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.