Recommendation
Staff recommends that the Mayor and Council review and file the FY 2011 Budget Preview - PART I, and offer guidance as necessary for preparing the FY 2011 Proposed Operating and Capital Improvement Program budgets.

Discussion
It is the City’s practice to provide the Mayor and Council with a preview of the upcoming year’s budget in the late fall. According to the adopted Financial Management Policies,

"At least one month before the preparation of the proposed annual budget, the City Manager will meet with the Mayor and Council members to review and deliberate all policy guidelines that may affect the proposed budget." (source: FY 2010 Adopted Operating Budget, page 2-4)

Tonight’s presentation, FY 2011 Budget Preview - PART I, seeks the Mayor and Council’s guidance with regard to the development of the FY 2011 Proposed Operating and Capital Improvements Program budgets. It is expected that the Mayor and Council will provide additional guidance with respect to program and project priorities at next week's Mayor and Council meeting, FY 2011 Budget Preview - PART II. Over the course of these two meetings, Budget staff will present an overview of each major fund that includes changes from FY 2010 to FY 2011. In addition, each City department will present an overview of their department, which includes their department's strategic issues with a focus on challenges and significant changes for FY 2011. After the department reports, Budget staff will summarize the overall budget principles proposed for the FY 2011 budget development process. At this time it is expected that the Mayor and Council will provide policy direction and guidance with respect to each revenue and expenditure principle.

Mayor and Council Budget Preview - PART I
December 7, 2009
1) FY 2011 Budget Overview - Budget Office
2) Recreation and Parks
3) Police
4) Community Planning and Development Services
5) Information and Technology
6) Human Resources

Mayor and Council Budget Preview - PART II
December 14, 2009
1) Public Works
2) City Clerk
3) City Attorney
4) Finance
5) City Manager
6) FY 2011 Budget Principles - Budget Office

In order to assist the Mayor and Council with their review of the department budgets, staff has created two new budget tools to better summarize important budget information. These tools can be used for identifying and prioritizing programs and services for the FY 2011 budget process. The first budget tool, Attachment A, is a summary of all City cost centers by department. This report lists the department, division, cost center, expenditure and revenue budgets, full-time equivalent positions (FTEs), and fund that supports the cost center. The information in this report matches what is presented in the FY 2010 budget book, but in a summarized format that allows the user to compare programs and services within a department and between departments. The second tool, Attachment B, is a summary of all General Fund expenditures by line item (or expenditure category) and department. This report gives the user a detailed look at all General Fund expenditures. All budget figures in both reports represent the current FY 2010 budget as of November 2009.

FY 2011 Budget Calendar
During this preview the Mayor and Council should notify staff of any suggestions or changes they would like to see to the budget process or the proposed budget calendar. There will be other opportunities for the Mayor and Council to provide additional guidance and direction during the Mayor and Council budget preview scheduled for late-February, or during any of the other Mayor and Council worksessions or public hearings that are listed in the proposed FY 2011 budget calendar.

December 7, 2009	Mayor and Council Budget Preview - PART I
December 14, 2009	Mayor and Council Budget Preview - PART II
January 15-17, 2010	Mayor and Council Priorities and Goals
February 22, 2010	Mayor and Council Budget Preview - FINAL
March 22, 2010	Presentation of Proposed Budget Introduction of Ordinances and Resolutions
April 12, 2010	Public Hearing - Constant Yield Tax Rate Public Hearing - General #1
April 19, 2010	Public Hearing - General #2
April 26, 2010	Mayor and Council Worksession #1
May 3, 2010	Mayor and Council Worksession #2
May 10, 2010	Public Hearing - General #3 (if needed) Mayor and Council Worksession #3 (if needed)
May 24, 2010	Budget Adoption

Overview
The FY 2011 operating and capital budget will focus on the City's core mission and the Mayor and Council's highest priorities. Revenues will likely decrease from FY 2010 to FY 2011, requiring the City to make strategic reductions in expenditures, while focusing on maintaining essential City services and programs. Staff's current estimates on major revenues and expenditures are described throughout this report. Staff will continue to update the Mayor and Council throughout the FY 2011 budget preparation process due to the ever changing revenue estimates from the State of Maryland and Montgomery County (highway user, tax duplication, police protection, income tax), and the major expenditure estimates which will be finalized over the next few months (employee insurance, pension contribution, GASB 45 liability).

