Budget Transmittal Letter

August 15, 2022

Dear Mayor and City Council:

In accordance with the City Charter and the laws of the State of Texas governing home rule cities, please accept this letter as the budget transmittal and executive summary for the Fiscal Year 2023 annual budget. The budget is structurally balanced, meaning that reserves have not been used to balance the operating budget. It provides for all available resources and expenditures for the City and acts as the general financial and operating plan for the City of Forney.

INTRODUCTION

As always, this budget was prepared with great diligence in allocating limited resources for the best benefit to the citizens of Forney. The City will finish FY 2022 with an unexpected surplus in funds. Forney has continued to experience unprecedented growth in both sales tax and building permits and associated fees.

The property tax base in Forney has continued to grow at a rapid rate with a 91% increase in values in the last 5 years. The increased values and early redemption of debt have allowed for a decrease in the property tax rate of just over $0.159 in the same time period. This budget proposes a tax rate of $0.434551 and will raise an additional $1,180,503 or 10.15% in property tax revenue from FY 2022.

The payment in lieu of tax agreement with Luminant power plant expires on December 31, 2022. The current agreement allows for the city to annex the property during 2022 and have the property added to the tax rolls beginning in 2023. As a provision of the agreement, the city will receive one-half of the estimated property tax due in 2023 during Fiscal Year 2023 with the remaining half remitted in Fiscal Year 2024. Prior City Council’s reserved excess funds to offset the partial payment and this budget includes a transfer of $1,400,000 into the General Fund for that purpose.

Both sales tax and building permit revenue depend on the health of the economy. Therefore, this budget includes a conservative 7% increase in sales tax over the actual collections in FY 2022 and no increase in building permit revenue due to the high inflation rate and potential recession. Associated permit fees were also kept flat or decreased to account for the slowing economy.

Forney’s continued growth and increased revenue will allow the funding of additional staff and supplies required to meet the needs of the citizens. Last year staffing levels were increased by 36 new positions and this budget includes 22 additional positions to address these needs.

The FY 2023 budget fully incorporates the changes recommended by the recent compensation study. It includes a step increase for all police and fire personnel on a step plan as well as a 3% cost of living adjustment. All civilian employees will also receive a 3% cost of living adjustment and a possible 2% merit increase.

The City of Forney charter specifies that no more than 7% of current expenditures may be kept in the undesignated general fund balance. In effect, this provision requires that excess funds at year end be obligated for one-time purchases or expenditures. The city is poised to complete FY 2022 with a surplus of $7,600,000 of which $5,170,000 will be allocated to capital improvement projects and $2,474,841 to capital equipment purchases.

Forney is a member city of the North Texas Municipal Water District (NTMWD) and purchases water and wastewater services from NTMWD. Water rates have not increased in the prior three fiscal years, but NTMWD will be increasing the price per 1,000 gallons of water purchased by 13.4% for FY 2023. They will also impose a marginal increase for wastewater services. Therefore, this budget includes an increase of 13.4% for both commercial and residential water rates as well as a $1.00 monthly increase in the sewer service charge for Forney citizens. These increases are necessary to be able to provide the required maintenance for the water and wastewater systems within the City of Forney.

The City recently renewed the contract for solid waste disposal services for a five-year term. The contract includes a provision that there will be no rate increase to the City for a period of three years and thus does not necessitate an increase in rates for the citizens at this time.

The continuing COVID pandemic has had a lasting effect on the hotel industry, however FY 2022 has seen an upward trend in room reservations in Forney. The Hotel Occupancy Tax (HOT) Fund is a special revenue fund that receives revenue through a 7% tax charged on all room rates by hotels or motels within the city limits. This fund is typically used for special events and the increased revenue from local reservations will allow for a transfer of $275,000 to be allocated for events in FY 2023.

The Capital Purchases Fund will provide for General Fund capital purchases through a $2,474,841 transfer from unallocated fund balance. This transfer will cover both vehicle and equipment requests from general fund staff for FY 2023. Capital requests of $398,000 for equipment to be used by the utility crews will be funded through unallocated fund balance in the utility fund.

