PFM 4th Quarter 2014 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


Q4 2014 Financial Results

 

This report summarizes and analyzes preliminary, unaudited financial results for the period January 1, 2014 through December 31, 2014 based on trial balance financial data provided by the City in March 2014. The revenues and expenditures from refinancing debt in 2013 are excluded from the numbers and analysis presented in this report since they would skew the historical comparison.

 

Overview

 

The City received $84.0 million in revenue and spent $82.1 million from its General Fund during 2014 for a positive operating result of $1.9 million (or 2.3 percent).

 

2014 Budget to Actual Comparison

 

 

2014 Q4

2014

Budget

%

Spent/Collected

Revenues

84,007,416

84,375,519

99.6%

Expenditures

82,097,338

84,360,519

97.3%

Difference

1,910,079

15,000

N/A

 

The $84.0 million that the City received represents 99.6 percent of the 2014 budget. That budget included a $1.2 million transfer to the General Fund from prior year fund balance to cover capital expenses, and the City did not need to make that transfer. Backing out that transfer, the City’s revenues exceeded budget by $862,000 (or 1.0 percent). Similarly the 2014 budgeted expenditures had a $2.1 million contingency allocation intended to cover unanticipated revenue shortfalls or additional expenditures. The City used $650,000 of that contingency so, if the remaining $1.5 million is removed from the budgeted expenditures, the City spent 99.1 percent of its budget.

 

The $1.9 million positive result described in this report compares with an $886,000 positive result in the preliminary year-end report for 2012 and a $4.6 million positive result in the preliminary year-end report for 2013. The external audits for 2012 and 2013 showed slightly better final results at $3.0 million and $5.3 million in 2012 and 2013 respectively. The preliminary result described here does not mean that the City will definitely have a positive operating result when its final, audited numbers for 2014 are released later this year, but they are encouraging with respect to the City’s financial performance last year.


 

 

Seven Key Findings

 

Revenue

 

§  Earned income tax became the City’s largest source of revenue in 2014, passing the real estate tax. The City received $21 million from the EIT, which was $1.3 million more than budgeted and $1.6 million more than in 2013.

 

§  The City received $19.6 million in current year real estate tax, which equates to an 88.9 percent collection rate. Because the budget assumed a 90 percent collection rate, there's a $178,000 (or 0.9 percent) shortfall. The 88.9 percent was a little higher than the collection rates in 2012 (87.3 percent) and 2013 (86.6 percent).

 

§  The City activated a fourth ambulance in the fourth quarter of 2013 so the 2014 budget assumed the additional vehicle would generate additional user fee revenue. Instead the preliminary 2014 results were only $61,000 higher than in 2013 and $582,000 short of budget. PFM has asked the Managing Director and Fire Department leadership to look into this issue.

 

Expenditures

 

§  All major departments spent less than budgeted on salaries, temporary wages and holiday pay. As a whole the City spent $779,000 (or 2.7 percent) less than budget, though it also spent $1.2 million (or 4.4 percent) more than in 2013.

 

§  Last year the City spent more than budgeted on overtime, though a little less than in 2013. Police stayed within its $1.8 million budget and spent a little less than in 2013.  Fire exceeded its budget by

$364,000 (or 56.7 percent) though it spent $57,000 less than in 2013.

 

§  The City spent $683,000 (or 6.2 percent) more than budgeted on employee insurance coverage last year and $1.6 million (or 16.1 percent) more than in 2013. There were particularly large increases in Police ($527,000 over budget) and Public Works ($415,000 over budget). We need to learn more about the reasons for this growth. If it is mostly driven by active employees, the City has some protection from future increases. If it is driven by retired employees, the City has less protection.

 

§  The City stayed within its budget across the total amount of non-personnel, operating expenditures, spending $799,000 (or 6.9 percent) less than budgeted. The City spent $1.8 million more in 2014 than in 2013, though that was expected because of the money allocated for paving, replacing core information technology infrastructure and repairing the Pagoda wall.


 

REVENUES

 

The City had $84.0 million in General Fund revenues through December 2014. The table below compares the City’s revenue performance to the 2014 budget and 2013 preliminary, non-audited results. If we remove the $1.2 million prior year transfer from fund balance that the City budgeted but did not use, the $84.0 million is 1 percent more than budgeted.