General Fund
Below are two summary tables that highlight the major General Fund revenue sources and expenditure categories that are described throughout this report. For more detail, please refer to the "General Fund - Revenues" and "General Fund - Expenditures" sections.

Revenue Source	FY 2010 Current *	FY 2011 Estimated	Variance
Real Property Tax	$31,390,140	$32,930,140	$1,540,000
Income Tax	9,300,000	9,300,000	-
Highway User	240,000	-	(240,000)
Tax Duplication	2,228,449	1,128,449	(1,100,000)
Hotel Tax	800,000	800,000	-
Police Protection	403,000	403,000	-
Other **	15,444,724	TBD	TBD
TOTAL Variance			$200,000

* FY 2010 current revenue budget includes a reduction of $2,377,000 as a result of the State's August budget cuts, a reduction of $15,450 from an expired grant, and an addition of $116,176 for new grants.
** Includes all other General Fund revenue sources such as admissions and amusement receipts, cable franchise fees, other operating grants, licenses and permits, charges for services, fines and forfeitures, use of money and property, and administrative charges.

Expenditure Category	FY 2010 Current *	FY 2011 Estimated	Variance
Regular Employee Salary	$27,685,599	$27,685,599	$ -
Health Care	1,943,800	2,254,800	311,000
Workers' Compensation	896,300	1,210,000	313,700
Pension Fund	1,474,590	2,004,590	530,000
Retiree Health Care	-	$240,000	240,000
Liability / Property Insur.	207,800	280,800	73,000
Caregiver Agencies	$513,875	$513,875	-
Outside Agencies	759,300	TBD	TBD
Paygo Transfer to CIP	2,378,000	2,378,000	-
CIP Operating Costs	-	110,000	110,000
Debt Service Transfer	4,000,000	5,000,000	1,000,000
Parking Fund Transfer	1,200,000	1,000,000	(200,000)
Other **	19,600,954	TBD	TBD
TOTAL Variance			$2,377,700

* FY 2010 current expenditure budget includes a reduction of $2,377,000 as a result of the State's August budget cuts, a reduction of $15,450 from an expired grant, an addition of $116,176 for new grants, and an addition of $853,905 for purchase orders that carried over from FY 2009.
** Includes all other General Fund expenditure categories such as temporary employee wages, employee overtime, contractual services, commodities, and capital outlay.

General Fund - Revenues
The General Fund is the primary operating fund of the City and is used to account for the majority of the City's daily operations. Many of the City's core services and administrative functions are supported through the General Fund. The major revenue sources for the General Fund include: property taxes, income tax, highway user, tax duplication, hotel tax, and charges or user fees for services. These revenue sources in total comprise 89 percent of the FY 2010 adopted General Fund budget. FY 2011 revenue estimates will again be conservative and reflect the recessioning economic conditions and the current budget deficits anticipated for the State of Maryland and Montgomery County.

During FY 2010, the State reduced funding for counties and municipalities. The City's revenue sources that were directly impacted during FY 2010 were highway user (decrease of 90 percent or $2.16 million) and police protection (decrease of 35 percent or $217,000). There exists a possibility that these revenues or additional revenues (such as income tax) will be further reduced in FY 2010. Staff anticipates these reductions will continue into FY 2011. Although it is too early to know the exact impact on these revenue sources, the City should be prepared for additional declines in State and County revenues when developing the FY 2011 budget.

Property Taxes
FY 2010 property taxes (both real and personal) are expected to generate $34.3 million of the City's adopted General Fund revenues (55.3 percent of total revenues) based on the current tax rates of $0.292 per $100 of assessed value for real property and $0.805 per $100 of assessed value for personal property. For three consecutive years prior to FY 2010, the Mayor and City Council reduced the real property tax rate by one-cent per year, thereby bringing the rate down to its current level from $0.322 in FY 2006. The FY 2010 adopted budget includes a one-time tax credit of $100 for every owner-occupied household through the State’s Income Tax Offset Program. In addition to the $100 credit, the FY 2010 budget includes an expanded Homeowners' Tax Credit Program with an additional credit for senior residents 70 years and older.

