Transcript Salaries and Benefits.

Presentation Overview
• The national economic recession has had significant
impacts on the Rio Rancho economy, which can be seen
in employment levels, a sharp decline in construction
activity, and a surge in home foreclosures.
• While the impact on the local economy was experienced
on a delayed basis, due to unprecedented levels in
housing construction, the effects of the recession locally
have been significant and continue to weigh on
General Fund revenues.
1
National Economy
• The National Bureau of Economic Research is expected
to declare the end of the worst recession since the Great
Depression as of June 30, 2009, with real GDP showing
positive growth in the second half of the year.
• This growth has been supported by an improvement in
financial conditions, stimulus from monetary and fiscal
policies, and a recovery in foreign economies.
• However, despite the turnaround in economic output,
employment continued to decline in the second half of
2009. The U.S. unemployment rate reached 10 percent
by the end of the year (the highest level since the early
1980s) before declining in January.
2
New Mexico and Local Economy
• The Bureau of Business and Economic Research (BBER), the state
economic forecaster, believes that the New Mexico recession
continues due to negative job growth, which is expected to persist
through the second quarter of 2010.
• The latest BBER report notes that the Albuquerque Metropolitan
Statistical Area (MSA), which includes Rio Rancho, remained in a
“deep recession”, describing this as the “worst the metro area has
experienced in many decades”.
• BBER expects the Albuquerque MSA to remain in recession through
the first quarter of 2010 and does note anticipate sustained growth
in non-residential construction, manufacturing, or housing until 2011.
• This economic situation is largely driving the declines in the City’s
General Fund revenues in the near term and the below average
growth forecast over the next five years.
3
Unemployment Rate Actual and Forecast
12
Forecast Begins Here
10
Percent
8
6
4
2
Source: NM BBER and U.S.
Bureau of Labor Statistics
0
2005Q1
2005Q4
2006Q3
2007Q2
2008Q1
2008Q4
2009Q3
Albuquerque Metro Area
•
•
•
•
2010Q2
2011Q1
New Mexico
2011Q4
2012Q3
2013Q2
2014Q1
2014Q4
National
U.S. unemployment has increased dramatically to over 10% by the end of 2009.
While local unemployment levels have remained below national levels, they have
increased from record lows in 2008 to 8.3% in December of 2009, a 22-year high.
The increase in unemployment locally ties back to the huge wave in housing
construction activity in 2004 through 2007. Following 4 years of growth that resulted
in the creation of 14,000 new jobs, the construction industry has lost 6,600 jobs in the
one year ending December 2009.
BBER forecasts local unemployment rate to decline over the next two years, leveling
off around the 6% level in 2014, though well above the 3.3% experienced in 2007.
4
Personal Income Y.O.Y Percent Change
8
Forecast Begins Here
6
4
2
0
2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3
-2
Source: NM BBER
-4
New Mexico
•
•
•
•
Albuquerque_MSA
Personal income statewide and locally has fallen steadily since the end of
2007 and experienced overall negative growth in 2009.
Personal income plays a major role in determining GRT revenues.
BBER forecasts positive growth in personal income over the next five years,
though it is yet to be seen if the growth in personal income will translate to
increased consumer spending, as consumer confidence remains low.
Additionally, as you can see from charts, the growth rates are well below the
long-term 5% average growth rate, ranging from 3.2% to 4.6% by 2014.
5
Housing Construction Boom
Rio Rancho Single Family Housing Starts, Annual Totals
3500
Rio Rancho Single Family Housing Starts
2500
Source: City of Rio Rancho
Source: City of Rio Rancho
3000
2000
2500
1500
2000
1500
1000
1000
500
500
0
0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
1985-2003 Average
2004-2006 Average
2007-2009 Average
• After unprecedented growth in Rio Rancho
housing starts during 2004 through 2006, annual
housing starts returned to historical levels,
declining from a little over 1,000 in 2007 to 715
in 2008, and 688 in 2009.
6
Single Family Housing Starts
3500
Forecast Begins Here
3000
2500
2000
1500
1000
500
Source: City of Rio Rancho, U.S. Census, and
Mortgage Bankers Association
0
2004
2005
2006
2007
2008
U.S. (in thousands)
2009
2010
2011
2012
Rio Rancho
• As we look to the future, Rio Rancho housing construction should
begin to more closely reflect national economic trends, as housing
construction returns to more normal levels.
• U.S. housing starts saw a dramatic decline in 2008 and 2009, but
are forecasted to recover slowly over the next three years.
7
NM Foreclosures and Unemployment
1
10
Source: Mortgage Bankers
Association and BBER
Forecast Begins Here
0.9
9
0.8
8
0.7
7
0.6
6
0.5
5
0.4
4
0.3
3
0.2
2
0.1
1
0
Q1_2003
0
Q4_2003
Q3_2004
Q2_2005
Q1_2006
Q4_2006
Q3_2007
Q2_2008
Mortgage Foreclosures Started: New Mexico (NSA, %)
•
•
Q1_2009
Q4_2009
Q3_2010
Q2_2011
Unemployment Rate (RHS)
New Mexico foreclosures have increased steadily since the end of 2007,
with the number of Foreclosures Started reaching the highest level in at
least 6 years at the end of the third quarter of 2009. While the number of
Foreclosures Started declined in the fourth quarter, the overall number of
mortgages due over 30 days increased.
As you can see from the chart, there is a very strong correlation between
unemployment and foreclosures. Unfortunately, state and local
unemployment levels are expected to remain relatively high in the
foreseeable future.
