PFM 4th Quarter 2012 Report

Microsoft Word - 2012 Q4 General Fund Report v3.doc

 

 

 

 

 

 

 

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


Q4 FY2012 Financial Results



 

This report summarizes preliminary results for the period January through December 2012, based on financial data as of April 15, 2013.

 

The data provided included unbudgeted revenues and expenditures associated with the City refinancing of General Obligation bonds – a $15.4 million in bond proceeds in the “Other” revenues category, and three expenditures totaling $15.4 million in the “Debt Service” category. These revenues and expenditures are generally offsetting and are not relevant to City operations. Therefore we excluded them from all numbers and discussion in this report.

 

Overview

 

When the City’s preliminary year-end revenues and expenditures are compared to the FY2012 budget, the City had mixed results last year.

 

The City reports $72.2 million in total General Fund revenue in 2012, which was $906,000 (or 1.2%) less than the $73.1 million budgeted. The City also reports $78.6 million in total General Fund expenditures, which was $5.5 million (or 7.5%) more than budgeted. If those two results are put together, the City had a $6.4 million (or 8.7%) deficit relative to its budget in 2012.

 

Original 2012 Budget-to-Actual Performance

 

 

Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

Revenues

73,098,526

72,192,723

(905,803)

-1.2%

Expenditures

73,098,526

78,577,866

(5,479,340)

-7.5%

Fund Balance/ (Deficit)

0

(6,385,143)

(6,385,143)

-8.7%

 

But these results understate the revenues and overstate the expenditures.

 

On the revenue side, the City budgeted $2.3 million for an early repayment of debt owed by the Greater Berks Development Fund. The City received that money in the last week of December 2011 so, according to its external auditor, the $2.3 million cannot be counted toward 2012 budgeted results.

 

On the expenditure side, the City made an additional $5 million payment toward its 2010 unfunded debt loan, beyond the amounts budgeted for 2012. At PFM’s recommendation, the City used cash from prior years to make this payment. While the City could not include this money in its 2012 budget, the external auditor requires that it be reported as additional spending in 2012.

 

If the GBDF revenues are counted in 2012 and the extra debt payment is removed, the City’s performance relative to the 2012 budget is much better.


Adjusted 2012 Budget-to-Actual Performance

 

 

Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

Revenues

73,098,526

74,464,152

1,365,626

1.9%

Expenditures

73,098,526

73,577,866

(479,340)

-0.7%

Fund Balance/ (Deficit)

0

886,286

886,286

1.2%

 

 

As positive as these adjusted results look, especially in comparison to recent deficits in 2010 and 2011, the results could have been even better. The City collected more revenue than budgeted in 2012, including $3.2 million more than budgeted from the earned income tax. The City also implemented a successful tax amnesty program that generated more business privilege tax and business privilege license revenue. Overall, the City’s revenue performance was positive,  even with shortfalls  in individual categories.

 

However, the City’s adjusted expenditures were higher than budget, despite having a fortunate mistake in the pension budget. The City budgeted $1.3 million more than was needed for the Minimum Municipal Obligation (MMO) payments to the police and fire pension plans. During the year, the City recalculated the MMO and could have, if all other expenditures finished on budget, had another $1.3 million in its year-end fund balance. Instead the City spent more than budgeted on police and fire personnel costs as was discussed throughout last year. The City also spent more than budgeted on utilities (light, power and gas) and some contracted services. The City’s total expenditures used the additional $1.3 million found during the year and another $479,000 from the revenue-related surplus.

 

The rest of this report discusses the City’s revenue and expenditure performance in detail using the numbers in the Original Budget-to-Actual chart shown above.

 

I.        Revenues

 

The table below shows the budget and preliminary 2012 results for each major revenue category.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

Real Estate Taxes

19,051,332

18,401,147

(650,185)

-3.4%

2

Act 511 Taxes

17,925,565

21,371,849

3,446,284

19.2%

3

Licenses, Permits, Fines

5,514,113

5,391,300

(122,813)

-2.2%

4

Intergovernmental

9,147,198

8,959,007

(188,191)

-2.1%

5

Charges for Services

6,135,928

5,326,035

(809,893)

-13.2%

6

Interest and Rent

3,044,408

497,950

(2,546,458)

-83.6%

7

Other

4,657,482

4,625,435

(32,047)

-0.7%

8

Transfers in

7,622,500

7,620,000

(2,500)

0.0%

9

TOTAL REVENUES

73,098,526

72,192,723

(905,803)

-1.2%


 

 

The table shows that Actual Act 511 Tax revenues exceeded budget by 19.2% - resulting in total revenues that were actually greater than Real Estate Tax collections, the largest budgeted revenue source.

