PFM 4TH Quarter 2018 Report

 

image

Public Financial Management

1735 Market Street, 43rd Floor Philadelphia, PA 19103

215 567-6100

215 567-4180 fax

www.pfm.com

 

Q4 2018 Financial Results

This report summarizes the City of Reading’s preliminary financial results in its General Fund for the fiscal year 2018 based on trial balance financial data provided to PFM. The City’s final audited results for 2018 will be released later in the year.

Based on the numbers provided, City government received $97.1 million in revenue and spent

$94.9 million from its General Fund during 2018 for a positive operating result of $2.2 million (or

    1. percent of revenues). We think these reported results need to be adjusted in two ways to provide a more meaningful view of the City’s financial performance last year:

      • The City reported $27.1 million in earned income tax revenue, which was $4.4 million more than budgeted and $5.0 million more than reported in 2017. Subsequent discussions with City Finance indicate these numbers may inadvertently include five quarters worth of revenue – four for 2018 and the first quarter of 20191. If the City did accidentally accrue revenue from 2019 into 2018, those figures will be corrected in the City’s year-end audit and the City’s revenues will be less than $97.1 million.

         

      • The expenditures include a $4.4 million transfer from the General Fund to a separate fund for building and construction and a $1.5 million transfer from the General Fund to a separate fund for paving. These types of transfers are typically recorded as expenditures, even though they represent interfund transfers, and not actual spending.

         

        We have made these adjustments throughout this report to provide a clearer picture of the City’s performance. After adjusting the City’s reported numbers to account for these two issues, the preliminary results show a $3.3 million surplus.

        Budget to Actual Comparison

         

         

        2018

        Reported

        Adjustment

        2018

        Adjusted

        2018

        Budget

        % of Budget

        Revenues

        97,071,855

        (4,852,668)

        92,219,187

        92,677,520

        99.5%

        Expenditures

        94,850,456

        (5,900,000)

        88,950,456

        92,677,520

        96.0%

        Difference

        2,221,399

        1,047,332

        3,268,731

        0

        N/A

         

        The $92.7 million revenue budget included $1.3 million in “carryforward” (i.e. money from prior years) to fund operating expenditures in 2018. Backing that amount out of the revenue budget means that the $92.2 million collected in 2018 was a little higher than budgeted (100.9 percent), instead of a little lower (99.5 percent in the table above).

         

        The adjusted year-end results indicate Reading City government continued its run of years with an operating surplus, though the surpluses are smaller now than a couple years ago. The 2018 surplus was generated on the expenditure side by the City spending less than budgeted, as was the case in 2017. We explain where specifically that was the case in our report.

         

         

        1 The Q1 2019 EIT receipts were also unusually low, providing further evidence that the City may have recorded some 2019 revenue in 2018.

         

        1

         

        Preliminary (Unaudited) Year-End Results since 2014

         

         

         

        2014 Q4

         

        2015 Q4

         

        2016 Q4

         

        2017 Q4

         

        2018 Q4

         

        CAGR2

        Revenues

        84,007,416

        88,480,721

        90,950,905

        90,729,299

        92,219,187

        2.4%

        Expenditures

        82,097,338

        84,124,909

        86,150,940

        86,804,941

        88,950,456

        2.0%

        Difference

        1,910,078

        4,355,812

        4,799,965

        3,924,358

        3,268,731

        N/A

         

         

        CAGR means Compound Annual Growth Rate

        Key Findings

         

        • Our adjusted year-end results indicate Reading City government continued its run of years with an operating surplus with revenues finishing $3.3 million higher than expenditures. As was the case in 2017, the surplus was generated by the City spending less than budgeted since total revenues were close to the budget target.

          Revenues

           

        • Total real estate tax revenues were $0.8 million (or 3.3 percent) higher than budgeted. In 2017, the City reported $684,000 more prior year (or delinquent) tax revenue than in 2016, which was the highest amount received in years. The 2018 results stayed at this higher level. This increase is more than can be attributed to the 2016 tax increase or any change in tax collection rates, which have been stable.

           

        • Earned income tax (EIT) receipts in the General Fund were flat from 2017 to 2018 because the City continues to shift a portion of the EIT rate to fund capital projects. Across both funds resident EIT revenues grew by 5.1 percent and commuter EIT revenues by 2.0 percent. PFM has requested more detailed information from the City’s tax collector to learn more about the repeated growth in resident EIT revenues when external data shows much lower growth in the number of employed residents and median household income in Reading.

           

        • The City receives revenue from Berks County to help offset the salary costs of the Reading Public Library employees who work for the City. In 2018, the City received $490,000 less than budgeted and $766,000 less than in the prior year. Timing for when the City receives and records this revenue makes trend analysis difficult, but the City should follow up with the County if it has not received the 2018 revenue at this time.

          Expenditures

           

        • Across all departments the City’s spending from the General Fund on employee salaries, temporary wages and holiday pay was close to budget and 2.1 percent higher than in 2017.

Real estate tax

 

The City’s real estate tax is the largest source of General Fund revenue, generating approximately just over a quarter of all General Fund revenues collected in 2018. The real estate tax millage was the same in 2018 as in 2017 – 17.689 per $1,000 of assessed value, including 0.2 mills apiece for the Shade Tree Fund and the Reading Public Library. The revenues detailed in this report do not include real estate tax revenues allocated to the Shade Tree Fund3.

