Pinellas County Administrator Bob LaSala explains how the 10-year budget forecast helps with decision making during a commission work session Jan. 21.
CLEARWATER – The recession is over and the economy is slowly recovering. But, Pinellas County staff still predicts that the cost of doing business will outpace the revenue stream.
Pinellas County Administrator Bob LaSala revealed the latest 10-year budget forecast during a Jan. 21 work session. LaSala described the forecast as a “snapshot in time” based on the best economic information available from national, state and local sources.
This is the fifth year that county staff has prepared the forecast as a prelude to budget preparations for the next fiscal year. LaSala said the forecast helps identify “hurdles and what’s coming down the road” to assist commissioners with their decision-making.
“It’s a great tool – the forecast,” he said.
One of the leading national forecast tools is the Gross Domestic Product, expected to grow by 2.6 to 2.8 percent annually over the next three years, according to Jim Abernathy, senior financial management and budget analyst with the Office of Management and Budget.
Staff also uses information from the Florida Estimating Conference, which met in December. Abernathy said the state’s economy is moving in a positive direction with a renewal of population growth and an upswing in tourism. However, the foreclosure rate continues to raise concerns.
Florida had eight of the 10 highest rates for foreclosure markets in the United States with Miami, Jacksonville, Orlando, Palm Bay, Port St. Lucie and Tampa Bay making up the top six.
Median sales prices for existing homes are up but “still remain more than $50,000 below the bubble induced level of late 2006,” the staff report said.
Unemployment is another indicator of economic growth. The “current” unemployment rate of 6.4 percent is “well below” the peak level of 11.4 percent in February 2010, Abernathy said. The most recent unemployment figure released by the state Jan. 24 showed the unemployment rate down to 6.2 percent in December.
Locally, economic growth is expected to remain slower than the state’s, despite declining unemployment. Pinellas County’s unemployment is the lowest since 2008.
But the county’s population growth is stagnant.
“The state’s population is growing pretty fast,” Abernathy said. “The county doesn’t have room for more population.”
Still, staff expects sales tax collections to improve in future years.
Tourism drives the county’s economy with visitors accounting for more than $8.2 billion in sales. Bed tax collections amounted to a record $31.1 million in 2013, 8.2 percent more than 2012. Staff expects tourism to continue to thrive.
The local housing market remains depressed, but sales prices are up over last year. Staff said foreclosures would likely increase over the next few years, keeping prices down.
Staff presented the forecast for nine key funds: general, emergency medical services, tourist development, transportation trust, capital projects, airport, water, sewer and solid waste.
General fund forecast
Barry Lupiani, management and budget analyst, explained the forecast for the General Fund. Staff estimates a $3.9 million budget gap for fiscal year 2015 with the gap growing to $40 million by FY 2024.
To close the gap, revenue must increase or spending has to go down.
Property taxes account for 67 percent of general fund revenue. Staff estimates an increase of about 3 percent in property tax collections for future years. Taxable values are forecast to increase by 3.4 percent in 2014 and 3 percent each year thereafter through 2017.
A half-cent sales tax accounts for 9 percent of the general fund budget. Staff predicts a 4 percent increase in sales tax for fiscal years 2015-2017 and 3.5 percent for 2019-2024.
Future general fund spending includes annual increases of 4.3 percent for salary and benefits, and general cost inflation of about 2 percent a year.
Lupiani said estimates for FY 2014-2015 did not include potential effects of national insurance reform. Any negative impacts from rising flood insurance cost won’t affect property values until at least FY 2015-2016.
Bottom line, the budget forecast indicates that the current level of service paid for from the general fund is not sustainable, LaSala said. Recommended ways to balance the budget include reducing or eliminating programs; evaluating compensation options, using return on equity for enterprise funds, increasing the millage rate or use of money held in the service level continuation account, which has a current balance of $10.7 million.
“It will be 20 years before we get back to where we were in gross revenue,” LaSala said, admitting that his projection “could be off by a few years.”
