ROBERT BRIGGS
Management of Public Funds
Introduction
The purpose of this paper is to analyze to determine how the city’s revenue and expenditures will be affected into the future and determine the principle sources of revenue that bring money to the city government. Specifically, this report will look at the revenue that comes into the General Fund of the city.
Also, this paper will look at the other sources of revenue that are made available to the city, and the sources from which they come. This is also where the analysis will look at how the current budget crisis in the State has affected how the state of California gives money to the local cities. An analysis for this section will also look at the most important sources of funding to the City of Anaheim, and how any decline in funds would affect its day-to-day operation.
Finally, this analysis will attempt to predict the future of revenue and spending in Anaheim. This will be done by taking a look at the importance of the expenditures for the next year, as well as how changes in the city’s demographics are going to affect the need to spend money in certain areas.
Factors Affecting Revenues and Expenditures
The city of Anaheim had a population in 2004 of just over 343,000 people. This makes Anaheim the 10th largest city in the State of California. Overall, between 1990 and 2000, the population of the city grew by 23%. The rate of growth was attributed to both people moving into the city, as well as births (Census 2000 Demographic Profile I, 2002).
Throughout its history, the city of Anaheim has experienced large growth throughout its history.
Demographic Affects on the Budget
Now, the important demographic information and data has been presented for the city of Anaheim. Presenting all of this raw data may seem like a waste of time. However, it is the raw data—not just percentages and figures—that will allow us to make actual predictions about the future demographic characteristics of Anaheim.
For instance, several factors are going to affect the future budgeting of the city in terms of revenues and expenditures. For instance, the data show that the fastest growing segment of the city’s population is the 25 to 34 age group. There is a very important reason why this may bode quite well for city revenues. The median age of home buyers is 34 years old (Knox, 2006). With a 159% increase over the past thirty years in this age group, coupled with a 12.5% increase in owner-occupied units in the city, we can predict that home ownership and home building in the city is going to increase over the next few years. This increased home ownership and home building will translate into more revenue to the city in the form of property taxes.
In terms of revenue from such sources as sales taxes, the data show that the number of retirees in Anaheim has more than doubled in the past 30 years. We can safely assume that this trend will continue for the next several years. This means that more retirees will come to Anaheim pumping money into the local economy in the form of sales taxes.
Overall, the city should plan on increased funds from such things as property taxes and sales taxes over the next few years. However, this extra money will need to be put to good use. The changes in the demographics of the city—such as more families with children—is going to mean more money will need to be spent on such services as transportation, schools, and even medical care.
Major Revenue Sources
Determining the major revenue sources for the city of Anaheim’s General Fund is not that difficult at all. In fact, looking at the balance sheet for the general fund for any year will immediately tell you the five major sources of funding: transient occupancy taxes, property taxes, sales and use taxes, transfers from other funds, and licenses, fees and permits (General Fund Revenue, 2005).
By looking at the individual data, we can see that the Transient Occupancy Taxes (TOT) have consistently been the greatest source of revenue for the city’s General Fund. As a revenue source TOT appears fairly consistent but is based on tourism, and therefore is subject to economy factors as well as impacts on travel such as the 9-11 attacks. A look at Property Taxes shows that since 2003, an increase of over $17 million reflecting the boom in the housing market. Overall, all five sources of major funding for the General Fund has increased.
At this point, it is very important to understand that all of this information is affected by the current budgetary problems that are being faced by the State of California. In order to pay for such expenditures as education, the state has shifted money from cities and counties back to the state. One of the largest areas where this is being felt is in property tax revenue. In 1992, the state faced a significant deficit that hampered its ability to finance education. As a result, it established the educational revenue augmentation funds (ERAF) that shifted the allocation of property tax revenues derived by the state away from cities and counties and towards educational funding. It is estimated that for FY 2004-2005, Anaheim lost nearly $8.4 million in property tax revenue (Net Impact of ERAF, 2005).