 

Real Estate Tax Revenue

 

 

2018 Q4

2018 Budget

%

Collected

2017 Q4

Difference ($)

Difference (%)

Current year

22,125,635

21,784,960

101.6%

21,979,364

146,271

0.7%

Prior years

2,578,652

2,264,900

113.9%

2,554,991

23,661

0.9%

Penalties and interest

675,019

526,000

128.3%

597,025

77,994

13.1%

Discount for early payment

(366,110)

(367,400)

99.6%

(366,265)

155

0.0%

Real Estate Tax Total

25,013,197

24,208,460

103.3%

24,765,115

248,082

1.0%

 

Current year real estate tax revenue

 

The $22.1 million in current year revenue translates to an 88.4 percent collection rate, which was

1.6 percent greater than what the City assumed in the 2018 budget, and closely aligns with the average collection rate (88.0 percent) over the prior four years.

 

Current Year Real Estate Collection Rates

 

 

Q4 2014

Q4 2015

Q4 2016

Q4 2017

Q4 2018

Total assessed value

2,093,997,600

2,091,057,900

2,088,551,100

2,126,795,500

2,122,979,800

Less exemptions and utilities

(670,698,600)

(677,358,600)

(681,103,400)

(690,879,900)

(692,048,900)

Total taxable value

1,423,299,000

1,413,699,300

1,407,447,700

1,435,915,600

1,430,930,900

Millage rate

15.489

15.489

17.489

17.489

17.489

Gross tax due

22,045,478

21,896,788

24,614,853

25,112,728

25,025,551

Amount collected

19,605,173

19,129,129

21,664,739

21,979,364

22,125,635

Collection rate

88.9%

87.4%

88.0%

87.5%

88.4%

 

Prior year real estate tax revenue

 

In 2017 the City received $684,000 more revenue than in 2016 and the most it has received in years. The 2018 results stayed at this higher level.

 

Prior Year Real Estate Tax Collection

 

 

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4

% Change 2014 – 2018

Prior years

1,752,894

1,933,809

1,871,045

2,554,991

2,578,652

47.1%

 

 

3 The Shade Tree Fund revenues are recorded outside the General Fund. The Reading Public Library revenue is recorded in the General Fund and then transferred to the Library as part of the City’s contribution.

In 2016, the City increased its tax rate by 2.0 mills (or 12.9 percent). The time lag between that tax increase and the impact on prior year receipts accounts for part of the jump seen above, but not all of it. Revenues increased by 36.6 percent in 2017, or almost three times as much as the tax increase.

 

Since 2014, the City’s share of prior year revenue collections received within in the last quarter of the year have been on the rise. Within the last quarter of 2018, the City collected $1.1 million (or

43.2 percent) of total prior year revenue collected that year. In 2017, the City reported $0.9 million in prior year real estate tax revenues during the fourth quarter of 2017, which was 35.7 percent of total prior year collections that year.

 

 

 

 

Act 511 taxes

 

 

 

Act 511 taxes are the City’s largest revenue category. The City collected 102.7 percent of its budget target for this category and 5.0 percent more than in 2017.

 

Act 511 Tax Revenue

 

 

2018 Q4

2018

Budget

%

Collected

2017 Q4

Difference ($)

Difference (%)

Earned Income Tax

22,288,170

22,700,000

98.2%

22,107,171

180,998

0.8%

Business Privilege Tax

2,102,433

1,960,000

107.3%

1,504,128

598,305

39.8%

Real Estate Transfer Tax

4,290,174

3,350,000

128.1%

4,022,147

268,027

6.7%

Local Services Tax

1,417,938

1,295,000

109.5%

1,067,422

350,516

32.8%

Per Capita Tax

331,257

330,000

100.4%

271,568

59,689

22.0%

Act 511 Taxes Subtotal

30,429,972

29,635,000

102.7%

28,972,436

1,457,536

5.0%

 

Earned income tax

 

The earned income tax (EIT) is by far the largest item in this category and the City’s second largest source of General Fund 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.

 

The City now receives part of the EIT revenue in the General Fund as shown above and the rest in a separate Capital Fund that funds capital improvement projects. In 2018 the Capital Fund

received EIT revenue from 0.2 percent of the 0.3 percent non-resident (i.e. commuter) EIT and

0.2 percent of the 2.1 percent resident EIT.

 

Because of the accrual issue described at the beginning of this report, it is better to review the City’s EIT receipts on a cash basis as reported by Berks EIT. The table below shows the City’s revenues across both funds from all taxpayers in all years. Current year revenue from residents grew by 6.3 percent and prior year revenue4 grew by 5.7 percent. Commuter tax revenues grew at a slower pace. Berks EIT made a change in its collection processes in 2017 that generated a one-time boost in money from “older years” (i.e. money that is more than a year overdue), which explains the large decline on a percentage basis in that category for residents (-41.8 percent) and commuters (-86.0 percent).

 

 

2017

2018

%

Current year

14,837,451

15,775,415

6.3%

Prior year

6,880,077

7,275,653

5.7%

Older years

504,765

293,541

-41.8%

Total resident

22,222,294

23,344,609

5.1%

Current year

2,317,245

2,405,840

3.8%

Prior year

834,566

850,209

1.9%

Older years

46,420

6,517

-86.0%

Total commuter

3,198,231

3,262,566

2.0%

Interest & excess profit

90,873

168,425

85.3%

Collection fees

(508,410)

(532,143)

4.7%

Total

25,002,987

26,243,457

5.0%

 

PFM has requested more detailed information from Berks EIT to learn more about the repeated growth in resident EIT revenues when external data shows much lower growth in the number of employed residents and median household income in Reading.

