Members of the Board of County Commissioners:

I am pleased to present to you the Adopted Budget for Fiscal Year 2002-2003 (FY03) - which began October 1, 2002 and which represents the second year of the Board’s two-year (“biennial”) budget. Last September, the Board formally adopted a budget for FY02 and a planned budget for FY 03 after an intensive budget review. Under the biennial budget process that our County has now used for eight years, the second year in a biennial budget cycle undergoes a less intense update process to fine tune the budget while meeting all statutory requirements for formal adoption.

The FY03 budget is $2.8 billion, reflecting an increase of $237.1 million from the Adopted FY 02 budget. Of that, $86.3 million - or more than one-third of the increase - simply reflects accounting for the transfers that occur between funds rather than an increase in spending. The remaining $150.8 million increase reflects several factors: a portion is accounted for by unavoidable pass-throughs that simply reflect inflation and a growing population - such as the cost of purchasing bulk water from Tampa Bay Water and the cost of paying private contractors to collect solid waste from additional residential customers. Two other large factors in the remaining increase include larger commitments of funding to transportation projects and higher employee health care costs. Each of these will be addressed later in this message in greater detail.

The Significance of the Budget in a Long-Term Context

In September 2001, the Board also adopted a six-year capital improvement program (CIP) in which the first two years reflected the capital component of the biennial budget. The CIP recognizes a longer planning horizon needed for capital projects funded over a number of years. Volume II of the budget document includes an update for the remaining five years within the CIP. As referenced below, a major factor in the update is the addition of transportation projects approved earlier this year and financed using the one-half percent sales tax commonly called the Community Investment Tax.

The third component used to put current budget decisions into a longer-term context is a Pro Forma document prepared in accordance with Board policy. The Pro Forma provides a five-year projection of revenues and expenditures for major operating funds. It is particularly useful in showing how capital projects funded in this budget or planned over the next several years will impact future operating budgets in terms of maintenance and utility costs as well as staffing costs. The Pro Forma is a tool to evaluate the impacts of the adopted budget prior to developing or, in the case of the second year of a biennial budget, updating the next year’s budget.

These three areas of focus - the biennial budget, the six-year CIP, and a five-year Pro Forma forecast - - ensure that the Board, County staff, members of our community, and other “stakeholders” in our budget such as bondholders have an opportunity to see how current decisions tie to longer term infrastructure funding and how those future projects will impact future operating budgets.

Highlights of the Planned FY03 Budget

There were several highlights of the budget for FY03 that was developed last year as part of the biennial process:

• Countywide millage rates were to be reduced by 0.25 mills, reflecting the eighth consecutive Countywide millage reduction.

• The full $25,000 senior homestead exemption would take effect. While participation has declined, this program provides a crucial safety net to our lower income seniors.

• Staffing standards would be maintained for Sheriff’s deputies (1.7 deputies per 1,000 unincorporated area population) and for code enforcement officers (1 officer per 28,000 unincorporated area population). Ten new parks would become operational during this biennial budget with ongoing operating impacts by FY03 of $1.6 million.

• Efficiencies identified during the biennial budget process would continue to save money. Thirty-two existing positions were cut in FY02 and all of the affected employees were placed in other positions.

• A commitment of an added $10 million per year to transportation would continue, as would a commitment of one percent of revenue in major operating funds to maintain existing facilities.

• Growth in the property tax bases would slow to the lowest rate in six years but still exceed historical growth rates. The slowdown anticipated both the delayed impact of a recession on property values and a recognition that recent growth rates have been unusually high reflecting, in part, efforts by the Property Appraiser to address unwarranted exemptions and other inequities in the tax base. This is the one assumption that, fortunately, did not bear out.

The Update Process

In my role as your designated budget officer, I am required to present to you a balanced budget. I prepared a working document intended as a starting point for public scrutiny and further refinement by the Board, but reflecting my best understanding of your priorities. Under the biennial budget process, it is not a full-blown process. While any aspect of the Planned Budget for FY03 can be reconsidered, the majority of that plan can be continued without adjustment. Where it is necessary to reconsider funding levels, materials submitted last year can be used effectively. The process, however, does allow opportunity to raise issues not known last year and to submit documentation for consideration. Clearly any anticipated reduction in revenues must be addressed through offsetting actions to keep the budget for FY03 in balance.

