cityofCINCINNATIInterdepartment Correspondence Sheet

October 6, 2015

FOR YOUR INFORMATION

To: Mayor and Members of Council

From: Harry Black, City Manager ~ (3Subject: Department of Finance Reports for the Fiscal Year Ended June 30, 2015

The attached recommendations related to the year end closeout will be submitted to City Councilon October 7, 2015.

Overall, these recommendations continue our work to improve the Citys long-term financialposition while providing opportunities to fund critically important immediate needs. On behalf ofthe Administration, I look forward to working with you throughout this process and to answer anyquestions you may have.

Attachment

cityofCINCINNATIInterdepartment Correspondence Sheet

TO: Mayor and Members of City Council October 7, 2015

FROM: Harry Black, City Manager/4~

SUBJECT: Department of Finance Reports for the Fiscal Year Ended June 30, 2015 (unaudited)

The following report provides an overview of the City of Cincinnatis financial condition for the fiscal year ending June 30,2015. Final revenue and expenditures are compared against the original estimates at the beginning of the fiscal year.Revenue and expenditure trends are reviewed, followed by an explanation of the General Funds year-end carryoverbalance. This report also includes FY2016 and FY2017 budget considerations for discussion.

General Fund 2015 Fiscal Year End Balance

I am pleased to report that as shown in the summary table below, the Citys General Fund ended fiscal year 2015 with anactual carryover amount of $19.0 million compared against the original 2015 budget estimated at $3.9 million, anincrease in fund balance of $15.9 million. This surplus is primarily the result of an increase of $11.8 million in one-timerevenue and expenditure savings of $2.3 million, as explained in further detail below. The FY2016 approved budget doesnot use any of the $19.0 million carryover balance.As an initial priority for the use of the surplus, the Administration recommends compliance with the minimum 10%reserves balances as presented to the rating agencies in July, and based on the City Council approved Fund StabilizationPolicy. This transfer reconfirms the fiscal responsibility as laid out by the Administration. Also included is the $2 milliontransfer approved by City Council on July 1, 2015 to address the evolving police technology needs and a transfer of $2million to the capital project Body Cameras to fund the implementation of the police body worn camera project asrequested by the Mayor and City Council. Finally, a $2 million transfer is recommended to various operating and capitalaccounts-to-address-one~time-needs-of-the-City----Again~the-cash-basis-fund-balance including reserves is projected to be$37.2 million, or 10.04% of FY 2015 actual revenues as depicted in the report.The following chart summarizes the FY2015 year end and recommended transfers:

General Fund Resourses, Expenditures and Carryover (in thousands)

FY 2015 Original Budget FY 2015 Amended Budget FY 2015 Actual $ ChangeResourses:

Revenues $358 191 $358,255 $370,065 $11,800Transfers n $0 $3 $3 $0Total Resources $358 191 $358 268 $370,068 $11 800

Expenditures:

Operating Expend ures $356,519 $367,746 $365,476 $2,270Transfers Out $1 672 $5,422 $5,422 $0Total Expenditures $358 191 $373 168 $370,898 $2,270

Operating Surplus/Deficit $0 -$14,900 -$830 $14,070

Prior VearCarryover $4929 $18 $18,Cancel ed Encumbrances $0 $0 $1,847 $1,847Cash Basis Carryover Balance $4 929 $3 104 $19,021 $15 917

Less Application ofStabilization Fund Policy.

Genera Fund Cont ngency Fund (1.25% of ope ating revenues $0 $4,

Emergency Reserve $0 $27

Working Capita Reserve (1% of operating revenues) $0 $3 700

Tota $0 $8,327

Net Cash Basis Carryover Balance Before Uses $10,694

Po ice nfoLrnation Techno ogy and Equ pment A ocation $2 000(Orci nance 247-2015

P oposed Transfers:Safer Streets Al ocation $3 375Thriv ng and Healthy Neighborhoods A locaton $625

Total Proposed Transfers $4,

Net Cash Carryover Balance After Uses $4 694

What follows is a brief explanation of resources received and expenditures that occurred throughout the year to achievethe ending Ff2015 carryover balance.