 

Real estate transfer tax

 

Real estate transfer tax revenues exceeded the budget target by $940,000 (or 28.1 percent) and 2017 year-end results by $268,000 (or 6.7 percent). Over the past five years, the City has collected higher than anticipated revenues from this source.

 

 

 

4 Most of the prior year revenue comes from taxes that are levied in the fourth quarter of the prior year. For example, much of the

$7.3 million in prior year revenue for 2018 likely comes from taxes levied in Q4 2017 but remitted to the City in Q1 2018.

 

 

Last year, PFM reviewed transaction data provided by Berks County, which collects the real estate transfer tax on behalf of Reading. While large commercial transactions can and do result in large jumps in revenue receipts, total growth in transfer tax revenue appears to be driven primarily by an increase in the volume of residential transactions.

 

 

 

 

 

 

 

Other Act 511 Taxes

 

In 2017, the City changed collectors for the local services tax (LST) and business privilege tax (BPT) and as a result, 2017 revenues lagged prior year collections. By the end of Q4 2018, revenues from both taxes increased relative to that dip.

 

LST

The City’s local services tax is a $1-a-week levy paid by all individuals employed within the City. In 2018, local services tax revenues came in $351,000 (or 32.8 percent) higher compared to 2017, but closer to the City’s performance in 2014 and 2016.

 

Local Services Tax, Five-year Perspective

 

 

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4

CAGR

Current year

893,449

866,578

1,126,038

955,968

1,181,921

7.2%

Prior years

249,351

148,737

236,466

111,454

236,017

-1.4%

Total

1,142,800

1,015,315

1,362,504

1,067,422

1,417,938

5.5%

 

We have noted in prior reports that accounting quirks could describe some of fluctuation in LST revenues. The quarter-by-quarter results show that LST revenues were unusually high in Q4 2016 and unusually low in Q1 2017. It appears that will be the case again this year with very high receipts in Q4 2018 and (we assume) very low receipts in Q1 2019. The overall trend is hard to discern, at least from these unaudited figures, because the timing for the City’s deposits in the early part of each year skew the annual results.

 

 

BPT

The business privilege tax is levied on gross business receipts collected by for-profit businesses located in the City5. In 2018, total business privilege tax revenues were $598,000 (or 39.8 percent) higher than in 2017. From a five-year historical perspective, business privilege tax revenue is notably higher in both current and prior year collections.

 

Business Privilege Tax, Five-year Perspective

 

 

2014 Q4

2015 Q4

2016 Q4

2017 Q4

2018 Q4

CAGR

Current year

1,461,731

1,486,359

1,625,022

1,460,555

1,877,284

6.5%

Prior years

179,450

75,610

167,675

43,573

225,149

5.8

Total

1,641,181

1,561,969

1,792,697

1,504,128

2,102,433

6.4%

 

Current year BPT revenues came in $417,000 (or 28.5 percent) higher than in 2017. Prior year BPT revenues are also higher than a year ago, though 2017 marked the lowest collection of prior year revenues over the last five years. Some of the 2018 increase could be the result of the private collector getting acclimated to this new function in Reading, and some money that would normally have been collected as current year revenue in 2017 being received as prior year revenue in 2018. The City also had an unusually high amount of current year revenue during the fourth quarter-- $214,000 for 2018 versus less than $65,000 in 2015, 2016 or 2017.

 

Per Capita Tax

The City levies a $20 per capita tax on all residents over the age of 18. In 2018, total per capita tax receipts (current and prior year combined) were $60,000 higher than 2017, but the City’s current year collection rate still remains low. The City collected $240,000 in current year revenue from this head tax, which means the City only collected revenue from about 12,000 (or 19.5 percent) of its 62,000 residents over the age of 186.

 

 

 

5 Pennsylvania law exempts some businesses from this tax, such as manufacturers.

6 The US Census Bureau’s American Community Survey lists Reading’s population at 88,418 with 61,555 people age 18 and above (2017 ACS 1-year estimates).

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 104.8 percent of its budget target for this category and $164,000 (or 3.2 percent) more than it did in 2017.

 

One of the largest items in this category is the City’s charges for rental housing permits7. The City collected 85.5 percent of its budget target, and $116,000 (or 11.8 percent) less in total housing permit revenues. In 2018, the City reduced the rental permit fee by 10 percent (from $100 to $90), so lower current year revenues were expected. Current year revenues were $132,000 less than budgeted and $135,000 (or 14.8 percent) less than 2017.

 

Rental Housing Permit Revenue

 

 

2018 Q4

2018

Budget

%

Collected

2017

Q4

Difference ($)

Difference (%)

Current Year

772,727

905,000

85.4%

907,484

(134,757)

-14.8%

Prior Years

91,039

105,000

86.7%

72,225

18,813

26.0%

Total

863,765

1,010,000

85.5%

979,710

(115,944)

-11.8%

 

The following table shows the year-end performance for the licenses, permits and fees category as a whole. Declines in franchise fee and quality of life fine revenues were offset by increases in revenues from the issuance of remodeling permits and traffic fines.

 

In contrast, remodeling permit revenue exceeded the budget target by $291,000 (or 64.7 percent), and was $233,000 or (46.0 percent) more than received in 2017. These revenues fluctuate depending on the occurrence of large projects. There were two large projects that triggered these permitting fees in 2018 (one at Alvernia University, one at Fritz island) and one project in 2017 (one at Albright).

 

The apparent increase in traffic fine revenue is a timing quirk associated with the Reading Parking Authority (RPA). The RPA collects the revenue from parking tickets issued by the Reading Police Department and then remits the revenue to the City on a quarterly basis. The City did not receive its third and fourth quarter revenues for 2017 from the RPA until 2018.

