Loveland City Council hears preliminary 2023 budget forecast – Loveland Reporter-Herald | #citycouncil

The city of Loveland finance department is taking a new approach to citywide budget discussions in hopes of making the process more transparent to City Council. In a 2023 budget kick-off presentation on Tuesday night, Chief Financial Officer Brian Waldes said that financial reports can sometimes tell a “confusing story.”

“Reorganizing how we discuss the budget and how we talk about the different funds and fund categories in the city, we can paint a much clearer picture of the budget and we can paint a picture that’s going to help you as the executive board, make more informed decisions and understand what the opportunity costs are of one decision versus another.”

The presentation was the first in a series from the finance department that will summarize the methodologies and assumptions underlying their upcoming 2023 budget forecasts. Tuesday’s focus was revenues, and what factors could impact Loveland’s future income.

Among those is inflation, which is higher than it’s been in decades both nationally and statewide, and prompted a federal interest rate hike of half a percentage point on May 4, city budget manager Matthew Elliott told council.

Elliott also explained that the budget review considered ongoing supply-chain disruptions that have delayed deliveries for city goods, and local employment trends.

Councilor John Fogle urged the budget team to keep its eye on another economic measure: the construction cost index (CCI), which measures the cost of construction projects and materials.

“We need to track the CCI every bit as well as the CPI because 80% of everything the city does involves construction,” he said.

Waldes then turned the discussion to the two types of revenues collected by the city: those for general operating funds and those for enterprise and other dedicated funds. The latter are generally raised by fees and are statutorily committed to specific city departments, such as water, golf and solid waste.

Forecasting revenues for enterprise funds is typically more straightforward, senior budget analyst Frazier Spearman explained, since average rate changes can be set years in advance through rate studies.

“By joining the population growth forecasts to our rate track forecasts, we’re able to pretty accurately give an expectation of what our future revenues should be with the new utilities,” he said.

General funds, on the other hand, apply to city services more broadly, and are primarily funded through tax collections, Waldes said.

“The things you typically think of a government providing: public safety, administration, public works, maintaining streets and things of that nature,” he said.

These can be more difficult to forecast, he continued, since tax collections are more sensitive to prevailing economic conditions, such as the aforementioned inflation and consumer spending.

City analysts are predicting a slight increase in property taxes in 2022 and 2023, driven by rising home prices. However, property tax rates are also impacted by Colorado’s Gallagher amendment, which put caps on both residential and commercial property tax increases for 2023.

The city is expecting a bigger boost in sales tax revenues, especially in 2022, thanks to “strong” consumer spending as the pandemic recedes. This year, collections are expected to jump 7%, followed by a 3% increase in 2023, but Elliott sounded a note of caution.

“We don’t know how much longer that’s going to last,” Elliott said. “Obviously, we do not know with all the uncertainties, and with everything that’s going on on the geopolitical stage, we do want to be proceeding cautiously.”

Together, property and sales taxes accounted for more than 60% of general revenue funds in 2021.

Other general funding comes from motor vehicle and building use tax, which city analysts are predicting will fall in 2023, due to shortages of inventory and materials, plus a potential economic downturn. They are also predicting a decrease in revenue from building division revenue, despite a big bump in 2022 from the Amazon development project, announced in March.

Last week, the city received a multi-million dollar building permit fee for the logistics center planned near the Northern Colorado Regional Airport, but plans for the surplus revenue are still pending.

The 2023 budget process is still in the early stages, with more preliminary presentations to come. Waldes noted that the team will be back later this year with a “fine-tuned” version of the projections that will take more recent economic data into account.

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