Low Gas Prices = City Pay Raise

Mayor and Council Leadership propose filling the gap so the rest of the employees get the same pay raises as police and fire.

February 18, 2015

One of the Mayor’s and Council’s top priorities has been to maintain pay equity among all City staff in the face of strict state levy limits, reductions in state aid, and the dismantling of decades-long public sector labor management relations. The 2015 adopted budget includes a 3.0% collectively bargained pay increase for Police and Fire commissioned staff and a 1.5% pay increase for all other employees. Both the Mayor and the Council have made clear that if conditions changed and funding was available during the year, the budget would be amended to help close that pay gap. As we’ve all seen at the pump, gas prices have dropped dramatically over the past six months. Prices are down by over 25% from the rates used to set the 2015 adopted budget. Mayor Soglin, Council President Schmidt and President Pro Tem DeMarb are sponsoring a resolution to use savings from lower fuel prices to fund an additional 0.75% pay increase for affected City staff. Action by the full Council is expected at its March 3rd meeting.

Effective March 1st and reflected in the March 20th pay check, this increase will close one-half of the 1.5% pay gap and result in a total pay increase of 2.26% at a cost of $673,600 to the general fund, and $838,600 all funds. Due to continuing negotiations with Teamsters Local 695 and prior year pay increases for employees previously represented by Laborers Local 236, these employee groups will not receive this pay increase.

Paul R. Soglin, Mayor
Chris Schmidt, Common Council President
Denise DeMarb, President Pro Tem

Council still has to vote, but I’m guessing this passes unanimously. Here is why:

From: Schmiedicke, David
Sent: Wednesday, February 18, 2015 1:14 PM
To: All Alders; Soglin, Paul
Cc: MY GROUP; Fruit, Tim; York, Elizabeth; McDermott, Patti; Digregorio, Brook; Wirtz, Bradley; Leifer, Gregory
Subject: Update on 2015 Fiscal Conditions

Mayor Soglin, Council President Schmidt, President Pro Tem DeMarb and Council Members:

At the February 24th Council meeting, a resolution will be introduced at the request of Mayor Soglin, Council President Schmidt and President Pro Tem DeMarb to use savings from lower fuel costs to fund an additional 0.75% pay increase for City staff. This proposed increase will be effective March 1 and will close one-half of the 1.5% pay gap between Police and Fire commissioned staff and other City employees. This will result in a total pay increase of 2.26% from last year. The cost of the 0.75% increase is $673,600 to the general fund and $838,600 all funds. Due to continuing negotiations with Teamsters Local 695 and prior year pay increases for employees previously represented by Laborers Local 236, these employee groups will not receive this pay increase.

An update on 2015 fiscal conditions will help place this proposed pay increase in context. While we are less than 2 months into the fiscal year, three key issues have emerged:

1. Lower fuel prices
2. Lower building permit revenues
3. Higher room tax revenues

The combination of these factors, along with the cost of the proposed pay increase, is expected to result in no net effect on the General Fund balance compared with the 2015 adopted operating budget. With a March 1 effective date, the pay increase will have an annualized general fund effect of $808,300 in 2016, or approximately $135,000 more than the 2015 appropriation which will be made in the proposed resolution. As you may recall, the 2015 budget did not use $288,000 of levy limit authority, which carries over to 2016 and could be used to help fund this and other costs in 2016.

Summary of Fiscal Effects
[+ = improves general fund balance; ( ) = reduces general fund balance]

Additional 0.75% pay increase effective March 1 ($673,600)
Savings from lower fuel prices $950,000
Lower building permit revenues ($750,000)
Higher room tax revenues $500,000
Net Impact on General Fund Balance $26,400

Estimates will continue to be reviewed and revised as more actual revenue collections and expenditure data becomes available during the year. One example of a preliminary fiscal pressure is reduced materials recycling revenues in the Streets Division budget due to lower petroleum and other commodity prices.

Background on revisions to 2015 budget estimates

1. Lower Fuel Prices
Compared to rates used to develop the 2015 adopted budget, fuel prices are down over 25%. Since prices for 2015 diesel fuel used by Metro were previously locked, the continued drop in prices only affects the Fleet Service budget. In response to the rapid price drop since last summer and a recent uptick in fuel futures prices, diesel and unleaded fuel prices for Fleet Service were locked last week through 2016 and diesel fuel prices for Metro were locked through 2017. The fixed price is anticipated to save approximately $950,000 in 2015 compared with the current Fleet Service fuel budget.

2. Lower Building Permit Revenues
Revenue estimates for the 2015 budget, including building permit revenues, were constructed in the late spring / early summer of 2015 using actual data available at that time. Building permit revenues in 2013 finished 27% above 2012, with the 4th quarter of 2013 particularly strong (87% above 4th quarter 2012). The first and second quarters of 2014 were 12% above the same period in 2013. The third quarter of 2014 was roughly the same as 3rd quarter of 2013. Based on that data, building permit revenues were projected to be $4.5 million in 2014 (12% higher than 2013) and $5.25 million in 2015 (17% above 2014).

However, actual 2014 building permit revenues were $3.87 million, a 4.7% decrease from 2013. This drop was due to 4th quarter of 2014 coming in over 28% lower than 4th quarter 2013. As a result, the base for projecting 2015 revenues has dropped by nearly $650,000. In light of actual collections, building permit revenue estimates for 2015 have been revised downward by $850,000 (to $4.4 million). The revised estimate assumes a 13.7% increase in 2015 building permit revenues over 2014 actual collections.

A new street operating permit program was authorized in the 2015 budget, with the revenues shown in the budget under Building Permits. Based on a similar program at the City of Milwaukee, revenues were estimated at $200,000 in 2015. Those estimates were conservative and could reach $300,000. Taken together with building permit revenues, total revenues in this category are expected to be down $750,000 compared with estimates in the 2015 adopted budget.

3. Higher Room Tax Revenues
Room taxes finished 2014 very strong, with 4th quarter revenues up 17% over 2013. The year over year increase was 12.8%, which is the highest rate of growth since 2007 when the room tax rate was last increased. Preliminary 2014 collections total $12,258,988, which is approximately $275,000 above the 2014 projection of $11,975,600. The budget estimate for 2015 is $12,855,058, or 7.3% higher than the 2014 projection. With the higher base due to preliminary 2014 collections and other factors, a preliminary revised estimate of room taxes for 2015 is $13,645,000, or 11.3% higher than 2014 actual collections. This estimate will continue to be reviewed and revised based on actual collections. Data for the first quarter of 2015 will be available in mid-May.

There are two provisions in the 2015 budget that affect the distribution of additional room tax revenues – 1) an increase in the share of room tax revenues transferred to the Greater Madison Convention and Visitors Bureau (GMCVB) for destination marketing and 2) a split of net unanticipated room tax revenues, with two-thirds to the General Fund and one-third to GMCVB. Based on these two provisions, the revised room tax revenue estimate is expected to increase general fund revenues by approximately $500,000 compared to estimates in the 2015 budget.

Please feel free to contact me with questions.

Thanks.

David Schmiedicke, Director
Department of Finance
City of Madison