 

Actual revenues in all other categories were less than budget. Real Estate tax revenues were short by approximately $650,000, or 3.4%. Interest and Rent had the largest shortfall in terms of both dollars and percentage, lagging budget by $2.5 million, or 83.6%; however, this shortfall was mostly due to receiving and recognizing a payment from the Greater Berks Development Fund in late 2011 rather than in 2012. Charges for Services was also under budget by $810,000, or 13.2%.

 

2012 Revenues by Major Category Budget vs. Preliminary Actual

 

 

The chart on the previous page shows these results and the relative value of the major revenue categories. The paragraphs below discuss each major revenue category individually.

 

I.A.  Real Estate Taxes

 

Overall, Real Estate Tax revenues were 97% of the budgeted amount, slightly less than the 98% rate achieved in 2011.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$18,401,147

$19,051,322

97%

$18,639,919

$18,966,209

98%


The approved 2012 General Fund millage rate was 14.334 mills. The City budgeted $18.1 million for current year taxes in anticipation that Berks County would collect 89% of the total amount due in 2012.1 The City received $17.6 million, which was 97% of the budgeted amount or 86% of the total amount due.

 

The shortfall in real estate tax revenue was mostly in prior year tax collections where the City received

$778,000 versus the $1.0 million budget.   This shortfall was partially offset by the City receiving

$134,000 (or 95.9 percent) more than budgeted in penalty and interest revenues related to real estate taxes.

 

Berks County mailed the delinquent tax notices in December 2011, instead of September as in prior years. Based on discussions between the City, County Treasurer and County Tax Claim Office, this should be a one-time shortfall related to the County’s collection cycle and tax collection responsibilities moving to the County in 2011.

 

I.B.  Act 511 Taxes

 

Act 511 taxes are Reading’s other most important revenue source besides Real Estate Taxes, representing 25% of budgeted 2012 revenues and nearly 30% of actual 2012 revenues.

 

Act 511 tax revenues are summarized in the following table. The Earned Income Tax is by far the largest of these taxes, with preliminary actual revenues making up 76% of the total. It also performed much better than budget -- $3.2 million better, or 24.3%. The Business Privilege Tax and the Local Services Tax, representing 9% and 6% of total Act 511 revenues respectively, both outperformed budget as well. The Real Estate Transfer Tax, another 9% of total revenues, was almost on budget. Only the Per Capita Tax, representing less than 1% of total Act 511 revenues, significantly lagged budget. Each of these taxes are discussed separately in the sections below.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

Earned Income Tax

13,069,120

16,250,554

3,181,434

24.3%

2

Business Privilege Tax

1,635,000

1,864,635

229,635

14.0%

3

Real Estate Transfer Tax

2,000,000

1,972,840

(27,160)

-1.4%

4

Local Services Tax

1,121,445

1,215,025

93,580

8.3%

5

Per Capita Tax

100,000

68,795

(31,205)

-31.2%

6

Total Act 511 Taxes

17,925,565

21,371,849

3,446,284

19.2%

 

 

 

 

 

 

1 The City assumed an 89 percent current year collection rate after tax exemptions were removed. The $18.1 million does not include another $256,000 for the Shade Tree Fund. Berks County assumed responsibility for collecting City real estate taxes beginning in 2011.


Earned Income Taxes (EIT)

 

Total EIT collections were $16,250,554, or 124% of budget. Actual collections out-performed expectations. This is partially due to Act 32, a state law that requires employers to withhold the full amount that municipalities charge for local taxes. The City also now outsources its EIT collection (employers and individuals) to Berks EIT, Incorporated. This private third-party collector transmits funds to the City monthly.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$16,250,554

$13,069,120

124%

$11,534,142

$11,797,117

98%

 

The 2012 performance is also noteworthy because the tax rate was lower in 2012 than in 2011.  The earned income tax rate on residents was 2.1 percent in 2011 and then dropped to 1.9 percent in 2012.2 The earned income tax rate on non-residents was 1.3 percent in 2011 and then dropped to 1.1 percent in 2012.3

 

Some of the better-than-anticipated performance in 2012 may be attributable to revenue from 2011 being collected and remitted to the City in 2012. The City should monitor its 2013 collection rates to see whether the 2012 performance is sustained or a short-term adjustment from the many changes made in early 2011.

