franchise fees, traffic and court fines and business privilege licenses. The City collected 75.5 percent of its budget target for this category, which was $167,000 (or 3.9 percent) less than last year.

One of the largest items in this category is the City’s charges for rental housing permits.5 The City collected 103.2 percent of its current year budget target and 55.9 percent of its prior year target.

 

 

 

4 The US Census Bureau’s American Community Survey lists Reading’s population at 87,978 and estimates that

78.6 percent of that population is over age 17 (2013 ACS five-year estimates).

5 Revenue from rental housing inspections is tracked separately in the Charges for Service category.


Rental Housing Permit Revenues

 

 

 

2015 Q3

 

2015 Budget

                   %                  

            Collected           

Current Year

753,084

730,000

103.2%

Prior Years

93,196

166,735

55.9%

Housing/Rental Permit Total

846,280

896,735

94.4%

 

The City continues to receive very minimal revenue from new construction permits just $600 through September this year and $745 last year. Business privilege license revenue trails last year’s results. Receipts from traffic fines were also lower than a year ago.

 

The biggest change in this category from last year is the $124,000 decrease in street  cut revenues, which is grouped with “other revenues” in the table below. Effective this January, the City changed its ordinances so the major gas utility now repairs streets on its own instead of reimbursing the City for that work. There should be an offsetting reduction in the City’s public works expenditures.

 

Other Licenses, Permits and Fees

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

District court summary offenses

718,429

900,000

79.8%

680,879

37,550

5.5%

Franchise fees

430,639

750,000

57.4%

391,444

39,195

10.0%

New construction permits

600

20,000

3.0%

745

(145)

-19.5%

Traffic fines motor codes

235,325

340,000

69.2%

281,490

(46,165)

-16.4%

Business privilege licenses

272,985

300,000

91.0%

311,113

(38,128)

-12.3%

Quality of life fines

196,233

242,489

80.9%

177,970

18,263

10.3%

Other revenues

1,391,388

1,970,803

70.6%

1,575,860

(184,472)

-11.7%

Subtotal

3,245,599

4,523,292

71.8%

3,419,501

(173,902)

-5.1%


Intergovernmental Revenues

 

The City has received 75.2 percent of total budgeted intergovernmental revenues. The largest item in this category is the Commonwealth pension aid, which arrived earlier than in 2014. That timing difference accounts for most of the apparent growth in this category compared to a year ago.

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Pension-State Contributions

3,238,295

3,200,000

101.2%

0

3,238,295

N/A

Meter Surcharge

1,275,000

1,775,000

71.8%

1,275,000

0

0.0%

RAWA Supplement

0

0

N/A

1,125,000

(1,125,000)

-100.0%

RPA Supplement

2,908,917

3,878,558

75.0%

540,000

2,368,917

438.7%

Grants and Gifts

835,796

1,389,796

60.1%

1,156,487

(320,691)

-27.7%

Reading Public Library

171,618

767,644

22.4%

316,089

(144,472)

-45.7%

Other revenue

516,932

879,600

58.8%

586,600

(69,668)

N/A

Total

8,946,557

11,890,598

75.2%

4,999,176

3,947,381

79.0%

 

The Reading Parking Authority (RPA) increased its contribution to the City’s General Fund from

$810,000 in prior years to $3.9 million in 2015. Through September, that higher contribution translates to $2.4 million more recorded in the RPA supplement line. The RPA’s contribution will drop back down to $1.0 million in the 2016 budget.

 

The table above shows a $1.1 million reduction in the Reading Area Water Authority (RAWA) supplemental contribution to the City’s general fund. Following a change in Commonwealth law, RAWA no longer makes this contribution, though it has increased its annual lease payment to the City from $5.2 million to $9.3 million. The City now shows the entire water lease payment in the interfund transfer category.

 

The decrease in grant and gift revenue is due to the upcoming expiration of the Staffing for Adequate Fire and Emergency Response (SAFER) grant. That SAFER grant reimbursed the City for 21 firefighter positions for a couple years. The shortfall in the Reading Public Library revenue is due to a timing quirk where there was a delay in the payment to the City. The City expects to ultimately receive the same amount of revenue from this source as a year ago.

 

Reading Public Library, 2012-2015

 

 

2012

2013

2014

2015

Q3 Revenues

313,009

337,270

316,089

171,618

Q4 Actuals/Budget

706,041

581,193

767,092

767,644

% Collected

44.3%

58.0%

41.2%

22.4%


Charges for Services

 

The City collected 65.8 percent of budgeted revenues from service charges, which was $91,000 (or 2.5 percent) less than a year ago.