 

This category also includes revenue from the business privilege license (BPL), which was

$19,000 (or 8.7 percent) higher than a year ago. The BPL is a measure of the number of businesses active in the City since each one is required to pay the $55 annual license fee. This applies to any business that receives payment for goods and services provided inside City limits, even if the business itself is located outside Reading.

 

Other Licenses, Permits and Fees

 

 

2018 Q4

2018

Budget

%

Collected

2017 Q4

Difference ($)

Difference (%)

Housing/rental permit

863,765

1,010,000

85.5%

979,710

(115,944)

-11.8%

District court offenses

392,595

350,000

112.2%

386,498

6,097

1.6%

Franchise fees

850,923

930,000

91.5%

913,807

(62,883)

-6.9%

Remodeling permits

740,946

450,000

164.7%

507,668

233,279

46.0%

Traffic fines motor codes

303,491

225,000

134.9%

131,246

172,245

131.2%

Business privilege licenses

298,992

275,000

108.7%

279,542

19,450

7.0%

Quality of life fines

88,391

135,000

65.5%

170,135

(81,744)

-48.0%

Other

1,693,678

1,618,800

104.6%

1,700,145

(6,467)

-0.4%

Total

5,232,782

4,993,800

104.8%

5,068,749

164,033

3.2%

 

Intergovernmental Revenues

 

The City received 95.0 percent of total budgeted intergovernmental revenues. The largest item in this category is the Commonwealth pension aid, which came in slightly above the budget target. The largest variance in intergovernmental revenue in comparison to the prior year is the revenue that supports the Reading Public Library. The City receives this contribution from Berks County to help offset the salary costs of the Library employees who work for the City. In 2018, the City received $490,000 less than budgeted and $766,000 less than in the prior year. Library revenue in 2017 was higher than usual because of an accounting quirk. The City recorded five quarters of revenue that year (the last quarter of 2016 and four quarters of 2017), which explains part of the gap between 2017 and 2018 receipts.

 

The “other” category revenue was $105,000 (or 10.7 percent) higher in comparison to the previous year. The increase in revenue was largely the result of the City collecting $102,000 more than budgeted in payments-in-lieu-of taxes (PILOT) revenue and $37,000 more in training reimbursements.

 

Intergovernmental Revenues

 

 

2018 Q4

2018

Budget

%

Collected

2017 Q4

Difference ($)

Difference (%)

Pension-State Contributions

3,705,351

3,615,550

102.5%

3,615,544

89,808

2.5%

Meter surcharge

1,700,000

1,700,000

100.0%

1,700,000

0

0.0%

Grants and gifts

260,176

307,500

84.6%

300,369

(40,193)

-13.4%

Reading Public Library

349,871

840,000

41.7%

1,115,737

(765,866)

-68.6%

Other

1,083,867

1,011,320

107.2%

979,319

104,548

10.7%

Total

7,099,266

7,474,370

95.0%

7,710,970

(611,704)

-7.9%

 

Charges for Services

 

The City collected 99.9 percent of its budgeted revenues from service charges and $33,000 (or

    1. percent) more than a year ago. The largest item in this category is the City’s emergency medical system (EMS) transport service charges. The City collected $105,000 (or 3.6 percent) less revenue from these “user fees” than a year ago. The next largest item, housing inspections, increased by $127,000 (or 23.5 percent) in comparison to the prior year.

       

      The City’s admissions tax is a 5.0 percent tax on events at the Santander Arena, Santander Performing Arts Center and FirstEnergy Stadium, and revenues from this source were $66,000 (or 13.2 percent) lower than in 2017. The City also receives reimbursements from external organizations when it provides additional police coverage to them. That revenue, which is

      recorded in the Police service/copy service account, is largely even with the prior year8. As the Exit Plan explained, revenues from rental housing inspections rebounded in 2018 because the City had more filled, trained inspector positions in the Property Maintenance Inspection Division.

       

      Service Charge Revenue

       

       

      2018 Q4

      2018

      Budget

      %

      Collected

      2017 Q4

      Difference ($)

      Difference (%)

      EMS user fees

      2,808,204

      2,900,000

      96.8%

      2,912,756

      (104,551)

      -3.6%

      Housing inspections

      664,340

      655,000

      101.4%

      537,810

      126,530

      23.5%

      Kenhorst police contract

      461,925

      461,930

      100.0%

      452,868

      9,057

      2.0%

      Admissions fee/tax

      437,937

      460,000

      95.2%

      504,315

      (66,378)

      -13.2%

      Police service/copy service

      170,856

      170,000

      100.5%

      174,671

      (3,815)

      -2.2%

      Other

      603,633

      504,300

      119.7%

      531,697

      71,936

      13.5%

      Total

      5,146,896

      5,151,230

      99.9%

      5,114,117

      32,779

      0.6%

       

      Interest and rent

       

      The City reported $645,000 less in revenue from interest and rent than a year ago, mostly due to a decrease in total payments made to the City by the Reading Parking Authority (RPA). The 2018 budget included $1.9 million in payments from the RPA to the City. Midway through 2018, the RPA explained that it could not afford to make this level of contribution because of its own financial challenges.