The City of Forney Capital Improvement Program (CIP) is comprised of several funds. The General CIP fund accounts for projects such as facilities, parks, technology and roads. The General Fund transfer of $5,170,000 will fund $3,970,000 requested by staff in this budget. The remainder will stay within the fund as unallocated fund balance to be used for future projects.

The Utility CIP fund accounts for water and sewer infrastructure projects and will receive a transfer from the Utility Fund in the amount of $3,450,000. Staff has requested $12,450,000 in utility CIP projects that include a new elevated water tank north of Highway 80. This project is estimated at $9,000,000 and will be funded over multiple fiscal years through a combination of water impact fees, utility fund transfer, and a potential revenue bond. The FY 2023 budget reflects a transfer of $1,2000,000 from the Water Impact Fund into the Utility CIP fund to begin the project.

FINANCIAL INFORMATION & FUND SUMMARIES

GENERAL FUND The General Fund is the City’s principle operating fund and is supported by taxes, fees, and other revenues that are not restricted to specific uses. This fund accounts for City functions such as police, fire, community development, parks, municipal court and administration.

GENERAL FUND REVENUE Fiscal Year 2022 total General Fund revenue is expected to end the year 16% above the original budget. This is the result of increased permits and inspections as well as sales tax collections.

Total revenue for Fiscal Year 2023 is projected to be $30,802,270. This is an increase of 14.98% from the prior year’s budget. This increase is primarily due to increased sales tax and property tax revenues.

Taxable Valuation & Tax Rate The total certified property valuations for Fiscal Year 2023 are $3,425,333,112. This is an increase of 29.04% or $770,781,644 in total valuation. Forty percent of this increase, $309,107,714, can be attributed to new construction. The remainder is an increase in existing property valuation, which indicates a thriving community.

While valuations have increased by 91% since 2019, the total tax rate has decreased by $.18656. The increased valuations, along with sound debt management including early redemptions and refunding, has contributed to the decreased tax rate. A tax rate of $0.434551 is proposed for Fiscal Year 2023. This represents a $0.06652 1,541,669,511 1,758,138,986 decrease from the prior year. 0 Both the debt service portion and the maintenance and operations portion of the tax rate will be decreasing. However, additional revenue will be generated from new construction as well as increased valuations and will be used for increased operating cost. Further information on the changes in the tax rate, including adjustments for tax abatements and tax increment financing districts, can be found in the General Fund section of this document. Sales & Property Reduction Taxes Over the past five years, sales tax revenues have increased an average of 14.8% per year. This continued increase is indicative of a growing local economy, resulting from continued population growth within the city limits and the surrounding areas, as well as increased commercial development. The city has always taken a very conservative approach to budgeting sales tax. The Fiscal Year 2022 budget assumed a 7% increase in sales tax revenue and actual collections are trending significantly higher toward a 22.36% increase from the prior year. The budget for Fiscal Year 2023 also assumes a conservative 7% increase due to increased inflation and a slowing economy. Permits & Inspections This revenue category as a whole is expected to end the year at approximately 133% above the original budget. While nearly all of the individual permit fee categories will end Fiscal Year

2,026,576,340

3,500,000,000 0.7 3,000,000,000 0.621111 0.58 0.6 0.53871 2,500,000,000 0.501069 0.5 0.434551 2,000,000,000 0.4 1,500,000,000 2,948,838,063 0.3 2,321,777,375 1,000,000,000 0.2 500,000,000 0.1 0

FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Valuations Tax Rate

9,000,000 8,000,834 7,477,415 8,000,000 6,494,018 7,000,000 6,110,871 6,000,000 4,906,976 5,000,000 3,691,244 4,163,238 4,000,000 3,000,000 2,000,000 1,000,000

FY 2018 Actual FY 2019 Actual FY 2020 Actual FY 2021 Actual FY 2022 Budget FY 2022 Revised FY 2023 Budget

2022 with increases, the largest increases will be reflected in Zoning & Platting Fees, Engineering Inspection Fees, and Building Permits.

While the City of Forney has continued to experience unprecedented growth in both residential and commercial projects, staff acknowledges that this growth is dependent on the health of the economy. Although there are several planned developments underway, the city has adopted a very conservative approach in projecting revenue for Fiscal Year 2023. This budget either decreases revenue or holds revenue flat in the permits and inspections category.

