FY 2019 Approved Budget

The City is pleased to present this summary of the approved annual budget for the fiscal year which begins July 1, 2018 and ends on June 30, 2019. The general fund budget is balanced, with revenues meeting expenditures.

Highlights of 2018-19 Approved Budget

For the full budget, please click: FY 2019 Approved Operating & Capital Budget

Highlights:

Budget is in compliance with the Board of Mayor and Aldermen’s debt and fund reserve policies, significantly exceeding the reserve requirements.

The City property tax remains unchanged at $0.4176 per $100 of assessed valuation.

The Invest Franklin dedicated funding for infrastructure/ transportation investment and support of City operations remains in place. Find out more on Invest Franklin here.

Overall, the approved budget has net increase of 4.5 positions across all funds, 1.5 in in the general fund. This targeted group of new positions are in Engineering, Water Management, and Stormwater, all of which have been impacted by growth.

The approved budget includes a general pay increase of 2.5% plus an additional performance-based pay increase of up to an additional 2.5%.

The City of Franklin continues to maintain one of the lowest municipal property tax rates in the State of Tennessee.

The approved budget includes the full implementation of updates to the City's compensation plan approved by the Board in FY18. This adjustment to the compensation plan is accelerate by a full year compared to the original proposal. 
Health Insurance premiums for our City team members will remain at FY18 rates. There is no increase in premiums. In FY19, the City also will begin offering a high deductible health insurance option paired with a health savings account. 

Funding is provided for important investments in equipment replacements of $3.5 million, technology enhancements of $500,000, and facility improvements of $500,000.

The City's street maintenance program will have a $1 million increase in funding for neighborhood street resurfacing, street sealing, and sidewalk repair. 

A rate increase for residential garbage collection and recycling service is included in the approved budget. The increase from $17.50 per month to $19.00 per month. The FY19 budget does not require a General Fund subsidy to Sanitation and Environmental Services operations.

All Funds

The approved FY19 budget for all funds is $152,572,551 which represents a decrease of 2.8% compared to FY18. Increased budgeted expenditures across funds include increases in the General, Sanitation and Environmental Services, Transit, Street Aid, and Facilities funds.

FY 2019 All Funds Revenues Distribution by Category

FY 2019 All Funds Expenses Distribution by Fund

Major changes to each fund are described below. The General Fund is provided in greater detail below.

Street Aid and Transportation Fund. The City receives the local share of the state gasoline tax to fund the maintenance of local streets. The approved FY19 budget for this fund is $4.2 million, an increase of 33.3% or $1 million compared to the current year budget. Included in this budget is approximately $752,000 from the City’s property tax revenue to fund additional neighborhood street resurfacing. Approximately $600,000 of additional annual revenue has been realized in the Street Aid Fund due to additional gasoline tax from the IMPROVE Act (state transportation funding plan) passed in 2017 and increased population as determined by the City’s 2017 special census. Also included in the budget is approximately $175,000 for sidewalk repair and construction. Funding of $250,000 per year is provided for “sidewalk gap” construction as a part of the Invest Franklin program. Sidewalk projects funded through this initiative are designed to better connect neighborhoods throughout the community. FY19 marks the second year of the five-year commitment made by the Board in the Invest Franklin program.

Sanitation and Environmental Services Fund. The FY19 budget for the City’s Sanitation and Environmental Services Fund is $9.2 million, an increase of 7.5% compared to the FY18 budget. A rate increase from $17.50 per month to $19 per month is included within the budget for residential services. This increase will generate approximately $495,000 of additional revenue. Commercial rates were adjusted last year during FY18, moving from $45 per ton to $55 per ton. Because of these rate adjustments, the FY19 budget does not include a General Fund subsidy for the Sanitation Fund. A significant focus this year will be placed on developing a long-term, multiyear rate plan. The goal will be to produce a multiyear plan like what is in place within the Water/Sewer utilities. In addition, the City will continue to examine the ability of the SES team to meet service needs driven by growth as well as options related to enhanced efficiency and sustainability for residential services.

