4.1.2.a Revenue Discussion
Table of contents
- 1. Beginning Fund Balance
- 2. Construction Related
- 2.1. Pay-as-you-go:
- 2.2. Development Impact Fees:
- 3. Local Taxes
- 3.1. Pay-as-you-go:
- 4. Other Revenues
- 5. Borrowing
- 6. User Fees
- 6.1. User Fees:
- 7. State Shared Revenue
- 7.1. Pay-as-you-go:
Revenue for the city of Surprise is not only in the form of city taxes, user fees, and grants. The city also receives funding from federal, state, and county agencies to perform necessary service additions and repairs. This money is typically earmarked for specific purposes such as streets, housing, or education. Listed below are typical budget categories, revenue sources that provide for these categories, and the method of use (Figure 4.1A). A breakdown of the current (2008) budget category percentages is provided below.
Beginning Fund Balance
These revenues are carried over from previous budgetary years. This can be a positive or negative balance applied to the next budget cycle. In cases where the balance is positive the city of Surprise will schedule the funds to be used for capital improvements or other one time expenditures.
Construction Related
Revenues that are collected or earned by the city are directly related to the level of construction activity. These revenues will continue as long as the city continues to grow. It must be understood that these revenues are not a steady income stream and should not be used for regular service and maintenance costs to the city. These funds should be directed to capital improvements, redevelopment, or other one time expenditures. Revenue sources that fall under this category are:
Pay-as-you-go:
Revenues generated by city taxes (sales, property, and construction), as well as state and federal shared taxes (state fuel and lottery taxes). Pay-as-you-go funding sources are typically used for daily services and maintenance costs to the city.
Development Impact Fees:
Fees that are established by the city based on the cost of expanding services to accommodate new development. These fees are then passed on to the project developer as part of the cost of the development. Development impact fees are currently in use. Impact fees are narrow in scope (i.e. utilities, police, library, roads, etc.). The impact fee should be attached to a capital improvement project that is directly related to the development being built. These are one-time fees and should not be used to fund regular service and maintenance.
Local Taxes
Local taxes are the largest source of general fund revenue. These revenues are generally re-occurring with little or no external restriction on their use. Examples of local taxes are sales, property, and franchise fees. As a relatively steady source of income local taxes should be directed to provide for regular services and maintenance throughout the city, as well as assisting–but not relied upon–to pay for other budgetary needs such as capital improvement projects. Revenue sources for this category include:
Pay-as-you-go:
(described under Construction Related)
Other Revenues
This category includes grants, audits, building rents, program fees, and other miscellaneous revenues. Typically revenues falling under this category will be designated for specific uses. In most cases this revenue category is not a stable income stream and should not be used for regular maintenance and services. Revenue sources for this category may include:
Revenue Bonds:
Revenue bonds are a method of borrowing to finance service expansions. Bonding must be approved by a public vote. Bonds are typically used for capital improvements in the form of unexpected utility or roadway repairs, or intentional expansion to spur development in select locations. By building the infrastructure the ideal case will generate an increase in sales and property taxes, which will pay back the bonds and create more revenue for the city. The bonds are paid back through future revenues that are legally pledged to the issuer. Revenues generally utilized for debt service are privilege taxes (sales tax), Highway User Revenues Funds (HURF) (i.e., payments made to municipalities from state fuel taxes), and user fees.
General Obligation Bonds:
General Obligation (G.O.) Bonds are similar to revenue bonds but are based on the full taxing authority of the municipality. The city of Surprise may bond up to twenty per cent (20%) of its secondary assessed valuation with an additional six percent (6%) available for special projects. Like revenue bonds, G.O. bonds must be approved by public vote. Use of G.O. bonds is similar to revenue bonds in that they should be used for capital improvements. They differ in payment arrangements. G.O. bonds are typically paid back through property taxes with little or no sales taxes used. Like revenue bonds these can be used for immediate finance needs as well as spurring development in select locations.
Certificate of Participation/Municipal Property Corporations:
These are methods of borrowing that are paid back by municipal revenues. No public vote is required to use these revenue sources; they are enacted through a council vote. These methods are usually not legally tied to a specific revenue stream in the way bonds are. With enactment through a council vote, these sources should be used for smaller capital improvement projects that require immediate attention from the city in the form of infrastructure repair and emergency equipment.
User Fees:
User fees are fees charged for services such as water, sewer, trash collection, and recreation facilities. User fees are a direct method of subsidizing or fully paying for the specific use charging the fee. User fees may also be utilized to charge for advertising on public property such as ad copy at recreational venues and development and business directories in public rights-of-way.
Grants:
Grants are revenues given to the city for specific projects. These revenues typically come from federal, state, and county agencies but may also come from private parties. Often grants require an “in kind” payment where the city matches the grant with a stated percentage of city revenue. The “in kind” funds can be attained from any of the above funding sources. The city is currently aggressive in attempting to obtain grants for all purposes. Most often these grants aid in emergency services, and housing programs. Grants that are achieved by the city must be used for the specific project applied for.
Borrowing
As the category states, these revenues come from institutions that lend money to be repaid by the city. These funds are typically used for unforeseen expenses and capital improvement projects. Borrowed funds should never be used to fund regular services or maintenance except in situations of extreme repair needs. Common items the city will borrow for are water, sewer, and fire infrastructure, land acquisition, and community recreation projects. Common revenue sources for borrowing are:
Revenue Bonds:
(described under Other Revenues).
General Obligation Bonds:
(described under Other Revenues).
Certificate of Participation/Municipal Property Corporations:
(described under Other Revenues).
Special Financing Districts:
This revenue source establishes specialized districts to increase city revenues for a specific project. Finance districts are typically used for redevelopment purposes where the project can be paid for over time. Examples of projects are: sewer, water, streets, streetlights, and community centers.
Lease-Purchase Agreements:
Lease-purchase agreements require the city to make an arrangement with a private or public entity to purchase an item or building. While interest is paid, the payoff period is typically for a shorter period than bonds and the municipality will own the project at the termination of the agreement. Various agreements can be made on the terms of the lease or purchase. This revenue source is most often used to provide for immediate items with a relatively low cost compared with bond purchase items. This may also be used for lease or purchase agreements for new facilities or services. Lease-purchase agreements are a method of financing capital projects that lessens the up-front costs to the municipality.
User Fees
User fees are revenues associated with the provision of utility or public services by the city. Examples Include sewer, trash collection, and parks and recreation fees. User fees are typically directed for regular city maintenance and services, and directed to the service they are derived from. In some cases user fees may assist in the development of capital improvement projects. The revenue stream associated with this category is:
User Fees:
(described under Other Revenues).
State Shared Revenue
State shared revenues are distributed to cities and towns based generally on the population at the last census or special census. Included in this category are state sales tax, state income tax, highway user revenue, local transportation assistance fund, and vehicle license tax. These revenues are typically earmarked for specific city expenditures such as street maintenance, transit, and education. State shared revenues can be considered relatively stable and should increase with the growing population of the city. These revenues should be used for both regular service and maintenance as well as capital improvement projects. Funding sources related to this category are.
Pay-as-you-go:
(described under Construction Related).
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