Total Resources

General Fund Revenues Actual FY2015 revenues of $370.1 million are above revenue estimates of $358.3 million by$11.8 million, or 3.3%. Factors that contributed to the revenues being 3.3% over the estimate are:

Favorable Variances:

City income tax finished the fiscal year $3.9 million or 1.52% above the FY20 15 budget estimate. Income taxcollections derived from employer withholdings were up 3.3% year-to-year. Corporate net profits were attheir highest levels in six years, ending the year up 20% year-to-year. In FY2015, income tax collectionswere derived approximately 82% from withholdings and 18% from individual payments/business net profits.

Estate tax, although repealed by the State of Ohio in 2012, ended the fiscal year with $1.7 million. Thisrevenue stream had always been difficult to project. However, in recent years estate tax revenue hasexceeded projections and has helped to balance out other revenue streams that underperformed. In FY2016,no monies were forecasted or budgeted and it is highly unlikely we will receive any additional monies goingforward.

Admission taxes were $822K over estimates due to increased revenue from concerts, sporting events andstage plays. We will continue to monitor trends and have adjusted the FY2016 projections accordingly.

Licenses and Permit fees were up $2.5 million based primarily on large scale building expansions occurring inuptown Cincinnati. This is project-driven based on economic development initiatives.

Fire revenues ended the year up $460K based on continued strong results in the EMS billings and collections.A change in the EMS billing administrator has helped achieve intended results in efficiently billing andcollecting EMS fees.

The Local Government Fund (LGF) receipts ended the year over estimates. The LGF was up $622K. Theincrease was the results of stronger state revenues that are shared with local municipalities.

Unfavorable Variances:

Fines, Forfeitures and Penalties ended the year 16% or $1.1 million below projections. This was the onlyrevenue category that failed to perform or meet its estimate. The parking fine revenue estimate wasincreased by $2 million dollars for FY2015 due to the expansion of parking meter hours and the hiring of afull complement of parking enforcement officers. The collection of parking fines ended the year belowestimates by $1.1 million. Parking Facilities officials contribute this shortfall to a number of factors including aslight delay in training and certification of a full complement of parking enforcement officers, the delay in theinstallation of new meters until January of 2015 and the vandalism of meters. FY2016 parking fine revenueswere not adjusted due to the one-time factors management delineated that impacted FY2015.

Net Transfers

The net transfers for FY2015 were $5.4 million. Transfers-out of $4 million were designated for repayment of the TIFfunds used for School Board payment in 2011. An amount of $750,000 was transferred out for the All Star Game and$672,000 was disbursed as partial repayment to Bond Retirement for debt service borrowing in 2010.

Total ExpendituresActual FY2015 operating expenditures of $365.5 million, which are a combination of actual expenditures andencumbrances, were higher than the FY2014 expenditures by $1.2 million and less than budget by $2.3 million. Thesavings is due to the timing of filling vacancies in the newly established departments of Community and EconomicDevelopment and Economic Inclusion, position vacancy savings due to the soft freeze implemented for the last twomonths of the fiscal year, and non-personnel savings in Fire, Public Service and ETS. This total savings variancerepresented 0.6% of the total budgeted expenditures. There was not a savings budgeted as part of FY2015 but annuallyabout 0.5% of the budget is not expensed.

Cancelled Encumbrances

Cancelled encumbrances are planned or anticipated expenditures that did not materialize into actual expenditures.Cancelled encumbrances effectively return resources back to the fund balance of the General Fund and thereby contributeto the carryover balance. During the year, the Finance Department reviewed prior year encumbrances in order to achieveadditional savings for FY2015 and cancelled encumbered funds accordingly. In FY2015, actual cancelled prior yearencumbrances were $1.8 million.

Stabilization Funds Transfer

The Government Finance Officers Association (GFOA) recommends that local governments establish a formal policy onthe level of unrestricted funds that should be maintained in the general fund. The Citys Fund Balance Stabilization Policyapproved by City Council references GFOAs recommended two months of operating revenues, or 16.7%.

The four components that make up the Citys Stabilization Funds are the General Fund Carryover Balance, General FundContingency Account, Emergency Reserve and the Working Capital Reserve. The total Stabilization Funds balance at theend of FY2015 is $43.1 million which is composed of $21.7 million in Working Capital Reserve, $2.4 million in theEmergency Reserve and $19.0 million in carryover fund balance and is 11.7% of actual FY2015 General Fund revenues.