Road Impact Fund. Revenue collections within the Road Impact Fund continue to be solid thanks to strong development activity. Based on expected development activity, revenue in this fund is projected at $8 million for FY19. The approved budget anticipates $2.7 million in expenditures in the form of a transfer to the Debt Service Fund. This transfer pays the principal and interest on arterial road projects that the City has undertaken to account for trip generation by new businesses and residential development. The fund also includes direct contributions to approved projects within the Invest Franklin Capital Investment Program plus payments/offsets associated with existing agreements with developers who have provided right-of-way and/or have built elements of the City’s arterial road network. In 2017, the Board of Mayor and Aldermen expanded the road impact fee to include collector roads. The FY19 budget includes $5.7 million in expenditures.

City Facilities Tax Fund. The Facilities Tax Fund provides for the collection of privilege tax for new development to help pay for new public facilities/equipment attributable to growth. The approved FY19 budget includes $8.57 million for new Sanitation and Fire equipment and Fire facilities expenditures. The largest expenditure in the Facilities Tax Fund will be the construction of the new fire station in southeast Franklin (Fire Station 7). Fire Station 7 construction was approved as a part of the Invest Franklin Capital Investment Program. The facilities tax rates have not been updated since 2007.

County Facilities Tax Fund. This fund was created in FY18 to account for facilities taxes collected by Williamson County on behalf of cities. Prior to the creation of the County Facilities Tax Fund, these funds were incorporated in the City’s capital projects fund. The Board has targeted these funds to address infrastructure needs associated with schools and other public facilities. In 2017, funding from the County Facilities Tax were used to support the Enrichment Center ($500,000). In 2018, the County Facilities Fund supported the $100,000 Redesign of Long Lane/Goose Creek Interchange (improving access to the Williamson County Ag Center), the $300,000 Henpeck Lane Sewer Extension (providing sanitary sewer service to Oak View Elementary and a new middle school), and $500,000 within the Hillsboro Road Phase II project (providing enhanced pedestrian access and traffic management to/from Franklin High School).

Stormwater Fund. Residents and businesses pay fees to support the City’s efforts to manage Stormwater quality and quantity programs and initiatives. The rates for these services remain unchanged in the approved budget and have not been reassessed in more than ten years. The approved budget is nearly $6.1 million for FY19, a decrease of $131,000 from the FY18 budget. The budget includes approximately $3.5 million for capital improvement projects and equipment. The approved budget also includes the addition of one new position, an equipment operator. Additional staff will enable the City to better respond to increased service demands. In 2017, the City obtained Qualified Local Program status, which allows the City to act on behalf of the state in making regulatory determinations. This capability has enhanced the City’s responsiveness and efficiency in working with development.


