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07-10-07 FPAC Agenda
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07-10-07 FPAC Agenda
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07-10-07 Agenda
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7/10/2007
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General Fund Reserves Use Policy Resolution#34722 <br /> 0 Table 4 shows that overall,General Fund discretionary revenues have at worst gone flat or grown only marginally <br /> during the periods of slower regional growth. The compound annual growth rate over the past 15 years has been about <br /> 5.5 percent.The worst year of growth for the"unadjusted"discretionary revenue stream was apparently FY 1976-77 at <br /> the tail end of a recession.The"adjusted"discretionary revenue stream showed no growth during FY 1982-83.A larger <br /> Federal Revenue Sharing transfer(up$1.4 million)and other one-time transfers(up about$3.4 million)totaling an <br /> estimated$4.8 million, allowed the City to temporarily support higher expenditure levels. <br /> The Big Four revenues have never failed to grow and the lowest overall year-to-year growth appears to be about 2.1 <br /> percent. It is interesting to note the difference in growth characteristics.Property Taxes and Utility Franchise/License <br /> Fees appear to have a growth floor in the 2 to 2.5 percent range. Transient Lodging and Business License Taxes both <br /> declined during the last recession. Transient Lodging taxes declined by about 9 percent between FY 1979-80 and FY <br /> 1980-81 (at$10.03 million)and did not reach a new high until FY 1984-85 (at$11.5 million).All Other discretionary <br /> revenues appears to be more volatile but the long run trend appears to be downward.This probably reflects the fact that <br /> miscellaneous fees and charges are not indexed to a price index and are not regularly reviewed to reflect rising costs. <br /> Alternative Reserve Level Calculations <br /> Table 4 seems to show that during an economic downturn revenue growth will at best slow considerably.How much <br /> depends on the nature,severity,timing,and length of the downturn.Tables 3 and 4 use the information above and other <br /> Financial Forecast information to develop three cases or alternative reserve level calculations. <br /> CASE 1 <br /> Case 1 uses the Lower Bound revenue forecast shown in Figures 4 and 5 of the Financial Forecast. <br /> The onset of an economic downturn during late FY 1989-90 creates an estimated gap,during FY 1990-91 of about$2.8 <br /> million between expenditures and revenues. During the second year(FY 1991-92)the estimated gap widens to$5.6 <br /> million. Creation of a reserve large enough to get through the first year translates into a General Reserve Fund totaling <br /> • about$11.5 million. This would be composed of a 5 percent element for unexpected expenses plus a$2.8 million <br /> counter-cyclical element. This works out to a total reserve level that is 6.6 percent of Net Revenues as defined above. <br /> Adding the insurance of a second year raises the required reserve level to about$17.1 million. This works out to a total <br /> reserve level of just under 10 percent. A conservative approach argues for the 10 percent level The reason for this is <br /> timing.A recession is likely to result in slower revenue growth during or within a fiscal year.This requires some initial <br /> use of the counter cyclical reserve element to get through a part of a year.Adding the second year,really the first full <br /> year,would give Council the opportunity to make revenue and expenditure adjustments with the implementation of a <br /> new budget. Thus,under the two-year column in Table 3,the$8.35 million counter cyclical reserve would be used to <br /> adjust to slower revenue growth over an 18 to 24 month period.The other reserve elements,the"unexpected expenses" <br /> reserve would still be available for the extraordinary one-time expenditure requirements. <br /> The"Case 1" calculations are attractive because they"fall out"of the annual Financial Forecast.This calculation can <br /> be replicated from year to year.The major drawback associated with the approach is that it depends on a specific(DRI) <br /> recession forecast. The specifics and details of the recession forecast that produces the lower bound revenue forecast <br /> are different every forecast cycle. Calculations from year-to-year may result in variations in the required reserve level. <br /> • <br /> City of Portland,Oregon—FY 1999-00 Adopted Budget 299 <br />
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