       

      Interest and Rent Revenues

       

       

      2018 Q4

      2018

      Budget

      %

      Collected

      2017 Q4

      Difference ($)

      Difference (%)

      Rental - Parking Authority

      400,000

      1,900,000

      21.1%

      999,996

      (599,996)

      -60.0%

      CD bond interest

      147,972

      175,000

      84.6%

      173,428

      (25,456)

      -14.7%

      Rent - other property buildings

      69,013

      65,000

      106.2%

      88,563

      (19,550)

      -22.1%

      Other

      300,000

      300,000

      100.0%

      300,000

      0

      0.0%

      Total

      917,978

      2,441,000

      37.6%

      1,563,049

      (645,071)

      -41.3%

       

      Interfund transfers

       

      The largest item in this category is the Reading Area Water Authority (RAWA) lease payment to the City. 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.

       

      The City makes these transfers on a monthly basis as reflected in the chart below. As noted earlier, the 2018 budget included $1.25 million “carried over” from prior years. This use of prior year fund balance is not considered current year revenue from an accounting perspective, but it is often recorded that way in Pennsylvania local government budgets. The City did not need to use prior year money to cover its expenditures last year.

       

       

      8 The City also records some of the revenue it receives to offset reimbursable overtime activities under grants and gifts in the Intergovernmental Revenue category.

      Interfund Transfers

       

       

      2018 Q4

      2018

      Budget

      %

      Collected

      2017 Q4

      Difference ($)

      Difference (%)

      From RAWA

      9,460,500

      9,460,500

      100.0%

      9,275,000

      185,500

      2.0%

      Transfer from Sewer Fund

      3,000,000

      3,000,000

      100.0%

      3,000,000

      0

      0.0%

      Prior year carryover

      0

      1,250,000

      0.0%

      0

      0

      N/A

      Total

      12,460,500

      13,710,500

      90.9%

      12,275,000

      185,500

      1.5%

       

      Other revenues

       

      Revenues not counted in prior categories are grouped together here. The City collected $855,000 (or 16.9 percent) more than budgeted, and $659,000 (or 12.5 percent) more than last year.

       

      The largest item in this category is City employees’ contributions to the cost of their health insurance9. The City budgets the projected full cost of employee health insurance on the expenditure side, and then records the employee contributions as revenue to offset a portion of those expenditures. Those contributions were $110,000 more than the prior year, but still

      $122,000 lower than budgeted. Position vacancies could explain some of the revenue shortfall.

       

      The City also received $578,000 in prescription drug reimbursements, which were not budgeted until 2019. City Finance explained that this revenue is not new, but the City is now recording it separate of related expenditures so it is easier to track. The City set a revenue target of $450,000 for revenues from this source in the 2019 budget.

       

      Across all reimbursements, the largest variance was the reimbursement the City receives from the State to offset worker’s compensation claims paid to police and fire under provisions of the Pennsylvania Heart and Lung Act. The City received $144,000 (or 251.5 percent) more than budgeted, and $130,000 (or 35.2 percent) less than in 2017. The ‘Other’ category includes

      $289,000 in prior period adjustments that are not budgeted and $233,000 in other miscellaneous revenues.

       

      9 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).

       

       

      Other Revenues

       

       

      2018 Q4

      2018

      Budget

      %

      Collected

      2017 Q4

      Difference ($)

      Difference (%)

      Employee insurance contribution

      1,984,834

      2,107,210

      94.2%

      1,874,349

      110,485

      5.9%

      Indirect Cost Reimb. - Sewer

      1,199,840

      1,199,840

      100.0%

      1,142,700

      57,140

      5.0%

      Prescription Drug Reimb.

      577,567

      --

      N/A

      350,368

      227,199

      64.8%

      CDBG revenue to fund codes

      205,738

      250,000

      82.3%

      192,233

      13,505

      7.0%

      Heart & Lung Reimb.

      238,967

      95,000

      251.5%

      368,944

      (129,977)

      -35.2%

      Indirect Cost Reimb. - CD

      199,250

      199,250

      100.0%

      199,248

      2

      0.0%

      Rdg. Housing Auth - Reimb.

      285,091

      290,000

      98.3%

      229,816

      55,275

      24.1%

      Indirect Cost Reimb. - Water

      169,230

      --

      N/A

      --

      169,230

      --

      Indirect Cost Reimb. - Recycling

      199,500

      199,500

      100.0%

      373,224

      (173,724)

      -46.5%

      Indirect Cost Reimb - Trash

      178,790

      178,790

      100.0%

      130,752

      48,038

      36.7%

      Direct Cost Reimb. - Trades

      150,779

      150,000

      100.5%

      170,000

      (19,221)

      -11.3%

      Other

      529,010

      393,570

      134.4%

      228,228

      300,782

      131.8%

      Total

      5,918,596

      5,063,160

      116.9%

      5,259,863

      658,733

      12.5%

       

      EXPENDITURES

       

      The City spent $89.0 million from its General Fund in 2018, which was $3.7 million (or 4.0 percent) less than budgeted and $2.1 million (or 2.5 percent) more than it spent in 2017.