 

The largest item in this category is the City’s emergency medical system (EMS) transport service charges. The City collected about the same amount of revenue for these “user fees” as a year ago. The City also receives reimbursements from external organizations when it provides additional police coverage to them. That revenue recorded in the Police Service/Copy Service line was $29,000 (or 20.3 percent) lower than last year.

 

Housing inspection revenue continues to trail last year’s pace, with the City receiving $132,000 (or 22.8 percent) less than through the same period last year. The revenue reduction is partially a result of having less staff assigned to housing inspections, but the City’s collection rate relative to the total amount billed is also lower than a year ago.

 

The City shows $35,000 (or 18.2 percent) more in admissions tax revenue than last year, mostly due to an audit adjustment. The City also notes there have been more events at Santander Arena this year. There have also been higher revenues from fire application fees, false alarm fees and the parking authority surcharge. The table below shows the large items in this category.

 

Service Charge Revenue

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

EMS User Fees

1,984,047

3,000,000

66.1%

1,988,976

(4,929)

-0.2%

Housing Inspection

449,188

830,655

54.1%

581,670

(132,482)

-22.8%

Kenhorst Police Contract

298,923

448,384

66.7%

323,354

(24,431)

-7.6%

Admissions Fee/Tax

224,938

325,000

69.2%

190,244

34,694

18.2%

Police Service/Copy Service

114,677

225,000

51.0%

143,848

(29,172)

-20.3%

Other

478,337

569,803

83.9%

413,147

65,190

15.8%

Total

3,550,110

5,398,842

65.8%

3,641,239

(91,129)

-2.5%

 

Interest and rent

 

The City reports $190,000 more in revenue from interest and rent than a year ago. The apparent increase is due to a timing lag in the receipt and posting of the RPA’s monthly rental payment last year and an accounting adjustment last year related to debt repayment from the Greater Berks  Development  Fund.    Setting  those  quirks  aside,  revenues  in  this  category  were  just

$14,000 higher than last year.


Interest and Rent Revenues

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Repayment of Debt to City

0

0

N/A

(95,333)

95,333

-100.0%

Rental - Parking Authority

749,997

1,000,000

75.0%

666,664

83,333

12.5%

CD Bond Interest

14,574

0

N/A

755

13,819

1829.8%

Rent Other Property Bldgs

52,470

65,000

80.7%

55,448

(2,978)

-5.4%

Other

300,000

300,000

100.0%

300,000

0

0.0%

Total

1,117,266

1,365,000

81.9%

927,534

189,732

20.5%

 

Interfund transfer revenues

 

The largest revenue in this category is RAWA’s water lease payment described above. The City also transfers $3.0 million per year from the Wastewater Treatment Plant Fund to the General Fund as restricted by the November 2005 federal consent decree.

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

From RAWA

6,956,250

9,200,000

75.6%

3,877,500

3,078,750

79.4%

Transfer from Sewer Fund

2,250,000

3,000,000

75.0%

2,250,000

0

0.0%

Transfer from Fund Balance

0

2,500,000

0.0%

0

0

N/A

Total

9,206,250

14,700,000

62.6%

6,127,500

3,078,750

50.2%

 

The 2015 budget also shows a $2.5 million transfer from prior year fund balance (i.e. the City’s reserves). Use of prior year fund balance is not generally considered current year revenue from an accounting perspective, but the City’s budgeting convention is to list it as such. The $2.5 million “revenue” is almost entirely offset by a $2.3 million contingency on the expenditure side. If the City has unanticipated expenditures that it cannot handle within the confines of this year’s budget, then the City may draw down the fund balance and use it as a contingency.

 

Other Revenues

 

Revenues not counted in prior categories are grouped together in this “other” category. Between all of these revenues, the City collected 62.9 percent of the total budget and $264,000 (or 7.7 percent) less than last year.

 

The largest item in this category is City employees’ contributions to the cost of their health insurance.6 The City’s budget target increased by 13 percent this year, but revenues through the third quarter were $41,000 (or 4.1 percent) lower than a year ago. Position vacancies account for some of the difference since the City is not incurring health insurance expenditures or collecting

 

6 The expenditure section of this report discusses the City’s expenses related to employee health insurance. Please note that this revenue line does not include the expenses that City employees pay to medical care providers at the time of receiving service (e.g. office or prescription drug copayments).


employee contributions for those positions. Heart and lung reimbursements were also down because of the $167,000 drop in the Fire Department where there is an offsetting reduction in related expenditures.