During the update process, it was necessary to consider three types of updates to the budget for FY03: First, to address actions approved by the Board since the FY02 budget was adopted in September 2001. Second, to consider external events that have occurred during that same period that require action in the upcoming budget. Third, to consider new information submitted by departments and agencies. Each of these updates required consideration of what offsetting actions could be taken to rebalance the FY03 budget.

Interim Actions Approved by the Board - After the Planned Budget for FY03 was developed last year, the Board addressed key policy issues that impact both the quality of life for County residents and the financial health of our government.

• After community input and careful reflection, the Board approved changes in our nationally recognized Health Care Program and in how revenue from the Indigent Care Sales Tax is used. Much of the impact of approved changes begins in FY03. The changes include savings in administrative costs, tighter monitoring and control of usage, and some cost shifting to the Countywide General Fund. To ease the burden on the Countywide General Fund, the Board approved using Community Investment Tax revenue to cover $12.5 million of the cost of planned improvements to Bruce B. Downs Boulevard over FY02 and FY03. As a result a matching amount of Countywide General Fund revenue was freed up. The Board committed to use those funds to help cover cost shifts in FY03 through FY07. The FY03 budget uses $2.5 million and the remaining $10 million has been set aside in reserve for future years.

• The Board approved financing many of the projects funded by the second round of allocations of Community Investment Tax revenue, which begins in February 2003. By using long-term financing, the Board was able to finance an additional $133.5 million of CIP projects - with $132 million of that dedicated to transportation projects and the balance to add a park in the unincorporated area of New Tampa.

• The Board approved a plan intended to address sharp cost increases in our self-funded employee health care program. Under the plan, the Board and other employers who share in the program will pay one-half of the required $14.7 million in added funding and employees will pay the other onehalf through a combination of benefit changes and an increased contribution. The County’s share amounts to $72 per month per covered employee, for a total of over $7 million.

• The Board authorized fee increases needed to maintain development services that are provided by the Planning and Growth Management Department and that are entirely funded with user fees. The increases received support from those who pay the fees and receive the services. In the absence of action, services would have been significantly reduced. The Board authorized future administrative adjustment to these fees to ensure adequate services can be maintained. One remaining issue will be to seek industry concurrence on an adequate level of reserves to be built for these services.

External Events Impacting FY02 and FY03 Including the Aftermath of September 11th and the First Recession in a Decade — External events drove an examination of how anticipated revenues and costs for FY03 might change. Even before the biennial budget was adopted in September 2001, the terrorist acts of September 11th led to concerns over budgetary impacts in one or both years of the budget. In November 2001, the Board acted to selectively slow spending while the full impacts of September 11th, the call-up of reservists to active duty, and the first recession in a decade were evaluated. In February 2002, the Board ended those restrictions on spending, as it became clear that the County’s budget was fully capable of absorbing what turned out to be limited impacts. As we examined impacts we found that:

• With the exception of tourist taxes, the County’s revenue stream for FY02 was only minimally impacted. Growth in sales tax revenues, which is susceptible to the types of events that occurred, had been conservatively projected in anticipation of a modest recession. The events of September 11th led to a measurable reduction in tourism early in FY02. A detailed examination of historical sales data by staff determined that Hillsborough County is less dependent on travel and tourism than the Statewide average and therefore more insulated against such short-term disruptions. Staff also determined that the County is more reliant on travelers who drive, but it was air travel that was most impacted. Tourist tax revenue was significantly reduced - by at least ten percent - but reserves and the ability to cut spending on contracts localized any impacts.

• Recent detailed examination of State-shared revenues led to the discovery by County staff that quarterly distributions of revenues by the Florida Department of Revenue had short-changed County receipts of Indigent Care Sales Tax revenue by nearly $1.2 million in FY02. The correction was made to a subsequent distribution.

