FYE18: the Drive for 2.5% is Likely to Fall Short

No real changes in December …. FYE18 has always been expected to be a down year for
Norman Sales (& Use) Tax collections. It is turning out even worse than expected. All of the
City Budget documents predict a 2.5% increase in sales tax revenues in FYE18, followed
by an increase to 4% (or - inexplicably - 4.25% the latest NF Pro Forma budget) in FYE19
and beyond.

Baseline numbers: the City collected $9,646,527 via the Norman Forward Sales Tax in
FYE17; a predicted 2.5% growth rate means we expect to collect $9,887,690 in FYE18.

We now have six months of sales and use tax remittances from the state in FYE18, and
things aren’t getting better. December remittances (October collections) were down 3.79%
over the same month last year, and that puts us down (-0.43%) from last year

December remittance/October collection (NFST Sales + Use)

- FYE17: $780,689

- FYE18: $751,136

- decrease: 3.79%

Year to date, through December (NFST Sales + Use)

- FYE17: $4,832,609

- FYE18: $4,812,025

- decrease: 0.43%

We have been basically treading water for six months now, so we will need to grow at an
accelerated rate to meet our yearly goal. In particular, the collections for the the rest of
FYE18 will need to be 5.44% better than collections over the equivalent reporting period in FYE17.

NFST (Sales + Use)
FYE18 month remitted	FYE17	Benchmark (FYE17 + 2.5%)	FYE18		FYE17 cumulative	Benchmark cumulative	FYE18 cumulative
July	$797,041	$816,967	$811,837		$797,041	$816,967	$811,837
August	$799,223	$819,203	$783,821		$1,596,264	$1,636,170	$1,595,657
September	$805,400	$825,535	$802,051		$2,401,664	$2,461,706	$2,397,708
October	$838,611	$859,576	$855,719		$3,240,275	$3,321,282	$3,253,427
November	$811,645	$831,936	$807,462		$4,051,920	$4,153,218	$4,060,889
December	$780,689	$800,206	$751,136		$4,832,609	$4,953,424	$4,812,025

FYE18: The drive for 2.5% has stalled out

Again, FYE18 has always been expected to be a down year for Norman Sales (& Use) Tax collections. All of the City Budget documents predict a 2.5% increase in sales tax revenues in FYE18, followed by an increase to 4% (or - inexplicably - 4.25% the latest NF Pro Forma budget) in FYE19 and beyond.

Baseline numbers: the City collected $9,646,527 via the Norman Forward Sales Tax in FYE17; a predicted 2.5% growth rate means we expect to collect $9,887,690 in FYE18.

We now have five months of sales and use tax remittances from the state in FYE18, and things aren’t getting better. November remittances (September collections) were down 0.52% over the same month last year, and that barely keeps us even (+0.22%) with last year

November remittance/September collection (NFST Sales + Use)

- FYE17: $811,645

- FYE18: $807,462

- decrease: 0.52%

Year to date, through November (NFST Sales + Use)

- FYE17: $4,051,920

- FYE18: $4,060,889

- increase: 0.22%

Since we have been basically treading water for four months now, we will need to grow at an accelerated rate to meet our yearly goal. In particular, the collections for the the rest of FYE18 will need to be 4.15% better than collections over the equivalent reporting period in FYE17. We need that FYE19 boost now if we want to meet projections.

FYE18: Still stuck in the mud

As we saw two months ago, FYE18 has always been expected to be a down year for Norman Sales (& Use) Tax collections. All of the City Budget documents predict a 2.5% increase in sales tax revenues in FYE18, followed by an increase to 4% (or - inexplicably - 4.25% the latest NF Pro Forma budget) in FYE19 and beyond.

Baseline numbers: the City collected $9,646,527 via the Norman Forward Sales Tax in FYE17; a predicted 2.5% growth rate means we expect to collect $9,887,690 in FYE18.

We now have four months of sales and use tax remittances from the state in FYE18, and things aren’t getting better. October remittances (August collections) were up 2.04% over the same month last year, but that only brings us back to even (+0.41%) with last year

October remittance/August collection (NFST Sales + Use)

- FYE17: $838,611

- FYE18: $855,719

- increase: 2.04%

Year to date, through October (NFST Sales + Use)

- FYE17: $3,240,275

- FYE18: $3,253,427

- increase: 0.41%

Since we have been basically treading water for four months now, we will need to grow at an accelerated rate to meet our yearly goal. In particular, the collections for the the rest of FYE18 will need to be 3.56% better than collections over the equivalent reporting period in FYE17.

FYE18: The Drive for 2.5% ... Stuck in the Mud

As we saw last month, FYE18 has always been expected to be a down year for Norman Sales (& Use) Tax collections. All of the City Budget documents predict a 2.5% increase in sales tax revenues in FYE18, followed by an increase to 4% (or - inexplicably - 4.25% the latest NF Pro Forma budget) in FYE19 and beyond.

