Presented byDepartment of Finance

November, 2010

DirectorMichael P. Kier, CPFO

Dewey Bartlett

Mayor

City of Tulsa, Oklahoma

FIVE-YEAR FINANCIAL FORECAST

Fiscal Years 2012 - 2016

Topics•Executive Summary

•Economic Condition

•General Fund

•Enterprise Funds

•Capital Improvements

Executive Summary

Executive Summary

Executive Summary•This report is prepared to provide policy makers the most current information necessary to make judgments about the major financial policy issues facing the City of Tulsa.

•Its intent is to:

•Provide the Mayor and City Council with information about potential financial changes

•Provide an updated financial base by which different financing options can be judged

•Provide elected officials information about the long-term impacts of current and anticipated financial policies

Executive Summary

Economic Condition•Though it is a slower than previously anticipated pace, the national economy continues to show signs of recovery. The CBO forecasts National Real GDP to grow by 2.6% in 2010. Unemployment is projected to peak at 10.2% in 2010, and decline slightly to 9.8% in 2011. The CBO then projects unemployment to show stronger declines in 2012, reaching 5% by 2016.

•As the national economy continues its current trend of improvement, local demand and eventual employment should soon follow in the Tulsa metro area. Unemployment currently sits at 7.5%, however it is expected to decline to 6.5% by 2013, and decline further after that. Recent growth in air and barge freight tonnage in the TMSA indicates a growing demand for Tulsa area goods. The Federal Reserve Bank of Kansas City reports that manufacturing activity in the 10th District has shown positive gains in the most recent quarter, suggesting that employment and inventory may soon move into expansion territory again. Additionally, Moody’s Analytics forecasts Wage & Salary employment to begin growing in 2011. Historically there has been a positive correlation between Wage & Salary employment and sales tax revenue, therefore as Wage & Salary employment increases, it may be possible to see gains in sales tax revenue.

Executive Summary

General FundThree General Fund scenarios have been developed considering national and local economic forecasts, as well as the City’s current and future liabilities. The following three scenarios will be explained in detail:

•Scenario 1 – FY11 Original Budget and 2% Revenue Growth in Future Years

•Scenario 2 – FY11 Budget Adjusted to reflect higher revenue collections of $2.9 million and 2% revenue growth in future years

•Scenario 3 – FY11 Budget adjusted upward by $5.2 million and revenue growth in FY12 would close remaining portion of the $18.5 million gap

Executive Summary

Enterprise FundsRates increases beginning in FY12 are assumed in the water, sewer, and stormwater funds. All enterprise funds assume personal service cost increases of 1% in FY11 and 4% between FY12 – FY 15. Other Services and Materials & Supplies assume 2% increases beginning in FY11. Specific assumptions for each fund are summarized below.

TARE – No rate increases are assumed. It is projected that the reserve will be depleted in FY14.

Water – Rate increases of 7% annually from 2012 thru 2015 are assumed to finance needed equipment replacement, deferred maintenance and major capital improvements.

Sanitary Sewer – Annual rate increase of between 8% and 10% are assumed from 2012 thru 2015 to finance needed equipment replacement, deferred maintenance and major capital improvements.

Stormwater – Rate increases of 3% annually are assumed from 2012 to 2014. Some flood control system maintenance and large scale capital improvements will continue to receive funding from the City’s third penny sales tax and general obligation bond programs.

Capital ImprovementsThe city will continue the implementation of the 2006 Sales Tax and 2008 Street Improvement package. Enterprise supported revenue bonds will be utilized for water and sewer system improvements. It is assumed that the reauthorization of current capital programs will be offered to voters for approval, and funding will be appropriated in FY15.

