1. CITY OF MUSCATINE BUDGET OVERVIEW PROPOSED FISCAL YEAR 2016/2017 GENERAL FUND BUDGET

2. The proposed 2016/2017 Budget reflects no increase in the overall City tax rate (with the exception of one discussion item) The proposed rate is $15.67209/$1,000 of taxable property valuation The City has maintained approximately the same rate for the last 7 years –$15.77146 in 2010/2011 and 2011/2012 –$15.67209 in 2012/2013, 2013/2014, 2014/2015, 2015/2016 and the proposed 2016/2017 budget Good News!

3. The proposed General Fund balance is on target with the recently updated General Fund Balance Policy which provides that the minimum fund balance be equal to two months of expenditures or 16.7% For the last six years the ending balances were: – 13.6% of expenditures at the end of 2010/2011 – 20.4% for 2011/2012 – 17.9% for 2012/2013 – 19.2% for 2013/2014 – 22.6% for 2014/2015 – 20.5% for the 2015/2016 revised estimate (the original budget was 18.5% and included a one-time capital expenditure) – 20.0% for the proposed 2016/2017 budget More Good News!

4. Property Valuations Actual Valuations (100%) –Increased by $57,569,677 (4.60%) including Tax Increment values –Increased by $60,179,820 (5.04%) excluding Tax Increment values Taxable Valuations –Increased in total by $42,490,755 (5.44%) –Residential Rollback to 55.6259% compared to 55.7335% (a decrease of.2%) –Residential valuations increased by $15,183,315 - an increase of 3.29% –Commercial Property remained at the 90% rollback. Valuations decreased by $16,767,315 (7.7%) due to this category no longer including Multi-Residential properties beginning in FY 17. –Multi-Residential values are $33,837,709 and are rolled back to 86.25% of actual valuations. These properties will continue to be rolled back over the next 7 years until the rollback equals the residential rollback. –When Commercial and Multi-Residential values are combined, there is a 7.8% increase in these overall values. –Industrial property remained at the 90% rollback. Industrial valuations increased by $10,508,747 (10.8%). –Railroad and utility valuations also have the 90% rollback – railroad values increased by $175,092 (41.5%) and utilities decreased by $538,019 (11.7%)

5. Proposed Tax Levy General Fund at maximum $8.10/$1,000 levy rate Tax Rate Changes –Tort Liability Levy Decreased 2.97% (primarily due to stable premium costs with the Iowa Community Assurance Pool (ICAP) and the increased valuations. –Debt Service Levy Decreased slightly –.43% –Employee Benefits Levy Increased 2.25% (reflects funding $186,404 of employee benefits from the General Fund balance and the use of $78,295 in beginning fund balance. The most significant benefit cost increase this year is in health insurance. –Transit Levy Decreased 23.81% (decreased maintenance costs with four transit vehicles purchased in 2013/2014, decreased fuel costs, a transit fare increase in 2015/2016, and use of fund balance for the local share of bus purchases). –Levee Tax Levy at $.06750 /$1,000 maximum Emergency Levy again not levied. This provides the property tax relief required by the Utility Franchise Fee Revenue Purpose Statement Again, there is no change in the overall tax rate in the proposed budget.

6. Proposed General Fund Budget As noted previously, the General Fund Property Tax Rate remains at the maximum $8.10/$1,000 limit. With the increase in taxable values, the $8.10 General Fund tax rate will generate $344,175 more in tax revenue compared to the 2015/2016 year. As part of the 2013 property tax legislation, the budget is based on the State continuing to reimburse local governments for lost tax revenue resulting from the rollback of commercial and industrial property. For the General Fund $8.10 levy, the State reimbursement is estimated at $325,049 for 2016/2017, compared to the 2015/2016 reimbursement of $333,080. The State reimbursement, however, will be capped at the 2016/2017 funding level and there is no reimbursement for the Multi-Residential property rollbacks which will happen over the next seven years. The State reimbursement also applies to the City’s other tax levies and the total amount of the State reimbursement is estimated at $628,915 for 2016/2017, compared to $644,453 for 2015/2016. Other Tax Levy-Related Information

