Recommendation
Staff recommends that the Mayor and Council review and file the FY 2009 Budget Preview/Worksession - Part II and offer any additional guidance as necessary for preparing the FY 2009 Proposed Operating and Capital Improvement Program budgets.

Discussion
On November 26, 2007 City staff provided the Mayor and Council with a preview of the FY 2009 Proposed Budget that focused on the General Fund. Several budget principles that the FY 2009 budget is going to be based upon were included as part of that presentation. The major revenue principles, as articulated in the attached report, included retaining the real property tax rate at $0.302 per $100 of assessed valuation, continuing with the Homeowners' Tax Credit Program that targets low-income taxpayers, conservatively estimating revenues, and looking for opportunities to maintain or improve cost recovery through evaluating current fees or looking for additional revenue sources.

On the expenditure side, staff highlighted the need to maintain program and service levels while implementing the new Mayor and Council's priorities, the workspace shortages and the need to find additional workspace, maintaining competitive salaries and benefits including resources to address COLA, pay-for-performance, and the compensation survey results, and funding retiree health care costs based upon the GASB 45 actuarial valuation study. In addition, staff recommended maintaining the transfer to the CIP at a minimum of $4 million, incorporating the operating cost impacts of the FY 2008 CIP, funding the parking revenue gap, and not subsidizing the Town Center shuttle. The Mayor and Council unanimously approved these principles (Councilmember Gajewski was absent). At the conclusion of that meeting staff notified the Mayor and Council that there would be an additional worksession in mid-February to discuss the enterprise funds, utility rates, and any significant changes to the City's priorities or budget principles.

Tonight’s presentation seeks the Mayor and Council’s concurrence with the current direction of budget preparation, specifically the FY 2009 enterprise fund rates (with the exception of the water rates). There will be other opportunities for the Mayor and Council to provide additional guidance and direction during the public hearings, scheduled for March 31, 2008 and April 14, 2008, and/or during the next Mayor and Council worksessions, scheduled for April 28, 2008 and May 5, 2008.

General Fund
The General Fund is the primary operating fund of the City and is used to account for the City's normal activities. The major revenue sources for the General Fund are property taxes, income taxes, gasoline and motor vehicle taxes (referred to as highway user revenue), tax duplication payment from Montgomery County, and charges or user fees for services. Staff reported in the November Budget Preview that the estimated General Fund budget for FY 2009 totaled $62.4 million, an increase of approximately $3.5 million from FY 2008. Since the November Budget Preview, staff has learned that highway user revenue will decrease by approximately $200,000 bringing the total General Fund revenue to $62.2 million, an increase of approximately $3.3 million or 5.6% over the FY 2008 adopted budget. Since November, staff has also confirmed that the County Executive will recommend that the tax duplication payment from Montgomery County will remain the same as in FY 2008, approximately $2.2 million, while tax duplication is being studied by the County/Municipal Task Force.

One of the focuses of the FY 2009 budget will be in the support services area. Support services consist of Finance, Human Resources, Information Technology, and the City Manager's office. Through the utilization of technology, staff will be implementing modern systems and business practices in all of these areas that will increase efficiencies, assist with recruiting staff, and allow the infrastructure that directly supports the provision of services to city residents to support the continued growth in service demands. Resources will be recommended to support additional staffing in these areas, along with the technology that is needed in order to modernize and improve.

Water Facility Fund
The Water Facility Fund is used to account for the financial activity associated with the treatment and distribution of potable water. Recently, the Department of Public Works finalized 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, the City is anticipating substantial new Water Fund operating and capital expenses related to addressing the concerns identified in each of the studies.

Staff is currently looking at the most appropriate way for financing such significant operating and capital expenses and is in the process of running several different iterations of usage rates and ready-to-serve charges. Staff will have a recommendation for the FY 2009 water rates included in the FY 2009 Proposed Operating Budget in March. All recommendations will be made with the principle of having the lowest rates over time for Rockville residents, while ensuring that costs are equitably distributed to all system users. Although the rates are not finalized, the FY 2009 Proposed Budget will continue with the three-tiered water rate structure and the ready-to-serve charge.

Sewer Fund
The Sewer Fund accounts for the financial activity associated with the collection and treatment of sewage. Charges are based on water consumption unless the customer uses a sub-meter. The Sewer Fund budget for FY 2009 is based on the March 2006 Water and Sewer Rate Study recommendations approved by the Mayor and Council on June 5, 2006. The FY 2009 proposed sewer charge equals $3.97 per 1,000 gallons. This is an increase of $0.15 or 3.93% over the FY 2008 adopted rate of $3.82 per 1,000 gallons. This rate is slightly lower than what was included in the March 2006 Water and Sewer Rate Study.