Other Revenues

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Employee Ins. Contribution

953,711

1,700,000

58.5%

994,939

(41,228)

-4.1%

Indirect Cost Reimb - Sewer

827,510

1,042,954

83.4%

870,221

(42,710)

-4.9%

CDBG Revenue to Fund Codes

288,503

555,000

53.2%

295,039

(6,536)

-2.2%

Heart & Lung Reimbursement

61,871

290,000

76.7%

222,474

(160,603)

-72.2%

Indirect Cost Reimb - CD

0

190,000

0.0%

0

0

N/A

Rdg. Housing Auth - Reimb.

183,216

225,000

81.9%

184,366

(1,151)

-0.6%

Indirect Cost Reimb- Recycling

288,728

442,000

75.1%

331,758

(43,030)

-13.0%

Direct Cost Reimb. - Trades

0

170,000

31.5%

53,555

(53,555)

-100.0%

Other

569,734

426,685

113.7%

485,205

84,528

17.4%

Other Revenues

3,173,273

5,041,639

68.2%

3,437,558

(264,284)

-7.7%

 

 

EXPENDITURES

 

The City spent $58.8 million from its General Fund through September 2015, which was 64.8 percent of its $90.8 million budget. The City spent $11.9 million (or 25.4 percent) more than a year ago with most of the difference because of the earlier pension contribution.

 

 

2015 Q3

2014

Budget

%

Spent

2014 Q3

Difference ($)

Difference (%)

Salaries, wages & holiday pay

21,025,039

29,453,190

71.4%

21,017,072

7,967

0.0%

Overtime

2,133,216

2,599,385

82.1%

2,138,175

(4,959)

-0.2%

Pensions

13,204,538

13,204,536

100.0%

0

13,204,538

N/A

Fringe benefits

8,882,658

11,935,968

74.4%

8,542,233

340,424

4.0%

Other personnel

1,159,070

1,643,141

70.5%

1,160,306

(1,236)

-0.1%

Debt service

2,596,571

13,145,964

19.8%

4,605,209

(2,008,638)

-43.6%

Operating costs

7,139,374

13,627,459

52.4%

6,921,913

217,461

3.1%

Other expenses

873,669

1,117,340

78.2%

601,899

271,771

45.2%

Contingencies

0

2,342,550

0.0%

139

(139)

-100.0%

Interfund transfer expenses

1,811,624

1,715,498

105.6%

1,906,271

(94,648)

-5.0%

Total Expenditures

58,825,758

90,785,031

64.8%

46,893,217

11,932,542

25.4%

 

Personnel

 

Most of the City's General Fund expenditures are for employee compensation, including fringe benefits  (health  insurance)  and  the  City's  pension  contribution.     Personnel-related  costs


accounted for almost 80 percent of the City's spending through September and 65 percent of the General Fund budget.

 

The largest portion of the City's personnel expenditures are for the “regular” pay of City employees their salaries and holiday pay along with wages for temporary employees. The table below shows spending on those items by department. Most have spent 70 to 75 percent of their budget allocation through the third quarter, except Administrative Services which has several vacancies and a $100,000 budget error.7

 

Salaries, Temporary Wages and Holiday Pay by Department

 

 

2015 Q3

2014

Budget

% Spent

2014 Q3

Difference ($)

Difference (%)

Police

9,487,072

13,251,784

71.6%

9,359,644

127,427

1.4%

Fire

6,234,094

8,757,254

71.2%

6,347,843

(113,748)

-1.8%

Public Works

1,352,604

1,804,917

74.9%

1,274,628

77,976

6.1%

Administration

1,252,789

1,962,484

63.8%

1,313,366

(60,577)

-4.6%

Community Dev

1,559,975

2,107,034

74.0%

1,516,276

43,699

2.9%

Other

1,138,504

1,569,717

72.5%

1,205,314

(66,810)

-5.5%

Total

21,025,039

29,453,190

71.4%

21,017,072

7,967

0.0%

 

Overtime

 

Across all departments the City’s overtime expenditures through September 2015 were basically even with last year.

 

 

2015 Q3

2014

Budget

% Spent

2014 Q3

Difference ($)

Difference (%)

Police

1,341,679

1,693,781

79.2%

1,340,798

881

0.1%

Fire

699,924

849,604

82.4%

694,447

5,477

0.8%

Public Works

71,601

52,000

137.7%

82,242

(10,641)

-12.9%

Other

20,011

4,000

500.3%

20,687

(676)

-3.3%

Total

2,133,216

2,599,385

82.1%

2,138,175

(4,959)

-0.2%

 

The Public Works Department spent $72,000 in overtime, which was $11,000 less than last year and $20,000 more than budgeted for this year. The Highways division accounts for almost half of overtime spending.