We now have three months of sales and use tax remittances from the state in FYE18, and things aren’t getting better.

Baseline numbers: the City collected $9,646,527 via the Norman Forward Sales Tax in FYE17; a predicted 2.5% growth rate means we expect to collect $9,887,690 in FYE18. We need increases; we see stagnation.

September remittance/July collection (NFST Sales + Use)

- FYE17: $805,400

- FYE18: $802,051

- increase: - 0.42%

Year to date, through September (NFST Sales + Use)

- FYE17: $2,461,706

- FYE18: $2,397,708

- increase: - 0.16%

Since we have been treading water for three months now, we will need to grow at an accelerated rate to meet our yearly goal. In particular, the collections for the the rest of FYE18 will need to be 3.38% better than collections over the equivalent reporting period in FYE17.

FYE18: The Drive for 2.5 ... Percent

FYE18 is expected to be a down year for Norman Sales (& Use) Tax collections. All of the City Budget documents predict a 2.5% increase in sales tax revenues in FYE18, followed by an increase to 4% (or 4.25% the latest NF Pro Forma budget) in FYE19 and beyond.

We now have a couple of months worth of sales tax remittances from the state in FYE18, so it is time to start keeping track.

Baseline numbers: the City collected $9,646,527 via the Norman Forward Sales Tax in FYE17; a predicted 2.5% growth rate means we expect to collect $9,887,690 in FYE18.

July remittance/May collection (NFST Sales + Use)
- FYE17: $797,041
- FYE18: $811,837
- increase: 1.86%

August remittance/June collection (NFST Sales + Use)
- FYE17: $799,223
- FYE18: $783,821
- increase: - 1.93%

Year to date, through August (NFST Sales + Use)
- FYE17: $1,596,264
- FYE18: $1,595,657
- increase: - 0.04%

Since we have been treading water for two months, we will need to grow at an accelerated rate to meet our yearly goal. In particular, the collections for the the rest of FYE18 will need to be 3% better than collections over the equivalent reporting period in FYE17.

NFST financial issues matter ... NOW

Trying to discuss the Norman Forward budget with City officials is sort of like Calvinball where the City gets to make the last rule: if they don’t like the way things look, the game gets changed.

Here is my attempt to get out of the Norman-Forward-finances-are-whatever-City-staff- wants-them-to-be zone.

Let me start on the revenue side, because it is the easiest.

Apart from Norman Forward, the City has to make sales tax projections in all of its basic budget documents. The basic assumption in both the FYE 2018 Budget Book and the FYE 2018 Capital Improvement Budget is that sales taxes will grow by 2.5% in FYE18 and by 4.0% in FYE19 and after. Honestly, this strikes me as on the high side, but let’s use those numbers as a starting point. It is lower than the 4.25% assumed for FYE19 through FYE 31 assumed in the latest City budget for NF projects.

We know - from actual collections - the FYE16 and FYE17 NFST numbers, so we can just calculate out the numbers for FYE18 through FYE30. FYE31 is slightly more complicated, in that it reflects only 8 months of tax collections: May 2030 through December 2030 (May taxes are remitted to the City in July, etc.). Luckily, I had already looked at the the data on how each month contributes, on average, to the yearly tax take when I started this blog (see the discussion of method 2 here). May through December collections, on average, contribute 67.91% of the yearly total, so I calculated an entire year’s worth of taxes for FYE31 and then multiplied that by 67.91%.

I’ll spare you the calculations, but the total NFST revenue number turns out to be $188,661,604.

The revenue side also involves borrowing and interest on held funds. To keep things simple, I will just assume what the City assumes, which means $108,310,000 in borrowed money and $370,189 in interest.

The expenditure side is more complicated - lots of programs, lots of borrowing costs and interest. The City has released (at least) 3 different estimates of project costs: one in 2015, the Implementation Plan in 2016, and the latest 2017 budget. (It is worth noting that none of these expenditure estimates puts a penny toward any Senior Citizen Center. That would add a cool $10 million to the expenditure column.)  Interestingly enough, the cost estimates keep going down as time goes on …. Rather than worry about the details, I will just assume that the cheapest one is correct -  $158,138,285 spend on NF projects. Of course, we are financing much of this, so there are borrowing costs, interest costs, and principal repayment. Again, I will just assume what the City assumes when it comes to borrowing.

The net result of all of these calculations is shown in the following table.

Revenue
NSFT collections	$188,661,604
Interest	$370,189
Bond sales	$108,310,000
Total income	$297,341,793
Expenditure
Project costs	$158,138,285
Principal repayment	$108,310,000
Borrowing costs & interest payments	$31,577,626
Total expenses	$298,025,911
Net Balance	-$684,118

This, of course, is not a Nostradamus-like prediction; rather it is what you get when you take the City budgeting numbers seriously rather than trying to rationalize a set of expenditures. Conclusion: the Norman Forward money is very tight. There is a pretty good chance we won’t be able to afford all of the budgeted projects, much less find money for something like the unbudgeted Senior Center.

