City Manager Budget Message

Fiscal Year 2013

To Mayor Barrett and Members of the Peoria City Council,

I am pleased to provide you with a recommended FY 2013 Annual Budget and 10‐Year Capital Improvement Program for the City of Peoria. These spending plans reflect our commitment to provide a high level of service to our residents, while preserving our organization’s long‐term financial viability.

As the city continues to manage through a protracted economic downturn, we are beginning to see positive signs in the local economy resulting in slow but steady improvement in our five‐year revenue picture. However, fiscal prudence requires that we not undertake additional ongoing commitments beyond those identified in our expenditure forecast. The recommended budget is a “hold the line” budget that addresses core services and maintains the levels of service our residents have come to expect. The result is a spending plan that meets the needs of our community without compromising our financial future.

Budget Approach

The guiding principles for this budget are the City Council’s 24‐month policy goals. These policy statements offer clear and thoughtful direction for achieving community expectations. The following broad policy priorities are reflected throughout the recommended budget:

• Community Building
• Enhancing Current Services
• Preserving our Natural Environment
• Total Planning
• Economic Development
• Leadership and Image

Last October at the Council Budget Workshop, the City Council indicated that they would like to have more information included in the FY2013 budget documents for review. To address this, there have been a number of changes and additions to the format and content of the recommended budget.

As part of our strategic budgeting approach, city departments undertook an analysis to determine the true cost of the services they provide. For the first time, this information is included in the City Council budget workbooks. Using this same information, department directors engaged their employees to discuss trends, options, and opportunities for addressing citizen needs. Department directors then prepared their work plans for the next fiscal year and the associated budget requests based on the resources needed to achieve desired performance outcomes.

After four consecutive years of budget cutting, the recommended budget is devoid of spending reductions for the first time since FY 2009. However, some areas of the organization have pent‐up demand for additional resources. For this reason, our approach was to do our best to accommodate modest one‐time needs of departments while avoiding new ongoing commitments.

Throughout the year, Council has been provided a number of updates on the City’s financial condition and economic development initiatives. In addition, the Council, in subcommittee and in study sessions, spent a considerable amount of time reviewing and deliberating the necessary rate adjustments to the City’s water, wastewater and solid waste services.

Peoria's Fiscal Situation

The city’s revenue stream is largely influenced by overall economic conditions. Many experts agree that the fragile recovery that started in 2010 will continue, albeit at a slow rate. As evidence of the gradual recovery, economists point to 1)
stabilization in the S&P/Case‐Shiller Home Price index, a national index of home prices commonly used to estimate the condition of the housing market; 2) modest improvements to overall job growth within the state; and 3) rising demand for durable goods as reflected in the consumer confidence index.

Improving consumer confidence has manifested itself in higher‐than‐anticipated city sales tax collections. We expect actual sales tax revenues for this fiscal year to exceed projections by about 3 percent, with particularly strong performance in the retail (especially auto sales), restaurants and bars, and amusements categories. For FY 2013, we are forecasting roughly 2 percent growth in city sales tax revenues.

Property tax collections continue to be negatively impacted by the local housing market. Although we are beginning to see home prices ticking upward, the lag between the time properties are valued and the time they are billed means we will see property tax collections decrease again in FY 2013. Recent information from the County Assessor’s Office shows an 11 percent decline in the city’s assessed valuation. While this decline was expected, this affects the general fund and the city’s capital improvement program, which relies heavily on secondary property taxes to finance projects. We expect property tax collections to finally level out in FY 2014 and to begin increasing again in subsequent years.

The FY 2013 budget, therefore, employs conservative assumptions of growth that reflect a cautiously optimistic outlook. The budget assumes that conditions will not decline moving forward. Instead, the budget assumes marginal increases in economic activity during this period. In addition, the budget conforms to national expectations that the recovery will be gradual.

Taxes, Rates and User Fees

Given the current economic climate, the budget as submitted strives to limit the financial burden placed on our residents. The FY 2013 recommended budget assumes no increase to property tax rates for the upcoming year. Likewise, the city
sales tax rate remains at 1.8 percent.

Only the minimum level of rate increases for water and wastewater are recommended to fund the system operations and the necessary repair and maintenance program recommended in the FY 2013 operating and capital budgets. After a three‐year period without adjustments, a slight increase in the commercial solid waste rate is likewise recommended. These increases are tempered by a recommended 13 percent decrease in the residential solid waste rate, which is possible because of the financial health of this fund, expense control, and improving recycling revenues. Overall, Peoria residents continue to enjoy comparatively low utility rates among Valley cities.

The city regularly evaluates its user charge system to ensure that we are assessing appropriate fees for the services we provide. For FY 2013, this analysis resulted in adjustments to a small number of recreation fees to help recover the full cost of these services. Other cost of service analyses, such as Development Services User Fees are scheduled for Council review later in the fall.

Use of Fund Reserves

The Council‐adopted Principles of Sound Financial Management have established strong policies on reserve levels for our major operating funds. It is important to remember that much of these reserves are established to address immediate and
dramatic fiscal difficulties. To address such emergencies, the budget includes contingency appropriation for crisis events, but does not apply any reserves to address recurring expenses.