He said the “burying power of the dollar had been eroded” with 20 years of inflation to take into account.
LaSala also pointed out that as unemployment drops, pressure on wages would go up and affect the supply and demand of talent.
“Our ability to keep people we have and need becomes more of a challenging compounded by the retirement of the baby boomers,” he said.
Emergency medical services fund
Veronica Ettel, senior financial management and budget analyst, presented the forecast for emergency medical services.
“The EMS fund is not in balance,” she said.
The budget forecast shows a gap of $3.4 million in FY 2015 with reserves down to 25 percent below the amount required by Commission policy. If nothing changes, the reserve fund would be gone by FY 2018. Millage rate increases would be needed to provide the same level of services.
Staff is counting on implementing a consultant’s recommendations to alleviate the strain on the EMS budget. LaSala said staff was working on “translating the Fitch report” and would bring recommendations to the commission on Feb. 4. He said after receiving “direction,” staff would begin work with municipalities and fire districts that provide first responder services.
The contract with Paramedics Plus to operate the Sunstar ambulance service expires in 2014. It can be extended to 2015. The contract will go out for bid in 2016. The budget forecast includes a 4 percent increase for ambulance service. First responder costs are expected to go up by 5 percent.
Transportation trust fund
Another problem spot is the transportation trust fund. Lyn Katare, management and budget analyst, told the commission that the fund is not in balance beginning in FY 2015 and projections show that the fund will run dry by FY 2019.
Reasons include rising costs and decreasing revenues due to more fuel-efficient vehicles, Katare said. The budget gap increases in FY 2017 when the local option gas tax expires, unless the commission votes to continue the tax.
She said to balance the budget, the commission might have to subsidize transportation with money from the general fund or reduce service.
Linda Benoit, management and budget analyst, said the water and funds would remain balanced as long as approved 2 percent rate increases continued annually through FY 2015. She said a new rate study would begin this year and a consultant would make recommendations to keep the funds in balance through future years.
The solid waste fund also is in balance, although solid waste tipping fees and electricity sales have declined due to the slow economy.
Bill Berger, interim director of the Office of Management and Budget, said the capital projects fund would remain in balance as long as staff effectively managed the timing of projects. Plans also include the use of interfund loans from the solid waste fund to address short-term shortfalls.
Berger said the forecast did not assume renewal of Penny for Pinellas, which expires in 2020. He said if voter did not approve the tax for future years, money for infrastructure would have to come from the general fund.
Berger talked about potential impacts to the forecast including new federal or state mandates, impact of flood insurance on property values, property tax exemptions, Save Our Homes impact, slower than expected economic growth, changes in the frequency and intensity of storms, utility rate increase and reauthorization of the penny, tourist and gas taxes. The outcome of the referendum on Greenlight Pinellas transportation tax also is on the list.
Staff will monitor everything on the list and calculate the effect of any changes on the budget to keep the commission and the public up to date.
The Office of Management and Budget officially kicks off the budget season Feb. 7. County departments must submit their strategic plans by Feb. 28. Operating budgets are due by March 17. The CIP budget is due by March 28.
Public budget information sessions begin on April 17 with an update on strategic initiatives. Independent agencies will present their budgets on April 24. Constitutional Officers have until May 1 to submit their budgets with budget information session scheduled on May 15 and 22.
The property appraiser will provide preliminary estimates of the county’s taxable values on June 1. On June 12, a budget information session will cover the capital improvement program, and user fees for water, sewer and surface water.
The property appraiser will certify property value estimates on July 1 and the county administrator will present his FY 2015 budget on July 15. A meeting to hear feedback on the proposed budget is scheduled on July 22. The commission will meet to finalize proposed millage rates for Truth and Millage notices on July 31. Trim notices will be mailed Aug. 22
The first public hearing on the budget is set for Sept. 11 with a final hearing on Sept. 23. FY 2015 begins Oct. 1.