We are pretty early in the Norman Forward Sales Tax period … do we really need to worry so much about the budget now? Unfortunately, the answer is yes. Because we are selling Bonds early in the process, almost all of the program spending in Norman Forward is front-loaded into the first few years.

Focusing on program expenditures, we see that over 80% of all of the money will be spent by the end of FYE20.

What all of this means is that programs that are funded early are likely to happen and programs that are put off bear all of the risk of not-unlikely budget shortfalls.

This is not at all comforting if you are a fan of a project that has been put off (e.g., a Senior Center, a Canadian River Park, Park Improvements). More generally, however, the issue is one of fairness and accountability. The City has steadfastly refused to prioritize projects in Norman Forward, so the de facto priorities are being set by City staff rather than by any sort of open political process. At a minimum, the City Council of Norman needs to look into the budgets being spun out by Financial Services to see if they comport with what the citizens of Norman want to do when faced with fiscal uncertainty.

Norman Forward Finances: Things Don't Look Good

On July 10, 2017 City Finance Director Anthony Francisco presented a budget forecast for the entire Norman Forward package of quality of life projects to the Norman Forward Sales Tax Citizen Financial Oversight Board. As best I can tell, the spreadsheets provided to the Board are not available online, but I have hard copies I will try to scan soon. (The pages are 11” by 17” and the font is super small at that.) (EDIT: the 'official' scenario is here; the 'stress test' is here.)

Mr. Francisco presented two scenarios: the first was the ‘official’ budget prediction and the second was a ‘stress test’ with less optimistic revenue projections. Scenario 1 projects that the NFST receipts will grow 2.5% in Fiscal Year Ending in 2018 (FYE18) and 4.25% in every year afterward through FYE31. Scenario 2 projects that the NFST receipts will grow 2.5% in FYE18 and 3.75% in every year afterward through FYE31. Both of these scenarios seem pretty optimistic to me.

The bottom line on Mr. Francisco’s scenarios was as follows:

Financial Services numbers	Scenario 1	Scenario 2
Income	$197,039,264	$190,841,103
Expenditure	$189,715,911	$189,715,911
Surplus	$7,323,353	$1,125,192

Mr. Francisco suggested that we didn’t need to worry too much about NFST revenues given that even under Scenario 2, the whole package stays ‘in the black’. (NB: The expenditure category here does not include any Senior Center funding.)

This report came as somewhat as a surprise, since Mr. Francisco was apparently worried about the NFST Fund at the April 13, 2017 Finance Committee Meeting: “Francisco stated that the Norman Forward Fund will go negative in the middle of the 15 year period if we do not take some actions to reduce expenditures. This Fund is not in the position to be funding anything more than the required projects” (Minutes, p. 2).

Unfortunately, the City’s Financial Services Department made a material error in calculating the expected revenues. The NFST is collected from January 1, 2016 until December 31, 2030. The NFST will not be collected for all of FYE31, but the Financial Services calculations include a full year’s worth of collections.

One more complication: the State collects the tax and remits the money to the City approximately 40 days later, so January collections show up in March, the February collections in April, etc. The City - quite naturally - books the money when it arrives. The FYE16 numbers reflect only 4 months worth of taxes: deposits start in March 2016 and end in June 2016; collections from May and June of 2016 are received in FYE17. Likewise, FYE31 will include the taxes actually collected in May through December of 2030 - 8 months. The Financial Services numbers, however, assume a full 12 months worth of collections. The result is that the Financial Services calculations assume an extra 4 months of tax collections.

To correct for the error of supposing a year’s worth of revenue in FYE31, we can multiply the FYE31 collection numbers by 8/12 = 2/3. Doing so lowers the income projections by $5,600,135 in Scenario 1 and $5,260,840 in Scenario 2. The corrected numbers are as follows:

Corrected numbers	Scenario 1	Scenario 2
Income	$191,439,129	$185,580,263
Expenditure	$189,715,911	$189,715,911
Surplus	$1,723,218	($4,135,648)

As we can see from the corrected numbers, the Norman Forward finances do not pass the ‘stress test’ of Scenario 2. Even the rosier Scenario 1 looks pretty tenuous with the corrected numbers.

One last point about data: the Financial Services analysis seems to be working with NFST projections for FYE17. Since those numbers have already been reported, I recalculated the analysis for Scenarios 1 and 2 as well as added another. The results are basically the same; my numbers are just slightly more optimistic than the corrected numbers above.  https://drive.google.com/file/d/0B_MdAIXt-K_GMmVQekVFVXFhdGc/view?usp=sharing.