Board of Directors Regular Meeting Agenda


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Meeting Date: 08/26/2015  

SUBJECT MATTER:
Receive, consider and act upon a revision to the preliminary 2015 ad valorem tax rate;
FISCAL IMPACT:
To be determined by the Board of Directors
BACKGROUND:
Director Bass requested that the Board consider an adjustment to the preliminary 2015 property tax rate at the August 26, 2015 Board meeting. Director Bass also requested that information regarding the remaining general fund surplus in 2016, which the Board allocated to the Capital Contingency Reserve, be provided to assist with the tax rate decision. Attached for review is a summary of the financial impacts on the Capital Contingency Reserve and Undesignated Fund Balance assuming property tax rates of $0.2300, $0.2250, $0.2225, and $0.2200. Also attached are Ending Fund Balance worksheets which reflect fund balances in each of the Township's reserves assuming the aforementioned tax rate scenarios. Please note that changing the property tax rate does not impact cash balances in any of the reserve accounts other than the Capital Contingency Reserve and the Undesignated Fund Balance. At the August 5th budget workshop, the Board established a Capital Contingency Reserve funded by (a) "excess" hotel tax not being used for debt service, CVB expenditures, or special events transferred from the CVB to the Parks and Recreation department, and (b) remaining General Fund balance that had not been allocated to budget initiatives or other reserves. The expressed purpose of the Capital Contingency Reserve is to provide funding for potential future expenditures including the retirement of callable debt, new capital assets, and expenses related to incorporation. As reflected on the first attachment, the majority of funding for the Capital Contingency Reserve throughout the five-year plan is provided by "excess" hotel tax, totaling $9.8 million over the five-year period. Additionally, in 2015, $2.5 million is allocated to the reserve from funds generated primarily by "one-time" favorable 2015 budget variances. This type of funding is typically used to pay for "one-time" expenditures such as a capital project or a contribution to a reserve rather than providing funding for ongoing operating expenses or a reduction in the tax rate. The third funding source for the Capital Contingency Reserve is unallocated ("excess") general fund revenues. As shown in the attached summary (highlighted in blue), unallocated general fund revenue is available in years 2016, 2017 and 2018 when a property tax rate of $0.2300 is assumed. The total general fund revenue over this three-year period is $4.1 million. Reducing the tax rate to $0.2250, $0.2225, or $0.2200 generates unallocated general fund revenue only in year 2017 at a level ranging from $500,000 to $1.4 million depending on the tax rate. As $0.01 of tax rate generates approximately $1.8 million in revenue annually, reducing the tax rate by $0.005 - $0.01 results in a reduction of revenues sufficient enough to create a negative Ending Fund Balance in each year of the five-year plan (see numbers highlighted in red on the attached summary). While the negative fund balance is relatively small in the earlier years of the five-year plan, it grows to a negative $8.0 - $12.0 million in the outer years depending on the assumed tax rate. In order to balance the five-year plan, excess hotel tax would have to be allocated to the general fund to pay for annual operating expenses and the Capital Contingency Reserve would be significantly depleted.
RECOMMENDATION:
To be determined by the Board of Directors
Attachments
Summary of Tax Rate Scenarios
Ending Fund Balance Worksheets


    

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