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Real Estate Taxes

21,553,114

21,083,297

102.2%

20,735,249

817,865

3.9%

Act 511 Taxes

26,484,517

24,990,795

106.0%

24,971,555

1,512,962

6.1%

Licenses, Permits, Fine

5,976,357

5,887,796

101.5%

5,638,546

337,811

6.0%

Intergovernmental

10,299,766

10,681,789

96.4%

10,169,222

130,544

1.3%

Charges for Services

5,296,077

6,247,771

84.8%

5,367,949

(71,872)

-1.3%

Interest and Rent

1,284,058

1,365,000

94.1%

1,417,771

(133,713)

-9.4%

Other

4,943,527

4,718,593

104.8%

5,789,261

(845,734)

-14.6%

Transfers in

8,170,000

9,400,478

86.9%

7,970,000

200,000

2.5%

TOTAL REVENUES

84,007,416

84,375,519

99.6%

82,059,554

1,947,863

2.4%

 

Real estate taxes

 

Real estate taxes represent about a quarter of all General Fund revenues. The City’s tax rate remained the same in 2014 after it increased by 9.5 percent in 2013 to 15.689 mills.

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Current Year

19,605,173

19,783,297

99.1%

19,171,145

434,028

2.3%

Prior Years

1,752,894

1,300,000

134.8%

1,402,448

350,446

25.0%

Penalties and Interest

518,956

300,000

173.0%

477,848

41,108

8.6%

Discount for Early Payment

(323,909)

(300,000)

108.0%

(316,192)

(7,718)

2.4%

Property Tax Subtotal

21,553,114

21,083,297

102.2%

20,735,249

817,865

3.9%

 

The $19.6 million reported for 2014 translates to an 88.9 percent collection rate as compared to the 90 percent rate that the City usually uses.


 

Current Year Real Estate Collection Rates

 

 

2012

2013

2014

Total assessments

$2,097,380,500

$2,098,317,500

$2,093,997,600

Non-taxable assessment

$667,839,900

$668,698,600

$670,698,600

Taxable assessment

$1,429,540,600

$1,429,618,900

$1,423,299,000

 

Millage rate (General Fund only)

14.134

15.489

15.489

Gross tax levy

$20,205,127

$22,143,367

$22,045,478

 

Budgeted amount

$18,126,332

$19,706,517

$19,783,297

Budgeted collection rate

89.7%

89.0%

89.7%

 

Year-end total

$17,645,325

$19,171,145

$19,605,173

Collection rate

87.3%

86.6%

88.9%

 

Budget-to-actual shortfall

$(481,007)

$(535,372)

$(178,124)

 

While current year collections fell short of budget, collections from prior years covered the shortfall. Prior year tax revenues were $452,000 (or 34.8 percent) higher than budgeted and, combined with the additional revenue from penalties and interest, they offset the shortfall in current year revenue.

 

Act 511 Taxes

 

Act 511 taxes are the City’s largest revenue category with the earned income tax making up 79.1 percent of Act 511 tax revenue in 2014. The City collected 106.0 percent of the budget target for this category last year.

Act 511 Tax Receipts

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Earned Income Tax

20,952,658

19,602,820

106.9%

19,396,538

1,556,120

8.0%

Business Privilege Tax

1,641,181

2,100,000

78.2%

1,483,238

157,942

10.6%

Real Estate Transfer Tax

2,509,916

1,982,975

126.6%

2,825,536

(315,621)

-11.2%

Local Services Tax

1,142,800

1,100,000

103.9%

1,204,472

(61,672)

-5.1%

Per Capita Tax

237,962

205,000

116.1%

61,771

176,192

285.2%

Act 511 Taxes Subtotal

26,484,517

24,990,795

106.0%

24,971,555

1,512,962

6.1%


Berks EIT, Incorporated collects earned income tax for the City and all other governments in Berks County under the provisions of Act 32 of 2010. Last year the City received $1.6 million (or 8.0 percent) more than it did in 2013.

This is a common question because the City’s ability to levy a non-resident EIT is linked to its Act 47 status. In 2014 the City received $2.9 million in non-resident EIT, including prior year money. To estimate the tax’s future value, PFM uses the current year tax receipts to calculate how much is generated by each tenth of a percent in EIT levy. This is also a useful way to measure the difference between resident and non-resident earnings and changes in both.

 

Annualized revenue generated per 0.1% on…

2012

2013

2014

Residents

$674,000

$721,000

$765,000

Non-residents

$961,000

$950,000

$917.000

The City continues to receive more revenue from commuters for each 0.1 percent of EIT, though the gap is narrowing. The amount per 0.1 percent EIT on commuters has decreased the last two years while the amount per 0.1 percent EIT on residents has increased.

 

The real estate transfer tax revenues also exceeded the 2014 budget target by $527,000 (or 26.6 percent), though 2014 year-end results were $316,000 (or 11.2 percent) lower than in 2013 when there was a large sale of Penn Street properties.

 

The opposite was true of the business privilege tax. The 2014 year-end results were 78.2 percent of the budget target, but 10.6 percent (or $158,000) higher than the year before.