For FY 2011 staff estimates that total taxable real property assessments will likely remain flat or even decline, restricting the growth of total property tax revenue at the current rate. Given that the taxable assessments will likely remain flat, staff recommends providing the Homeowners' Tax Credit Program, but eliminating the $100 one-time credit. Under these assumptions the City will realize an additional $1.54 million in real property tax revenues from existing taxable assessments. This growth is essential since several of the other major General Fund revenues (highway user, police protection, tax duplication) will decrease or remain flat. Even with this additional $1.54 million in real property tax revenues, the overall General Fund budget will likely decrease from adopted FY 2010 to proposed FY 2011.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Real Property Tax Rate		$0.312	$0.302	$0.292	$0.292	$0.292
Real Property Tax Revenue		$27.6 mm	$29.1 mm*	$31.3 mm*	$31.4 mm*	$32.9 mm

* Includes a one-time tax credit of $100 for every owner-occupied household through the State’s Income Tax Offset Program. Under Maryland law, the City of Rockville may grant a real property tax credit that offsets increased income tax revenue. Each year from FY 2008 to FY 2010, Rockville used this program to target tax relief for owner-occupied residential properties (approximately 15,400 in the City).

Income Tax
Income tax revenue consists of the City’s share of income taxes received by the State of Maryland for returns filed from Rockville residents. Maryland counties are able to impose an income tax that is separate from the State income tax. In accordance with Maryland law, municipalities receive 17 percent of collected county income taxes within the municipalities' jurisdiction. Montgomery County’s income tax rate is currently 3.2 percent.

There has been significant growth in income tax revenue over the past few years due to the City's population growth. When preparing the FY 2010 budget, however, staff estimated income tax would likely go down as a result of the increase in the number of layoffs and reductions in capital gains. FY 2010 income tax was budgeted at $9.3 million, 11 percent less than the FY 2009 actual revenues. As of November 2009, FY 2010 income tax revenues were approximately 8 percent less than the same period last year. Because this trend is likely to continue, staff recommends budgeting $9.3 million for the FY 2011 budget. Unfortunately this revenue source is volatile and there is very little data available from the State or County to estimate total revenues for the remainder of FY 2010 or FY 2011. Staff anticipates more information, including six months or actual revenues, will be available for the budget preview in February.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Income Tax Revenue		$9.8 mm	$10.6 mm	$10.4 mm	$9.3 mm	$9.3 mm

Highway User Revenue
Highway User Revenue (HUR) represents the City's share of gasoline tax and vehicle registrations collected by the State of Maryland. During FY 2010, the State of Maryland's Board of Public Works voted to decrease the municipal share of HUR by 90 percent or $2.16 million for the City of Rockville (HUR was adopted at $2.4 million for FY 2010). This reduction was part of a larger package aimed at addressing the State's projected budget shortfall of more than $700 million for FY 2010. Because the State recently reported an estimated deficit of $2 billion for FY 2011, staff recommends budgeting HUR at $0 for FY 2011. Staff will keep the Mayor and Council informed about HUR as new information becomes available over the course of FY 2011 budget preparation.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Highway User Revenue		$3.26 mm	$3.05 mm	$2.67 mm	$240,000	$0

Tax Duplication
This revenue is received from Montgomery County as a partial reimbursement for tax duplication. Several factors, such as number of streetlights, the number of street miles maintained by the City, and what the County spends each year, determine what the City receives each year. The County is currently working on a new formula to determine the amount of tax duplication that municipalities will receive. The formula is not yet finalized, but City staff believe that the City's portion of tax duplication will be reduced starting in FY 2011. In addition to a less favorable formula, the County may elect to reduce the City's share even further due to their anticipated FY 2011 budget deficit. Until more information becomes available, the City will assume a 50 percent decrease or $1.1 million in tax duplication revenue for FY 2011.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Tax Duplication Revenue		$2.23 mm	$2.23 mm	$2.23 mm	$2.23 mm	$1.1 mm

Hotel Tax
This revenue consists of the City's share of tax levied on a person who pays for a room or space at a hotel. FY 2009 was the first year for the 2 percent hotel tax, which began October 1, 2008. For FY 2011, the City anticipates approximately $800,000 in hotel tax revenue.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Hotel Tax Revenue		N/A	N/A	$624,486*	$800,000	$800,000

* Represents a partial year, or nine months, of Hotel Tax Revenue.