All Funds Revenues - FY 2014-2019

Drug Fund. The Drug Fund is used to collect drug-related fines and confiscations received through the City’s enforcement efforts. These funds are also used to support drug investigations and related law enforcement initiatives. The approved FY19 budget includes expenditures of $72,500, a decrease of $187,000 compared to FY18. The FY18 budget included a significant equipment purchase (a replacement SWAT vehicle for the Police Department). 
Hotel/Motel Tax Fund. The City of Franklin levies a 4% local lodging tax on the gross receipts of hotels. Through the Hotel/Motel Fund, the City has historically paid debt service on the Conference Center (this debt is now retired); the purchase of land for park expansions (Harlinsdale, Eastern Flank, and Carter Hill); capital improvements to parks; and certain streetscape elements of road improvements that beautify the city and encourage tourism. The City also dedicates one-fourth of the 4% tax to support the Williamson County Convention and Visitors Bureau. With strong regional tourism, revenue growth in the Hotel/Motel Fund has been robust in recent years. The approved FY19 budget provides for $2.56 million in expenditures, which is a decrease of 8.3% compared to the FY17 budget. The appropriation falls within the projected resources of the fund. Capacity within the Hotel/Motel Tax Fund will be available to fund priority initiatives identified in the Invest Franklin Capital Investment Program.
Parkland Dedication Fund. Several years ago, the City created a system through which residential development would contribute either park land/facilities or make a financial contribution for the expansion of park land/facilities to ensure park services and amenities can appropriately meet the needs of new neighborhoods. While funds have been collected for this purpose, FY18 marks the first use of these funds. In FY18, the City made a payment of $500,000 for the acquisition of 80 acres of parkland along Carothers South Road in southeast Franklin. This parcel, which includes Robinson Lake, is immediately north of the 180 acres the City owns for park development and the potential future water reclamation facility. Currently, the In Lieu of Parkland Fund includes a fund balance of $4.7 million. The Board of Mayor and Aldermen is in the process of considering several amendments to the existing Parkland Dedication Ordinance. Examples of these amendments include creating incentives for developers of residential property to incorporate amenities within their developments and better align the fee-in-lieu-of with the true cost of purchasing and developing new parks.
Transit Fund. The City maintains a special revenue fund to account for the operation of the Franklin Transit System. The system is funded primarily by a General Fund transfer, state and federal grants, and rider fares. The transfer to the Transit Fund is $985,171, an increase from the current funding level of $892,993. This growth is due to planned increases in grants and fares because of the revamped fixed route service designed to link residents to employment opportunities and with a pick-up frequency of 30 minutes at all stops along the routes. In total, the transit budget is around $2.9 million.
Community Development Block Grant Fund. The City segregates funds received through the federally-funded Community Development Block Grant (CDBG) program to specifically benefit low- and moderate-income families and neighborhoods. For FY19, funding is expected to reach $250,500, a decrease of 8.6% compared to the FY18 budget. CDBG funding is subject to federal appropriation and potential budget cuts. If federal budget cuts occur, appropriate reductions will need to be made to the City’s CDBG program. 
Debt Service Fund. In 2009-10 the City created a separate Debt Service Fund. The fund is used to account for resources set aside to fund debt service and the actual principal and interest payments. The approved FY19 budget for the debt service fund is $13.8 million, a decrease of $201,935 compared to the FY18 budget. The debt service obligations of the General Fund are handled by designation of property tax directly to the Debt Service Fund. The approved FY19 budget includes $8.7 million of property tax for payment of general obligation debt service. Other than property tax and federal rebates granted for Build America Bonds issued in 2009 and 2010, the fund receives transfers from various operating and special revenue funds to cover debt obligations related to those funds. 
Water Management Fund. The City of Franklin operates water treatment, water reclamation (wastewater treatment), and reclaimed water utility systems. The operations of the water management utilities are entirely funded through rate payer revenue. The approved FY19 budget consists of $12.8 million for water, $15.5 million for water reclamation, and $391,725 for reclaimed water. In total, the combined FY19 Water Management budget is $28.7 million is a decrease of 18.3% compared to the FY18 budget. This decrease is due to the $4.7 million emergency repair of sections of large diameter pipe that took place during FY18. Since 2009, the City has adopted five-year rate plans based on projected costs of operation. The FY19 budget assumes rate adjustments of 3.5% per year for water and 5.5% per year for wastewater which is consistent with the fifth year of the existing five-year plan. Currently, the City is working with a consultant to conduct a new cost of service study. Through this independent study, the City projects the costs necessary to operate the utilities and allocates costs into the rate structure, serving as the foundation of the five-year rate structure. 

All Funds Expenses - FY 2014-2019

General Fund

The approved 2018-2019 (FY 2019) general fund budget is $70,550,059, which represents an increase of 1.7% compared to the current $69.4 million budget for 2017-2018 (FY 2018). This budget increase is primarily due to cost increases in personnel expenses and the funding of expanded services in the areas of public safety, parks, and streets, all of which are significantly impacted by growth.

General Fund Revenue Distribution by Category

General Fund Expenses by Department

General Fund Revenues

In total, general fund revenues for FY19 are projected at $70.55 million, up 1.7% from the FY 18 budget of $69.4 million. The following is a brief summary of revenue by category.

Sales Tax. The City’s largest single revenue source continues to be sales tax. Local sales tax collections are projected to account for 50.4% of total General Fund revenue. The FY19 sales tax budget of $35.6 million represents a growth of 4%, or $1.4 million, compared to the FY18 estimate of $34.2 million. The State of Tennessee Funding Board identified a range of 2.5% to 3.76% for statewide growth.

Intergovernmental Revenue. The second-largest category of revenue, intergovernmental revenue (also referred to as state-shared revenue), accounts for 16.7% of total General Fund revenue and is projected to be $11.8 million, a decrease of 3.2% compared to the FY18 budget of $12.2 million. The City did not receive as much increased revenue as expected during FY18 due to modifications in the application of the state-wide sales tax to certain purchase categories.

Property Tax. The third-largest revenue source for the City’s general fund is property tax, which accounts for 10.8% of General Fund resources. The amount of property tax revenue going to General Fund operations for FY19 is $7.7 million, compared to $6.8 million budgeted in FY18. The General Fund portion of property tax revenue is the result of the total property tax of $20.7 million minus $2.0 million due to the City’s Industrial Development Board, plus an additional $8.7 million for the Debt Service Fund and fund reserves for the Street Aid & Transportation Fund and for Invest Franklin. The City’s property tax rate remains at $0.4176 per $100 of assessed valuation, which is one of the lowest property tax rates among cities across the State of Tennessee and across the country.