Executive Summary

Economic Condition

Economic Condition•The Tulsa Metropolitan Statistical Area (TMSA) comprises 25.2% of the state’s population, and 29% of the state’s economy (TMSA share equals $34.4 billion in 2008 constant dollars). As measured by employment, from 2005 to 2007, the TMSA had one of the fastest growing job markets in the nation. Due to a flattening of the national economy, TMSA demand growth began to slow in the area of manufacturing which then set in motion a contraction of employment through the end of 2008 and going into 2009. Fortunately, key TMSA characteristics of low rent, low energy costs, and low taxes – kept the cost of doing business in the TMSA a strong 7% less than the national average. Additionally, the TMSA was less impacted by the home prices decline seen at the national level, and insulated by a domestic oil economy. Currently, the TMSA has seen an increase in demand for Tulsa goods, as indicated by month over month increases in barge and air freight tonnage; 43% and 1.7% respectively. As demand for Tulsa area goods increases, TMSA unemployment should continue its gradual downward trend which is currently 7.5%. Though it is a slower than desired pace, the national economy continues to show signs of recovery. If the national economy continues its current trend of improvement, local demand and eventually employment will soon follow in the Tulsa Metro area.

US Real GDP($ in billions)(in 2005 dollars)

$13,804 $14,480

$15,960$15,556

$15,103

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

*Bureau of Economic Analysis (2007-2009)

*Congressional Budget Office (2010-2016)Economic Condition

US Real Personal Income($ in billions)(in 2005 dollars)

$16,910$16,229

$14,762$13,848

$15,574

$5,000

$7,000

$9,000

$11,000

$13,000

$15,000

$17,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

*Moody’s Analytics

2015 and 2016 determined through linear regression trendEconomic Condition

US Unemployment Rate

8.4%

6.7%

5.4% 5.1% 5.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Congressional Budget Office

US Consumer Price Index*(percentage change)

*consumer price index for all urban consumers

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2007 2008 2010 2011 2012 2013 2014 2015 2016

2009

*Bureau of Labor Statistics (2007-2009)

*Congressional Budget Office (2010-2016)Economic Condition

TMSA Population(in thousands)

950.3958.4

941.5

964.5 970.6

860.0

880.0

900.0

920.0

940.0

960.0

980.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Moody’s Analytics

2015 and 2016 determined through linear regression trend

TMSA GMP ($ in billions)

$33.3 $33.9$35.4 $36.3

$34.4

$-

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

$40.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Moody’s Analytics

2015 and 2016 determined through linear regression trend

TMSA Unemployment Rate(percentage)

5.2

4.0 4.13.9

4.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Moody’s Analytics

2015 and 2016 determined through linear regression trend

TMSA Wage & Salary Employment(in thousands)

454.8

445.8

430.6

423.4

437.2

380.0

390.0

400.0

410.0

420.0

430.0

440.0

450.0

460.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Moody’s Analytics

2015 and 2016 determined through linear regression trend

TMSA Real Personal Income($ in thousands)

$40,359$38,510

$42,175 $45,266$43,693

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Economic Condition*Moody’s Analytics

2015 and 2016 determined through linear regression trend

Funding Needs•35 JAG Funded Officers will begin transition to the General Fund in FY12

•18 COPS Funded Officers will begin transition to the General Fund in FY13

•23 COPS Funded Officers will begin transition to the General Fund in FY14

•$2 million more for MTTA to maintain current service levels

•Eliminate furloughs

•Pension benefits liabilities

•Post Employment benefits liabilities

•Replace one-time FY11 revenues

•SPI’s for IAFF members in FY12

•Health insurance premiums increase

General Fund Considerations

$18.5 Million

General Fund Expenditure Assumptions

• Stable fuel costs• No SPI’s• Cost increases will not exceed inflation• Expenditures are not constrained by the

Charter created reserve• In FY13, $1.0 million increase in OTC debt

service is accommodated and assumes no additional lease revenue

• Stable count for all employee groups

General Fund ProjectionsScenario 1

FY11 Adopted Budget as Base

Revenues

• FY10 Actuals

• 2% growth begins in FY12

• Reduced enterprise transfer rates

• 0.167% increase in use tax per the 2008 Street Improvement Program

Forecast Forecast Forecast Forecast Forecast2012 2013 2014 2015 2016

12% 28% 40% 56% 79%

(in Thousands)