Police Protection Grant
This revenue consists of an annual operating grant from the State of Maryland to assist with funding police protection services. During FY 2010, the State of Maryland's Board of Public Works voted to decrease the municipal share of police protection aid by 35 percent or $217,000 for the City of Rockville (police protection was adopted at $620,000 for FY 2010). This reduction was part of a larger package aimed at addressing the State's projected budget shortfall of more than $700 million for FY 2010. Because the State recently reported an estimated deficit of $2 billion for FY 2011, staff recommends budgeting police protection at $403,000 for FY 2011. Staff will keep the Mayor and Council informed about police protection aid as new information becomes available over the course of FY 2011 budget preparation.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Police Protection Grant		$651,181	$627,894	$615,763	$403,000	$403,000

Other Revenues
Other revenue sources are being analyzed through a formal cost allocation and user fee study, which was commissioned in the FY 2009 budget. This study evaluates all user fees, customer charges, and internal administration charges to determine if fees are charged appropriately and if overhead is fairly allocated. Depending on the results of the study, General Fund revenues may increase in FY 2011. Staff will present this report to the Mayor and Council in early calendar year 2010, and will have more information on which revenue sources will be impacted for the February budget preview.

General Fund - Expenditures
The General Fund constitutes over 60 percent of the City’s total budget. For FY 2011 the City anticipates receiving less General Fund revenues in total, while needing to cover approximately $2.4 million in additional expenditures as discussed below. The major cost drivers for the General Fund in FY 2011 include: salaries and benefits, the City's pension fund, retiree health care costs, outside agencies, debt service, transfer to the Capital Projects and Parking funds, and new Mayor and Council priorities.

Employee Salaries
In the FY 2010 adopted budget regular and temporary employees salaries total 48.5 percent of all General Fund expenditures. The FY 2010 budget included a 3.25 percent across the board adjustment for all regular City employees, and additionally the possibility of up to a 3.25 percent merit increase based on performance. The FY 2010 salary increases were consistent with the AFSCME union contract and the FOP meet and confer agreement. Due to the major revenue constraints and additional required expenditures in FY 2011, staff recommends not providing an across the board adjustment or merit increases for regular employees in FY 2011.

Health Care and Workers' Compensation
Although salaries will not increase, total personnel expenditures will increase due to increases in health care and workers' compensation insurance costs. Health care is estimated to increase by 16 percent under the current providers. For FY 2011, the City will contribute an additional $417,000 across all funds, with approximately 75 percent or $311,000 coming from the General Fund. Workers' compensation insurance is estimated to increase by approximately 35 percent under the current provider through Montgomery County's Self Insurance Fund. For FY 2011, the City will contribute an additional of $387,000 across all funds, with approximately 81 percent or $313,700 coming from the General Fund. Because of the impact of these large increases on the City's FY 2011 budget, the City is currently in the process of requesting proposals for a broker to evaluate other insurance carriers and rates for health care and workers' compensation, as well as dental, disability, property, and liability insurance for FY 2011. Staff will inform the Mayor and Council as new information becomes available on these items.

Pension Fund
As a result of the turmoil in the financial markets during the latter part of 2008 and early 2009, over the next three years the City's annual required contribution to the pension fund will increase by 179.8 percent from the current $1.58 million to $4.42 million projected in FY 2013. This represents an average increase of approximately $950,000 a year for the next three years or an average increase of 41.5 percent per year. These projected increases in the City's contributions are significant and will impact the FY 2011 budget and future years. For FY 2011, the City will contribute an additional of $663,000 across all funds, with approximately 80 percent or $530,000 coming from the General Fund. The budgeted increase is less than the increase in the required annual contribution because the City has over-funded the pension payment in the past, with the goal of reducing future liabilities. Since General Fund revenues will likely decrease or remain flat from FY 2010 to FY 2011, staff recommends funding the pension payment at the required annual contribution level for FY 2011.

Retiree Health Care
In FY 2009 the City set up an irrevocable trust fund to begin prefunding retiree health care benefits as required under GASB 45. The City contributed $1.3 million to the trust in FY 2009, which was the full liability provided in the FY 2009 actuarial valuation report. The City is currently waiting for the results of a new actuarial valuation report which will provide the City's FY 2010 and estimated FY 2011 and FY 2012 liabilities associated with the current benefits package. Staff also requested that the actuary provide various options for reducing the City's retiree health care costs going forward, from eliminating the benefit, to changing the benefit amounts provided to retirees. For FY 2010 and FY 2011, staff estimates that the City will need to contribute approximately $300,000 for all funds, which is one-fifth of the estimated total liability in accordance with Mayor and Council policy. The City's General Fund will contribute approximately 80 percent or $240,000 of the one-fifth annual contribution.