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Salaries, wages & holiday pay

      28,593,037

      29,048,748

      98.4%

      28,010,999

      582,037

      2.1%

      Overtime

      3,952,548

      2,901,100

      136.2%

      3,608,908

      343,640

      9.5%

      Pensions

      17,017,185

      17,064,150

      99.7%

      14,885,760

      2,131,425

      14.3%

      Fringe benefits

      13,359,353

      15,472,767

      86.3%

      13,161,224

      198,128

      1.5%

      Other personnel

      1,491,797

      1,692,119

      88.2%

      1,525,667

      (33,870)

      -2.2%

      Debt service

      11,839,956

      11,712,390

      101.1%

      13,266,270

      (1,426,314)

      -10.8%

      Operating costs

      8,893,980

      10,531,593

      84.5%

      8,517,739

      376,240

      4.4%

      Other expenses

      1,470,242

      1,741,700

      84.4%

      1,461,019

      9,223

      0.6%

      Interfund transfer expenses

      2,332,360

      2,352,359

      99.1%

      2,332,356

      4

      0.0%

      Total Expenditures

      88,950,455

      92,677,520

      96.0%

      86,804,941

      2,145,514

      2.5%

       

      Personnel costs

       

      Head count

       

      The City spends the majority of its General Fund budget on employee compensation. Spending on active employee salaries, overtime, fringe benefits and other types of compensation accounted for $42.3 million, or 47.6 percent of all General Fund spending in 2018. That amount does not include the portion of the City’s $17.0 million contribution to its employee pension plans associated with current employees. Therefore, changes in head count (i.e. the number of active employees) are an important factor in the City’s financial performance.

       

      For now we are focusing our headcount analysis on the Police and Fire Departments which have the most full-time positions supported by the General Fund. Public Works has the third most full- time employees overall, but close to half of the Department’s positions are supported by enterprise funds.

      Fire

       

      For the Reading Fire Department, the 2018 budget had 137 full-time positions across the Department’s five divisions10. The City began the year with 127 fire personnel in January, added 6 firefighters in February and then gradually dropped down to 123. Overall, the Department finished 2018 with an average head count of 128, which was five less than the monthly average in 2017.

       

      Fire head count

      Budget

      Actual 2018

      Actual 2017

      January

      137

      127

      131

      February

      137

      133

      130

      March

      137

      132

      137

      April

      137

      131

      136

      May

      137

      131

      136

      June

      137

      129

      135

      July

      137

      128

      132

      August

      137

      126

      132

      September

      137

      124

      130

      October

      137

      125

      131

      November

      137

      124

      131

      December

      137

      123

      131

      Average

      137

      128

      133

       

      The City’s budget assumes that all full-time positions in the Fire Department will be filled for a full 12 months. So the nine-position average monthly difference between actual headcount and budgeted headcount in 2018 translated to the City spending $472,000 (or 5.4 percent) less than budgeted on salaries last year. As shown below, increased spending on fire department overtime offset the salary savings.

       

      The City also spent $814,000 (or 20.1 percent) less than budgeted on fringe benefits (health insurance) in the Department, though the connection between headcount and fringe benefits is less direct because the City is self-insured11.

       

      Police

       

      The 2018 budget included 195 full-time positions12 (including civilians) for the Reading Police Department. After finishing 2017 with 189 filled positions, the Department’s head count rose to 191 in January 2018, dropped to 182 midway through the year, rose back to 188 in July and then held steady there for the rest of the year. The 2018 average monthly headcount was one less than in 2017.

       

       

      10 This total is the positions represented by the International Association of Firefighters, plus the Chief, his four deputies, the EMS Coordinator and one clerical employee.

      11 Since the City is self-insured, fringe benefit spending reflects the type and amount of medical care that employees receive during the year, in addition to the number of employees insured. The City also budgeted more than it needed across all employees for active employee health insurance.

      12 This includes 167 police officers, 26 civilians, the Chief and the Deputy Chief.

       

      Police head count

      Budget

      Actual 2018

      Actual 2017

      January

      195

      191

      188

      February

      195

      190

      187

      March

      195

      190

      187

      April

      195

      189

      187

      May

      195

      186

      185

      June

      195

      182

      184

      July

      195

      188

      194

      August

      195

      189

      193

      September

      195

      188

      195

      October

      195

      186

      193

      November

      195

      187

      189

      December

      195

      188

      189

      Average

      195

      188

      189

       

      The City accounts for position vacancies in the Reading Police Department by budgeting a vacancy allowance of $500,000. In other words the City assumes a handful of police officer positions will be vacant at any point during the year because of attrition and hiring cycles. Actual spending levels validated that assumption – the variance between budgeted salaries and actual expenditures across the department was less than 0.3 percent. The City spent more than budgeted on overtime and less than budgeted on health insurance in the Police Department, just as it did in the Fire Department.

       

      Salaries, temporary wages and holiday pay

       

      As noted above, most of the City's General Fund expenditures are for employee compensation. Including the City’s pension contribution, employee compensation accounted for 71.4 percent of the City’s General Fund budget. The largest component of personnel expenditures is the “regular” pay of City employees: salaries, temporary wages, and holiday pay. The table below shows the City spent 98.4 percent of the budget across all departments and 2.1 percent more than in 2017.

       

      Salaries, Temporary Wages and Holiday Pay (General Fund only)

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Police

      12,983,014

      13,005,454

      99.8%

      12,813,948

      169,066

      1.3%

      Fire

      8,218,134

      8,689,784

      94.6%

      8,186,877

      31,257

      0.4%

      Public Works

      1,983,672

      2,090,180

      94.9%

      1,894,439

      89,233

      4.7%

      Administration

      1,685,518

      1,617,290

      104.2%

      1,583,410

      102,108

      6.4%

      Community Dev

      2,047,180

      2,013,270

      101.7%

      2,003,819

      43,361

      2.2%

      Other

      1,675,518

      1,632,770

      102.6%

      1,528,505

      147,013

      9.6%

      Total

      28,593,037

      29,048,748

      98.4%

      28,010,999

      582,037

      2.1%

      Overtime

       

      All major departments except public works exceeded their overtime budget in 2018. Across all departments, the City spent $1.1 million (or 36.2 percent) more than budgeted and 9.5 percent (or $344,000) more than in 2017. The City’s fire department had the largest variance in overtime spending as discussed below.