Alcohol Taxes. Local governments in Tennessee receive wholesale beer/liquor taxes from distributors and privilege taxes from local businesses that serve liquor by the drink. For the FY19 budget year, these various alcohol taxes are projected to generate $4.3 million, accounting for 6.1% of General Fund revenue. The projected FY19 revenue is 4.2% above the FY18 budget of $4.15 million.

Building Permits and Licenses. As construction activity continues to grow, the City of Franklin is budgeting building permit and license fees revenue of $3.5 million in FY19, an increase of $133,459 compared to the FY18 budget. These fees allow the City to recover the costs associated with providing construction-related services. Building permit and license revenue accounts for 5% of the General Fund revenue.

Franchise Fees. The collection of franchise fees from cable and gas utility providers accounts for 3.4% of General Fund revenue. For FY18, $2.4 million is projected in franchise fees.

Other Revenues. Other revenue categories of note include grants, municipal court fines/fees, and interest income. Grant funding and court fines/fees are projected down compared to FY18. Interest income for FY19 is projected to grow by 19.4% compared to FY18. All other revenues in these categories are projected to be relatively stable compared to prior years.

Historic collections for FY 2014-2017 and budgeted estimates for FY 2018 & FY 2019 are shown below:

FY 2014-2019 General Fund Revenues by Major Category

General Fund Expenditures

As described above, the total available resources within the General Fund is $70.55 million for FY19. Through the budget process, the expenditures necessary to maintain service levels are defined in the base budget.

Employee Earnings and Benefits. The cost of wages and benefits for City team members (employees) accounts for 72.7% of the City’s general fund budget. Overall, employment-related costs are projected at $51.3 million, 6.5% higher than the current budget of $48.1 million.

Pension Expense. At the end of December 2016, the City of Franklin closed its City Employee pension program and entered into an agreement with Tennessee Consolidated Retirement System (TCRS) for the ongoing administration of the pension system. While TCRS will administer and manage the “closed” City pension program, the City is still responsible for its oversight and for determining the appropriate annual contribution based on the advice of its actuary. City employees hired after December 31, 2016, enter into the TCRS system upon hire and are full participants in the system. The City contribution to TCRS for enrollees is 6.2% of salary. Based on the advice of the actuary, a 7% increase in the City’s pension contribution is included in the FY19 budget. Overall, pension expenses for FY19 are projected at approximately 10% of total payroll.

Position Vacancies. Again this year, the recommended budget includes a turnover factor of 3.5% that is applied to budgeted wages and salaries. This method anticipates that there will be some employee turnover during the year that will result in budgetary savings. By conservatively estimating this amount, we are able to apply budget dollars to other nonpersonnel components of the budget. The City’s actual vacancy experience over the past seven years has been approximately 6%. While conservative compared to recent experience, the 3.5% turnover factor employed in the budget will continue to be monitored closely.

Salary Adjustment. The approved FY19 budget includes a total $1.3 million for annual pay adjustments. The annual pay increase for City team members will involve two components this year: 1) approximately 60% of the pay adjustment will be allocated in an across-the-board 2.5% general pay increase and 2) an additional pay increase ranging from 0.5% to 2.5% will be provided to City team members based on their 2017 performance evaluations. As a result, City team members will receive pay increases ranging between 3% and 5% based on their performance. The pay adjustment will be effective the first pay period in July 2018. A similar pay adjustment approach was implemented in FY18.

Compensation Plan review. During FY18, the City completed a comprehensive update of the City’s compensation plan. The Board of Mayor and Aldermen approved updates to the plan including an increase of 10% to all pay grades and adjustments for individual team members where needed to ensure an appropriate level of progress through the pay range. When initially approved, the plan was to implement these changes over an 18- month period from January 2018 through July 2019. At that time, Board members asked that implementation by July 2018 be explored as part of the FY19 budget process. The approved FY19 budget includes the full implementation of the compensation plan update both in terms of pay grade adjustment and any individual pay adjustments necessary based on the review of their progression through the pay grade.