Other Revenue Sources Sales Revenue includes fire protection fees and park revenue. Fire Protection fees are charged to the Kaufman County Emergency Services District #6 (ESD #6) and the Town of Talty. Certified property values have increased in both jurisdictions resulting in an additional $401,445 for Fiscal Year 2023.

Park fees were restructured in Fiscal Year 2022 to help offset the cost of programs that serve not only Forney citizens but many residents in the surrounding area. Park revenues are budgeted at a slight increase. Court Fines and Miscellaneous Revenues are expected to increase 10%. Donations & Grants are expected to remain flat, and Interest Income is expected to increase based on rising interest rates for available funds.

GENERAL FUND EXPENSES The Fiscal Year 2023 Budget includes an increase in expenditures of 18.31%. This increase is primarily the result of 20 additional full-time equivalents and two seasonal positions as well as increased salary and benefits related costs. Each new position will also require other expenses as they are outfitted and equipped for their department.

Employee Compensation Personnel costs account for 69% of the General Fund’s expenses. During Fiscal Year 2022 a compensation study was completed, and salary adjustments were made to bring all positions within the city to market value. The Fiscal Year 2023 budget includes a 3% cost of living adjustment and up to 2% merit increases for all employees not on a step plan. It also includes a one-step increase for police officers, firefighters, and communications officers on a step pay plan.

Health Insurance Premiums The budget includes a 15% increase in health care costs. The industry average for health care cost increases is between 12% and 15%. The City competitively bids our employee health insurance in October.

Texas Municipal Retirement System The Texas Municipal Retirement System contribution rate for 2023 will increase to 14.48% from 14.32% in January of 2023. With the longer tenure of employees, increased salaries, and a significant number of new employees, the City’s General Fund contribution to TMRS will increase by $334,564 to $2,306,192 for the upcoming fiscal year.

New Positions The Fiscal Year 2023 budget includes 18 new full-time positions in the General Fund. Details on the new positions can be found in the Full Time Equivalent section on the following pages.

Contingency & Reserves A $300,000 line-item contingency is included to offset unexpected costs. There will not be a transfer to the emergency reserve fund in Fiscal Year 2023 as the fund balance would adequately cover more than 25% of general fund expenditures.

CAPITAL PURCHASES FUND The Capital Purchases Fund is used to make one-time purchases for General Fund Departments. It is primarily funded through a transfer from the General Fund of unrestricted fund balance. Segregating these purchases in this manner helps to ensure that fund balance is not used for recurring operating expenses and assists in the tracking of fixed assets. The following purchases are scheduled for Fiscal Year 2023:

POLICE • Patrol Vehicles (4) - $400,000 • Administration Vehicle - $90,000 • CID/Evidence Vehicle - $65,000 • Various Equipment to include 2 Advanced Drones - $49,438

FIRE • Investigator/Inspector Vehicle - $70,000 • Escrow-Fire Engine Replacement - $500,000 • Various Equipment - $184,814

PARKS • Electric Shuttle - $18,000 • Mowers (2) - $102,500 • Splash Pad Update - $12,000 • Replacement Canvas Covers - $5,000

ANIMAL CONTROL • Van for adoption events - $60,000 • Animal crates for vehicles - $50,000 • Various Equipment - $34,589

STREETS • Crew Trucks (2) - $170,000 • Enclosed trailer - $25,000 • Concrete Saw - $60,000 • Crack Seal Machine - $75,000 • Replacement mower - $17,000 • Chemical storage building - $12,000

INFORMATION TECHNOLOGY • Laserfiche Upgrade - $20,000 • Council Chambers technology upgrade - $120,000 • Public Safety mobile computer replacement - $250,000 • PD/Court security camera and monitor replacement - $36,500

FLEET SERVICES • Fleet loaner vehicle - $48,000

The total transfer from the General Fund for Fiscal Year 2023 is proposed at $2,474,481. This will cover all the requested purchases and allow for $500,000 to be committed for the future purchase of a Fire Engine.

UTILITY FUND The Utility Fund is an enterprise fund that accounts for the water, sewer, and refuse services that are provided to the City’s residents. Revenues are derived from charges for water consumption, wastewater collection, and refuse services.