• On the expenditure side, one of the most relevant impacts has been an agreement with the Tampa Port Authority to supply 16 Sheriff’s deputies for Port security. The Port Authority is paying the cost of those positions. Concerns for higher security in County facilities led to closing County Center parking to the public and examining packages brought into County Center.

• Legislative impacts arose from special sessions of the Florida Legislature. One of the most significant was what we believe is an unsustainable reduction in contribution rates to the Florida Retirement System (FRS). The reduction in rates, effective July 1, 2002, largely offset the County’s higher contribution to employee health care. Recognizing that the State cannot sustain spending down reserves in the retirement system, the FY03 budget anticipates FRS rates will be restored on July 1, 2003 to their former levels.

The Review Process for Considering the Recommended Budget - Through an abbreviated series of budget workshops and three public hearings, the Recommended Budget I presented to you in June was refined to meet Board priorities and to allow the public an opportunity to address their concerns and priorities before final decisions were made. One of those public hearings was scheduled in July to allow public input prior to any tentative decision on maximum property tax rates. That part of the public participation process is not required by Florida Statutes, but the Board has instituted one or more early public hearings each year as a unique community participation component of our budget process.

Key Revenue Assumptions

Hillsborough County continues to rely on a variety of revenues and other funding sources. The largest sources include fund balance (non-recurring funds carried forward from the prior year), ad valorem (property) taxes, other locally approved taxes (e.g., local option sales taxes and gasoline taxes), charges for services (user fees, reimbursements and internal chargebacks), and intergovernmental revenue (largely state and federal grants and some shared taxes collected by the State).

• Ad Valorem (Property) Taxes account for 24 percent of all County funding sources in FY03. The increase in taxable values that serves as the basis for FY03 ad valorem tax was expected in the biennial budget to slow from recent years’ growth rates. The Countywide tax base was assumed to grow 7.25 percent while the unincorporated area tax base was assumed to grow 8.25 percent. When the taxable values used to adopt the FY03 budget became available from the Property Appraiser’s Office about July 1, the projected slowing occurred, but fortunately it was less than we predicted - the Countywide value grew 8.7% and the Unincorporated Area value grew 9.2%. As indicated earlier, the FY03 budget included a quarter-mill reduction in the Countywide tax rate.

• Indigent Health Care Sales Tax receipts will reflect a full 12 months’ collections at the ½-percent rate in FY03. FY02 reflected one month at the ¼-percent rate and 11 months at the higher rate. As indicated earlier, errors in the distribution of quarterly payments for the first two quarters of FY02 will be corrected and should not impact FY03 collections. Both this tax and the Community Investment Tax (CIT) are projected to have revenue growth below the anticipated long-term growth rate of 6 percent. The detailed examination of our tax base last year indicated that the contribution of tourists to our local option sales tax was less that we had thought. Tourists are responsible for about 18 percent of sales taxes paid in Hillsborough County. That means that we are less susceptible to events that impact tourism, but it also means that more of our sales tax revenue is paid by our citizens.

• Tourist Taxes - As mentioned, receipts were down considerably in FY02. FY03 projections are up 9% from FY02, but still represent a level 5% below FY01 collections.

• Other Taxes - The County received final distributions in FY02 of the cable franchise fee collected by two unincorporated area franchises. This five-percent tax on cable services was replaced on October 1, 2001 by a unified state-local communications tax. The Florida Legislature replaced several state and local taxes and fees with a tax that will be consistently applied to a broader range of communications services. A 2.2 percent local component to the unified tax for the 11 months that accrued to FY02 automatically dropped to 2.1 percent at the beginning of FY03 since local governments will receive 12 monthly payments this year. The new tax was intended to be “revenue neutral,” meaning that it would replace but not supplement historical revenues. The County’s communications tax base was significantly underestimated by the State - most likely due to inadequate data furnished by telecommunications providers for sales within unincorporated Hillsborough County. During the summer, we determined the Board would need to formally act to retain a tax rate that generates a higher level of tax revenue than that generated by cable franchise fees or reduce the rate by emergency action to a rate consistent with historical cable franchise fee collections. In August, the Board approved lowering the rate to 2.0 percent effective January 1, 2003.¹

• Internal Charges - The increased cost of employee health insurance results in a substantial increase in internal charges to departments and agencies that are reflected in the revenue category “charges for services.” Other factors in the increase of that category include increased revenue from the sale of water, reclaimed water, and wastewater services. Somewhat offsetting these increases was the loss of a payment to the Countywide General Fund from the Indigent Health Care Tax of $2.6 million. The payment covered the Sheriff’s cost of medical care for inmates who would qualify for benefits from the Health Care Program if not incarcerated. In addition, the allowance for uncollectable ambulance fees was increased, resulting in a reduction in budgeted ambulance fees.