Budget Priorities

Aside from protecting the city’s ongoing financial integrity, the city’s top priority is preserving and enhancing the high quality of life Peoria residents have come to expect. The FY 2013 budget provides the financial resources necessary to meet these expectations. One of the keys to any community’s quality of life is a vibrant and diversified economic base with a qualified workforce and quality jobs. As such, funding has been allocated to a number of economic development initiatives and projects, including two new industries expected to begin operations in FY 2013.

The BioInspire Medical Device Incubator is the product of a partnership between the city, BioAccel, and Plaza Companies. BioAccel will operate BioInspire, which is housed on the Plaza del Rio medical campus. This partnership brings to Peoria significant expertise in both managing start‐up biotechnology companies as well as cultivating entrepreneurship, which are the basis on which to build a bioscience economic cluster in Peoria. The 7,200 square foot incubator can accommodate up to seven companies until their technology is ready for commercialization. A launch of the facility is planned for early summer 2012.

Maxwell Technologies is a global leader in storage and power delivery solutions for automotive, heavy transportation, renewable energy, backup power, wireless communications, and industrial and consumer electronics applications. The
company’s Peoria location will be a new electrode, cell, and module manufacturing facility for the production of ultracapacitors. Maxwell will hire 150 people with an average salary of $50,000 during the first three years of operation at the 124,000 square foot facility. The company’s capital investment in this project will be $26 million, and it expects to be operational in December 2012.

Public safety is another critical component of quality of life. This budget underscores the city’s ongoing commitment to this important responsibility of local government. We are proposing no change to the number of police and firefighter positions, and we have supported a number of one‐time requests by both the Police and Fire departments. We will continue to emphasize our community‐based policing approach, which proactively addresses neighborhood concerns while establishing vital relationships with community leaders.

These efforts will be supplemented by several other neighborhood‐focused initiatives. Funding is provided to continue the successful community works program, which provides for small, targeted capital improvements that make an immediate difference. The neighborhood grant program is a partnership between the city and neighborhood organizations that results in aesthetic improvements to our neighborhoods. And the ever‐popular neighborhood pride revitalization program is back for its 16th year, offering support to individual property owners.

Peoria has long boasted premier youth‐related recreation programs and activities. Various after‐school programs, aquatic center activities, and special interest classes provide useful outlets for youths and teens in our community. While such services have been curtailed in other Valley cities, we have remained committed to providing affordable and enjoyable alternatives for Peoria’s young citizens.

Finally, the recommended budget honors the labor agreements we have negotiated with our bargaining units, which call for a 5 percent wage increase. We are also recommending a commensurate increase for our non‐represented employees.

Capital Improvement Program

Each year the Council updates the Capital Improvement Program (CIP). The CIP provides a schedule of planned improvements over the next 10 years and identifies the revenue sources that will pay for those improvements.

The recommended FY 2013 capital budget and 10‐year capital program have increased over this fiscal year, primarily due to the upcoming investments to the Peoria Sports Complex as part of the recently announced extension of the lease agreement with the Seattle Mariners and San Diego Padres. The city is budgeting $36 million in Municipal Development Authority bond proceeds backed by the Half Cent Sales Tax to pay for enhancements to each team’s clubhouse and to the stadium itself.

In addition to the improvements to the Sports Complex, the recommended CIP includes major investments in parks, roadways, and facilities. Near‐term examples include development of the city’s second community park at the intersection of 83rd and Olive avenues, the widening of Lake Pleasant Parkway from Westwing Parkway to the Loop 303, and the expansion of the Pinnacle Peak Public Safety Facility to provide more space to the Police Department in northern Peoria.

As important as these new capital undertakings is the responsibility to maintain existing city assets. The capital improvement program includes a number of ongoing programs and one‐time projects to perform regular maintenance on infrastructure and to replace those assets that have reached the end of their useful lives. One new addition to the CIP is the Street Reconstruction and Rehabilitation Program, which provides funding to address local streets that are beyond repair.

Conclusion 

In summary, the proposed budget totals $475 million, which represents a 3.3 percent increase over the prior year. The budget for the general fund, the city’s primary operating fund, is $111.6 million—a 4.5 percent increase. The $174 million capital budget for FY 2013 represents a 10 percent increase over the FY 2012 plan, while the 10‐year capital improvement program totals $477 million, a 2.8 percent increase over last year’s program.

Cautious optimism. I can’t think of any better way to describe the FY 2013 budget. We’ve managed through the worst of the Great Recession and our revenues are now heading in the right direction, but the economy is still fragile and this is no time to be adding new programs and services. I believe this budget underscores a commitment by all city departments to live within their means and to implement cost‐saving efficiencies wherever possible, while preserving those things that make Peoria great.

I wish to thank the City Council for their guidance and support throughout the development of this proposed budget. In addition, I wish to thank the Management and Budget Department staff, our deputy city managers, department directors, the Human Resources Department staff, and all of the employees of the city who have contributed by creativity and sacrifice to make the FY 2013 budget a reality.

Sincerely,

Carl Swenson, City Manager