UTILITY FUND REVENUE Fiscal Year 2022 total Utility Fund revenue is expected to end the year 5.4% above the original budget. The increase is attributable to residential and commercial growth as well as new and existing industrial and wholesale contracts.

Utility Rates The North Texas Municipal Water District (NTMWD) is increasing the cost of water purchases by $0.40 per 1,000 gallons or 13.4% for Fiscal Year 2023. This budget proposes passing the cost increase on to all water customers to include residential, commercial, wholesale and industrial.

Additionally, NTMWD is increasing the cost of wastewater treatment and transmission and this cost will be passed on to customers through a $1.00 monthly increase in the sewer service charge. The contract with Community Waste Disposal for refuse services includes a freeze on rate increases to the city for the first three years. Rates charged to the city’s customers for Fiscal Year 2023 will not increase.

Utility Expenses Operating expenses in the Utility Fund are projected to increase 7.06% from $20,295,527 to $21,727,469. Much of this increase is related to the increasing cost of providing water and wastewater services.

The cost of purchasing water for Fiscal Year 2023 will increase by 17.8%. The NTMWD will be increasing the rate to purchase water by $0.40 per 1,000 gallons. Also, the city has exceeded the 2022 contract minimum by 100,933,000 gallons resulting in an additional $50,000 cost for Fiscal Year 2022. The new contract minimum of 2,673,783,000 gallons for 2023 will result in annual charges of $9,064,124.

The cost of sewer services is split between the Utility Fund and the Interceptor Fund. Maintenance and operation of the interceptors is charged to the Utility Fund and the debt owed for construction of the interceptor lines is charged to the Interceptor Fund. Total costs for sewer services to the city will be decreasing by 14.95% due to decreased flow estimates. However, sewer treatment and transmission costs as applied to the Utility Fund will be increasing by 15.22%.

Employee Compensation Personnel costs account for 13% of the Utility Fund’s expenses. The Fiscal Year 2023 budget includes a 3% cost of living adjustment and up to 2% merit increases for all employees.

Health Insurance Premiums The budget includes a 15% increase in health care costs. The industry average for health care cost increases is between 12% and 15%. The City competitively bids our employee health insurance in October.

Texas Municipal Retirement System The Texas Municipal Retirement System contribution rate for 2023 will increase to 14.48% from 14.32% in January of 2023. With the longer tenure of employees, increased salaries, and a significant number of new employees, the City’s Utility Fund contribution to TMRS will increase by $35,090 to $328,830 for the upcoming fiscal year.

New Positions The Fiscal Year 2023 budget includes funding for 22 new positions. Four are funded in the Utility Fund. Details on the new positions can be found in the Full Time Equivalent section on the following pages.

Capital Purchases The 2023 Utility Fund budget includes $398,000 worth of capital purchases. • Boring Machine (Water) - $6,000 • Water Pump w/Trailer (Water) - $55,000 • GIS Trimble GPS (Water) - $12,000 • Replacement Crew Truck (Water) - $85,000 • Single Cab Truck (Water) - $65,000 • Landscape Truck (Sewer) - $90,000 • Replacement Crew Truck (Sewer) - $85,000

Contingency & Reserves A $50,000 line-item contingency is included to offset unexpected costs. As with the General Fund Operating Reserve, there will not be a transfer to the reserve fund in Fiscal Year 2023 as the fund balance would adequately cover more that 25% of general fund expenditures.

CAPITAL IMPROVEMENT FUNDS The Capital Improvement Funds account for the design and construction of City facilities, roads and drainage, parks, and water and sewer systems. Unlike the operating budget, the capital improvement budgets do not conclude at the end of each fiscal year, as many CIP projects remain in progress over several years.

Capital Improvement Projects are funded from several different sources. Based on the funding sources, projects are put into one of two different funds: the General Capital Improvement fund, or the Utility Capital Improvement Fund. General Capital Improvement Fund The projects in the General Capital Improvement Fund can be funded from bond proceeds, developer contributions, transfers from the General Fund or other funds not classified as water sewer related, and donations or grants.

Funding sources for Fiscal Year 2023 projects are as follows: $3,970,000 transfer from the General Fund o $75,000 Parks Master Plan o $145,000 Mulberry Park Fence Improvement o $2,700,000 Community Park Multi-Purpose Fields o $800,000 Police Station Dispatch Remodel o $250,000 Public Works Facilities Improvements

Utility Capital Improvement Fund The projects in the Utility Capital Improvement Fund can be funded from bond proceeds, developer contributions, the Utility Fund, and the Water and Sewer Impact Funds.