Refuse Fund
The Refuse Fund is used to account for the financial activity associated with the collection and disposal of refuse, recycling, and yardwaste. As approved by the Mayor and Council on December 17, 2007 the FY 2009 Proposed Budget will be based on a semi-automated once per week refuse and recycling program. The refuse rate for the FY 2009 Proposed Budget will remain the same as the Adopted FY 2008 rate of $32.70 per month. As presented to the Mayor and Council in December, the semi-automated once per week system provides reduced operating expenses because less personnel, contractual services, commodities, and vehicles and equipment are needed. Because of these reduced operating expenses, the rate does not increase from FY 2008, and staff will strive to ensure that the rate will remain at $32.70 during the entire implementation of the new system.

Parking Fund
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 within Town Square, the Town Center Parking District was formed. The Parking District tax rate for FY 2009 is proposed to continue at $0.30 per $100 dollars of assessed value in addition to the $0.302 rate on all real property within the City. This tax will continue to provide over $90,000 towards funding the District. Additional revenues include $130,000 PILOT payment and $180,000 in capital contributions from Montgomery County, and $53,000 PILOT payment from the City of Rockville.

As adopted by the Mayor and Council on January 28, 2008, the Pay-by-Space system in the Town Square parking garages will be activated in March 2008. A charge of $1.00 per hour for parking in the Town Square parking garages will be implemented from Monday to Friday, 7:00 am through 7:00 pm, and a rate of $85 per month for monthly parking in the Town Square garages will be instituted.

The projected revenues from all parking operations in FY 2009 are estimated to be approximately $2.6 million. In addition to the revenues generated by the Parking Fund, staff proposes a transfer of $950,000 from the General Fund to the Parking Fund to assist with the Parking Fund revenue gap. This is consistent with the transfer that was included in the FY 2008 adopted budget.

Stormwater Management Fund
The Stormwater Management (SWM) Fund accounts for the financial activity associated with maintaining existing SWM facilities and constructing new facilities. Recent staff reports indicate that a Stormwater Utility Fee is 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 new development nearly complete and redevelopment presenting different challenges, staff identified the need to seek other funding sources to cover the maintenance of the public stormwater infrastructure and new programs.

On December 17, 2007 staff introduced a new ordinance to amend the City Code to include a new Stormwater Management Utility Fee. This annual fee, $55.80 annually per Equivalent Residential Unit ("ERU"), was established to provide a dedicated revenue source for the SWM Fund. The new utility fee provides sufficient funding so that all stormwater related costs in the General Fund can be transferred to the Stormwater Management Fund in FY 2009. Total SWM revenues for FY 2009 equal approximately $3.6 million with $2.2 million of that total coming from the new fee. In FY 2009 there will be approximately $475,000 available in the General Fund to fund other operating expenditures as a result of the new Stormwater Utility Fee.

RedGate Golf Fund
The RedGate Golf Fund is used to account for the financial activity associated with the City's public golf course. A study that analyzed the financial situation of the golf course was presented to the Mayor and Council on March 27, 2006. FY 2009 will be the third year of a five-year business plan intended to help the RedGate Golf Course achieve the objective of generating sufficient revenues through fees and charges to pay for the costs of operations, capital outlay, and infrastructure improvements.

Although the overall revenues of the Golf Fund and rounds played at the RedGate Golf Course have increased since the adoption of the 5-year business plan, the Fund continues to have a substantial deficit that it must overcome. The Fund is projecting total revenues for FY 2009 of approximately $1.2 million, consistent with the FY 2008 adopted budget. The fees/rates from FY 2009 will remain the same as in FY 2008. As part of the 5-year business plan, the City will transfer $93,000 to the RedGate Gold Fund to support capital improvements as listed in the RedGate Golf Course Improvement CIP project (project 340-900-7A66).

Town Center Management District Fund
The Town Square Street and Area Lighting District and the Town Square Commercial District were created in FY 2008 to support the maintenance and operational costs of the Town Center Management District. The Town Square Street and Area Lighting District (which is comprised of both residential and commercial properties) and the Town Square Commercial District (comprised of all commercial properties) will levy special district property taxes on the properties within the Town Square boundaries. The tax rates will be set to cover the proposed expenditure budget for the Town Center Management District Fund. The total FY 2009 budget for the Town Center Management District will equal approximately $820,000, an increase of 12% over FY 2008. Staff is currently evaluating the actual assessed values of the properties within the Town Square boundaries in order to develop the tax rates for FY 2009.