7. Proposed General Fund Expenditures and funding transfers for 2016/2017 are $421,685 (2.3%) higher than the expenditures and transfers out in the 2015/2016 budget. Proposed General Fund Revenues and Other Sources (including transfers in) increased by $574,118 (3.2%) compared to the prior year. The proposed 2016/2017 budget is truly “balanced” with budgeted revenues approximately the same as budgeted expenditures. The fund balance was not used to fund any operating expenditures for 2016/2017. The ending balance is 20.0% of General Fund expenditures which more than meets the minimum fund balance of 16.7% in the City’s policy. Per the policy, funds in excess of the minimum can be used for one-time expenditures (capital items) but should not be used for operating expenditures. In 2015/2016 a one-time capital allocation was budgeted from the fund balance to fund the replacement of an ambulance ($148,500). No one-time capital allocations have been included in the 2016/2017 proposed budget. Proposed General Fund Budget

8. Proposed General Fund Budget Assumptions The proposed General Fund budget continues the current service levels provided to residents of the community. Significant budget items and assumptions include the following: 1.The budget includes funding for Police and Fire pension contribution of $1,311,829. While this is a $40,923 decrease from 2015/2016 due to the contribution rate decreasing from 27.77% to 25.92%, this is still a significant cost to the City. 2.The budget includes a 2.75% cost of living increase for both union and non-union employees. This is the rate in each of the City’s union contracts for 2016/2017. 3.The revised estimate for 2015/2016 and the proposed budget for 2016/2017 reflect increased health insurance premiums. Rates were increased by 15% effective January 1, 2016 and the 2016/2017 budget allows for an additional 8% increase January 1, 2017. This is the first significant rate increase since 2008. Health insurance cost increases appear to be an industry trend. 4.There were slight reductions in part-time General Fund personnel in the 2015/2016 revised estimate. Part-time positions in the Community Development department decreased by.23 FTE with the department no longer doing health permit inspections. Library part-time positions decreased by.54 FTE due to the Library purchasing pre-processed materials, instead of processing library materials in-house. 5.The proposed 2016/2017 budget includes two additional Firefighter positions (of the four requested by the Fire department). Although not reflected as additional positions, the budget also retains with City and School funding the two police officer positions added in 2012 and funded for the first three years from a COPS grant (net 1.25 FTE increase in City- funded Police positions).

9. Proposed General Fund Budget Assumptions (Cont.) 6.For 2016/2017 TIF funds will continue to be used to fund City economic development administrative and marketing costs ($142,100) as well as economic development efforts of the Chamber (GMCCI) ($38,000). The 2016/2017 amount includes the City and CVB’s share of the marketing study for the City. 7.The budget continues subsidies to outside agencies. Subsidies to GMCCI, Senior Resources, and the Humane Society are shown at their current levels. Senior Resources requested an increase from their current $20,000 annual allocation to $30,000. The Humane Society requested an increase from the current $60,000 to $65,000. The Chamber did not request an increase from their current funding allocation of $38,000. 8.In 2015/2016 the City budgeted for a one-time subsidy of $25,000 to MCSA for their Homeless Prevention Program. MCSA has requested the same amount for 2016/2017. MCSA’s program is not one of the “grandfathered” agencies the City subsidizes. As such, the proposed budget does not include funding for this program. Representatives of each agency are scheduled to review their requests with City Council at the February 4 th budget meeting. 9.The budget reflects continuing the CVB’s funding allocation at 25% of actual prior year hotel/motel tax revenue. This amount is estimated at $88,500 for 2016/2017. The CVB is now a department of the City. 10.The budget continues funding contributions to the Equipment Replacement Fund and Computer Replacement Fund equivalent to the needs for 2016/2017 and future years.