8
5-Year Financial Plan:
Impact of Economic Recession and Recovery
• Looking at General Fund revenue and
expenditures over the next five years, Rio
Rancho is facing a structural budget deficit.
• Expenditures are expected to exceed revenues
over the next couple of years.
• Due to revenue declines in FY08 and FY09,
reserve balances have been drawn upon and
are now at the state required minimum level.
9
City Expenditure Comparison
FTEs per 1,000 Population
19
19
20
15
18
16
12
14
9
12
10
8
6
4
2
-
Santa Fe1
Farmington
Las Cruces
Albuquerque
Rio Rancho
Expenditures per Capita
$1,400
$1,211
$1,200
$987
$866
$1,000
$865
$671
$800
$600
$400
$200
$-
Farmington
Santa Fe
Las Cruces
Albuquerque
Rio Rancho
• While overall
expenditures in salaries
and benefits have grown
considerably over recent
years, it is important to
note that the City of Rio
Rancho employment and
overall expenditure levels
are extremely lean
compared to other major
New Mexico cities relative
to its population.
10
Revenues
General Fund Revenues by Type (FY09 Actuals)
GRT
•
•
Property Tax
Service Charges
Franchise Fees
Other
Gross receipts (GRT) and property taxes make up over 70% of General
Fund Revenues and drive overall changes.
General Fund revenues decreased 12% in FY09 due to sharp fall in GRT,
but are currently forecasted to remain little changed in FY10 and FY11. The
5-year forecast shows overall revenues increasing an average of 7%, as the
local economy slowly recovers.
11
Tot a l R i o R a nc ho GR T by S e c t or a nd Fi sc a l Ye a r
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$ 15 , 0 0 0 , 0 0 0
$ 10 , 0 0 0 , 0 0 0
$5,000,000
$0
FY0 5
FY0 6
FY0 7
Const r uct i on
•
•
•
•
Ret ai l
FY0 8
Ser vi ces
FY0 9
Ot her
Gross Receipts Tax is the single largest revenue into the General Fund, making up
an average of 56% in the recent past.
GRT is largely driven by construction and retail activity, as shown in the graph.
In FY07, GRT from construction increased significantly, making up 43% of the total,
but declined in recent years, due to the impacts of the recession. During the same
period, the retail contribution to GRT increased in FY08 and FY09 to the 40% level.
Due to the makeup of GRT, the outlook for employment, income and housing play a
significant role in estimating gross receipts revenue over the next five years and
mirrors the moderate recovery projected by BBER.
12
Property Tax and Other Revenue
• Property Tax Revenue has made up
approximately 16% of total revenue over the last
five years, increasing to 22% in FY09. Property
tax revenue is forecast to grow 6.5% in the near
term based on actual net taxable property
values and 8.5% in the out years, closer to longterm average growth rates.
• Other Revenue. The remaining General Fund
revenues are forecast to decline slightly in FY11
and grow 5% in the out years.
13
General Fund Spending
Materials &
Services
22%
$11 million
Salaries &
Benefits
78%
$39 million
We are a service organization. Our budget is 77.8% salaries and benefits. Our
Materials and Services budget has been significantly reduced from FY08 to FY10
($11.7M to $10.7M).
14
General Fund Expenditures
•
•
•
•
Since the economic slowdown, the Governing Body objective has been to provide the
same level of service and avoid furloughs or lay-offs of personnel. This has been
done by 1) freezing positions; 2) reducing materials and services; and 3) utilizing
one-time transfers back to the General Fund.
Due to these measures, overall budgeted expenditures were reduced by 11.2% in
FY09 and are expected to decline an additional 7.9% in FY10. The 5-year
expenditure forecast is largely driven by salary and benefits, as this makes up over
77% of the overall General Fund expenditures.
Salaries and Benefits. Staff forecast assumes little growth in salaries and benefits
in FY11. Two different overall growth rates can be used for years 2012 to 2015 for
salaries and related benefits.
– Scenario A: Assumes overall growth rate of 1%. This includes no salary
increases, an anticipated 11% increase in health benefits, and no additional
positions.
– Scenario B: Assumes overall growth rate of 4.7%. This includes a 4% salary
increase for all employee groups starting in 2012, an anticipated 11% increase in
health benefits, and no additional positions.
Material and Services and Services. The City reduced its overall expenditures in
Materials and Services in FY09 and FY10, and continues to look for ways to reduce
these expenses, including further savings in contracts and operating efficiencies.
15
Possible Actions to Address Deficit
•
•
•
•
Expenditures are expected to exceed revenues in the coming years, with an
estimated total shortfall over the 5-year period of up to $3 million, depending on
assumptions used.
Recent years have been subsidized by fund balances, however those balances have
been exhausted and now stand at statutorily required levels.
In the long-term, as noted in our strategic plan, the City of Rio Rancho must continue
its efforts in expanding and diversifying its economic base through economic
development efforts such as those pursued in recent years.
Options to address long-term structural deficit include:
–
Increase revenues, examples include:
•
•
•
•
•
–
Gross Receipts Tax
Development Fees
Red light Cameras
Franchise Fees
Program Fees
Reduce expenditures further
•
•
•
Service Prioritization
Salaries & Benefits
Materials & Services
16
FY11 Expenditure Priorities
•
•
•
•
•
•
•
•
Address structural budget deficit
Emergency Communications (E911) Staff: $129,641
Police Vehicles: $55,000
Animal Control Vehicles: $35,000
Fire Marshal: $24,067
Water Rights Acquisition: $5,000,000
Star Center Capital Improvements: $257,500
Worker’s Compensation Reserve Fund: $262,000
17