General Fund Five Year Forecast Presentation to the City of Houston Budget and Fiscal Affairs Committee FY2012 Budget Overview and General Fund Five Year Forecast May 31, 2011 Kelly Dowe, Director

Table of Contents Section Page Fiscal Year 2012 Budget Overview 3 General Fund Budget Revenues 5 General Fund Budget Expenditures 12 General Fund Five Year Plan 18 Five Year Plan Revenues 20 Five Year Plan Expenditures 21 Five Year Management Strategies 24

Fiscal Year 2012 - Budget Overview Budget balanced without use of pension obligation bonds or fund balance for the first time since Fiscal Year 2004. Departmental budgets approximately 4% to 27% lower than FY2011 spending levels. Overall budget is approximately $100 million lower than FY2011 Current Budget. Preserves public safety as the top priority for the City. Includes $10 million transfer from Houston First Limited Government Corporation. Presentation includes adjustments to HPD and HFD budgets that were not available when the budget was printed. This budget overview highlights financial challenges in all departments. It includes departmental budget cut of approximately 4 – 27% than their FY2011 spending levels. Also included, is the $10 million transfer from Houston First Limited Government Corporation. Due to the pending negotiation during the proposed budget preparation, this presentation includes the adjustments to HPD and HFD budget that were not previously available. No classified layoffs is assumed for both HPD and HFD.

Summary Of All Funds In total, the FY2012 Proposed Budget Expenditures is approximately 3.7% higher than FY2011 Current Budget. This is mainly due to the Water & Sewer Fund as a result of the Proposition 1 that was passed in November 2010. As previously noted, the General Fund Budget Expenditures in FY2012 is approximately $100 million lower than FY2011 Current Budget.

General Fund Revenues Here is a General Fund revenue comparison with the FY2011 Estimates. In total, the General Fund Revenues in FY2012 is expected to be $26.1 million lower than last year. The largest drop from FY2011 in Other Revenues of $45.7 million is as a result of creation of Dedicated Drainage Fund as Proposition 1 was passed in November 2010. Property Tax also decrease from FY2011 as a taxable value for TY2011 is anticipated to be lower than last year. However, we anticipate an increase in sales tax revenues by 5.7% as the Houston employment shows a positive trending. This growth assumption for sales tax is also based on Dr. Barton Smith’s projection. Property Tax –Decrease of $8.2 million Sales Tax – Increase of $28 million Franchise Fees – Relatively flat from FY2011 Other Revenues – Decrease of $45.7 million

General Fund Revenues FY2003 - FY2012 This chart demonstrates the growth in General Fund revenues from 2003 until now. As seen in this chart, the economic boom was experienced in FY2006 through FY2008 with more than 5% growth each year. Starting FY2009 through FY2012, the City experienced revenue challenges as it declined dramatically in FY2010 by 2.31%.

Property Tax Revenue Assumptions: Decline in property tax revenue of 1.0%, $8.2 million lower than FY2011. No change in the current tax rate ($0.63875 per $100 valuation). Collection rate of 96.9%. Net of tax increment zone payments. FY2012 Property Tax revenue is approximately 1% lower than FY2011 estimates. This is largely a result of 10%+ (check the %) drops in they commercial and multi-family properties. The FY2012 (Tax Year 2011) assumed City Taxable value is $141,977,000,000, a 1.50% decrease from FY2011 (Tax Year 2010). Currently, in FY2012, we project our property tax of $842.478 million, a 1% lower than FY2011 of $850.712 million. We assume not change in in current tax rate, collection rate, or TIRZ taxable value as a percentage of City taxable value.

Trends in Property Tax Revenues FY2009 - FY2012 The FY2012 Proposed Budget of $842.478 million, is slightly lower than estimated FY2011 projection. The lowest since FY2009

Sales Tax Revenue Assumptions: Positive growth trend in FY2012 of 5.7%, $28.0 million higher than FY2011. Continued positive year-over-year employment growth. Oil at or above $70/barrel. Dr. Barton Smith and econometric models. During FY2011, our sales tax revenues has been trending positive than anticipated. It is approximately 3.6% higher than the Adopted Budget. The FY2012 budget is assumed 5.7% growth from FY2011 estimates as employment rate had been trending higher. Our projection is also based on Dr. Barton Smith’s trending as well as econometric models.

Trends in Sales Tax Revenues FY2009 - FY2012

Other Revenues and Sources of Funds Assumptions: Sale of Land of $13.6 million Approximately the same amount as in FY2011 transactions $10.7 million in non-right-of-way properties Transfers of $27.1 million: $17.1 million transfers from Combined Utility System for debt repayment $10.0 million from Houston First consolidation Ongoing transfers of $14.2 million: $9.2 million from Parking Management, $2.2 million from Auto Dealers, $2.5 million from Building Inspection, and $340,000 from other funds No drawdown in fund balance. We assume asset sales of approximately $13.6 million (includes routine right-of-way transactions). $2.9 million right-of-way sales $10.7 million non-right-of-way sales – where the status of these properties are already in the pre-marketing stage. Total transfers included is $41.3 million $14.2 million of on-going transfers $27.1 million of one time transfers – included is $10 million from Houston First consolidation and the $17.1 million debt repayment from CUS related to the Drainage debt.