10. 11.The proposed budget is based on positioning the City to address economic challenges, maintain existing levels of the services to the community, and positioning the City to meet new challenges. Future challenges could involve potential shortfalls in revenues from limited growth in taxable valuations resulting from the 2013 property tax legislation and potential loss of revenue from the automatic traffic enforcement cameras. 12.In the event of significant revenue losses after adoption of the budget, the City has established the Utility Franchise Fee which can be changed by City Council action with 90 days notice from the current 1% level up to 5%. Each 1% of franchise fee revenue is estimated to generate $100,000. No change in the Utility Franchise Fee is included in the proposed budget, but increasing those funds could be considered in the event of future revenue reductions. 13.The budget submitted for Council consideration is proposed as a budget to find a balance between: * Overall City property tax rate * Maintaining a strong General Fund balance - the ending balance in the proposed budget is 20.0% of General Fund expenditures, which more than meets the minimum fund balance of 16.7% in the recently adopted General Fund Balance Policy * Providing departments with the personnel resources and equipment needed to perform their department functions efficiently. Proposed General Fund Budget Assumptions (Cont.)

11. 14. The 3-year grant period for the two COPS grant funded officers ended in February, 2015. The City set aside funds each year to fund the mandated 4 th year cost for these officers. The School district agreed to fund the required 4 th year for the officer used through the school year as a School Resources Officer (one officer for 9 months each year). The 2015/2016 budget included City (and School district) funding for the remainder of the 2015/2016 fiscal year after the set-aside for the 4 th year cost is depleted. The 4 th year will end in February of 2016. 15. The 2016/2017 budget continues City (and School) funding for the two added police officer positions now that the 3-year COPS grant period and required 4 th year for maintaining those positions have ended. 16. The 2016/2017 proposed budget includes two new firefighter positions (of the four requested by the Fire department). It was possible to add these two positions without an increase in the property tax rate and without using fund balance. 17. To add two additional firefighters (up to the four requested by the Fire department), the additional cost would be $137,600. Funding that amount from the property tax levy would be equivalent to $.16708 per $1,000 of taxable valuation. This would be a 1.07% increase in the tax rate. 18. For the 2015/2016 budget, a number of significant building and facility costs were budgeted to be funded from the City’s June 2016 bond issue. The budget material includes a listing of other City building, facility, or parks major improvement or repair projects identified by departments. Most of these have not been included in the 2016/2017 budget, but it is recommended that the 2018 bond issue include funding for a significant number of facility maintenance and deferred maintenance items. Proposed General Fund Budget Assumptions (Cont.)

12. Recent Trends in Property Tax Rates, Police and Fire Pension Contributions, and Department Efficiency Savings Property Taxes In 2008/2009 the City’s property tax levy rate was $16.15095. Since that time it has decreased and fluctuated between $15.55353 and the $15.77146. The levy proposed for 2016/2017 is $15.67209 which is $.48/$1,000 of valuation less than the FY 09 rate. This levy rate has been maintained for the past five years. This rate allowed for the addition of two (of the requested four) firefighter positions. Police and Fire Pension Rates and Contributions Police and fire pension costs have increased from $654,034 in 2009/2010 when the contribution rate was 17.00% to $1,311,829 for 2016/2017 with the 25.92% contribution rate. This is a $657,795 increase and an increase of 100.6% over this 8-year period. While modest decreases in the pension rate are now forecasted, these rates and contributions will continue to have a significant impact on the City’s budget.

13. Recent Trends in Property Tax Rates, Police and Fire Pension Contributions, and Department Efficiency Savings (Cont.) Structural Changes and Department Efficiencies There have been numerous structural changes and department efficiencies implemented over the last several years. These are listed in an attachment to the General Fund Budget Message in Council’s notebooks. (Changes with specific ongoing cost savings or revenue enhancements total over $350,000 on an annual basis; if the establishment of the Utility Franchise Fee would be included, the total would be $450,000 - $550,000). Those lists also include items which may not have specific dollar amounts of savings directly associated with them, but have allowed departments to redirect their resources to operate more efficiently and/or provide better services. Efforts will continue in the current and upcoming budget years to implement formal “Lean” or Continuous Service Improvement programs which will seek to identify and implement additional efficiencies and structural changes to continue to improve how the City provides services to the community. Implementation of these changes has assisted the City in reducing the impact of rising costs and has also lessened the impact these costs have on the City’s property tax rate.