• Building permit fees were increased during FY02 in order to sustain existing service levels. These fees are classified for State reporting as licenses and permits.

  ¹At this reduced rate, the County will receive about $3 million annually over what the franchise fees would have generated. This action raised revenue estimates for FY03 and allowed us to restore an adequate Unincorporated Area General Fund Reserve for Contingency for FY03. The Planned FY03 budget had not contemplated added cost for Fire Rescue personnel needed to meet new workweek standards approved in a collective bargaining agreement. The alternative was to largely eliminate the Reserve for Contingency in FY03 to accommodate the added costs.

Expenditure Adjustments

As indicated earlier, several key policy decisions during FY02 impacted the FY03 budget. In addition, the County will implement and build on decisions made during last year’s biennial budget process.

• Indigent Health Care Program Funding - As part of addressing funding shortfalls for the Indigent Health Care Program, significant costs were shifted to the Countywide General Fund beginning in FY 03. Those costs will in part be offset through the use of property tax revenue that had been committed to funding improvements to Bruce B. Downs Boulevard, but which was replaced by CIT funding during FY02. Of the $12.5 million in property tax revenue that was freed up, $2.5 million was used in FY 03 and the balance of $10.0 million was reserved to provide similar funding in FY04 through FY07. The Board had directed that the Countywide General Fund Reserve for Contingency would be cut by $3.1 million in FY03 rather than consider a smaller millage reduction. That would have left only $0.4 million in that Reserve for unexpected needs. A projected increase in funds carried forward from FY02 to FY03 in the Countywide General Fund prevented the need to reduce the Reserve for Contingency.
  
  Increased costs to the Countywide General Fund result from revising the allocation of staff cost between the Countywide General Fund and Indigent Care Tax revenue. In recent years, the Countywide General Fund covered 12.9 percent of the cost of administrative staff and case management. Effective April 1, 2002, that share increased to 35 percent based on an analysis conducted last year. Additional Countywide General Fund impact results from the decision to stop using Indigent Care Tax revenue to reimburse the Countywide General Fund for the cost of furnishing medical care to indigent inmates.
  
  A one-time payment of $2.3 million in FY03 Countywide General Fund support was authorized to compensate for lower sales tax collections in FY02 from those anticipated at the time short-term financial strategies were developed.

• Employee Health Insurance - The County’s share of the increased cost of employee health care was offset by two factors: Reduced FRS rates, as previously mentioned, and lower workers compensation premiums. The later reflect updated experience factors that allow the premium reductions. The health care industry is undergoing substantial changes. In FY03, we will receive proposals for the next contract to administer our employee health care program and we anticipate that the structure of services and costs will vary significantly from what we have seen. There is also every indication that the cost increases that led to this year’s need to reconsider costs and benefits will continue to present challenges as we seek to provide health care for our employees.

• Transportation - The budget and the CIP reflect both the on-going commitment of $10 million per year directed by the Board last year, and the CIT-funded $132 million commitment made in January 2002. The commitment of funds for Bruce B. Downs and two other transportation projects - Gunn Highway and Boyette Road - reflected commitments in addition to the on-going $10 million per year. Each of those commitments continues forward. An increased demand for residential traffic calming will be accommodated within existing resources.

• Incentives to Development - The Board directed last year that the program to provide no-fee zones be continued for a full two years. In addition to waiving transportation impact fees, the program pays the water and sewer capacity fees for development in selected areas. A high level of activity in the Gibsonton area required both funding in FY02 to supplement the $500,000 budget for this program as well as increasing the $500,000 appropriation in the Planned Budget for FY03 by $700,000 to provide a total of $1.2 million in FY03 funding.