 

 

 

 

The 2015 budget allocates an additional $100,000 for salaries that should have been removed to match the 2014 Amended Recovery Plan. The City is aware of the discrepancy and has not spent any of that allocation. Without that

$100,000, the Department of Administrative Services spent closer to 67 percent of its budget allocation. The Department has also had a higher vacancy rate relative to its size than other departments.


 

 

2015 Q3

2015

Budget

% Collected

2014 Q3

Difference ($)

Difference (%)

Garage

9,935

10,000

99.3%

13,351

(3,416)

-25.6%

Highways

32,235

25,000

128.9%

32,449

(213)

-0.7%

Parks

17,960

12,000

149.7%

20,182

(2,223)

-11.0%

Public Property

11,472

5,000

229.4%

16,260

(4,788)

-29.4%

Public Works Overtime

71,601

52,000

137.7%

82,242

(10,641)

-12.9%

 

Fire Department

 

Through September, the Fire Department already spent 82.4 percent of its $850,000 annual overtime budget, so the Department is likely to spend more than budgeted this year. However, the Department also had nine vacancies in its Suppression and EMS divisions at the end of September.8 In addition to these vacancies, there were other firefighters who were not available

for deployment because of injury or long-term illness. Vacancies are one of the primary drivers for the Department’s overtime expenditures as the City has to call back firefighters on overtime to fill open shifts. Because of these vacancies, the Fire Chief notes that the Department’s spending in excess of its overtime budget should be offset by spending less than budgeted on salaries. He has asked that those two numbers be shown together for a clearer presentation of the Department’s total spending.

 

The graph below shows the City’s spending on Fire Department salaries9 and overtime for each quarter since the beginning of 2013. Through Q3 2015, the Department spent $7.3 million combined on salaries and overtime this year. That is 3.8 percent (or $266,000) more than a year ago, but 72.2 percent of amount budgeted for the year. Department spending on overtime and salaries spiked during last year’s fourth quarter, so this year’s fourth quarter results are important.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8 This does not include the Lieutenant vacancy in the Prevention Division or the five positions in the defunct non- emergency medical transport service.

9 This includes holiday pay and any other items that the City records in the salary account lines.


Fire Department Salary and Overtime Spending ($ Millions)

 

The Police Department spent $1.3 million on overtime, essentially the same as it spent last year. As discussed in our September 2013 Police Overtime Analysis, the police overtime expenditures shown earlier are only part of the story. Some overtime expenditures are reimbursed by private parties, other governmental entities or grants. Accounting for the reimbursements tracked in the Police Service revenue line, the City had $1.2 million in unreimbursed police overtime expenditures through September, which was $30,000 (or 2.5 percent) more than through the same period in 2014.

 

Police Department Overtime including Reimbursements10

 

 

                                                   Budget          

Q3 Actual    

FY14 Overtime

1,814,500

1,340,798

FY14 Reimbursement

275,000

143,848

FY14 Unreimbursed

1,539,500

1,196,950

 

 

 

FY15 Overtime

1,693,781

1,341,679

FY15 Reimbursement

225,000

114,677

FY15 Unreimbursed

1,468,781

1,227,002

 

 

 

 

10 This does not include the overtime reimbursements that are recorded as grant and gift revenue.


Benefits

 

This category includes the City's annual required contributions to the employee pension plans and spending on different types of employee insurance coverage (e.g. medical, prescription, dental, vision, life).

 

Pensions

 

Pennsylvania law requires the City to make an annual contribution to each of its three employee pension plans. The City's contributions, also known as the Minimum Municipal Obligations (MMOs), are calculated by an external actuary based on the pension plans' assets and liabilities. The City uses Commonwealth pension aid and General Fund revenues to make the MMO payments. The City's total contributions for 2015 were $13.2 million, or $3.2 million (or 32.4 percent) higher than in 2014. The City did not make its pension contributions until the fourth quarter last year.

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Police

8,398,280

8,398,280

100.0%

-

8,398,280

N/A

Fire

2,956,620

2,956,620

100.0%

-

2,956,620

N/A

Employees & Officers

1,849,638

1,849,636

100.0%

-

1,849,638

N/A

Total

13,204,538

13,204,536

100.0%

-

13,204,538

N/A

 

Employee insurance (Fringe Benefits)

 

The City spent 74.4 percent of its fringe benefit budget through September 2015, which was

$340,000 (or 4.0 percent) more than last year. The City is self-insured, so it pays the cost of claims as employees receive medical care with some time lag associated with the medical billing and payment posting process. The City also has a stop-loss insurance policy that covers an employee’s medical treatment after the total costs for an injury or illness reach $225,000.