Speed Camera Fund
The Speed Camera Fund is a special revenue fund that was created to track the financial transactions associated with the City's speed camera program. In FY 2009, an estimated 10,000 citations will be paid per month generating net revenue of $2.85 million in the Speed Camera Fund. By state law, the program revenue is not available for general City operations. In keeping with the restricted nature of the fund, it is recommended the revenues be used in FY 2009 to enhance the Pedestrian Safety (project 420-850-4B71) and Street Lighting Improvements (project 420-850-5A91) CIP projects, and add two police officers to the Police Department's Traffic Unit.

Mayor and Council’s Vision and Two-Year Priorities
At its retreat of January 11-13, 2008, the Mayor and Council developed its long-range vision for Rockville, and identified City priorities for the next two years. The vision document is still in draft form, and will be scheduled for a Mayor and Council worksession in the near future. The Mayor and Council’s two-year priorities for each of the seven vision target areas, which are listed below, have been introduced into the FY 2009 budget preparation process.

Distinct Neighborhoods, One City
- Ensure in our planning processes that pedestrian needs are met.
- Develop a Master Plan for bike and pedestrian ways that surveys all signs, crossings, and sidewalks, identifies needed enhancements, and prioritizes the needs.
- Educate and provide operational support to neighborhoods for programming holiday events.
- Undertake an aggressive campaign and lobby the Montgomery County Public Schools to ensure that Rockville school children are assigned to schools within Rockville.

A Cultural Destination
- Prepare and implement a cultural plan with ambitious goals for cultural amenities, including programs for cultural and entertainment activities throughout Town Center.
- Support and encourage the development of the new soccer team that will use the RMHS field.
- Continue to spearhead bringing a Science Center to the City

Green City
- Continue conducting an environmental education campaign, to include recycling, eradicating invasive species, and other activities fostering environmental quality.
- Create an incentive program for homeowners and citizens to adopt practices that reduce the negative environmental impacts of their homes and behaviors.
- Identify and tap into federal and state funding programs for improving energy conservation and efficiency.
Quality Built Environment
- Successfully complete the new Zoning Ordinance approval process.
- Conduct a street lighting adequacy survey.
- Improve PEPCO’s responsive and quality of service.

Exceptional City Services
- Reexamine the Charter with regard to the City Council’s size, term length and concurrence, and at-large representation.
- Better define the authority of and coordination among boards and commissions, the process for filling vacancies, and the qualifications of members.
- Analyze and adopt, if feasible, a property tax deferral program for seniors.

Economic Development and Sustainability
- Develop and implement a City branding campaign with a goal of attracting the public to Rockville.
- Encourage the business community to become more involved in civic and community activities, including the City joining the Montgomery County Chamber of Commerce and the Committee for Montgomery County.
- Develop partnerships with local venues to increase local entertainment.

Community Engagement
- Improve the effectiveness and inclusiveness of citizen input systems, with the objective of achieving as broad and unifying a consensus as possible.
- Increase resources for web-based and other technology-based methods for information dissemination.

Mayor and Council History
The following Mayor and Council meetings have addressed items that are presented in this budget preview:

March 27, 2006: RedGate Golf Course Financial Review
June 5, 2006: Water and Sewer Rate Study Recommendations
November 26, 2007: FY 2009 Budget Preview - Part I
December 17, 2007: Stormwater Management Utility Fee Introduction
December 17, 2007: Refuse and Recycling Program
January 11 - 14, 2008: Mayor and Council Retreat
January 28, 2008: Town Square Parking
February 4, 2008: Public Hearing on Stormwater Utility Fee

Fiscal Impact
This presentation contains information that will impact the formulation of the FY 2009 Proposed Operating and Capital Improvements Program budgets. Staff will incorporate any additional direction and guidance of the Mayor and Council into final budget development.

Next Steps
The FY 2009 Proposed Operating and Capital Improvements Program budgets will be presented to the Mayor and Council on March 26, 2008. Once the Proposed Budget is presented in March, two public hearings are scheduled for March 31, 2008 and April 14, 2008, and two work sessions are scheduled for April 28, 2008 and May 5, 2008. Final FY 2009 Operating and Capital Improvement Program budget adoption is scheduled for May 19, 2008.

Attachments

Department Head:



Gavin Cohen, Director of Finance
Approved on: 02/05/2008

City Manager:

Scott Ullery, City Manager
Approved on: 02/06/2008