Liability and Property Insurance
Liability and property insurance is estimated to increase by approximately 35 percent under the City's current contract with the Montgomery County Insurance Pool. Under this contract for FY 2011, the City will contribute an additional $90,000 across all funds, with approximately 81 percent or $73,000 coming from the General Fund. Because of the impact of this increase on the City's FY 2011 budget, the City is currently in the process of requesting proposals for a broker to evaluate other insurance carriers and rates for property and liability, as well as health care, dental, life, and disability insurance for FY 2011.

Outside Agencies
Each year the Division of Community Services coordinates committees (employee panel and community panel) that review and evaluate all caregiver and outside agency funding requests received by the City. After the committees review and evaluate each application, they develop funding recommendations for each program. These recommendations take into account the number of City residents served, the demonstrated need for the service, and the quality of the application. Since there are no cost of living increases being recommended for FY 2011, staff recommends the FY 2011 grant amounts equal the FY 2010 adopted budget.

Rockville Economic Development, Inc. (REDI) is not required to submit a grant application, and is not included in the formal evaluation process. In the past REDI and the City have negotiated a contract that specifies the grant amount the City will provide REDI each fiscal year. FY 2010 is the third year of a three year contract. Staff will return to the Mayor and Council in early calendar year 2010 to evaluate REDI and discuss future REDI contracts.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Caregiver - Human Needs		$426,800	$444,500	$469,150	$513,875	$513,875
Outside - Other		$93,126	$160,207	$102,907	$184,900	$184,900
REDI		$451,046	$471,112	$493,825	$517,500	TBD

Transfer to the Capital Projects Fund
The Capital Improvements Program (CIP) budget is mainly funded from four components over a five-year period: debt, cash (paygo transfer from the General Fund), government grants, and developer contributions. Staff recommends that the planned General Fund contribution for FY 2011 total $2.4 million, which is a decrease of $1.7 million from adopted FY 2010 (adopted at $4.1 million, but then adjusted down to $2.4 million as a result of the State of Maryland's Board of Public Works' municipal revenue reductions). Staff will evaluate the current five-year CIP plan, and through the City's formal CIP prioritization process, make recommendations on what projects should be funded in FY 2011 and what projects can be eliminated or deferred to future years. The amount of the annual paygo contribution impacts both the current fiscal year and future years since the Capital Projects Fund is balanced over a five-year period.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
General Fund Paygo Transfer		$10.3 mm*	$7.8 mm*	$8.5 mm*	$2.4 mm	$2.4 mm**

* Includes additional transfers that were authorized mid-year from the prior years' surplus.
** This transfer is subject to the results of the 5-year cash flow that staff will analyze during the budget process.

Excluding extraordinary circumstances that might justify exceptions, it is important that the City's debt be managed within the current guidelines and established target ratios. Any decision by the Mayor and Council to reduce the planned CIP transfer amount will either increase the amount of money the City will need to borrow in the future, or require the deferral or elimination of capital projects.

It is also important to keep in mind when reviewing CIP projects that many have associated operating cost impacts. The operating cost impacts should be considered when deciding to proceed with the capital project. For FY 2011, the new ongoing operating costs of approved CIP's are projected at $125,000 for all funds, with $110,000 going to the General Fund.

Transfer to the Debt Service Fund
Staff recommends the FY 2011 budget include a $5.0 million transfer from the General Fund to the Debt Service Fund to support the City's annual debt payments. This is an increase of $1.0 million from the FY 2010 adopted transfer of $4.0 million. The increase is a result of a $12 million bond issue that will take place in FY 2010 to support the Gude Drive Maintenance Facility project and the Police Station project. There is no future debt planned for FY 2011 through FY 2015.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
General Fund Transfer		$5.7 mm	$4.9 mm	$4.5 mm	$4.0 mm	$5.0 mm

Transfer to the Parking Fund
Staff recommends the FY 2011 budget include a $1.0 million transfer from the General Fund to the Parking Fund to support the parking enterprise. This is a decrease of $200,000 from the FY 2010 adopted transfer of $1.2 million. Staff recommends continuing with a General Fund transfer until more of the annual revenues offset annual expenses, which include 7.4 regular FTEs, the operating and contract service costs for the maintenance of the garages, and the debt service payments on $36 million of bonds issued to support the construction of the garages.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
General Fund Transfer		$1.17 mm	$1.57 mm	$0.95 mm	$1.2 mm	$1.0 mm

Mayor and Council Goals and Priorities
The Mayor and Council and the City Manager will participate in a mid-January 2010 worksession to establish goals and priorities. Any significant changes to the City's priorities could impact resource needs in the FY 2011 budget. Although the new Mayor and Council's goals and priorities are unknown at this time, the timing of the mid-January worksession will allow the City Manager to incorporate the financial and budgetary impacts of the goals and priorities established into the proposed budget.