 

Business Privilege Taxes (BPT)

 

Actual BPT revenues exceeded budget by $230,000. This variance is partly due to a tax amnesty program that ran from April to June 2012 and provided an incentive for delinquent accounts to pay their taxes.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$1,864,635

$1,635,000

114%

$1,632,660

$1,635,000

99%

 

The current City rates for the BPT are based on gross receipts. For each $1,000, businesses pay $1.50 (retail), $1.00 (wholesale) or $2.25 (service, commission or rental). These rates were frozen in 1988 by the Commonwealth and can only be changed by the General Assembly. Discount (2%) payments are due

 

 

2 This is only the City’s earned income tax rate on residents who pay another 1.5 percent to the Reading School District.

 

3 The first 1.0 percent collected is usually remitted to the non-resident’s home municipality, so the City’s share was

0.3 percent in 2011 and 0.1 percent in 2012.


by April 15 and full payments are due by June 15.  The City also collects BPT on behalf of the Reading School District, which is not counted in the revenue above.

 

Real Estate Transfer Taxes

 

Real Estate Tax revenues were just about on budget, lagging by only $27,000 or 1.4%. However, 2012 revenues of $2.0 million are down significantly from 2011 collections of $3 million due to weakness in the local housing market.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$1,972,840

$2,000,000

99%

$2,961,740

$2,750,000

108%

 

The City share of the transfer tax is 3.5%. Historically, transfers peak over the summer months due to residential resales. Commercial property transfers are more volatile, dependent on corporate and speculative transfers.

 

Local Services Taxes (LST)

 

The LST was budgeted at $1.1 million, the same level as in 2011.  Actual revenues of $1.2 million were slightly higher than budget, and slightly lower than 2011 revenues of $1.3 million.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$1,215,025

$1,121,445

108%

$1,289,271

$1,121,445

115%

 

The LST is assessed on each person with an occupation in the City.  The City share of the LST is $47. The School District share is $5. Berks EIT is responsible for collecting and remitting this tax.

 

Per Capita Tax (PCT)

 

The PCT is a tax on City residents who are at least 18 years old. The City share of the PCT is $5 and the School District share is $10. The City is responsible for collecting the tax.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$68,795

$100,000

69%

$83,882

$100,000

84%


City staff is working to identify residents who are not currently paying the tax, particularly those in high rise rental units.

 

I.C.  Licenses, Permits & Fees

 

This category consists of housing and rental permit fees, franchise fees, traffic and court fines and other fee revenues. Overall, actual revenues lagged budget by only $123,000 or 2%.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$5,391,300

$5,514,113

98%

$6,028,024

$6,190,113

97%

 

 

The largest components of this category are shown in the table below. Additional revenue above budget in Quality of Life fines and business privilege licenses (related to the BPT amnesty effort) helped offset the shortfalls in new construction permit revenue and other small categories.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

Housing/rental permit

886,000

891,217

5,217

0.6%

District court summary offenses

800,000

868,031

68,031

8.5%

Franchise fees

705,000

720,254

15,254

2.2%

New construction permits

500,000

168,525

(331,475)

-66.3%

Traffic fines motor codes

315,000

343,502

28,502

9.0%

Business privilege licenses

275,000

359,096

84,096

30.6%

Quality of life fines

175,000

374,650

199,650

114.1%

Other

1,858,113

1,666,025

(192,088)

-10.3%

Total License, Permits & Fees

5,514,113

5,391,300

-122,813

-2.2%

 

 

I.D.  Intergovernmental Revenues

 

Actual 2012 Intergovernmental Revenues were less than budget by about 2%.   In addition, the 2012 budget was $425,000 less than 2011.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$8,942,710