City of CincinnatiReserve Accounts

Actual Balances FYE2O15

General Fund Carryover Balance $ 19,020,947 5.14%General Fund Contingency Account $ - 0.00%Emergency Reserve Account $ 2,415,000 0.65%Working Capital Reserve $ 21,714,135 5.87%Combined Reserves $ 43,150,081 11.66%Actual Revenue $370,064,449

million is recommended to the Contingency Fund Account to bring the balance to the recommended level of 1.25%.Finally, a transfer of $27K will be requested to the Emergency Reserve account to bring the balance to .66% of FY2015revenues. The remaining carryover balance after uses will be $4.7 million and will remain in the General Fund.

C ty of CincinnatReserve Accounts Based on Stabilization Funds Po icy

Projected Balances FYE2O15 after Uses

Genera Fund Ca ryover Balance (Afte Uses) $ 4,693,947 1.26%Genera Fund Contingency Account $ 4,600,000 1.25%Emergency Reserve Account $ 2,442,000 0.66%Working Capital Reserve $ 25,414,135 6.87%Total Combined Reserves $ 37,150,081 10.04%

General Fund Additional TransfersThe transfer ordinance will also include transfers for departments operating budgets for one-time uses of funds forvarious projects as detailed below. These are all one-time expenditures designed not to have any ongoing budgetimpact. The exception to this will be the establishment of a data scientist position. The recommended funding belowwould cover year end costs. The 2017 budget will establish ongoing funding. The goal will be to make it budget neutral.

SAFER STREETS: Additional Public Safety Related Transfers- $3,375,000

Body Worn Cameras Project: $2,000,000o Body worn cameras will be implemented during FY2016, and the Administration recommends $2

million from the General Fund carryover balance to be used for this initiative. The transfer ordinancewill include $2 million transferred to the existing capital project for Police Body Cameras. This shouldbe viewed as a down payment on this initiative, not the full amount that will be required to have afully operational program.

Additional Police Visibility Overtime: $500,000o Appropriate additional funds to expand the police visibility overtime / hot spots initiative for FY 2016.

Cincinnati Citizens Respecting our Witnesses (CCROW): $200,000oThe-program-is-called-CCROW-and-stands-for-Cincinnati-Citizens-Respecting-Qur-wjtnesses---Money

would be used to protect witnesses of violent crimes who come forward to report these crimes andthen are facing the threat of violence as a result.

Narcan / Heroin treatment support: $150,000o Additional support for heroin treatment by supplying Narcan kits for the Fire Department.

Start up for Cincinnati Police Department mounted patrol: $50,000o Budget covers start-up costs for reinstating the mounted patrol unit as supported by nine members

of City Council. Ongoing annual expenses would still need to be budgeted in FY 2017. Hamilton County partnership on re-entry for ex-offenders and support: $175,000

o Cincinnati Initiative to Reduce Violence (CIRV) proposal that includes matching funds from HamiltonCounty.

Data Scientist for Police Crime Statistics: $150,000o Add an additional FTE to the Office of Performance and Data Analytics to focus on crime statistics to

create a proactive crime plan.o This will fully operationalize the position including the salary and all associated start-up costs.o Money will be used to bring on a data scientist to the Office of Performance & Data Analytics allows

the performance management work to evolve from looking backwards at past performance to beingpredictive about where city services are needed most in a way that will drive departments daily work.Through CincyStat sessions this summer, the City Managers Office and OPDA have identified

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datasets and performance metrics that allow the City to track in detail how well departments areperforming. The CincyStat and Innovation Lab sessions have also helped internal stakeholdersdevelop an in-depth understanding of day to day operations. The Chief Data Officer has worked toopen up direct access internally and externally to city datasets. With guidance, a data scientist cannow leverage an understanding of performance metrics, day to day operations, and access to Citydatasets to provide predictive, actionable insights that departments can use to be more effective.

Taking it to the Streets CIRV Community Outreach Advocates Initiative: $150,000Support and hire Community Outreach Advocates to help reduce crime and violence triggered byteens seventeen and under; work with Hamilton County Office of Reentry and the Cincinnati PoliceDepartment to curb violence.Consistent with the language of the Winburn / Young motion signed by five members of Council.