       

      Overtime by Department (General Fund Only)

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Police

      2,217,611

      1,823,000

      121.6%

      2,014,595

      203,016

      10.1%

      Fire

      1,655,697

      981,710

      168.7%

      1,507,357

      148,340

      9.8%

      Public Works

      57,179

      82,620

      69.2%

      64,953

      (7,774)

      -12.0%

      Other

      22,061

      13,770

      160.2%

      22,003

      58

      0.3%

      Total

      3,952,548

      2,901,100

      136.2%

      3,608,908

      343,640

      9.5%

       

      Fire

       

      In 2018, the Department spent $472,000 (or 5.4 percent) less than budgeted on salaries while overtime spending exceeded the budget by $674,000 (or 68.7 percent). As noted above, the Department was not staffed at the levels anticipated in the budget, resulting in increased overtime usage. Across the two categories, the City spent $202,000 more than budgeted for 2018, which was $180,000 (or 1.9 percent) more than it did in 2017. This is in line with the year-over-year growth in these areas for 2017 (2.2 percent) and 2016 (2.0 percent).

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Fire Salaries

      8,218,134

      8,689,784

      94.6%

      8,186,877

      31,257

      0.4%

      Fire Overtime

      1,655,697

      981,710

      168.7%

      1,507,357

      148,340

      9.8%

      Fire Subtotal

      9,873,831

      9,671,494

      102.1%

      9,694,234

      179,597

      1.9%

       

       

      Police

       

      As noted above, salary spending in the Police Department was close to the budget target for 2018. Overtime expenditures came in $395,000 (or 21.6 percent) higher than budgeted. Across both categories, the City spent $372,000 (or 2.5 percent) more than budgeted for 2018, and

      $372,000 (or 2.5 percent) more than it did in 2017.

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Police Salaries

      12,983,014

      13,005,454

      99.8%

      12,813,948

      169,066

      1.3%

      Police Overtime

      2,217,611

      1,823,000

      121.6%

      2,014,595

      203,016

      10.1%

      Police Subtotal

      15,200,625

      14,828,454

      102.5%

      14,828,544

      372,082

      2.5%

       

      As discussed in prior quarterly reports, reporting total police overtime expenditures misses 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 $2.0 million in unreimbursed police overtime expenditures in 2018, which was

      $207,000 (or 11.2 percent) more than in 2017 and $394,000 (or 23.8 percent) more than budgeted.

      Police Overtime Spending, Net of Reimbursement13

       

       

      Budget

      Q4 Actual

      FY17 Overtime

      1,844,730

      2,014,595

      FY17 Reimbursement

      170,000

      174,671

      FY17 Unreimbursed

      1,674,730

      1,839,924

           

      FY18 Overtime

      1,823,000

      2,217,611

      FY18 Reimbursement

      170,000

      170,856

      FY18 Unreimbursed

      1,653,000

      2,046,755

       

      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 accounting for employee contributions. The City uses Commonwealth pension aid and General Fund revenues to make the MMO payments14. The City's total contributions for 2018 were $17.1 million, or 17.9 percent of General Fund spending.

       

       

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

      14 The City also uses enterprise fund revenues to pay for the portion of the MMO associated with active employees in the sewer, trash and recycling funds.

      The City’s full contributions for the police and fire plans come from the General Fund. The City’s contribution to this non-uniformed employee (or “Officers & Employees”) pension plan is split between the General Fund and the multiple enterprise funds that support Public Works employees at the sewer plant, in the recycling unit, etc. The City’s contribution to that plan is more than the

      $2.1 million shown below.

      Pension Expenditures (General Fund)

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Police

      11,438,220

      11,371,020

      100.6%

      9,996,690

      1,441,530

      14.4%

      Fire

      3,536,370

      3,515,600

      100.6%

      3,025,070

      511,300

      16.9%

      Officers & Employees

      2,042,595

      2,177,530

      93.8%

      1,864,000

      178,595

      9.6%

      Total

      17,017,185

      17,064,150

      99.7%

      14,885,760

      2,131,425

      14.3%

       

      The City’s annual contributions to the employee pension plans have almost tripled since 2012, with most of the growth in the police plan. The City’s contributions will rise again in 2019 mostly because of changes to the actuarial assumptions that are reviewed and adjusted every other year.

       

       

       

       

      Employee insurance (Fringe Benefits)

       

      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.

       

      Overall the City spent $13.4 million on fringe benefits from its General Fund in 2018. Please note that this figure does not include fringe benefit expenditures for employees whose salaries are budgeted outside the General Fund. The $13.4 million figure is also net of any reimbursements from its stop-loss insurance policy. The actual expenditures were $2.1 million less than budgeted, continuing the trend of variances in this area. The Exit Plan addresses this issue in more detail and recommends the City reduce its allocation to employee health insurance.16 The City’s

       

      15 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.

      16 Please see initiative WF01 in the Exit Plan draft released on June 6, 2019.

      expenditures as reported here were also only 1.5 percent higher than in 2017, which the City should discuss with its third party administrator (TPA) to understand how this compares to the TPA’s suggestion that the City’s health insurance expenditures would grow by 11 percent per year going forward.