 

Fringe Benefit Expenditures

 

2015 Q3

2015 Budget

% Collected

2014 Q3

Difference ($)

Difference (%)

8,882,658

11,935,968

74.4%

8,542,233

340,424

4.0%

 

Other personnel

 

The City spent another $1.2 million on other personnel-related expenditures through September. Police and fire both spent less on longevity payments than a year ago. Longevity payment amounts and eligibility for the payments are frozen under the terms of the 2010 and 2014 Recovery Plans, so spending on this type of premium pay will drop when senior employees who


receive the payments are replaced by more junior employees who receive lower or no longevity payments.

 

Police and Fire longevity savings were offset by higher spending on unemployment and uniforms. The Fire Department’s budget includes a $40,000 increase for equipment replacement.

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Premium Pay

258,836

311,938

83.0%

308,596

(49,760)

-16.1%

Social Security

714,076

1,063,992

67.1%

714,510

(435)

-0.1%

Unemployment Comp

42,496

100,000

42.5%

31,769

10,727

33.8%

Penny Fund

8,318

1,935

429.9%

6,089

2,229

36.6%

Uniforms/Clothing Allowance

135,345

165,276

81.9%

99,342

36,003

36.2%

Total

1,159,070

1,643,141

70.5%

1,160,306

(1,236)

-0.1%

 

Debt service

 

The City spent 19.8 percent of its debt service budget through September 2015, which $2.0 million (or 43.6 percent) less than last year. In both years, the City budgeted $13.1 million for debt. The City will spend less than that amount this year because it completed the debt refinancing transactions recommended in the 2014 Amended Recovery Plan.

 

2015 Q3

2015 Budget

% Collected

2014 Q3

Difference ($)

Difference (%)

2,596,571

13,145,964

19.8%

4,605,209

(2,008,638)

-43.6%

 

Operating costs

 

Representing 15.0 percent of the total budget, this is the category for materials and services that City government uses in its regular operations. It includes utilities, legal services, equipment, and building maintenance.

Operating Costs

 

 

2015 Q3

2015

Budget

%

Collected

2014 Q3

Difference ($)

Difference (%)

Contracted Services

1,729,454

4,422,684

39.1%

1,631,748

97,706

6.0%

Maintenance Agreements

362,112

794,540

45.6%

599,731

(237,619)

-39.6%

Light & Power

1,299,154

1,448,800

89.7%

796,846

502,308

63.0%

Gas

64,388

140,000

46.0%

106,590

(42,201)

-39.6%

Other Operating Cost

3,684,265

6,821,435

54.0%

3,786,998

(102,733)

-2.7%

Total

7,139,374

13,627,459

52.4%

6,921,913

217,461

3.1%


The City’s spending on these items through September 2015 was $217,000 (or 3.1 percent) higher than a year ago. The increase was driven mostly by higher street lighting expenditures where the City already exceeded its $900,000 annual budget by $132,000.

 

Partially offsetting these increases, the City spent less on maintenance agreements this year due to one-time spending on information technology infrastructure in 2014. The City also spent less on vehicle gasoline and rentals/leases than a year ago.

 

Other expenses

 

 

2015 Q3

2015

Budget

% Spent

2014 Q3

Difference ($)

Difference (%)

Contingencies

0

2,342,550

0.0%

139

(139)

-100.0%

Miscellaneous

873,669

1,117,340

78.2%

601,899

271,771

45.2%

Interfund transfers

1,811,624

1,715,498

105.6%

1,906,271

(94,648)

-5.0%

 

The City budgets a contingency as a buffer against unanticipated revenue shortfalls or expenditure increases that could occur during the year. In 2015 the City funds this contingency by using $2.5 million of its reserves, recorded on the revenue side as a “transfer from fund balance.” Ideally the City would not need to use much of the contingency and would not deplete its reserves, which has been the case through September 2015.

 

The City also budgets $1.1 million for miscellaneous expenditures, the majority of which is for tax collection services ($544,000) and the City’s contribution to the Reading Public Library ($354,000).   The City increased its contribution to the Library this year from $100,000 to

$354,000, and spending to date reflects that increase.

 

The interfund transfer is a payment from the General Fund to the Self Insurance Fund for the actual cost of property, liability and worker’s compensation claims and associated administrative costs. The City reduced the total transfer from $2.5 million in 2014 to $1.7 million in 2015 because of the reserve accumulated in that fund. Through September 2015, the City has spent more than budgeted, but less than last year.