THRIVING AND HEALTHY NEIGHBORHOODS: DeDartment Related Transfers- $625,000 Youth Jobs Initiative / Competitive Grant through United Way with a Business Community Match: $250,000

Partner with Cincinnati Initiative for Youth Jobs and the United Way to create a short-term jobsprograms to put young people to work and build skills. This program will only be triggered by abusiness community match, at which point this would be activated as part of a competitive RFPprocess.

Main Street Two Way Traffic Improvement: $125,000Convert Main Street north of 12th street to two way traffic. The Department of Transportation andEngineering (DOTE) is working on the budget for the project which will be in excess of the $125,000allocated. DOTE will present full funding alternatives at a later date.

Bethany House / Family Homelessness Project (Task Force on Family Homelessness): $100,000Funds will support the recently completed Task Force on Family Homelessness. Funding would go toBethany House to reduce the causes and impact of family homelessness.

Walnut Hills Redevelopment Foundation (RF) Housing Study: $50,000Housing needs study with the Walnut Hills Redevelopment Foundation for the Walnut Hillsneighborhood. Every city dollar would be matched 2 to 1 in private / outside dollars.

Energy Efficiency Grant Program: $100,000These funds will expand the City of Cincinnatis energy efficiency programming dramatically,particularly to lower-income renters that need energy efficiency the most. City partners will use thefunds to build and implement a landlord-renter program, which will be endorsed by the USDepartment of Energys ENERGYSTAR certification program. Funds will also be used to providequality assurance services and to monitor and verify the savings created by this expanded energyefficiency effort.

2016 Pending Matters

There are several budget risks or unknowns for FY2016 and beyond that are noteworthy. These include the following:

Genera/Fund Carryover- The 2016 Fiscal Year General Fund estimated current revenues are equal to the FY2016budgeted expenditures. This represents the second year in a row that the City of Cincinnati has a structurallybalanced budget. Moving forward, it is crucial that this continue to be the practice for future budget cycles.

Rating Agencies Moodys has assigned Aa2 ratings to the $138 million Unlimited Tax Various Purpose GeneralObligation Improvement and Refunding Bonds Series 2015A, $3.5 million, Unlimited Tax Energy ConservationGeneral Obligation Bonds Series 2015B, and $13.8 million Unlimited Tax Various Purpose General ObligationRefunding Bonds Series 2015C. Concurrent with the rating assignments, Moodys has affirmed the Aa2 rating onthe Citys outstanding general obligation unlimited tax (GOULT) debt and the Aa3 rating on the Citys outstandingnontax revenue debt. The outlook has been revised to stable from negative. The upgraded stable outlook asstated in the report is as shown: The stable outlook reflects our opinion that indications of economic recoverycombined with managements plan and expected capacity to strengthen the Citys financial position will supportcurrent credit quality. A recent Cincinnati Retirement System (CRS) settlement agreement is expected tomoderate the Citys annual pension costs and unfunded liabilities.

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Standard & Poors Ratings Services assigned its AA- long-term rating to the City of Cincinnatis: Series 2015Aunlimited-tax general obligation (GO) various purpose and refunding bonds, Series 2015B unlimited-tax GOenergy conservation bonds (taxable), and Series 2015C unlimited-tax GO various purpose refunding bonds(taxable). Additionally, S&P affirmed its: AA- long-term and underlying rating (SPUR) on the Citys unlimited-taxGO bonds and A+ long-term rating on the citys non-tax revenue bonds. The outlook on all ratings remainsstable. The outlook section of the report states: The stable outlook reflects our view of Cincinnatis strongmanagement conditions and very strong liquidity and budgetary flexibility. We believe that the City hasimplemented structural budget changes that are sufficient to balance its budget, including comprehensive pensionreform that will immediately relieve budget pressure and will improve its pension funded ratio. Given our opinionthat the local economy is stable and that management is committed to maintain at least adequate budgetaryperformance, we do not believe the rating will be pressured during the two-year outlook horizon.