$9,147,198

98%

$10,629,134

$9,572,175

111%


The largest components of Intergovernmental Revenues are state pension contributions and meter surcharges (described further below). This category also includes contributions from RAWA, the Parking Authority, and the Reading Public Library, as well as gifts and reimbursements from various entities. Many of these can be budgeted with a high level of accuracy as shown in the table below, revenues from the Meter Surcharge, RAWA contribution and Parking Authority Supplement were all right on budget. Revenues from Pension Contributions and Grants and Gifts exceeded budgeted amounts, while the other components combined lagged budget. Overall, Intergovernmental Revenues were over budget by $204,000, or 2.2%.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

Pension-State Contributions

2,600,000

2,701,960

101,960

3.9%

2

Meter Surcharge

1,700,000

1,699,992

(8)

0.0%

3

RAWA Act 47

1,500,000

1,500,000

0

0.0%

4

Parking Authority Supplmt

810,000

810,000

0

0.0%

5

Grants and Gifts

645,756

779,261

133,505

20.7%

6

Reading Public Library

742,442

706,041

(36,401)

-4.9%

7

Other

1,149,000

761,753

(387,247)

-33.7%

8

Total Intergovernmental

9,147,198

8,959,007

(188,191)

-2.1%

 

State Pension Contributions offset a portion of the City’s contributions to the Police, Fire and O&E pension plans. The amount of state aid is dependent on the total amount of state funds available and the number of active employees in pension funds statewide. The City is eligible to receive funds for each full time employee who has worked for the City for a minimum of six consecutive months in the prior year. State Aid is received every October.

 

Water Meter Surcharges are currently $7.00 per resident, per month. The City collects this surcharge as a direct subsidy. It was first enacted in 2005.

 

I.E.  Charges for Services

 

Preliminary actual revenues from Charges for Services in 2012 are $5.3 million, 13% higher than in 2011. However, the 2012 budget was set at $6 million, significantly higher than both the 2011 budget amount and actual 2011 revenues of $4.7 million; and actual revenues fell short of that higher budget amount.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$5,326,035

$6,135,928

87%

$4,703,029

$4,351,811

108%

 

The table below shows that 52% of all actual revenues in this category are Emergency Medical Services (EMS) User Fees by far the single largest component. The City almost made budget in this category, lagging by about 3%.  Revenues from the second largest component, Housing Inspection Fees, were less


than half the budgeted amount, falling short by nearly $700,000. Other larger components that fell short of budget were the Admissions Fee/Tax, which are revenues received from the Sovereign Center and FirstEnergy Stadium for minor league hockey and baseball respectively, and reimbursements from the Reading School District for police officers deployed at schools.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

EMS User Fees

2,838,000

2,764,506

(73,494)

-2.6%

2

Housing Inspection

1,214,254

515,326

(698,928)

-57.6%

3

Kenhorst Police Contract

410,374

410,374

0

0.0%

4

Admissions Fee/Tax

504,000

387,648

(116,352)

-23.1%

5

Police Service/Copy Service

135,000

336,159

201,159

149.0%

6

Police Reimb. - RSD

330,000

280,292

(49,708)

-15.1%

7

Other

704,300

631,730

(72,570)

-10.3%

8

Total Charges for Service

6,135,928

5,326,035

(809,893)

-13.2%

 

Other components of this category were on budget, like the Kenhorst Police Contract, or outperformed budget, like Copy Fees for the Police Department.

 

I.F.   Interest & Rent

 

Interest and Rent is the revenue category in which revenues fell short of budget by the most in terms of both dollars and percentage. Of a 2012 budget of $3 million, less than $500,000 was achieved. In addition, actual revenues were about 11% of 2011 revenues of $4.6 million.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$497,950

$3,044,408

16%

$4,646,905

$4,470,200

104%

 

As shown in the table below, most of the shortfall is due to the Repayment of Debt to City line, which has a budget of $2.3 million, but revenues of $0. This line was intended to record the early repayment of debt by the Greater Berks Development Fund. The City did receive the payment, but it was recorded at the end of fiscal year 2011, creating an apparent short fall for 2012.

 

There were no revenues recorded in 2012 for CD Bond Interest, budgeted at $200,000. Revenues were at or close to budget in other categories.