Percent of $18.5 Million Which Can Be Funded

General Fund Scenario One

$225,000

$235,000

$245,000

$255,000

$265,000

2010 2011 2012 2013 2014 2015 2016

Revenue

Expenditures

General Fund ProjectionsScenario 2

Modest Revenue Growth

Revenues• FY10 Actuals

• FY11 revenue will be $2.9 million more than the Original Budget

• 2% growth in FYs’ 12 through FY16

• Reduced enterprise transfer rates

• 0.167% increase in use tax per the 2008 Street Improvement Program

Forecast Forecast Forecast Forecast Forecast2012 2013 2014 2015 2016

28% 44% 57% 73% 97%

(in Thousands)

Percent of $18.5 Million Which Can Be Funded

General Fund Scenario Two

$225,000

$235,000

$245,000

$255,000

$265,000

2010 2011 2012 2013 2014 2015 2016

Revenue

Expenditures

General Fund ProjectionsScenario 3

How To Balance

Revenues• FY10 Actuals

• FY11 revenue will be $5.2 million more than Original Budget

• 10% sales tax growth in FY12

• 1% growth in FYs’ 13 through FY16

• Reduced enterprise transfer rates

• 0.167% increase in use tax per 2008 Street Improvement Program

Forecast Forecast Forecast Forecast Forecast2012 2013 2014 2015 2016

100% 110% 116% 126% 142%

(in Thousands)

Percent of $18.5 Million Which Can Be Funded

General Fund Scenario Three

$225,000

$235,000

$245,000

$255,000

$265,000

$275,000

2010 2011 2012 2013 2014 2015 2016

RevenueExpenditures

Funded at 100%

General Fund

Additional Considerations1. Short Term Capital

Under existing capital programs, there will not be any third penny sales tax money for short term capital in FYs 13 and 14. Fund balance is being deliberately increased to provide money for critical equipment replacement needs in those years. Based on the amended FY 11 adopted budget, the short term capital fund will have a $9.5 million fund balance at the end of that year. An additional $2.5 million savings is targeted for FY 12. The goal is to have over $12 million available for addressing the most critical equipment needs in FY’s 13 and 14.

2. KPMG Survey

The impact of implementing the KPMG recommendations has not been fully determined and is therefore not included in this year's five year forecast. KPMG recommendations could positively affect future financial conditions and will be incorporated into future annual updates.

3. EMSA One Time Cost and Enterprise Fund transfer to General Fund

Future policy decisions could impact the annual EMSA and Enterprise transfer rates.

4. Outside Legal Counsel

A firm estimate for outside legal counsel related to potential extraordinary litigation has not been determined nor included in this year’s five year forecast.

5. Increases in existing fees and service charges and implementation of new fees and charges are not included in the General Fund revenue projections.

TARE (Tulsa Authority for Recovery of Energy)

No rate increases are assumed.

It is projected that the reserve will be depleted in FY14.

Enterprise Funds

Enterprise Funds

TARE($in millions)

19.0

20.0

21.0

22.0

23.0

24.0

25.0

26.0

2011 2012 2013 2014 2015

RevenueExpenditures

Rate Increases

0%0%0%0%0%0%2%4%

2 0 11 2 0 12 2 0 13 2 0 14 2 0 15

*Public Works Rate Model

*FY11 Based on Adopted Budget

Water•Rate increases of 7% annually from 2012 thru 2015 to finance:

•Needed equipment repairs

•Deferred maintenance

•Major capital improvements

Enterprise Funds

Rate Increase

7%7%7%7%7%0%

5%

10%

2011 2012 2013 2014 2015

Enterprise Funds

Water($in millions)