General Fund Expenditures Compared to the FY2011 Current Budget, excluding debt service, we have reduced our spending by approx. $107 million.

General Fund Expenditures FY2003 - FY2012 (Including Debt Service) The FY2011 Proposed Expenditures (including Debt Services) is $22.5 million (or 1.18%) lower than FY2010 Estimates. You’ll see reductions in non-public safety spending on this slide in FY2011. Please also note the increase in Public Safety as a percentage of the General Fund budget over the past 10 years, a trend that continues into the FY2011 budget. IF ASKED The overall reduction is mainly due to the Debt Service Payment being $19.2 million lower than last year.

Expenditures Summary No pay increases. Savings in Health Benefits from implementation of new contract. Includes termination pay allowances of $5.4 million. Reflects decreases in HR and IT costs resulting from consolidations. Fleet costs budgeted conservatively with no change in FY2012 costs. Police: Deferred pension contribution of $17 million. No layoffs for classified and jail employees. Fire: Deferred termination pay and other pays. Pension rate of 23.9%. No layoffs of classified personnel pending ratification of new collective bargaining agreement. Breakdown of the total pay increases $30.7 million: - Civilian Employees = $12.2 million - Police Classified = $8.3 million - Fire Classified = $10.2 million Breakdown of the total pension contribution $12.2 million: - Civilian Employees = $2.5 million - Police Classified = $5.0 million - Fire Classified = $4.7 million

General Fund Full-Time Equivalents The overall General Fund FTEs in FY2011 is 1.65% lower than FY2010 Current. FTEs for Fire Classified is 0.5% lower than FY2010; Police Classified is 2% higher than FY2010 while Civilian is approximately 5% lower than FY2010. FY2010 Estimated FTEs for Police Classified is 5,053.5, 1.4% higher than FY2010 Current Budget.

General Fund Pension Contributions FY2003 - FY2012 $17m HPOPS included Total Pension Contribution for FY2011 is $194.2 million, 4.27% higher than FY2010.

General Fund Unassigned Ending Fund Balance FY2002 - FY2012 FY2011 Undesignated Ending Fund Balance is 21.3% lower than FY2010 Estimate. This keeps us at the Mayor’s target of 7.5% to expenditures other than debt. IF ASKED The FY2011 Undesignated Ending Fund Balance of $125.6 million includes undesignated Rainy Day Fund of $20 million.

General Fund Five Year Plan FY2012 – FY2016

Overview This 5-year plan is based on the FY2012 Proposed Budget. Expenditures include legal mandates, staffing for new facilities, and contractual escalators. Capital outlay/equipment acquisition are not included. Includes debt service for capital projects but no new drainage debt issuance. * Excluding Enterprise Funds, debt service assumes an average of $203.1 million per year expended for all capital projects within the general fund.

Revenue Summary ($ Thousands) Compare to FY2010 General Fund Revenue Estimate, the FY2011 Proposed Budget is relatively flat. Does not include Other Sources such as Sale of Land and Transfers.

Expenditure Summary ($ Thousands) FY2011 Projection is 1.5% lower than the FY2010 Adopted Budget and 0.2% lower than FY2010 estimates.

Expenditures Details Health benefits increases by approximately 5% each year. Police increases based on the HPOU agreement. Fire increases also based on the recent negotiation. Includes Rainy Day Fund reimbursement of $5 million per year beginning in FY2013. Pension increases: HMEPS: 2% per year FY2013-16. HPOPS: $10 million per year FY2013-16. HFFRF: Assumes contribution rate increases to 36.3% in FY2014. Includes Rainy Day Fund reimbursement of $5 million per year beginning FY2013. Therefore, Rainy Day Fund (of $20 million) will be replenished by the end of FY2016.

Revenue & Expenditure Summary ($ Thousands) It is important to keep the City Policy in maintaining the ending Fund Balance at 7.50% level as percentage of total expenditures less debt service. Financial discipline is needed in the next few years in order to make this happen.

Five Year Management Strategies Continued efforts to improve collection of current and past due balances owed to the City. Full implementation of Kronos, Fleet consolidation and IT consolidation. On-going negotiation of Fire cost savings as agreed upon in collective bargaining agreement. Pension reform for new employees. Continued efforts to cut costs and improve productivity within departments. Continued efforts to lower health benefits cost increases.