Forecasting

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Forecasting




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Presentations text content in Forecasting

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ForecastingMunicipalRevenue

William Michael Rodgers, CPADirector of FinanceCity of Webster, Texas

June 2015

TML Revenue Workshop

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June 2015

TML Revenue Workshop

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“It’s tough to make predictions, especially about the future.”

-Yogi Berra

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June 2015

TML Revenue Workshop

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“Yes, I can predict what will happen tomorrow. Just give me a week to think about it.”

-Anonymous

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How Do You Estimate Revenues?

Review your booksAre revenues greater or less than last year?Are revenues what you expected?Look outsideIs your population growing?Do you see any new construction?Listen to those who knowHave you heard the latest business news?What is the current barbershop gossip?

June 2015

TML Revenue Workshop

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Sources of Municipal Revenue

Property taxSales taxMixed beverage taxFranchise / access taxHotel occupancy taxPermit / license fees

Court fines and feesUser feesCharges for serviceSpecial assessmentsTransfers inUse of Reserves

June 2015

TML Revenue Workshop

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City of Webster Revenue

June 2015

TML Revenue Workshop

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Property Tax Revenue

Reliable and relatively stable source of revenueResidential component can constrain revenue growthIncrease to residential property value is limited by lawTax exemptions can reduce value considerably Residential taxpayers are also voters!Commercial and industrial property values are less predictable

June 2015

TML Revenue Workshop

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City of Webster Property Value History

June 2015

TML Revenue Workshop

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City of Webster Property Value History

June 2015

TML Revenue Workshop

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Property Tax Revenue

Revenue indicators include:Appraisal District preliminary estimatesConstruction permit valuesUtility customer countGeneral economic news about communityLocal real estate association news (such as Houston Area Realtors’ HAR.com)

June 2015

TML Revenue Workshop

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Sales Tax Revenue

Sales tax can contribute a large amount of revenue but it is much more volatile than other sourcesSusceptible to changes in economy, even at national and international levelsThe unpredictable nature of sales tax will require maintaining a greater reserve amount in funds relying on sales tax revenue

June 2015

TML Revenue Workshop

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City of Webster Sales Tax History

June 2015

TML Revenue Workshop

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Sales Tax Revenue

Revenue indicators include:Sales tax permitsCertificates of OccupancyPress releases from public companiesSales figures for comparable businessesTexas Comptroller’s confidential reportFederal Reserve Beige Book

June 2015

TML Revenue Workshop

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Mixed Beverage Tax

A tax of 6.7% is imposed on the gross receipts from the sale of mixed beveragesRate was lowered from 14% to 6.7% in 2014Cities are allocated 10.7143% of the tax receivedThere is also a new 8.25% mixed beverage sales tax on mixed beveragesRevenue indicators include:Average collection in past yearsChanges to the number of bars and restaurantsTexas Comptroller website

June 2015

TML Revenue Workshop

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Franchise / Access Fees

Cities can charge a franchise or access fee to utilities for the use of the City rights-of-wayMany fees are now governed by the Public Utilities CommissionRevenue indicators include:Utility company notificationAverage collection in past years Certificates of Occupancy

June 2015

TML Revenue Workshop

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Hotel Occupancy Tax

Cities can adopt a tax on the room rate charged by hoteliers The maximum tax rate is 7% with the exception of certain jurisdictionsThis special revenue can only be spent on those items identified by State lawRevenue indicators include:Occupancy ratesOverall economy, both locally and nationally Special events in the community

June 2015

TML Revenue Workshop

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Permit / License Fees

Cities can charge fees for the permits and licenses that are issuedThe rates charged are determined by OrdinanceRevenue indicators include:Local economyAnticipated and ongoing construction activitiesAmount of available space for new developmentAverage collection in past years

June 2015

TML Revenue Workshop

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Court Fines & Fees

The State and Municipal Judge set the various court fines and feesMajority of collections are returned to the StateCity cannot set quotas for number of citations to be issued Revenue indicators include:Increased enforcement efforts by PoliceChanges to traffic patterns or construction Average collection in past years

June 2015

TML Revenue Workshop

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User Fees / Charges for Service

Utilities and certain general government functions charge users for services providedUtility Funds should strive to cover all expenses, including depreciation, with rate revenueGeneral Fund charges typically do not cover all direct operating costs

June 2015

TML Revenue Workshop

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User Fees / Charges for Service

Revenue indicators include:Rate changes, if anyCertificates of OccupancyConsumption by comparable usersAverage revenue for multiple yearsFor utilities, weather makes a difference!

June 2015

TML Revenue Workshop

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Special Assessments

A City may create an improvement district for certain purposesState law governs a district’s creation and operationCosts of improvements are allocated to property owners within the districtRevenue indicators are similar to property tax

June 2015

TML Revenue Workshop

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Transfers In

A City may transfer money between fundsThe transfer is typically based upon the value of services provided by the receiving fund Some utilities transfer funds into the General Fund in lieu of paying taxesThere should be a written document describing the purpose and amount of each transferAnticipated revenue would change if the transfer calculation included a variable factor such as percentage of revenue

June 2015

TML Revenue Workshop

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Use of Reserves

Planned use of accumulated reserves is an acceptable source of revenueBest if used for one-time or capital expendituresDrawing down reserves for recurring expenditures can be a sign of distressExpenditures may be growing more rapidly than revenueMay need to increase property tax ratesMay need to cut expenditures

June 2015

TML Revenue Workshop

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Long-Term Forecasting

Rule #1: The numbers are wrong!Rule #2: The longer the period, the “wronger” the numbers!Forecast only what is known rather than what might occurAgree on assumptions and math does the restThe results are used to show trends over time

June 2015

TML Revenue Workshop

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Is This Good?

June 2015

TML Revenue Workshop

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What About Now?

June 2015

TML Revenue Workshop

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“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future

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-Warren Buffet

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Beware of Forecaster Bias

An optimist may use overly aggressive revenue assumptions over timeHigher-than-average revenue gains predictedRevenue trends never decline Can result in budget shortfalls if results don’t appearAn optimist rarely hits assumption targets

June 2015

TML Revenue Workshop

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Beware of Forecaster Bias

A pessimist may budget too conservativelyLittle or no growth is anticipatedRevenue trends remain essentially flatCan result in unnecessary budget cutsOften exceeding assumption targets is indicative of a pessimistA realist in an optimist with experience!

June 2015

TML Revenue Workshop

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Any Questions?

William Michael Rodgers, CPADirector of Finance and AdministrationCity of Webster, Texas(281) 316-4102mrodgers@cityofwebster.com

June 2015

TML Revenue Workshop

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