 

In 2014, the City increased its per capita tax rate from $15 ($10 for the Reading School District,

$5 for the City) to $30 ($10 for the School District, $20 for the City). It also shifted collection responsibility to Berks EIT, Incorporated. Through December 2014, the City received 285.2 percent more in per capita tax revenue relative to 2013, compared to the 300 percent tax rate increase. We will continue to monitor this comparison because it provides insight on whether revenues have increased because of the tax increase, improvements in collection rates or both.

 

 

2013 Q4

2014 Q4

Growth (%)

Tax Rate (City Portion)

$5

$20

300.0%

Per Capita Tax

61,771

237,962

285.2%


Licenses, Permits & Fees

 

This category includes rental housing permit fees, cable franchise fees, traffic and court fines and business privilege licenses. The City collected 101.5 percent of budgeted revenues in this category and $338,000 (or 6.0 percent) more than in 2013.

 

One of the largest items in this category is the City’s charges for rental housing permits.1 The City received $923,000 total from this revenue source in 2014, which was $118,000 (or 14.7 percent) more than in 2013. The City budgeted $1.3 million in revenue from this source in 2014, so the $923,000 total was about two-thirds of the target. Much of the shortfall occurred in prior year revenues where the City budgeted $450,000 and received less than half that amount.

 

Rental Housing Permit Revenues

 

2014 Q4

         2014                          %               

       Budget                  Collected        

Current Year

734,122

890,000

82.5%

Prior Years

188,617

450,000

41.9%

Housing/Rental Permit Total

922,740

1,340,000

68.9%

 

Last year was the first full year in which the City used an external collector to pursue delinquent rental housing permit fees. The City’s revenues were higher than in the prior year ($189,000 versus $117,000), but not by as much as hoped. The City received $117,000 just in the fourth quarter of 2013 after the external collector was in place, so the City anticipated something closer to that amount on a quarterly basis in 2014.

 

The City’s collections from quality-of-life fines have continue to drop from $375,000 in 2012 to

$331,000 in 2013 and now $234,000 in 2014.2 The graph below shows revenues are generally declining on a quarter-to-quarter basis (i.e. Q1 2014 receipts were lower than Q1 2013 receipts which were lower than Q1 2012 receipts).

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2 This is close to the $231,000 year-end total projected in the Amended Recovery Plan.


Quality-of-life fee revenues

 

Declining revenue isn’t necessarily a problematic trend. As discussed in the Amended Recovery Plan, the number of violations fell by 36 percent from 2012 to 2013. That could signal greater compliance with the quality-of-life ordinance and cleaner neighborhoods, which would be positive. It could also signal less vigorous enforcement because City staff isn’t ticketing violations as frequently, or because the Department has shifted staff to other priorities or for other reasons. Understanding what drives these numbers is important to determine the value of this program, monetarily and from the impact on quality of life.

 

Better than budgeted performance in public safety related fines helped offset the shortfalls in rental housing permit and quality-of-life revenues.

 

Licenses, Permits and Fees

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Housing/rental permit

922,740

1,340,000

68.9%

804,419

118,320

14.7%

District court summary offenses

1,041,027

850,000

122.5%

893,490

147,536

16.5%

Franchise fees

795,879

725,000

109.8%

745,544

50,334

6.8%

New construction permits

955

90,000

1.1%

50,604

(49,649)

-98.1%

Traffic fines motor codes

473,335

325,000

145.6%

417,486

55,849

13.4%

Business privilege licenses

339,705

350,000

97.1%

287,267

52,438

18.3%


 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Quality of life fines

233,850

390,000

60.0%

330,608

(96,758)

-29.3%

Other

2,168,867

1,817,796

119.3%

2,109,126

59,741

2.8%

Total

5,976,357

5,887,796

101.5%

5,638,546

337,811

6.0%

 

Intergovernmental Revenues

 

The City received 96.4 percent of total budgeted intergovernmental revenues. The largest item in this category is the Commonwealth pension aid, which came in a little above the budget target. The City received more aid than budgeted because it hired additional firefighters under the federal SAFER grant, each of which counts as two units in the Commonwealth’s aid calculation.

 

Intergovernmental Revenues

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Pension State Contributions

3,194,961

3,150,000

101.4%

3,068,643

126,318

4.1%

Meter Surcharge

1,700,000

1,700,000

100.0%

1,700,000

0

0.0%

RAWA Supplement

1,500,000

1,500,000

100.0%

1,500,000

0

0.0%

RPA Supplement

810,000

810,000

100.0%

810,000

0

0.0%

Grants and Gifts

1,363,325

1,852,145

73.6%

1,507,921

(144,596)

-9.6%

Reading Public Library

767,092

767,644

99.9%

581,193

185,900

32.0%

Other

964,387

902,000

106.9%

1,001,465

(37,078)

-3.7%

Total

10,299,766

10,681,789

96.4%

10,169,222

130,544

1.3%

 

The biggest item in the Grants and Gifts category is the SAFER grant. The City budgeted $1.3 million in revenue from that grant in 2014 and received close to that amount ($1.25 million). The $382,000 shortfall in this category is because the City recorded $73,000 in police related grants versus the $415,000 target. PFM will check with City Finance on this shortfall, though it could simply be a timing issue (i.e. the City will receive the money, but didn’t as of the closing date for recording 2014 revenues).