• Technology - The County will continue its implementation of key automated systems in FY03. The Zoning Document Management System, which the Board funded in FY02, will be supplemented by the imaging of historical files to allow automated retrieval of all zoning files. The Land Information Management System (LIMS) will be upgraded. As part of that upgrade, we will improve our permitting software by converting to a common database. Outcomes will include improved response time for our customers.
  
  Both the Human Resources Information System (HRIS) and the Project Information Management System (PIMS) will roll out additional tools and reporting capabilities that will allow improved management of key resources - our employees and our capital projects. Both systems became partly functional in FY02 and full implementation of their capabilities will continue into the next biennial cycle. Improvement of County telephone systems is another area of focus in FY03 to improve customer service through the use of technology.

• Collective Bargaining Commitments - Last year the Board approved a reduction to the workweek for Fire Rescue personnel that required the addition of 42 new positions to maintain staffing levels at County stations. The new positions were phased in during FY02 and will have a full annual impact in FY03 of $2.4 million.

• Staffing Standards and Statutory Funding Requirements - The FY03 budget continues to address staffing standards set by the Board for certain public safety functions. For Sheriff’s deputies, where the Board adopted a ratio of 1.7 deputies per 1,000 unincorporated area population, the Sheriff’s full funding request was met. A second ratio of 1 code enforcement officer per 28,000 unincorporated area population required adding a code enforcement officer that had not been anticipated in the Planned FY03 budget. Finally, Florida Statutes dictated a funding level for the Civil Service Board that required added FY03 funding. The FY03 budget covers all funding requests by Constitutional Officers (Clerk, Sheriff, Supervisor of Elections, Property Appraiser, and Tax Collector).

• Customer Service Focus - The FY02 budget initiated a key ingredient to improving service to County residents and businesses through a focus on customer service. By September 30, 2002, using County employees certified as customer service facilitators, we conducted training for more than 700 employees in County Administrator departments. Representing both the diversity of County programs and the diversity of County staff, facilitators will conduct a comprehensive training program intended to improve customer service in all programs by the end of FY04. The County had the opportunity to partner in this effort with a vendor headquartered in Hillsborough County that is a world leader in customer service training to both public and private employers.

• ELAPP Site Management - In a change in policy, the FY03 budget allocates additional funds to enhance management of our substantial investment in environmental lands as well as acquisition of land.

• Community-Based Planning - The budget restores an FY02 funding cut in the Neighborhood Relations Office to handle responsibility for expanded outreach in our community planning process.

• Use of CIT I Reserves - In updating the budget for FY03, it became clear that the Unincorporated Area General Fund would begin The Board took advantage of an opportunity to offset this significant financial shortfall.
  
  The Unincorporated Area General Fund was paying for construction of fire stations that were scheduled to begin operation as early as FY04. The stations were funded in FY02 and FY03. The first round of CIT revenue ends in January 2003 and there were sufficient excess reserves in that program that could be used to add projects. The Board largely offset the loss of fund balance by using $7 million in CIT funds to pay for construction of the fire stations

• New Facilities - Funding is provided to the Real Estate Department to accommodate maintenance and utilities at new facilities such as the Courts building we are building and the Sabal Park facilities we recently acquired.

• Water / Wastewater System Requirement - The budget provides funding to support necessary projects and to maintain compliance with regulatory requirements in addition to covering an increased cost of purchased water.

• Expanded Fire Protection - The budget funds operating and capital expenditures for a temporary River Oaks fire station including the hiring of 12 staff in FY03. A permanent station is due to open October 2004.

• Lighting of Parks - Funding was provided for security lighting at Buckhorn Park and for sports lighting at Heather Lakes Park.

• Extension of Operation Cleanup - This program, started in FY02, was extended through approval of funding for three departments: Parks and Recreation, Community Improvement, and Solid Waste Management.

• Federal Lobbying - Funds were authorized to institute federal lobbying on homeland security in coordination with the Tampa Port Authority.