When Governor Schwarzenegger was elected to office, one of his campaign promises was a reduction of the motor vehicle license fees (VLF). This tax is intended to provide local jurisdictions with the funding that is necessary for road maintenance and repair. The decision to reduce this tax directly impacted the amount of State funding that is available to cities and counties. The VLF, which is collected by the state and distributed to the local jurisdictions according to a formula. In a complicated formula nicknamed the “triple-flip” Anaheim lost $14.9 million in sales tax revenues but gained an equal amount of property taxes $18.8 million. This turned out to be a benefit for Anaheim because property taxes are more stable than the VLF and they increased more, resulting in a $3.9 million dollar increase to the budget.
Finally, before finishing the discussion on sources of revenue for the city, it is important to understand that not all of the Anaheim’s revenue comes from the five main sources of revenue for the General Fund. There are other areas where money is earned by the city. The major contributors to the 2005/06 budget are: gas tax $ 4.7 million, sanitation $ 2 million, golf courses $ 2 million and the water Utility 1.7 million.
It is important to note the City of Anaheim has its own electric utility which contributes 5.5% of its gross revenue to the general fund under the Enterprise Funds and transfers of money into the city from other sources. This is a consistent source of revenue equal to roughly to 5% of general fund revenues. Table 6 shows the amount of revenue that these two areas brought into Anaheim from 2002 through 2005.
Also of importance is the fact that the Utility department adds value to the community through a customer-focused approach and providing water and electricity at very competitive rates. Another example in which the Utility adds value to the community is that it has adopted for its 2005/06 budget $ 182 million dollars dedicated toward capital improvements. These capital improvements include under-grounding 12 circuit miles of overhead electric distribution lines for a cumulative total of 84 miles to date. By the under-grounding overhead of electric distribution lines, citizens of Anaheim benefit by the significant beautification of the removal of power poles on the streets of Anaheim.
In conclusion, it is quite clear that the transient occupancy tax and sales taxes are the two most important sources of revenue for Anaheim. Any negative fluctuation in these sources of funding can be quite detrimental to how the city operates. In addition, the city is also dependent on how the state decides to distribute and use other money. Right now, the budget problems that plague the state are causing funds to be redirected to other sources. This has meant a several million dollar a year loss of revenue for Anaheim—a loss that the city must work to make up by itself.
Major Expenditure Sources
The major expenditure areas for the city of Anaheim can be broken down into three major areas: personnel, operating expenses, debt service, and capital outlay. Personnel are the cost of actually paying city employees to run the various offices that make the city government function. Operating expenses are the other costs of running the city, such as gas for city vehicles. Debt service is the cost of maintaining the debt and bills that the city has on its books. Finally, capital outlay is the cost of repairing road, buying equipment, and building structures in the city (General Fund Expenditures, 2005).
The next largest output for the city is other operating expenses. This is such things as the cost of operating buildings and paying utilities. Again, we can see that between 2005 and 2006, these costs are also projected to go up. Debt Service is actually expected to remain about the same. This is the cost of paying on debt that the city has. Lastly, capital outlay is also expected to remain the same. This means that the city plans to spend about the same amount of money in 2006 on road improvements and building as it did in 2005.
What is interesting to note is that while capital outlay and debt service remained about the same, the actual cost of all four of these areas increased by slightly more than $15 million. This shows that the cost of actually running a city government, and keeping all of its pieces operating, is very expensive.
This is important to remember because personnel expenses and operating costs are yearly budgetary needs. Each year, the city must determine how much it will need to pay its employees and operate its various offices. In fact, in many respects, this must be done before anything else get money. Otherwise, we would not have the people necessary to actually operate the city of Anaheim.
From the chart above, it is actually safe to say that each of these general areas of expenditures is recurring costs. The only one that might not be considered absolutely necessary is the debt service. Of course, not very many cities across the country actually have no debt at all. As for the rest of the expenditure items, they must be dealt with each year.
It is also important to understand which of these expenditures is affected by demographic trends. First, it should be assumed that capital outlay is affected by changing populations. If the number of people in the city increases dramatically, then the need to build more schools and roads will become apparent. At the same time, if a greater number of people are using the parks, schools, and roads that already exist, then more money is probably going to need to be spent on these items to maintain what we already have.