 

Charges for Services

 

Last year the City collected 84.8 percent of budgeted revenues from charges for services, a little less than in 2013

 

The largest item in this category -- and the item with the largest shortfall by dollar amount -- is the City’s charges for EMS service that are recorded as “user fees.” The City activated a fourth


ambulance in the fourth quarter of 2013 so the 2014 budget assumed EMS revenue would increase by approximately 25 percent to $3.5 million. Instead the City received $3.0 million in EMS revenue, or 2.1 percent higher than the $2.9 million reported in 2013.

 

RFD department indicates that the City only activates the fourth ambulance unit when there are jumpers (i.e. staff not assigned to specific vehicles) available to staff it or when the Department calls staff back on overtime. So the City may not deploy the fourth ambulance as often as it does the other three. But that alone probably does not explain why 2014 EMS revenue was basically even with 2013. PFM has asked the Managing Director and Fire Department leadership to look into this issue.

 

The City's admissions tax also underperformed relative to its budget target and 2013. This is a

5.0 percent tax on events at the Santander Arena, Santander Performing Arts Center and FirstEnergy Stadium. The $273,000 total reported for 2014 was less than two thirds of the budget target and 33.4 percent less than received in 2013. The City adjusted its admission fee target to

$325,000 in the 2015 budget.

 

Revenue that the Police Department generates by providing additional coverage to specific entities at a reimbursable rate is reported in the Police Service/Copy Service line. The department generated 71.3 percent of the budget target and $44,000 (or 18.3 percent) less than in 2013. As discussed below, there may be offsetting savings in reimbursable overtime expenditures.

Service Charge Revenues

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

EMS User Fees

2,955,031

3,536,638

83.6%

2,894,160

60,870

2.1%

Housing Inspection

794,940

800,000

99.4%

764,633

30,307

4.0%

Kenhorst Police Contract

431,139

431,139

100.0%

418,581

12,558

3.0%

Admissions Fee/Tax

272,661

425,000

64.2%

409,628

(136,968)

-33.4%

Police Service/Copy Service

196,024

275,000

71.3%

239,868

(43,844)

-18.3%

Police Reimb. - RSD

0

0

0.0%

0

0

N/A

Zoning Housing Appeals

0

29,000

0.0%

0

0

N/A

Other

646,283

750,994

86.1%

641,078

5,205

0.8%

Total

5,296,077

6,247,771

84.8%

5,367,949

(71,872)

-1.3%

 

Interest and rent

 

The City collected 94.1 percent of the budget target for interest and rent. The shortfall in the debt repayment line was caused by an accounting change related to the City’s debt service payments.


Interest and Rent Revenues

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Repayment of Debt to City

(95,333)

0

0.0%

47,667

(143,000)

-300.0%

Rental - Parking Authority

1,000,000

1,000,000

100.0%

999,996

4

0.0%

Rent Other Property Bldgs

77,273

65,000

118.9%

69,760

7,513

10.8%

Other

300,000

300,000

100.0%

300,000

0

0.0%

Total

1,284,058

1,365,000

94.1%

1,417,771

(133,713)

-9.4%

 

Other Revenues

 

The City collected 104.8 percent of its total budget for this category and $846,000 (or 14.6 percent) less than through the same period in 2013. The largest item in this category is City employee contributions to the cost of health insurance.3 Total employee contributions were 9.2 percent lower than in 2013 because of a provision in the City’s Recovery Plan. According to the Recovery Plan, the City’s share of total premiums increases by five percent each year, even if the premiums themselves stay flat or decline as was the case in 2014.4 If the total premiums decline, and the City is paying a higher share of the smaller amount, then the employees’ share drops. For example, employees with single coverage under the Preferred Plus option contributed 30 percent less in 2014 than in 2013 and employees with family coverage under the Preferred option

contributed 29 percent less. As discussed further below, the City's actual medical claim expenditures last year were $1.1 million higher than budgeted, which will be reflected in higher employee contributions in later years.