• Promotion of International Trade - Funding was reauthorized to promote international trade through the U.S. Africa Foundation.

• Community Planning - Recognizing the value of accelerating the community-based planning program, the Board provided expanded funding for the Planning Commission and the Planning and Growth Management Department. Both organizations received an additional staff member dedicated to this program.

• Courts Funding - While the implementation of Revision 7 to the Florida Constitution, which requires that funding responsibility for Courts be shifted to the State by July 2004, has not begun, the Board agreed to a request to raise the hourly rate for attorney’s fees in capital cases. This action will cost the County an added $131,000 per year.

• Hillsborough Area Regional Transit (HART) Funding - The County’s commitment to transit was expanded to provide supplemental funding of selected circulator services as well as to initiate County funding for existing Saturday service. The $275,000 increase raises the County’s commitment of operating subsidies to $810,000, funded through unincorporated area general revenues. HART also receives a portion of the County’s transportation impact fees.

• Tampa Sports Authority (TSA) Funding - The County has continued its commitment to support of operating deficits of the TSA. Under existing interlocal agreements, the County pays two-thirds of the $5 million deficit while the City of Tampa pays one-third. Each jurisdiction recovers a portion of these contributions through taxes collected on Raymond James Stadium.

• Service Improvements in Building Inspection and Permitting Services - The budget provides service improvements by significantly expanding customer services and inspections staffing in the Planning and Growth Management Department’s Building Services Division - which is self-funded through fees. Added service enhancements included approval of wireless technology for inspectors.

• Support of Law Library - Supplemental funding was required to maintain service in the Law Library. Legislative change would be required to obtain this funding through fees so this funding was provided from general revenues.

• Support of Crisis Center Operations - Consistent with support provided during FY02, the County’s contract with the Crisis Center was modified to allow pay increases for Crisis Center staff who work on County-funded programs.

• Funding of Public Access Programming - The County eliminated funding for a contract with Speak Up Tampa Bay. A subsequent judicial decision reinstated the funding.
• Health Insurance Portability and Accountability Act of 1996 (HIPAA) Compliance - Impending deadlines required a $1 million commitment of funding in FY03 to ensure the County complies with federal requirements.

• Gap Funding of Cooperative Extension Vegetable Program - Funding was provided to cover the State’s share of funding for a Vegetable Extension Agent through the end of the State fiscal year ending June 30, 2003.

• Elections Equipment - The Board supported a request by the Supervisor of Elections to rent added elections equipment for the November General Election. This action recognized slowdowns in voting that could result from the length and number of Constitutional amendments on the ballot and the value of allowing voters access to the new touch screen equipment prior to voting.

Conclusion

This budget reflects Board direction on priorities, funding strategies and tax relief. The budget continues to reflect cost savings and cost avoidance identified during last year’s biennial budget process. While slower than in recent years, the growth in the tax base facilitated continuing reduction in our Countywide tax rate and the continued phase-in of an exemption for low-income senior citizens that applies to their Countywide taxes.

The Pro Forma completed earlier this year indicated we will be able to continue meeting our obligations for Countywide services over the next several years even if the tax base grows at a rate consistent with our historical experience rather than the faster growth of recent years. For unincorporated area services, where the County serves as the provider of municipal services, the Pro Forma indicated that while we can fund our requirements for FY03, the next several years will present funding challenges within existing revenues to maintain staffing standards for public safety services while meeting the staffing requirements of new fire stations and maintaining our commitment to other priorities such as transportation funding and community-based planning. The budget update process for FY03 reduced - but did not eliminate - those funding challenges.

Future challenges also include providing affordable health care to our employees as the healthcare industry undergoes what is anticipated to be radical changes in the delivery of, and payment for, services. We continue to pursue a fiscally conservative reserve policy, but we have not expanded those reserves at the expense of taxpayer relief.

As in past years, the Board showed sensitivity to public input and continued to fine tune the budget to meet community needs and priorities through the final public hearing in September.

In summary, the budget for next year is balanced and awaits Board review in the upcoming weeks. I look forward to assisting you in that undertaking.

Respectfully Submitted,

Daniel A. Kleman
County Administrator