Employee Benefits. For the past several years, the City has adopted a specific approach to sharing health insurance costs with employees. Using this policy, the City pays 85% of the premium for single coverage and 80% of the premium for employee family coverage for active employees. Through this approach, we as an organization communicate to our team the importance of controlling healthcare expenses as we share in managing this cost together. Overall, the City’s health insurance costs will remain flat for FY19. In FY18, the City modified the structure of health insurance plan options for City team members. For many years, the City has offered either single or family coverage options. Starting in FY18, the City began offering four options to its team members (and qualified retirees): single coverage, single plus spouse, single plus children, and family coverage. By expanding options, the City will enable employees to select the coverage option that best fits their needs. In FY19, the City will begin offering team members the option to use a true high deductible health insurance plan paired with a health savings account.

FY 2014-2019 General Fund Expenditures by Program Area

Operations. The operations expenditure category is a broadly defined category that encompasses non-personnel and non-capital activities. It includes utilities, supplies, contractual services, repairs and maintenance, and vehicle fuel. In total, operational expenses account for 21.8% of General Fund expenditures. The approved FY19 budget amount of $15.4 million for operations is a decrease of 10.0% from the FY18 budget, primarily due to continued cost-containment measures and the elimination of one-time expenses such as lease payments.

Transfers to Other Funds. There are no operating subsidies to the Street Aid and Transportation Fund in 2018-19. The transfer to the Transit Fund is $985,171, an increase from the current funding level of $892,993. There is no budgeted subsidy planned for the Sanitation and Environmental Services Fund. The subsidy to this fund has moved from a $4.5 million General Fund subsidy in FY2008 to no budgeted transfer in FY19.

Capital Expenditures. Capital expenditures are defined as the purchase of equipment, vehicles, machinery, and computer hardware/software that has a multiyear useful life and a cost more than $25,000. This category does not include the Capital Investment Program (CIP), which is the plan for implementation of large-scale public infrastructure and building projects. For the approved FY19 General Fund budget, capital expenditures are projected at $3.9 million. This expenditure level is a decrease of $250,000 compared to FY18 budget of $4.1 million. The majority of FY19 expenditures are for replacement equipment. To assist in funding these capital equipment replacements, the FY19 budget will utilize the $0.015 of the property tax rate previously identified for capital investment funding. This funding represents approximately $752,000.

Outside Agency Funding. The City funds various government, human service, nonprofit, and community service organizations through its budget each year. In total, the FY19 budget funds these organizations at $516,301, an increase of $55,245 compared to the FY18 budget. While no new agencies were added to City funding, there were increases requested by several agencies, including a contractual increase for the Williamson County Animal Control services, increased funding for the 91X regional bus service, and an additional $10,000 to Williamson Inc. for economic development initiatives.

Cash Reserves and Bond Rating. Two key measures of a city’s financial health are its reserves and its bond rating. The City has adopted a reserve policy that identifies a 33% General Fund reserve as an important benchmark. The City of Franklin is projected to end the current fiscal year (FY18) with a General Fund reserve of $44.7 million. With no draw from General Fund reserves planned, this same fund balance is projected for FY19. $44.7 million represents 63.3% of annual revenue and expenditures at the end of FY19. In 2014, the Board identified a policy to permit the use of reserves above 45% for “pay as-you-go” funding of capital investment projects. Given this policy and the current projections for General Fund cash reserves, up to nearly $13 million from reserves could be available for funding capital projects.

Clearly, the City is maintaining significant reserves to comply with BOMA policy and to protect against future economic downturns. The BOMA-adopted debt and fund reserve policy provides a needed framework for maintaining the City’s Triple-A bond rating by both Moody’s Investors Services and Standard & Poor’s. Bond ratings generally reflect both the overall financial strength of the governmental entity and the health of the local economy. Franklin’s rating from two bond-rating agencies is the highest possible and places it in a select group of cities across the United States.

FY 2014-2019 General Fund Expenditures by Major Category

Summary

The City of Franklin continues to experience dynamic population and economic growth. Our reserves are at strong levels, our debt obligations are manageable, and our tax rate is among the lowest in the state and country. The City leadership team has taken decisive action over the past several years to control costs and live within our means while finding new, innovative ways to deliver exceptional services to the community. Continued strong financial management, implementation of technology, adoption of best practices, and strategic investment will position the City of Franklin to succeed and thrive in the years to come.

Respectfully submitted,

Eric S. Stuckey

City Administrator