 

The biggest year-to-year difference in this revenue category was in the indirect cost reimbursement from the water fund, which was $135,000 last year compared to $757,000 in 2013. The City uses resources budgeted in the General Fund to support activities budgeted outside the General Fund and then recovers those costs based on an indirect cost calculation by an external vendor. For example, the Citizen Service Center (General Fund operation) previously provided customer service support for water customers (non-General fund operation) and then recovered the costs. In the case of the indirect cost reimbursement from the water fund, that amount will eventually decline because the Reading Area Water Authority (RAWA) assumed responsibility for some of the services that the City was providing.  The City budgeted

 

 

 

 

3 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 the City employees pay to medical care providers at the time of receiving service (e.g. office or prescription drug copayments, deductibles).

4 If the total premium costs increase by more than five percent, than the City employees would make higher contributions to cover the difference. Employees also could reduce their contributions by selecting a different kind of coverage (i.e. moving from Preferred Plus to Preferred).


$0 for the indirect cost reimbursement in 2014 and received $135,000 based on reimbursements provided in its indirect cost study.5

 

Other Revenues

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Emp. Insurance Contribution

1,362,744

1,500,000

90.8%

1,451,416

(88,673)

-6.1%

Indirect Cost Reimb - Sewer

1,103,347

1,161,432

95.0%

1,161,432

(58,085)

-5.0%

CDBG Revenue to Fund Codes

451,500

500,000

90.3%

500,000

(48,500)

-9.7%

Heart & Lung Reimbursement

300,245

290,000

103.5%

363,523

(63,277)

-17.4%

Indirect Cost Reimb - CD

189,996

189,996

100.0%

189,996

0

0.0%

RHA Reimbursement.

286,595

200,000

143.3%

282,834

3,762

1.3%

Indirect Cost Reimb- Recycling

384,971

250,216

153.9%

250,216

134,755

53.9%

Indirect Cost Reimb- Water

135,118

0

N/A

757,476

(622,358)

-82.2%

Direct Cost Reimb. - Trades

138,175

170,000

81.3%

140,946

(2,771)

-2.0%

Other

590,836

456,949

129.3%

691,422

(100,586)

-14.5%

Other Revenues Subtotal

4,943,527

4,718,593

104.8%

5,789,261

(845,734)

-14.6%

 

Interfund revenues

 

The City transfers $5.2 million from the Water Fund to the General Fund as an annual payment from RAWA to lease the City’s system. The lease agreement between the City and RAWA sets the transfer amount.6 The City also transfers $3.0 million per year from the Wastewater Treatment Plant Fund to the General Fund each year as restricted by the November 2005 federal consent decree.  Both transfers are made on a monthly basis throughout the year.

 

The 2014 budget had a $1.2 million transfer from prior year fund balance to fund capital improvement projects on a “pay-as-you-go” basis. Some of those projects were delayed into 2015 and others were paid from current year resources so the City did not make the transfer in 2014.

Interfund Revenues

 

 

2014 Q4

2014

Budget

%

Collected

2013 Q4

Difference ($)

Difference (%)

Transfer from RAWA

5,170,000

5,170,000

100.0%

4,970,000

200,000

4.0%

Transfer from Sewer Fund

3,000,000

3,000,000

100.0%

3,000,000

0

0.0%

Transfer From Prior Year Balance

0

1,230,478

0.0%

0

0

N/A

Total

8,170,000

9,400,478

86.9%

7,970,000

200,000

2.5%

 

5 This indirect cost reimbursement is separate from RAWA’s payment to the City under the lease agreement.

6 The lease agreement also sets RAWA’s supplemental payment to the General Fund, which is tracked under the intergovernmental revenues as “RAWA supplement.”


 

EXPENDITURES

 

The City spent $82.1 million from its General Fund in December 2014, which was 97.3 percent of the $84.4 million budget. However, that budgeted figure includes a $2.1 million contingency that the City includes in its budget as a safeguard against unanticipated additional expenditures or revenue shortfalls. Once that contingency is removed, the City’s spending almost equaled the budget exactly.

 

The City spent $4.4 million (or 5.7 percent) more in 2014 than in 2013. The increase was largely due to higher spending on non-personnel operating costs ($1.8 million), fringe benefits ($1.6 million), and salaries ($1.2 million).

 

 

2014 Q4

2014

Budget

% Spent

2013 Q4

Difference        Difference ($)                 (%)

Salaries, wages & holiday pay

28,457,349

29,236,011

97.3%

27,257,424

1,199,925

4.4%

Overtime

2,939,400

2,497,300

117.7%

2,995,212

(55,811)

-1.9%

Pensions

9,973,075

9,957,024

100.2%

9,947,536

25,540

0.3%

Fringe benefits

11,630,373

10,946,924

106.2%

10,021,828

1,608,545

16.1%

Other personnel

1,468,992

1,623,894

90.5%

1,408,166

60,826

4.3%

Debt service

13,444,567

13,144,084

102.3%

13,531,253

(86,686)