$3,450,000 in budgeted projects o $300,000 Waterline Extension to Grayhawk o $400,000 Decommission Grayhawk Lift Station o $1,500,000 Water Line Construction o $1,000,000 Waterline Loop on Northside o $250,000 Pump & Lift Station Improvements

Additionally, $9,000,000 was requested for a new elevated water tank north of Highway 80. This project will be funded over multiple fiscal years through a combination of water impact fees, utility fund transfer, and a potential revenue bond. The FY 2023 budget reflects a transfer of $1,2000,000 from the Water Impact Fund into the Utility CIP fund to begin the project.

DEBT SERVICE FUNDS The City issues debt to support capital improvements. This debt is either tax supported and accounted for in the Debt Service Fund, or it is utility revenue supported and accounted for in the Utility Debt Service Fund. The combined total debt payments for Fiscal Year 2023 will be $5,130,451.

General Debt Service Fund Revenues required to pay the City’s outstanding tax supported debt are restricted to debt payments. Revenues in this fund are collected through the debt service portion of the property tax rate and from the TxDOT Pass Through Toll reimbursement.

A committed fund balance is designated for early bond redemption. These funds are the accelerated portion of the reimbursement (amount above the guaranteed minimum annual payment) from TxDOT for the Pass-Through Toll roadway projects. The City has retired an additional amount of the 2008 GO bonds annually according to the funds available. During Fiscal Year 2022, the city redeemed $2,005,000 early, bringing the total early redemption since Fiscal Year 2013 to $19,040,000. To date, this process has saved the city $9,327,801 in interest.

The required general debt payments for Fiscal Year 2023 total $4,824,007. In calculating the debt service tax rate, this number is reduced by the Pass-Through Toll remaining annual payment of $863,363 and $324,250 of available fund balance for the 2017 Tax Notes. This results in the tax rate being based on payments of $3,636,394 and is a reduction of $0.04274 per $100 valuation.

The final debt service portion of the tax rate is $0.123316 and will generate $3,636,394 in revenue for bond payments. Of this total, $0.073 (59%) results from voter approved general obligation debt.

Utility Debt Service Fund Revenues required to pay the City’s outstanding revenue supported debt are transferred from the Utility Fund, the Water Impact Fund, and the Sewer Impact Fund. The exact amount required to cover the bond payments is transferred in each year and the fund maintains a zero fund balance. The total required debt payment for Fiscal Year 2023 is $306,444.

ECONOMIC DEVELOPMENT CORPORATION FUND The Economic Development (EDC) Fund is a special revenue fund that receives revenue from type 4B sales tax. Expenditures are restricted to activities that support and promote economic and community development.

Economic Development Revenue Economic Development Corporation revenues are expected to finish Fiscal Year 2022 at a 15% increase above the original budget due to increased sales tax collections.

Fiscal Year 2023 revenues are expected to increase 22.75% from the previous year due to increasing sales tax revenue and interest income. Economic Development Corporation Expense Economic Development Corporation expenses have increased 195% from the original budget in Fiscal Year 2022. This increase is the result of economic incentives that were not originally expected to be funded during the fiscal year and the unplanned purchase of a downtown building. Expenses for Fiscal Year 2023 are budgeted at a 115% increase from the prior year to account for economic incentives and increased personnel costs.

CONCLUSION

The Fiscal Year 2023 budget is a balanced budget and provides an operating basis for the next year. It provides for strategic planning and investment in our most valuable asset, our workforce. At the same time, we are maintaining the long-term fiscal viability of the community by promoting cost saving measures and supporting quality development. While the budget process is always a challenge, we have produced a budget that is both balanced and sufficient to meet the needs of the upcoming fiscal year. On behalf of myself and the staff, I want to express my appreciation to the City Council for your diligent efforts throughout the year in providing guidance, direction and support for this budget. I feel this budget accurately represents the goals of the city which are designed to provide the highest quality of services to our citizens with the resources available. Respectfully Submitted,

Deborah Woodham, Director of Finance