 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

Repayment of Debt to City

2,271,429

0

(2,271,429)

-100.0%

2

Rental - Parking Authority

400,000

399,996

(4)

0.0%

3

CD Bond Interest

200,000

0

(200,000)

-100.0%

4

Rent Other Property Bldgs

75,000

68,747

(6,253)

-8.3%

5

Other

97,979

29,207

(68,772)

-70.2%

6

Total Interest and Rent

3,044,408

497,950

(2,546,458)

-83.6%

 

 

I.G.  Other Revenues

 

In the Other Revenues category, preliminary actual results indicate that revenues will just lag budget by

$32,000. Larger components of this category include Indirect Cost Reimbursements from Sewer and Water, employee contributions to the cost of medical insurance, and state payments under the Heart and Lung Act for police officer and firefighter injuries.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$4,625,435

$4,657,482

99%

$6,657,086

$4,299,700

155%

 

Employee contributions to the cost of medical insurance lagged budget by about $96,000 or 8%, primarily because the arbitration award requiring higher employee contributions from members of the Fraternal Order of Police (FOP) was not received until November 2012.

 

II.     Expenditures

 

The table below shows 2012 budget and preliminary actual results for the major expenditures. Expenditures exceeded budget in every category except Transfers Out and Contingencies.

 

 

Annual Budget ($)

Prelim Actual ($)

Surplus/ (Deficit) ($)

Surplus/ (Deficit) (%)

1

Personnel

30,741,915

31,916,225

(1,174,310)

-3.8%

2

Benefits

16,383,679

17,617,098

(1,233,420)

-7.5%

3

Operating Cost

9,291,472

9,390,148

(98,676)

-1.1%

4

Other Expenses

505,738

713,047

(207,309)

-41.0%

5

Debt Service

13,093,199

17,245,181

(4,151,982)

-31.7%

6

Transfers Out

1,687,693

1,687,693

0

0.0%

7

Contingencies

1,394,830

8,473

1,386,357

99.4%

8

Total Expenditures

73,098,526

78,577,866

(5,479,340)

-7.5%

 

The largest over-expenditure, both in terms of dollars and percentage, is in the Debt Service category, because of the $5 million unbudgeted payment against the 2010 unfunded debt.   Both Personnel and


Benefits, the two largest expenditure categories, were also over budget, by more than $1 million each. The aggregate result is that expenditures that exceeded budget by $5.5 million, or 7.5%. The chart below illustrates these results and the relative values of these categories.

 

2012 Expenditures by Major Object Category Budget vs. Preliminary Actual

 

 

The chart below shows expenditures by operating department rather than by expenditure type (major object). Expenditures exceeded budget amounts for two of the four largest operating departments, Police and Fire. Expenditures for Finance and Community Development were slightly under budget. For all other departments combined including Law, the Library, the Mayor’s Office, and Human Resources expenditures were roughly equal to budget. The chart also shows how the Police and Fire Departments dominate the total budget, making up nearly 70% of total departmental operating expenditures. Note that this chart excludes non-departmental expenditures, which are mostly for debt service payments.


2012 Expenditures by Operating Department Budget vs. Preliminary Actual

Excludes Non-Departmental Expenditures

 

 

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 90% of the 2012 Personnel budget and 87% of actual 2012 expenditures. Overtime pay represents another 8% of budget, but a larger share, 11%, of actual expenditures. Components making up the remaining 2% of the 2012 Personnel budget include Longevity, Settlement, Uniform/ Clothing Allowance, and Partnership Expense. The 2012  budget included 578 full time employees.

 

Wages and Salaries

 

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

 

 

2012

2011

 

Department

Prelim Actual

 

Budget

Prelim Actual to Budget (%)

 

Actual

 

Budget

Actual to Budget (%)

Police

$13,373,569

$13,016,401

103%

$13,717,178

$14,288,626

96%

Fire

$7,673,087

$7,709,778

100%

$7,326,356

$7,532,649

97%

Public Works

$1,667,242

$1,537,167

108%

$2,019,402

$1,825,060

111%

Administration*

$1,831,240

$1,921,868

95%

$2,124,639

$1,986,095

107%

Community Dev

$1,878,551

$2,080,975

90%

$1,561,891

$1,653,913

94%

Other

$1,356,302

$1,394,938

97%

$1,248,923

$1,243,798

100%

Total

$27,779,991

$27,661,127

100%

$27,998,389

$28,530,141

98%

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


 

The Public Works overspent its budgets for salaries and wages, but this may be due in part to an error in calculating the budget number.