       

      Fringe Benefit Expenditures

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Administration

      683,297

      1,040,641

      65.7%

      849,421

      (166,124)

      -19.6%

      Public Works

      1,027,687

      1,156,796

      88.8%

      914,616

      113,071

      12.4%

      Police

      7,206,808

      7,729,790

      93.2%

      6,926,841

      279,967

      4.0%

      Fire

      3,235,403

      4,049,560

      79.9%

      3,124,419

      110,984

      3.6%

      Comm. Development

      833,093

      1,012,320

      82.3%

      876,949

      (43,856)

      -5.0%

      Other

      373,065

      483,660

      77.1%

      468,979

      (95,914)

      -20.5%

      Total

      13,359,353

      15,472,767

      86.3%

      13,161,224

      198,128

      1.5%

       

      Other personnel

       

      The City spent $1.5 million on other personnel-related expenditures in 2018, which was $200,000 less than budgeted and $34,000 (or 2.2 percent) less than it spent in 2017. These savings are primarily in social security and unemployment compensation.

       

      Other Personnel Expenditures

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Premium Pay

      182,796

      223,029

      82.0%

      196,982

      (14,185)

      -7.2%

      Social Security

      975,792

      1,066,660

      91.5%

      948,164

      27,629

      2.9%

      Unemployment Comp

      43,271

      100,000

      43.3%

      81,853

      (38,581)

      -47.1%

      Uniforms/Clothing Allowance

      289,937

      302,430

      95.9%

      298,669

      (8,732)

      -2.9%

      Total

      1,491,797

      1,692,119

      88.2%

      1,525,667

      (33,870)

      -2.2%

       

      Debt service

       

      The City spent 101.1 percent of its debt service budget, which was $128,000 more than budgeted, and $1.4 million (or 10.8 percent) less than 2017. In 2017 the City repaid the final $1.5 million due on the 2014 IT infrastructure loan one year ahead of schedule which accounts for the year-to- year variance.

      Debt Service

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Debt Service

      11,839,956

      11,712,390

      101.1%

      13,266,270

      (1,426,314)

      -10.8%

       

       

      Operating costs

       

      Representing 11.4 percent of the total budget, this is the category for materials and services that City government uses in its regular operations. It includes utilities, contracted services, supplies and equipment, and building maintenance.

       

      In 2018, the City spent $1.6 million (or 15.5 percent) less than its budget target for this category, and $376,000 (or 4.4 percent) more than in the prior year.

       

      Operating Costs

       

       

      2018 Q4

      2018

      Budget

      % Spent

      2017 Q4

      Difference ($)

      Difference (%)

      Contracted Services

      2,552,485

      3,105,630

      82.2%

      2,405,830

      146,655

      6.1%

      Maintenance Agreements

      535,194

      571,050

      93.7%

      476,571

      58,623

      12.3%

      Light & Power

      1,458,695

      1,573,800

      92.7%

      1,176,629

      282,067

      24.0%

      Gas

      437,218

      383,330

      114.1%

      367,222

      69,996

      19.1%

      General Plant Supplies

      245,924

      346,180

      71.0%

      504,237

      (258,313)

      -51.2%

      Maintenance/Repair - Equipment

      540,670

      647,830

      83.5%

      491,089

      49,581

      10.1%

      Maintenance/Repair - Other

      281,005

      439,000

      64.0%

      340,919

      (59,913)

      -17.6%

      Fees

      416,662

      472,480

      88.2%

      505,664

      (89,001)

      -17.6%

      Other Operating Cost

      2,426,125

      2,992,293

      81.1%

      2,249,579

      176,546

      7.8%

      Total

      8,893,980

      10,531,593

      84.5%

      8,517,739

      376,240

      4.4%

       

      As shown in the table above, the major variances were:

      • Contracted services came in $553,000 (or 17.8 percent) below the budget target because the City only spent $54,000 of the $277,000 allocated for those services in Traffic Engineering and $48,000 of the $216,000 allocated in Public Works Administration. The City also spent $106,000 less than budgeted in Public Property (i.e. facility maintenance). The Exit Plan explains our concern that the City spending less than budgeted in this area is an indication that it is having difficulty executing the projects funded in its budget, and not evidence that the City doesn’t need to allocate money for these purposes.17

      • The largest expenditure in the light and power category is the City’s street lighting expense, which was $1.1 million in the 2018 budget. The City spent 85 percent of the $1.1 million budgeted for this expense, which was $164,000 less than the budget target. Spending on street lighting in 2017 ($742,000) and 2016 ($753,000) had been less than prior years ($1.2 million in 2015).

 

Interfund transfers and other expenses

 

The City spent $1.5 million on miscellaneous expenditures, which was 84.4 percent of its budget target for the year. The majority of these expenditures were for tax collection services ($823,000)18 and the City’s contribution to the Reading Public Library ($383,000). The City did not spend any of the $440,000 it allocated for sidewalk repairs, which is also grouped into the miscellaneous category. The City transferred $2.3 million out of the General Fund to the Self- Insurance Fund as budgeted to pay the cost of property, liability and worker’s compensation claims and associated administrative costs.

 

 

17 Please see initiative FM05 for more information.

18 Tax collection services includes expenses paid to collect the City’s EIT, LST, BPT and Per Capita Tax

Interfund Transfers and Other Expenses

 

 

2018 Q4

2018

Budget

% Spent

2017 Q4

Difference ($)

Difference (%)

Contingencies

0

160,594

0.0%

35,000

(35,000)

-100.0%

Miscellaneous

1,470,242

1,741,700

84.4%

1,461,019

9,223

0.6%

Transfer – Capital Fund

0

20,000

0.0%

0

0

0.0%

Transfer – Self-Insurance Fund

2,332,360

2,332,359

100.0%

2,332,356

4

0.0%

Total

3,802,602

4,254,653

89.4%

3,828,375

25,773

-0.7%