-0.6%

Operating costs

10,809,978

11,608,877

93.1%

9,005,931

1,804,046

20.0%

Other expenses

831,770

671,310

123.9%

882,218

(50,448)

-5.7%

Contingencies7

139

2,133,400

0.0%

3,486

(3,347)

-96.0%

Interfund transfer expenses

2,541,695

2,541,695

100.0%

2,635,984

(94,289)

-3.6%

Total Expenditures

82,097,338

84,360,519

97.3%

77,689,038

4,408,300

5.7%

 

Personnel

 

Most of the City's General Fund expenditures are for employee compensation, including fringe benefits (health insurance) and the City's pension contribution. Employee compensation accounted for 66 percent of the City's spending in 2014 and 64 percent of the City's General Fund budget.

 

The largest piece of these personnel expenditures is the “regular” pay of City  employees: salaries, temporary wages, and holiday pay. The table below shows 2014 spending on those items by department.   All departments spent less than their budget targets last year, with the

 

7  The City spent $650,000 of its contingency but the expenditures were recorded in categories relevant to that specific purchase (i.e. vehicle expenses are recorded under operating costs), and not under contingency.


Services (7.3 percent).

 

Salaries, Temporary Wages & Holiday Pay by Department (General Fund only)

 

 

2014 Q4

2014

Budget

%

Spent

2013 Q4

Difference       Difference ($)                 (%)

Police

12,609,032

12,940,169

97.4%

12,443,931

165,101

1.3%

Fire

8,746,870

8,850,984

98.8%

8,169,630

577,241

7.1%

Public Works

1,712,596

1,803,899

94.9%

1,445,056

267,540

18.5%

Administration

1,722,640

1,858,797

92.7%

1,601,153

121,487

7.6%

Community Dev

2,082,797

2,139,443

97.4%

2,010,589

72,208

3.6%

Other

1,583,414

1,642,719

96.4%

1,587,065

(3,651)

-0.2%

Total

28,457,349

29,236,011

97.3%

27,257,424

1,199,925

4.4%

 

All major departments also spent more in these areas last year than in 2013. The biggest increases were in Fire ($577,000 or 7.1 percent) and Public works ($268,000 or 18.5 percent). Fire spent more because of increased headcount related to the SAFER grant, and Public Works spent more because six equipment operator positions were shifted from the Recycling Fund to the General Fund. Overall salary spending in the General Fund increased by 4.4 percent last year, even though the police officers and most non-uniformed employees did not receive a base wage increase.

 

Overtime

 

Last year the City spent more than budgeted on overtime, though the total was a little less than in 2013.

 

Overtime by Department (General Fund only)

 

Overtime

2014 Q4

2014

Budget

% Spent

2013 Q4

Difference        Difference ($)                 (%)

Police

1,801,062

1,814,500

99.3%

1,873,721

(72,660)

-3.9%

Fire

1,004,828

641,300

156.7%

1,061,913

(57,085)

-5.4%

Public Works

108,558

39,500

274.8%

53,461

55,097

103.1%

Other

24,952

2,000

1247.6%

6,116

18,836

308.0%

Total

2,939,400

2,497,300

117.7%

2,995,212

(55,811)

-1.9%


The Police Department spent $73,000 (or 3.9 percent) less on overtime last year than in 2013 and

$13,000 (or 0.7 percent) less than budgeted. This is the first year since 2011 that the Police Department spent less than its budgeted allocation for overtime, though it was also the largest budget allocation to overtime during that period.

 

As discussed in the Police Overtime Analysis produced by PFM in September 2013, just reporting total police overtime expenditures misses part of the story. Some of the Department's overtime expenditures are reimbursed by private parties, other governmental entities, or grants. Excluding the reimbursements that are tracked in the police service revenue line item, the City had $1.6 million in unreimbursed Police overtime expenditures in 2014, close to the same amount as in 2013.

 

Police Overtime Spending, Net of Reimbursement

 

 

                                                                          Budget                

Q4 Actual    

FY13 Overtime

1,479,063

1,873,721

FY13 Reimbursement

170,000

239,868

FY13 Unreimbursed

1,309,063

1,633,854

 

 

 

FY14 Overtime

1,814,500

1,801,062

FY14 Reimbursement

275,000

196,024

FY14 Unreimbursed

1,539,500

1,605,038

 

Fire overtime expenditures last year were 56.7 percent (or $364,000) above the budget target and

$57,000 (or 5.4 percent) less than in 2013. Fourth-quarter overtime spending last year was

$108,000 (or 53.4 percent) higher than fourth-quarter spending in 2013. The following chart shows overtime spending in the Fire Department in the last two years on a quarter-to-quarter basis.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits


Fire Overtime Spending – Q4 2012 to Q4 2014


 

This category includes the City's annual required contributions to the employee pension plans and the City's expenditures for different forms of employee insurance coverage (e.g. medical, prescription, dental, vision, Medicare).