 

The Police Department exceeded its salaries and wages budget by $357,000, or 3%. Fire Department expenditures were on budget. Expenditures for wages and salaries for all other departments were sufficiently under budget to make up for the overages in Police and Public Works, resulting in total spending nearly equal to budget.

 

Overtime

 

The City’s overtime expenditures a major component of the Personnel budget category continue to significantly exceed budget. The chart below shows overtime expenditures for the three departments with significant overtime costs: Police, Fire, and Public Works. While Public Works lived within its 2012 overtime budget, the Police Department exceeded its total overtime budget by 33% and the Fire Department exceeded its overtime budget by 87%. Together, these two departments over-spent their overtime budgets by $1.3 million. The chart below shows that the Police and Fire Departments over- spent their overtime budgets in 2011 as well, consistent with a longer term historical pattern.

 

 

Department

2012

Prelim Actual

2012

Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

2011

Budget

2011 Actual to Budget (%)

Police

$1,899,901

$1,427,500

133%

$1,745,054

$1,174,860

149%

Fire

$1,707,489

$915,000

187%

$1,573,565

$981,500

160%

Public Works

$42,590

$75,600

56%

$46,599

$75,000

62%

Total

$3,649,980

$2,418,100

151%

$3,365,218

$2,231,360

151%

 

Sometimes municipal departments balance salary and overtime expenditures against each other to manage to their total budget. For example, they may wait to fill vacant positions, increasing overtime costs but lowering salaries expenditures. Conversely, they may work to maintain a full complement to minimize overtime use. Neither was the case for Reading’s public safety departments last year.

 

 

For the Police Department, the City had several officers leave City employment during the year, creating vacancies and pressure to schedule more officers on overtime.  The City held two recruit classes during


the year, but they were not included in the 2012 budget so salary expenditures also rose above budget. The net effect was that the City spent more in both categories.

 

The Fire Department had a similar dynamic, except its staffing shortage was caused by delays in establishing a civil service list for hiring, instead of a surge in employee attrition. The City had fire academy class in 2012, but the cost of that academy when coupled with the vacancies did not push salary expenditures as far over budget as in Police.

 

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. The practice of the City is to pay the three MMOs in December.

 

Pension System

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

Police

$3,663,428

$3,663,428

100%

$3,932,111

$4,039,001

97%

Fire

$1,903,873

$1,903,873

100%

$1,976,423

$1,984,974

100%

Employees

& Officers

$824,710

$824,241

100%

$725,974

$581,478

125%

Total

$6,392,011

$6,391,542

100%

$6,634,508

$6,605,453

100%

 

In 2012, the recalculation of the MMO resulted in Police and Fire pension contributions that were $1.3 million lower than the amounts in the adopted budget. As shown in the table below, the budget was revised to reflect the correct contribution amounts, so actual expenditures match the budget.

 

 

Adopted Budget

Revised Budget

Difference

Expenditures

Police

$4,716,325

$3,663,428

$1,052,897

$3,663,428

Fire

$2,199,537

$1,903,873

$295,664

$1,903,873

Sub-Total

$6,915,862

$5,567,301

$1,348,561

$5,567,301


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’s 2012 expenditures were $1.3 million (or 11.1%) less than in 2011. Because the City reduced its fringe benefit budget from $11.4 million in 2011 to $8.7 million in 2012, the City’s 2012 expenditures were $1.4 million (or 16.1%) over budget.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$10,118,522

$8,712,107

116%

$10,013,161

$11,383,003

88%

 

The budget assumed a full year of savings associated with benefits changes for the FOP, such as maximum City premium contributions and the elimination of the legacy prescription plan. However, the arbitration award was not made until November 2012. Differences between overall fringe benefit expenditures and budget may also be due to employees selecting more expensive plans than in the past, or since the City is self-insured, based on a higher cost of actual claims.

 

Some major city departments had Fringe Benefits deficits in all or most of their divisions (e.g., Police, Public Works, and Fire) while others had surpluses in all or most of their divisions (e.g., Finance). The table below summarizes budget and preliminary actual amounts and resulting balances or deficits by department.