Enterprise Funds
Enterprise funds are used to account for operations financed and operated in a manner similar to private business enterprises where the cost of expenses, including both operations and capital, are financed or recovered primarily through user charges. The City of Rockville has designated the following operations as enterprise funds: Water, Sewer, Refuse, Stormwater Management, Parking and RedGate Golf Course.

The goals in setting the City's utility rates (Water, Sewer, Refuse, Stormwater Management) are low rates over time, while covering all operating and capital expenses and maintaining required reserve levels (30 to 90 days). The City establishes rates on a multi-year basis as opposed to setting them annually in order to maintain consistency and reduce volatility. In order to set the rates the City uses rate models that take into account factors such as future changes in operating expenses, debt obligations, and changes in revenues. For setting rates and fees for Parking and RedGate Golf Course, the City uses additional factors such as comparative pricing and user demand.

Water Fund - 70% of the City (the remaining 30% is serviced by WSSC)
The Water Fund is used to account for the financial activity associated with the treatment and distribution of potable water. In FY 2008, the Department of Public Works presented two comprehensive studies that evaluated the City's overall water program related to the Water Treatment Plant and the Water Distribution System. As a result of these two studies, starting in FY 2009 the City increased both the Water Fund operating and CIP budgets to address the concerns that were identified.

To fund the increases in the system requirements, and in accordance with the Mayor and Council's adopted plan, the water usage rates increased by 25 percent from FY 2008 to FY 2009, 25 percent from FY 2009 to FY 2010, and will increase again by 25 percent from FY 2010 to FY 2011. Despite these increases, as reflected in the FY 2009 financial report, annual Water Fund revenues are not covering Water Fund expenses. Based on this trend, Finance and Public Works will evaluate all operating and capital costs to determine if the 25 percent rate increase is sufficient to support FY 2011 and future years. Water and sewer customers also pay a ready-to-serve charge that will increase by 3 percent from FY 2010 to FY 2011 and is equally distributed to both Water and Sewer funds.

Usage Tier (per quarter)		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Per 1,000 gal. - first 12,000		$1.62	$1.78	$2.23	$2.78	$3.48
Per 1,000 gal. - next 12,000		$2.33	$2.56	$3.20	$4.00	$5.01
Per 1,000 gal. - over 24,000		$2.50	$2.75	$3.44	$4.30	$5.37

Sewer Fund - 70% of the City (the remaining 30% is serviced by WSSC)
The Sewer Fund accounts for the financial activity associated with the collection of sewage. Charges are based on water consumption. Nearly all of the capital costs in the Sewer Fund, and a substantial portion of the operating costs, are payments for the operation of and capital improvements to the District of Columbia Water and Sewer Authority’s (DCWASA) Blue Plains Advanced Wastewater Treatment Plant. The City’s share of Blue Plains’ capital improvements is proportionate to the City’s allocation of treatment capacity.

In accordance with the Mayor and Council's adopted plan, the Sewer Fund rate for FY 2011 will equal $4.28 per 1,000 gallons. This is an increase of $0.16 or 3.9 percent over the FY 2010 adopted rate of $4.12 per 1,000 gallons. As mentioned above, water and sewer customers also pay a ready-to-serve charge that will increase by 3 percent from FY 2010 to FY 2011 and is equally distributed to both Water and Sewer funds.

Usage		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Sewer Rate per 1,000 gal.		$3.63	$3.82	$3.97	$4.12	$4.28

Refuse Fund - Residential Properties Only
The Refuse Fund is used to account for the financial activity associated with the collection and disposal of recycling, refuse, and yardwaste. The FY 2011 Refuse budget will be based on a semi-automated once per week recycling and refuse program. Although the refuse rate for the FY 2011 budget was originally planned to remain flat at $392.40 per year, staff is in the process of re-evaluating the Refuse Fund reserve balance and the projected revenues and expenses for FY 2011 to determine if this rate can be reduced. The semi-automated once per week system has provided reduced operating expenses because fewer personnel (including a reduction of 3.0 FTEs in FY 2011), contractual services, commodities, and vehicles and equipment are needed.