 

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, and accounting for employee contributions. The City uses Commonwealth pension aid and General Fund revenues to make the MMO payments. The City's total contributions for 2014 were $9.96 million, which was basically even with the 2013 contribution.

 

Pension

2014 Q4

2014

Budget

% Spent

2013 Q4

Difference       Difference ($)                 (%)

Police

6,051,235

6,051,235

100.0%

6,057,188

(5,953)

-0.1%

Fire

2,282,336

2,282,336

100.0%

2,286,857

(4,521)

-0.2%

Employees & Officers

1,639,504

1,623,453

101.0%

1,603,491

36,013

2.2%

Total

9,973,075

9,957,024

100.2%

9,947,536

25,540

0.3%


These contributions consume approximately 12 percent of the City’s General Fund budget and they are the fastest-growing expenditure category. The growth occurs every other year when the City receives its new pension valuation reports. As stated in the 2014 Amended Recovery, the required pension contributions from the City's General Fund have doubled from $6.6 million in 2011 to $13.2 million in the 2015.

 

City General Fund Pension Contributions ($ Millions)8

 

 

Employee insurance (Fringe Benefits)

 

The City records its spending on employee insurance coverage in account codes labeled “fringe benefits.” Most of the expenditures in those lines are health insurance for active and retired employees. 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.

 

The City spent $683,000 (or 6.2 percent) more than budgeted on these benefits last year and $1.6 million (or 16.1 percent) more than in 2013. The 2014 results shown here are net of a $600,000 reimbursement that the City received under its stop-loss insurance policy for medical care provided to a firefighter in 2013.  In other words, the actual amount of fringe benefit spending

 

 

 

8 This is the City’s contribution, net of the amount contributed by employees. There are additional City contributions for the O&E plan outside the General Fund that are not shown here.


during 2014 was $600,000 higher than shown here, but the stop-loss reimbursement for care provided in prior years lowered it to the level shown in this report.

 

The overall pattern more spending than budgeted, more spending than a year ago– applies to all major departments except fire where the $600,000 stop-loss reimbursement pushes the reported result below budget. The pattern is most noticeable in police ($527,000 over budget) and public works ($415,000 over budget), though there were also large jumps from 2013 to 2014 in Administrative Services ($361,000) and Community Development ($281,000).

 

General Fund Fringe Benefit Expenditures

 

Fringe Benefits

2014 Q4

2014

Budget

%

Spent

2013 Q4

Difference       Difference ($)                 (%)

Admin. Services

811,033

703,294

115.3%

450,091

360,943

80.2%

Public Works

1,103,437

688,005

160.4%

537,824

565,613

105.2%

Police

5,954,975

5,427,595

109.7%

5,584,356

370,620

6.6%

Fire

2,451,797

2,981,355

82.2%

2,547,077

(95,280)

-3.7%

Community Dev.

821,647

795,028

103.3%

540,719

280,928

52.0%

Other

487,483

351,647

138.6%

361,761

125,722

34.8%

Total

11,630,373

10,946,924

106.2%

10,021,828

1,608,545

16.1%

 

Since the City is self-insured up to the $250,000 stop-loss threshold, it is vulnerable to these kinds of budget-to-actual variances within a particular year. The City sets its fringe benefit budget based on per employee cost estimates provided by its third party administrator, and those cost estimates are based in turn on the City’s medical claim history in prior years. If the employees receive more (or more expensive) medical care than was assumed in the per employee cost estimate, then the City has to cover the difference from its General Fund in that particular year. If the opposite is true and medical claims experience is less expensive than assumed in the budget, then the City will spend less than budgeted on fringe benefits and can use the money elsewhere.

 

Over the longer term, the actual level of medical claims experience gets incorporated in the per employee cost estimate that the City uses to set its budget. Since the City’s contribution amount for active employees can only grow by 5 percent per year under the Recovery Plan,  any additional growth above 5 percent is either covered by the employees through higher premium contributions or mitigated when employees choose a less costly level of coverage.

 

The City does not have the same protection for retired employees. Their contributions to the cost of health insurance are usually set at the amount they were contributing when they retired. So, if they use more expensive medical care and the cost of health insurance rises, the City shoulders much of the additional cost.


Other personnel

 

The City spent $1.5 million on other personnel-related expenditures in 2014, which was $61,000 (or 4.3 percent) more than in 2013.