 

2012 Fringe Benefits Expenditures by Department Budget vs. Preliminary Actual

 

Text Box: 	Budget	Actual
Finance	497,407	446,414
Public Works	632,684	730,397
Police	4,098,692	5,229,349
Fire	2,211,507	2,621,160
Community Dvlpmt	672,610	586,276
Other	589,208	504,926
Total	8,702,108	10,118,522

     Text Box: Balance/ (Deficit) ($) 50,993	Balance/ (Deficit) (%) 10.3%
(97,713)	-15.4%
(1,130,657)	-27.6%
(409,653)	-18.5%
86,334	12.8%
84,281	14.3%
(1,416,415)	-16.3%

 

 

II.C.   Debt Service

 

Preliminary actual expenditures for Debt Service in 2012 are $4.2 million over budget, because of the $5 million unbudgeted payment made towards the 2010 unfunded debt. Excluding the unbudgeted $5 million expenditure, actual Debt Service expenditures total $12.2 million, about $850,000 below budget.


 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$17,245,181

$13,093,199

132%

$11,010,979

$11,718,145

94%

 

 

II.D.   Operating Costs

 

Operating Costs, representing 12% 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, expenditures in this category were just slightly over budget. At year end, expenditures exceeded budget by $99,000 or 1.1%.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$9,398,621

$10,686,302

88%

$8,169,002

$8,701,409

94%

 

The table below shows the four largest components of Operating Costs in dollar amount. Three of the four Contracted Services, Light & Power, and Gas were over-spent by more than $100,000. Maintenance Agreements expenditures were under budget, and in aggregate, the spending in 63 other budgeted categories of Operating Costs including Vehicles, Fees, Telephone, and Uniforms was sufficiently restrained to partially offset the over-expenditures in the largest Operating Cost components.

 

Text Box: 	
Budget ($)
Contracted Services	2,164,761
Maintenance Agreements	1,056,250
Light & Power	594,000
Gas	575,000
Other Operating Costs	4,901,461
Total Operating Costs	9,291,472

    Text Box: Prelim Actual ($)	Balance/ (Deficit) ($)	Balance/ (Deficit) (%)
2,266,740	(101,979)	-4.7%
965,979	90,271	8.5%
777,321	(183,321)	-30.9%
777,659	(202,659)	-35.2%
4,602,449	299,012	6.1%
9,390,148	(98,676)	-1.1%

 

 

II.E.   Contingencies

 

The contingencies represents the City’s fund balance; that is, rather than budgeting revenues higher than expenditures and showing a fund balance, the City budgets expenditures to equal revenues, with the difference in the Contingencies line. This is the only major expenditure category where actual expenditures were less than budget; only $8,473 of the final 2012 contingencies budget of $1.4 million was spent.


 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$1,394,830

$8,473

1%

N/A

N/A

N/A

 

 

The 2012 Contingencies budget was originally much lower, at $388,000. During the year, the budget number was adjusted upward when other lines were adjusted downward e.g., when the MMO budget for pension contributions was corrected and it ultimately was fixed at $1.39 million.

 

III.   Interfund Transfers

 

III.A.Transfers In

 

There are three components to this category, all 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

$4,420,000

Annual financing fee payment from the water system.

Recycling Fund

$200,000

A one-time transfer to the General Fund in 2012

 

All three transfers were received as per budget. The increase in this category relative to 2011 is due to the new transfer from the Recycling Fund and an increase of $200,000 in the transfer amount from RAWA.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$7,620,000

$7,622,500

100%

$7,270,000

$7,222,500

101%

 

 

III.B.Transfers Out

 

The only item in this category is a transfer of $1,687,693 used to reimburse the Self Insurance Fund for the actual cost of property, liability and workers compensation claims and associated administrative costs. The amount of this transfer increased by 57% from 2011 to 2012 because of improvements in the City’s budgeting process.

 

2012 Prelim Actual

 

2012 Budget

2012 Prelim Actual to Budget (%)

 

2011 Actual

 

2011 Budget

2011 Actual to Budget (%)

$1,687,693

$1,687,693

100%

$0

$1,072,435

0%