by: Eric Roche, Chief Data Officer
In my position with the Office of Performance Management, I don’t often get to work with financial data. The City’s talented Finance Department handles those operations for us. Still, as a former budget analyst, I look forward to receiving fresh fiscal data that I can dig in to. Across the country, accountants, comptrollers, finance directors, and elected officials get their first complete look at the previous year’s financial situation once accountants close-out the books. It takes several months for a City the size of Kansas City to complete this process. So while the data we’re looking at today is not the freshest, its accuracy and reliability is unparalleled.
We recently had a KCStat session on the City’s Finance and Governance goals. A few interesting developments showed up in the data this year. To start, revenues are up 2.9% citywide.
Fiscal Year 2009 (May 1st, 2008 – April 30th, 2009) was the last year on books before the recession truly took hold. Both revenues and expenditures fell during the recession. A concerning issue for City leaders was that expenditures were higher than revenues for several years. During this time, the City’s rainy day fund covered the funding gap. During FY2014, revenues began to increase for the first time in several years. This past fiscal year (FY2015) we saw something momentous happen, the City received more money than it spent. It might not look like much, but seeing that little green dot above the blue one is an especially good indicator of the City’s fiscal condition.
The Accounts Division is one of my favorite groups in City Hall because they always have a mountain of data to feed to us. This gives us the ability to dive deeper into why revenues are increasing. The chart below shows revenue on a per-person basis for the largest sources of revenue for the City. The data has also been adjusted for inflation.
Most of the change came from a dramatic increase in the Sales and Use Tax, which is up about 33% since FY2013. This is somewhat indicative of an improving economy but is also due to a new sales tax dedicated to parks and recreation. A significant bump also occurred in the Earnings Tax and Property Tax, however it’s not nearly as large as the increase from the Sales and Use Tax.
This month’s KCStat also covered pension funding, where we found another interesting data point that we want to share. Each year, the City calculates how much money is needed to fully fund the pension system that year. This number, shown in light blue below, was about $77 million in FY2015. This number varies for a variety of reasons, but it is largely determined by the performance of investments made by the pension funds and if the City has fully paid the annual requirement in past years.
In the lead up to FY2008 the City had been closing the pension funding gap. During the recession the City took a balanced approach to reducing expenditures. While City services had their funding reduced, pension funding remained about the same as it had been in FY2008. Yet, the economic downturn and its effect on the stock market also increased the amount the City would have to contribute to pensions each year. This increase outpaced the City’s funding ability during the recession. Partial funding of pensions leads to increasing pension costs in the long term. This occurs because money that could have been invested has not been, so the pension system misses out on market gains. In FY2015 the City paid its annual pension cost in full, a first since 2003. This will result in more money being invested into the City’s pension portfolio, where it will earn interest. In the long term this will reduce the city’s pension costs.
These are good indicators of the City’s fiscal health. Increased revenue and flat expenditures led to a financial surplus last year. This allows the city to put more money in its rainy day fund or to expand services for residents. In the long term, fully funding pensions will maximize pension fund health. Yet, to have a real impact these trends will need to continue each year. You can track them for yourself on KCStat.