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2011 2012 2013 2014 2015

RevenueExpenditures

*Public Works Rate Model

*FY11 Based on Adopted Budget

Sanitary Sewer•Rate increases of between 8% and 10% annually to finance:

•Needed equipment replacement

•Deferred maintenance

•Major capital improvements related to Consent Orders and avoidance of future orders

Enterprise Funds

Enterprise Funds

Sanitary Sewer($in millions)

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2011 2012 2013 2014 2015

RevenueExpenditures

Rate Increases

8%8%8%10%10%0%6%

12%

2011 2012 2013 2014 2015

*Public Works Rate Model

*FY11 Based on Adopted Budget

Enterprise Funds

Stormwater•Rate increases of 3% annually from 2012 thru 2014.

•Some flood control system maintenance and large scale capital improvements will continue to receive funding from the City’s third penny sales tax and general obligation bond programs.

Rate Increases

0%3%3%3%

0%0%2%

4%

2 0 11 2 0 12 2 0 13 2 0 14 2 0 15

Enterprise Funds

Stormwater($in millions)

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

2011 2012 2013 2014 2015

RevenueExpenditures

*Public Works Rate Model

*FY11 Based on Adopted Budget

Capital Improvements

Capital Improvements•The City will continue the implementation of the 2006 Sales Tax and 2008 Street Improvement package.

•Enterprise supported revenue bonds will be utilized for water and sanitary sewer system improvements.

•It is assumed that the reauthorization of current capital programs will be offered to voters for approval, and funding will be appropriated in FY15.

•Short term capital – Available funds for short term capital in FY13 and FY14 will be made available by savings in previous fiscal years.

City of TulsaFiscal Years 2011-2015 Capital Improvements Schedule Summary

FY 11 Through FY 15 - Adopted by City Council June 2011(In $ Thousands)

Program FY11 FY12 FY13 FY14 FY15 Total

Public SafetyPolice $0 $0 $0 $0 $2,250 $2,250Fire $0 $0 $0 $0 $4,520 $4,520Information Technology $0 $0 $0 $0 $525 $525

$0 $0 $0 $0 $7,295 $7,295

Cultural Dev. and RecreationParks $0 $0 $0 $0 $0 $0Gilcrease Museum $0 $0 $0 $0 $825 $825TCC and PAC Department $0 $0 $0 $0 $1,210 $1,210River Parks $0 $0 $0 $0 $0 $0

$0 $0 $0 $0 $2,035 $2,035

Public Works and Dev.Streets $0 $0 $0 $0 $130,050 $130,050Water $24,600 $26,700 $34,250 $23,200 $31,000 $139,750Sewer $59,015 $36,772 $27,910 $38,340 $28,250 $190,287Flood Control $3,000 $2,000 $2,000 $2,000 $2,000 $11,000Facilities Maintenance $0 $0 $0 $0 $2,000 $2,000

$86,615 $65,472 $64,160 $63,540 $193,300 $473,087

Social and Economic Dev.EDAREM $0 $0 $0 $0 $0 $0Planning $0 $0 $0 $0 $0 $0Working In Neighborhoods (WIN) $0 $0 $0 $0 $0 $0

$0 $0 $0 $0 $0 $0

TransportationAirports $20,958 $98,896 $16,393 $15,048 $21,458 $172,753Tulsa Transit $0 $0 $0 $0 $167 $167

$20,958 $98,896 $16,393 $15,048 $21,625 $172,920

Admin. and SupportEquipment Management $0 $0 $0 $0 $1,800 $1,800Short-Term Capital $0 $0 $0 $0 $13,643 $13,643

$0 $0 $0 $0 $15,443 $15,443TOTAL $107,573 $164,368 $80,553 $78,588 $239,698 $670,780

*These allocations are based on the assumption that a new sales tax and general obligation bond program will be authorized by the voters.

Capital Improvements