1. FORECASTING MUNICIPAL REVENUE William Michael Rodgers, CPA Director of Finance City of Webster, Texas June 2015TML Revenue Workshop 1

2. June 2015TML Revenue Workshop 2 “It’s tough to make predictions, especially about the future.” -Yogi Berra

3. June 2015TML Revenue Workshop 3 “Yes, I can predict what will happen tomorrow. Just give me a week to think about it.” -Anonymous

4. How Do You Estimate Revenues? Review your books Are revenues greater or less than last year? Are revenues what you expected? Look outside Is your population growing? Do you see any new construction? Listen to those who know Have you heard the latest business news? What is the current barbershop gossip? June 2015TML Revenue Workshop 4

5. Sources of Municipal Revenue Property tax Sales tax Mixed beverage tax Franchise / access tax Hotel occupancy tax Permit / license fees Court fines and fees User fees Charges for service Special assessments Transfers in Use of Reserves June 2015TML Revenue Workshop 5

6. City of Webster Revenue June 2015TML Revenue Workshop 6

7. Property Tax Revenue Reliable and relatively stable source of revenue Residential component can constrain revenue growth Increase to residential property value is limited by law Tax exemptions can reduce value considerably Residential taxpayers are also voters! Commercial and industrial property values are less predictable June 2015TML Revenue Workshop 7

8. City of Webster Property Value History June 2015TML Revenue Workshop 8

9. City of Webster Property Value History June 2015TML Revenue Workshop 9

10. Property Tax Revenue Revenue indicators include: Appraisal District preliminary estimates Construction permit values Utility customer count General economic news about community Local real estate association news (such as Houston Area Realtors’ HAR.com) June 2015TML Revenue Workshop 10

11. Sales Tax Revenue Sales tax can contribute a large amount of revenue but it is much more volatile than other sources Susceptible to changes in economy, even at national and international levels The unpredictable nature of sales tax will require maintaining a greater reserve amount in funds relying on sales tax revenue June 2015TML Revenue Workshop 11

12. City of Webster Sales Tax History June 2015TML Revenue Workshop 12

13. Sales Tax Revenue Revenue indicators include: Sales tax permits Certificates of Occupancy Press releases from public companies Sales figures for comparable businesses Texas Comptroller’s confidential report Federal Reserve Beige Book June 2015TML Revenue Workshop 13

14. Mixed Beverage Tax A tax of 6.7% is imposed on the gross receipts from the sale of mixed beverages Rate was lowered from 14% to 6.7% in 2014 Cities are allocated 10.7143% of the tax received There is also a new 8.25% mixed beverage sales tax on mixed beverages Revenue indicators include: Average collection in past years Changes to the number of bars and restaurants Texas Comptroller website June 2015TML Revenue Workshop 14

15. Franchise / Access Fees Cities can charge a franchise or access fee to utilities for the use of the City rights-of-way Many fees are now governed by the Public Utilities Commission Revenue indicators include: Utility company notification Average collection in past years Certificates of Occupancy June 2015TML Revenue Workshop 15

16. Hotel Occupancy Tax Cities can adopt a tax on the room rate charged by hoteliers The maximum tax rate is 7% with the exception of certain jurisdictions This special revenue can only be spent on those items identified by State law Revenue indicators include: Occupancy rates Overall economy, both locally and nationally Special events in the community June 2015TML Revenue Workshop 16

17. Permit / License Fees Cities can charge fees for the permits and licenses that are issued The rates charged are determined by Ordinance Revenue indicators include: Local economy Anticipated and ongoing construction activities Amount of available space for new development Average collection in past years June 2015TML Revenue Workshop 17

18. Court Fines & Fees The State and Municipal Judge set the various court fines and fees Majority of collections are returned to the State City cannot set quotas for number of citations to be issued Revenue indicators include: Increased enforcement efforts by Police Changes to traffic patterns or construction Average collection in past years June 2015TML Revenue Workshop 18

19. User Fees / Charges for Service Utilities and certain general government functions charge users for services provided Utility Funds should strive to cover all expenses, including depreciation, with rate revenue General Fund charges typically do not cover all direct operating costs June 2015TML Revenue Workshop 19

20. User Fees / Charges for Service Revenue indicators include: Rate changes, if any Certificates of Occupancy Consumption by comparable users Average revenue for multiple years For utilities, weather makes a difference! June 2015TML Revenue Workshop 20

21. Special Assessments A City may create an improvement district for certain purposes State law governs a district’s creation and operation Costs of improvements are allocated to property owners within the district Revenue indicators are similar to property tax June 2015TML Revenue Workshop 21

22. Transfers In A City may transfer money between funds The transfer is typically based upon the value of services provided by the receiving fund Some utilities transfer funds into the General Fund in lieu of paying taxes There should be a written document describing the purpose and amount of each transfer Anticipated revenue would change if the transfer calculation included a variable factor such as percentage of revenue June 2015TML Revenue Workshop 22

23. Use of Reserves Planned use of accumulated reserves is an acceptable source of revenue Best if used for one-time or capital expenditures Drawing down reserves for recurring expenditures can be a sign of distress Expenditures may be growing more rapidly than revenue May need to increase property tax rates May need to cut expenditures June 2015TML Revenue Workshop 23

24. Long-Term Forecasting Rule #1: The numbers are wrong! Rule #2: The longer the period, the “wronger” the numbers! Forecast only what is known rather than what might occur Agree on assumptions and math does the rest The results are used to show trends over time June 2015TML Revenue Workshop 24

25. Is This Good? June 2015TML Revenue Workshop 25

26. What About Now? June 2015TML Revenue Workshop 26

27. June 2015TML Revenue Workshop 27 “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” -Warren Buffet

28. Beware of Forecaster Bias An optimist may use overly aggressive revenue assumptions over time Higher-than-average revenue gains predicted Revenue trends never decline Can result in budget shortfalls if results don’t appear An optimist rarely hits assumption targets June 2015TML Revenue Workshop 28

29. Beware of Forecaster Bias A pessimist may budget too conservatively Little or no growth is anticipated Revenue trends remain essentially flat Can result in unnecessary budget cuts Often exceeding assumption targets is indicative of a pessimist A realist in an optimist with experience! June 2015TML Revenue Workshop 29

30. Any Questions? William Michael Rodgers, CPA Director of Finance and Administration City of Webster, Texas (281) 316-4102 mrodgers@cityofwebster.com June 2015TML Revenue Workshop 30