Income Tax and UC Economic Forecast Study - It should be stressed that the City remains over reliant on thisrevenue category. City Administration will continue to dialogue with the economic forecaster to ascertain anychanges in the local economy that might warrant revising the estimates for FY2017 and beyond.

Poilce Department Technology Needs The Police Department is in dire need of upgrades to address theevolving police technology needs that will be addressed with the $2 million transfer approved by City Council onJuly 1, 2015. Officer radios will be obsolete by 2018. Funds will need to be identified in the FY2017 budget toupgrade the iT infrastructure as well as equip officers and command staff to maintain their effectiveness.

Fire Department Recruit aass Unbudgetedin FY2OJ6The Fire Department is planning on a SAFER Grant to fundthe FY2016 forty member recruit class in the amount of $3.3 million per year for two years. If the City isunsuccessful in the grant process, the recruit class may need to be delayed, or other budget reductions will needto be identified to offset the unbudgeted expenditure in FY2016.

Union Agreements Expire During FY2016 CODE, AFSCME, and Police and Fire contracts expire during 2016, andnew agreements will impact the budget in the coming years. For perspective on possible impact, the annual costin the General Fund for a 1% COLA for all union employees is $2.2 million annually and a 1.5% COLA is $3.3million annually.

Local Government Fund House Bill 64 reduced the supplemental amounts distributed to municipalities for fiscalyear....2016.and_2017._The new estimated reduction is approximately $1 .277 million-or45.6%-forFQ0.i6~--TheLocal Government Fund distributed through Hamilton County is projected to be above estimate by $550,000. Thenet negative budget impact is $727,000. We will review this on a monthly basis and report any major differencesshould they occur.

Senate Bill 282 (SB) - Potential dramatic negative impact on tax revenues is SB 282 which is a reintroduction oflegislation which would prohibit municipal corporations from levying an income tax on nonresidentscompensation for personal services or on net profits from a sole proprietorship owned by a nonresident. Theimpact is estimated to be $200 million.

In 2012, the City of Cincinnati received a distribution from the Auditor of Hamilton County for approximately$6.3 million dollars. In 2015, it was ascertained by the Auditor that this payment was in fact madeerroneously. Once the error was made known to the City, discussions occurred which yielded an agreedupon repayment schedule. While provisions do exist for an earlier repayment, the current agreed uponschedule will begin July 2016 and includes 2% interest. The payments are scheduled to be paid in FY2017,FY2018 and FY2019 and will be $2,664,704, $2,562,310 and $1,262,354 respectively.

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Fiscal Year 2017 Budget Issues The Fiscal Year 2017 budget includes an across-the-board reduction of $8.2million that will be managed during the budget update. The Administration will be working with departments toidentify savings and new revenue streams to help minimize the impact of the reductions. Also, the FYI Memodated August 5th 2015 recommends the FY2017 recruit class begin July 18, 2016 which is eight months soonerthan budgeted resulting in an increased projected cost of $1.3 million.

Miscellaneous

In conjunction with this year-end report, submitted herewith are the following Department of Finance reports:1. Statement of Revenue and Expenditures for the month ended June 30, 20152. Graph as of June 30, 2015 presenting the General Funds Revenue, Expenditures and Encumbrances3. City Treasurers Monthly Cash Reconciliation Reports for May and June 2015 and May and June monthly audit

report of the accounts of the City Treasurer4. Statement of Balances for all Funds as of June 30, 2015

By approval of this report, City Council appropriates the revenues received in the various restricted funds on the attachedStatement of Balances and as stated in greater detail on the records maintained by the Department of Finance, Divisionof Accounts & Audits. Such revenues are to be expended in accordance with the purposes for which the funds wereestablished.

Conclusion

The City is fortunate to be in the position of having greater than anticipated revenue. It is incumbent upon us to utilizethese resources prudently. Specifically, the recommended actions consistent with the Funds Stabilization Policy are of theutmost importance. This, in conjunction with adopting structurally balanced budgets and successful pension reform arecritically important steps in this direction.

Overall, these recommendations continue our work to improve the Citys long-term financial position while providingopportunities to fund critically important immediate needs. On behalf of the Administration, I look forward to working withyou throughout this process and to answer any questions you may have.

c: Reginald Zeno, lirector of FinanceChristopher-Bigham~Budget-Director-~5~