Personnel is even an area where a changing population contributes to its budgetary needs. As more people use city services, such as fire, police, and even government agencies, then the city will need to hire more of these people. Hiring more city employees means a greater amount of money must be spent on salaries and benefits. This increase in personnel also increases operating costs. If we have more police cars to fill with gas, then we need more money to buy gas for the cars in the first place.
Finally, it is important to think about which of the areas of expenditures are controlled by city government in Anaheim, and which are controlled by the State of California or other sources. Typically, cities look to the state for additional monies for such things as capital outlay for road and infrastructure. In addition, they even look to the state for money to hire more police or medical personnel. When the state is in a budget crisis, as it is right now, it seems safe to say that some of those funds are not going to be available to the local city governments.
Even more, we have already shown where the state is redirecting some property tax money to go back to the state for other uses, rather than being given to the cities and counties for their own uses. This will certainly mean that cities must plan accordingly, especially a city like Anaheim that has been and will be experiencing population increases, to insure that money is available for city services and infrastructure that are going to be needed.
In the end, it is easy to see that in general terms, the expenditures for Anaheim can easily be grouped into four main categories. Now, within each of these categories are lost of line items that detail exactly how and where the money is being spent. It is also important to understand that most of these costs, due to inflation and the added costs of doing business go up every year. In addition, Anaheim is in a position where it is experiencing increased population growth, especially in certain demographic areas. The city must be ready to account for extra services that will be needed in order to keep the city running smoothing. This must be done while the state is giving less and less money to the cities due to major budget problems.
Comments and Conclusion
Taking on a research project of this nature opens your eyes about areas that most people, unfortunately, have very little true understanding. For most people, city government is something that you complain about. If you don’t like the way things are being done, you say that overhead and salaries are too high. You say that money is being mismanaged and not being spent on the right projects. However, when you actually delve into the budget of a city like Anaheim that spends well over $200 million a year just to keep the basic city services running, you quickly realize that blaming problems on overhead and salaries is usually not the way to solve problems.
When cities plan budgets, they not only have to take in account the money that they hope they will have throughout the next year, but they must also plan around the money they hope that the state will give them. In addition, planning a budget is not simply thinking about now, it is thinking about where the city is headed in the next year—and where the leaders of the city want the city to go in the next year.
This means that city leaders must think about the need for enough city services. Otherwise, too large a population growth at one time could make existing services quickly obsolete. In addition, waiting too many years to improve infrastructure could mean that money is not available and that city services and infrastructure get even worse.
It is also worth noting that this report summarizes the budget and its surrounding issues in the city of Anaheim down to just a few pages. In reality, the actual budget of the city, or any city for that matter, is a very complicated thing. Simply looking through the budget gives the reader an idea that there are a lot of areas that need money, and all of them have to be dealt with in one way or another.
The sad truth is that most people never actually look at the budget and the process that is used to go about coming up with the document for the next year. They simply make a statement about where money should be spent, or where too much is being spent, without thinking about what those statements actually mean. If too much money is being spent on one area, then where does that money actually belong? If not enough money is being spent, then where does the extra money come from? Finally, if there is simply not enough money at all, then what is done to solve that problem?
Everyone should be required to go through an exercise like this. At first, for some people, this might seem like common sense. If a city is growing in population, then you need to determine if this will mean increased revenues. At the same time, you also need to determine what additional city services will be needed to support a larger population. However, an exercise like this goes far beyond demographic statistics and ideas about city services.
A project like this requires individuals to actually get into a budget and determine how an increase in one particular segment of a city’s population translates to revenues and expenditures on a city’s budget. It also means understanding that a city is not an island onto itself. It must function within the larger community of the state in which it is located. It must understand what is happening in surrounding communities and the entire state to determine how issues in other areas may affect the city.
Finally, a project like this takes what many consider “pie in the sky” ideas, such as overhead and expenses, and breaks them down into real world idea. When we say overhead, we also mean insurance and salaries for employees. We even mean gas to power police vehicles. In the end, there is a lot more to a city’s budget than simply wanting or even needing money for something.
No comments:
Post a Comment