Usage		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Refuse Rate (per year)		$372.00	$392.40	$392.40	$392.40	TBD

Stormwater Management Fund - All Properties in the City
The Stormwater Management (SWM) Fund accounts for the financial activity associated with maintaining existing SWM facilities and constructing new facilities. In FY 2008, Public Works staff indicated that a stormwater utility fee would be needed to fund Rockville's existing and expanded stormwater, storm drainage and water quality programs. Historically, rapid development has funded much of Rockville's stormwater management with fees imposed on developers. With few opportunities for new development, staff identified the need to seek other funding sources to cover new programs and the maintenance of the public stormwater infrastructure.

In FY 2008 the Mayor and Council approved an ordinance to amend the City Code to include a new Stormwater Management Utility Fee. This ordinance enables the City to charge an annual fee per Equivalent Residential Unit ("ERU"). Although the Mayor and Council adopted the ordinance that enabled the fee, no fee was adopted in FY 2009. Under the Mayor and Council's direction, the expenses for the new program in FY 2009 were funded from the Stormwater Management Fund's reserve.

For the FY 2010 budget, a fixed fee of $40.00 per ERU was implemented, which is estimated to generate $1.6 million in fee revenue. As approved by the Mayor and Council in April 2009, the fixed fee per ERU will increase by approximately 22.9 percent each year from FY 2010 through FY 2014, and 0.5 percent each year from FY 2015 through FY 2019. This fee schedule was developed to generate sufficient revenue to cover the operating and capital expenses of the Stormwater Management Fund for FY 2010 and future years.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
SWM Utility Fee per ERU		N/A	N/A	N/A	$40.00	$49.20

Parking Fund - Users
The Parking Fund was created to account for the revenue and expenses from parking related activities, including the issuance of parking tickets, the parking meter program, and the costs associated with the construction and operation of the three public parking garages in the City's Town Square. In order to manage the three parking garages and on-street meters within Town Square, the Town Center Parking District was formed. The Parking District tax rate for FY 2008 through FY 2010 was $0.300 per $100 dollars of assessed value. The commercial property owners (FRIT and MEDCO) that are located within the Town Square boundaries pay this tax in addition to the general City property tax. Staff is waiting on the actual assessment report from the State Department of Assessments and Taxation to develop the tax rates for FY 2011. This assessment report is available in late-January or early-February.

Special Tax District		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Parking District		N/A	$0.300	$0.300	$0.300	TBD

In addition to the revenues raised by the Parking Fund, the FY 2011 proposed budget will include a $1.0 million transfer from the General Fund to support the parking enterprise. Staff recommends continuing with a General Fund transfer until more of the annual revenues offset annual expenses, which include the debt service payments on approximately $36 million of bonds issued to support the construction of the Town Square Garages.

RedGate Golf Fund - Users
The RedGate Golf Fund is used to account for the financial activity associated with the City's public golf course. After covering all of its operating, overhead and capital costs for nearly thirty years, RedGate began operating in the red in FY 2000. In response to financial losses over several years, staff presented a business plan to the Mayor and Council that analyzed the financial situation of the golf course in March 2006. The business plan focused on achieving the objective of generating sufficient revenues through fees and charges in order to pay for the costs of operations, capital outlay, and infrastructure improvements. FY 2011 will be the fifth year of the five-year business plan.

Although there has been several changes made since the business plan was adopted, the Fund continues to have a deficit estimated at $1.5 million at the end of FY 2010. Some of the changes the City made in order to assist RedGate over the last three years include: transferring $372,500 from the General Fund to the RedGate Golf Fund to support capital improvements to the course, reducing the administrative charge to the General Fund by half, and intensifying overall marketing efforts.

Recognizing that the financial situation of the Fund is not improving, staff will present under a separate agenda item at this (December 7, 2009) meeting an assessment of RedGate's performance relative to the five-year business plan.

Special Revenue Funds
Special revenue funds are used to account for the proceeds of specific revenue sources that are restricted by legal, regulatory, and policy provisions to finance specific activities. Included in the special revenue funds are the Special Activities, Community Development Block Grant, Town Center Management District, and Speed Camera funds.