14. While the City property tax rate is proposed to remain at $15.67209 for the upcoming year, the amount of property taxes paid by homeowners will decrease minimally due to the change in the State rollback factor for residential property which decreased from 55.7335% to 55.6259% (a decrease of.2%) in 2016/2017. The impact the residential rollback change will have on a home valued at $100,000 would be a $1.00 reduction in annual City taxes and for a $150,000 it would be a $2.00 reduction. Commercial and Industrial values were rolled back to 95% in 2014/2015 and further rolled back to 90% in 2015/2016. These properties will remain at the 90% rollback in 2016/2017. This will result in no change in property taxes with the same tax rate. Multi-Residential properties were previously included in commercial property and were rolled back to 90% in 2015/2016. They are now a separate property class which was rolled back to 86.25% in 2016/2017. This will result in an $88.00 tax reductions for a multi-residential property valued at $150,000. Multi-residential properties will continue to be rolled back for the next seven years until they are the same rollback as residential property. In effect, the property rollbacks shift the tax burden between the different classes of property. Impact of Residential, Commercial, and Industrial Property Rollbacks

15. The cost for two additional firefighters (up to the four requested by the Fire department) would be $137,600. If this cost would be funded from the City property rate, it would add $.16708/$1,000 of valuation to the City’s tax rate. This would increase the property tax rate to $15.83917/$1,000, which would be an increase of 1.07% in the tax rate. This increase in the tax rate would add $8.00 in annual taxes to the owner of a home valued at $100,000 and $12.00 to the taxes for a home valued at $150,000. Commercial and industrial properties valued at higher amounts would see the following increases in the City portion of their tax rates –$150,000 Value – Increase of $22 –$250,000 Value – Increase of $38 –$500,000 Value – Increase of $76 –$1,000,000 Value – Increase of $150 Given the slight reduction in residential property taxes noted on the previous page, this may be a good year to consider an increase in the property tax rate. Impact if the Property Tax Rate Would be Increased to Fund Two Additional Firefighters

16. FY 17 Budget and Beyond Due to the property tax legislation enacted in 2013, taxable valuations are projected to see minimal or negative growth over the next ten years. In 2014 the City’ financial consultant, PFM, did a projection for annual changes in taxable valuations for future years based on growth assumptions and the State’s projections for changes in the residential rollback each year. These projected increases (decreases) were as follows: FY17 (.01%) *FY 22 1.79% FY 18 1.97%FY 23 (1.13%) FY 19 (.59%)FY 24 1.47% FY 20 1.88% FY 21 (.72%) * The 2016/2017 actual increase of 5.44% appears to be an anomaly and it is doubtful this magnitude of increase will continue in future years unless we continue to “grow” Muscatine. Future assumptions include the State maintaining the backfill for the commercial and industrial property rollbacks. The backfill amount is capped at the 2016/2017 amount per the legislation.

17. FY 15 Budget and Beyond (Cont.) An ongoing multi-agency lawsuit with the IDOT or other IDOT or Legislative rules may impact future Automatic Traffic Enforcement revenues which are budgeted at $600,000 for 2016/2017 $600,000 would be equivalent to $.73/$1,000 of valuation in property taxes Utility Franchise Fees could be increased from the current 1% to 5%. With each 1% equivalent to approximately $100,000, $400,000 in additional revenue would be available from these fees. Tax Increment Financing (TIF) changes continue to be discussed by the State legislature Recommended NEXT STEP (after budget) – Staff, Council, and public discussion of future revenues, expenditures, and City services for future years. Starting Point for Budget Review: Encourage you to read the management letter on the 2016/2017 Proposed General Fund Budget which includes more detailed analysis of the proposed budget. FY 17 Budget and Beyond (Cont.)