 

Other Personnel

2014 Q4

2014

Budget

%

Spent

2013 Q4

Difference         Difference ($)                  (%)

Premium Pay

314,312

337,083

93.2%

327,511

(13,199)

-4.0%

Social Security

962,747

1,045,650

92.1%

909,153

53,594

5.9%

Unemployment Comp

39,924

100,000

39.9%

37,837

2,087

5.5%

Penny Fund

7,104

2,035

349.1%

4,117

2,986

72.5%

Uniforms/Clothing Allowance

144,904

139,126

104.2%

129,548

15,357

11.9%

Total

1,468,992

1,623,894

90.5%

1,408,166

60,826

4.3%

 

Debt Service

 

The City spent 102.3 percent of its debt service budget last year. 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). The City pays the majority of its total debt service payments during the fourth quarter because that second installment usually includes interest and principal.

 

Actual debt service spending in 2014 exceeded budget by $300,000 (or 2.3 percent) because General Obligation Bonds Series 2008 C and D were budgeted below the level in the outstanding debt schedule.

 

 

2014 Q4

2014

Budget

%

Spent

2013 Q49

Difference       Difference ($)                 (%)

Debt Service

13,444,567

13,144,084

102.3%

13,531,253

(86,686)

-0.6%

 

Operating Costs

 

Representing 13.8 percent of the total budget, this is the category for materials and services that the City government uses in its regular operations. It includes utilities, contracted services, equipment, and building maintenance.

 

 

 

9 This includes $263,457 in debt service for the 2012 B series. The 2013 Q4 report does not include this number because it was unbudgeted in 2013.


was anticipated in the budget as explained below.

 

Operating Costs

 

Operating Costs

2014 Q4

2014

Budget

% Spent

2013 Q4

Difference        Difference ($)                  (%)

Contracted Services

2,484,117

2,969,430

83.7%

2,094,181

389,937

18.6%

Maintenance Agreements

738,926

774,050

95.5%

931,751

(192,825)

-20.7%

Light & Power

1,430,977

1,488,800

96.1%

732,748

698,229

95.3%

Gas

632,700

610,000

103.7%

749,124

(116,424)

-15.5%

General Plant Supplies

271,110

324,249

83.6%

240,993

30,117

12.5%

Machinery & Equipment

1,193,796

1,502,734

79.4%

525,771

668,024

127.1%

Fees

394,848

285,985

138.1%

275,642

119,205

43.2%

Other Operating Cost

3,663,504

3,653,629

100.3%

3,455,720

207,784

6.0%

Total

10,809,978

11,608,877

93.1%

9,005,931

1,804,046

20.0%

 

The $698,000 increase in light and power expenditures is related to street paving. In prior years the City used money in the separate Liquid Fuels Fund to cover most street lighting expenditures. In 2014 City used the money in the Liquid Fuels Fund for street paving and covered the street lighting expenditures with General Fund money, which explains the increase.

 

The City also increased its budget target for machinery and equipment by $928,000 to replace basic IT infrastructure. The City spent $309,000 less than budgeted but $668,000 more than in 2013. Similarly the City spent more on contracted services in 2014 than in 2013 because it budgeted money to repair three dams and the Pagoda walls.

 

Other expenses

 

The table below shows other expenses in the General Fund. The 2014 budget included $2.1 million as a contingency to cover unanticipated revenue shortfalls or additional expenditures. Ideally the City would not use the contingency so the money could be directed to other purposes (e.g. maintaining fund balance, funding capital improvements on a pay-as-you-go basis).

 

In 2014 the City used $650,000 from the contingency, with about half of that amount ($365,000) going toward maintaining the Penn Street properties that the City purchased for economic development reasons. The City also spent $145,000 from its contingency on legal fees and

$140,000 in the fire department. The expenditures were recorded in categories relevant to that specific purchase (i.e. vehicle expenses are recorded under operating costs), and not in the


contingency line.  So the actual spending from the contingency in 2014 was higher than the $139 shown in the chart below.

 

 

 

2014 Q4

       2014                  

%            

 

2013 Q4

   Difference    

Difference

    Budget             

Spent        

          ($)                  

(%)        

Contingencies

139

2,133,400

0.0%

3,486

(3,347)

-96.0%

Miscellaneous

831,770

671,310

123.9%

882,218

(50,448)

-5.7%

Interfund transfers

2,541,695

2,541,695

100.0%

2,635,984

(94,289)

-3.6%

 

The interfund transfer is a payment from the General Fund to the Self Insurance Fund for the actual cost of property, liability and workers compensation claims and associated administrative costs. The size of this transfer decreased by $94,000 (or 3.6 percent) in 2014.

 

We have grouped all other expenses into the line above called miscellaneous. This category exceeded budget by 23.9 percent, which was driven by a new Berks Community Television expense in 2014 ($40,000) and additional earned income tax collection expense. The City pays Berks EIT two percent of its gross earned income tax revenue as a collection fee. Since the EIT revenues were higher than budgeted, so were the collection fees.