Special Activities Fund
The Special Activities Fund receives revenues from fundraising and community activities, payment-in-lieu programs, as well as from a variety of corporations and community service organizations. These revenues are deposited into separate accounts and then used for specific purposes related to those accounts. The amount that is appropriated each year is directly related to the overall revenues received in the past years, and projected revenues for the next year (these accounts are not funded by general revenues). There are currently 14 active accounts in the FY 2010 budget. Staff will have more information on any major changes to existing accounts, or new Special Activities accounts later in the FY 2011 budget process.

Community Development Block Grant Fund (CDBG)
CDBG is a special revenue fund supported by a sub-grant of federal funds via Montgomery County. The annual budget for this fund consists of unexpended prior years' grants as well as the next year's anticipated grant. Staff anticipates next year's grant will remain at $304,000.

		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
CDBG Grant		$380,000	$304,000	$304,000	$304,000	$304,000

Town Center Management District Fund
The Town Square Street and Area Lighting District (residential and commercial properties) and the Town Square Commercial District (only commercial properties) were created in FY 2008 to support the maintenance and operational costs of the Town Center Management District. The two districts levy special property taxes on the properties within the Town Square boundaries to support the total annual expenditure budget for the Town Center Management District Fund. Staff is waiting on the actual assessment report from the State Department of Assessments and Taxation to develop the tax rates for FY 2011. This assessment report is available in late-January or early-February.

Tax District		FY 2007 Act	FY 2008 Act	FY 2009 Act	FY 2010 Bud	FY 2011 Est
Street and Area Lighting		N/A	$0.048	$0.105	$0.105	TBD
Commercial		N/A	$0.530	$1.200	$1.200	TBD

Speed Camera Fund
The Speed Camera Fund, created in FY 2007, is a special revenue fund used to track the financial transactions associated with the City's speed camera program. The State of Maryland recently passed a new speed camera law that changes the threshold speed limit from 11 miles per hour to 12 miles per hour, limits the use of speed cameras in school zones to Monday through Friday from 6:00 am to 8:00 pm, and restricts the annual amount of program revenue the City can retain to ten percent of the City's total revenues. This new law will likely decrease the total number of citations the City issues per month, thereby decreasing overall program revenues in FY 2010 and future years. Staff is currently monitoring the impact of this new law on the City's Speed Camera Fund revenues, and will have more information (including four months of data) for the February budget preview.

Under the current assumptions, the FY 2011 Speed Camera Fund will support 7.0 positions, the operating costs of the program, as well as several CIP projects which focus on pedestrian and traffic safety (note: all Speed Camera Fund revenues must be used for public safety expenditures).

Mayor and Council History
Each year, it is the City Administration’s practice to provide the Mayor and Council with a preview of the upcoming year’s budget in the late fall. This is the first Mayor and Council preview for FY 2011.

Fiscal Impact
This presentation contains information that will impact the revenues and expenditures of the FY 2011 Operating and CIP budgets. Staff will incorporate the policy direction and guidance of the Mayor and Council and determine the fiscal impacts of each decision during the budget development process.

Next Steps
The remaining departments will present at next week's Mayor and Council Meeting on December 14, 2009, FY 2011 Budget Preview - PART II. After the department reports, Budget staff will present the overall budget principles that will be used in the FY 2011 budget development process. At this time it is expected that the Mayor and Council will provide policy direction and guidance with respect to program and project priorities.

The City Manager and the Budget Office will return in late-February to update the Mayor and Council with new information about revenues and/or expenditures that will impact the overall FY 2011 General Fund and enterprise fund budgets. The City Manager and the Budget Office will then incorporate any new policy direction and guidance of the Mayor and Council into the Proposed Operating and Capital Improvements Program budgets.

The FY 2011 Proposed Operating and Capital Improvements Program budgets will be presented to the Mayor and Council in late March 2010. Once the Proposed Budget is presented in March, several public hearings and worksessions will take place with budget adoption scheduled for May 24, 2010.

Attachments
Attachment A - Cost Center Summary (All Funds)


Attachment B - Line Item Summary (General Fund)

Department Head:



Gavin Cohen, Director of Finance
Approved on: 11/24/2009

City Manager:

Scott Ullery, City Manager
Approved on: 11/24/2009