HomeMy WebLinkAboutOperating Budget Study SessionGfTY OF
LADE 2 LSIHOKE
IV, DREAM EXTREME
SPECIAL MEETING REPORT TO CITY COUNCIL
TO: MAYOR AND CITY COUNCIL
FROM: ROBERT A. BRADY, CITY MANAGER
DATE: MAY 21, 2009
SUBJECT: FISCAL YEAR 2009 -10 CITY OPERATING BUDGET STUDY
SESSION
BACKGROUND
The City is looking at a projected $3.0 million budget deficit for fiscal year 2009 -10. This
budget shortfall is the net result of a $4.2 million decrease in revenue, offset by a $1.2
million decrease in expenditures. A continued decrease in sales tax and property
taxes, along with the use of one -time funds to cover the unexpected budget shortfall in
fiscal year 2008 -09 are the primary contributors to this deficit. This projected budget
includes a 3% cost of living adjustment ( "cola ") due employees July 1, 2009, reflects
anticipated merit increases, does not account for any employee furloughs and assumes
a delay in the opening of the new fire station in Rosetta Canyon, which is expected to
be completed in January 2010.
A budget study session on Thursday, May 21 st, at 5:00 p.m., in the Cultural Center has
been scheduled to discuss further measures to balance the proposed budget for fiscal
year 2009 -10.
The City's economic team is developing a budget balancing strategy that may include
workforce reduction, cuts in operating expenses and further drawing from the "rainy
day" fund to supplement the budget. The $3.5 million emergency reserve fund will not
be touched.
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
Page 2 of 7
Statewide ballot Propositions 1 A through 1 E were not approved. The failure of these
measures will result in a substantial increase in the already anticipated State budget
shortfall for the current fiscal year 2008 -09 and fiscal year 2009 -10 budget years. In the
Governor's May Budget Revision, a contingency plan was included in the event the
propositions did not pass. The contingency plan included a proposal to borrow local
property tax revenue under Proposition 1A (2004). The estimated impact to the City of
Lake Elsinore could be a $685,000 reduction of property taxes.
DISCUSSION
CITY OPERATING BUDGET
This is the third fiscal year in a row that the City has had to reduce the budget to
compensate for declining revenues. The following issues have contributed to the
revenue shortfall for fiscal year 2009 -10:
• Local sales tax revenue is down by $505,300, or 8 %, due to laggard auto sales
and the reduction in consumer spending;
• Property tax revenue in Riverside County continues to decrease due to
reassessment of property values downward, translating to a $336,800, or 5 %,
decline in revenue to the City.
• One -time moneys in fiscal year 2008 -09 from non - general fund sources and the
sale of property are not available for fiscal year 2009 -10, and account for $1.3
million in reduced revenue.
• Supplemental revenue of $1,015,000 was used in fiscal year 2008 -09 to cover
that year's budget shortfall. These funds were used from a "rainy day" reserve
fund, which currently has a fund balance available of $2.8 million.
On the expenditure side, most departments are showing a reduction in expenditures:
• A reduction in law enforcement services results in $196,000 (2 %) in cost savings;
Community Development and Public Works both reflect reductions of $375,000
(12 %) and $134,000 (5 %), respectively. This reflects the full year effect of layoffs
due in fiscal year 2008 -09 and the decrease in contractual services as a result of
decreased development activity;
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
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• Parks and Recreation show a $232,000 decrease in expenditures. This is the
result of reclassifying the stadium assistance account to the Redevelopment
Agency (RDA);
• Fire services show a net decrease in expenditures of $159,000. This is the net
result of a decrease in existing service costs of $185,000 due to State furloughs,
offset by an increase in expenditures of $25,000 for six months of basic operating
cost for electricity and water after the completion of the new fire station in
Rosetta Canyon.
The City's management staff has agreed to forgo any cost of living increases or merit
increases in fiscal year 2009 -10. This is reflected in the proposed budget at a reduction
of $34,000 on the cost of living adjustments and $18,600 on merit increases.
STATE BUDGET IMPACTS
In the Governor's May Budget Revision, a proposal was included as a contingency plan
to possibly borrow 8% of property tax revenue from cities, county and special districts to
help close the State's fiscal year 2009 -10 deficit. Under Proposition 1A (2004), the
Legislature is prohibited from reducing the share of property taxes due to cities, county
and special districts. However, the Legislature may suspend the property tax revenue
protection provisions of Proposition 1A (2004) under the following conditions:
the Legislature may "borrow" not more than 8 % of "total amount of ad- valorem
property taxes that were allocated among all local agencies...;"
2, the Governor must issue a proclamation declaring a "severe fiscal hardship" for
the purpose of invoking the suspension provisions of Proposition 1A (2004);
3. the Legislature must enact an urgency statue suspending Proposition 1A (2004)
property tax protection with 2/3 vote of each house; and
4. the Legislature must enact a law providing a full repayment of the "borrowed
funds" plus interest within three years.
5. The Legislature may not enact such a suspension more than twice in any ten
year period and may only do so if any previous borrowing under these provisions
has been paid.
Staff has reviewed correspondence from both the League of California Cities and the
California Society of Municipal Finance Officers (CSMFO) regarding how the City
should account for this potential reduction. The consensus recommends that this not be
factored into our fiscal year 2009 -10 budget at this time. This is currently just a
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
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proposal. As stated earlier, the estimated impact to the City could be $685,000. There
would be no impact to the City's Redevelopment Agency as the agency is not
considered a "local agency" within the definition of Proposition 1A (2004).
IMPACT OF FUTURE EXPENDITURES FOR FY 2010 -11 AND BEYOND
In looking ahead to the fiscal year 2010 -2011 budget and beyond, these future
expenditures must be kept in mind:
• The operating cost of the new Rosetta Canyon fire station is estimated at $1.2
million annually. An increase in development in the future would provide funding
to offset that annual cost
• The City would be responsible to resume its contribution to the Lake
Management Fund. The City has received verbal agreement with EVMWD in
regard to forgoing the fiscal year 2009 -10 payment. This payment amount is
$650,000 annually.
• The Animal Friends of the Valley new animal shelter is scheduled for completion
in mid 2010. The City's cost for animal services will increase from $90,000 to
$600,000 annually.
• In fiscal year 2011 -12, the employer contribution rate to the California Public
Employees' Retirement System (CALPERS) is anticipated to increase by 15 to
25% to offset the significant losses in the pension investment revenue that
occurred in fiscal years 2007 -08 and 2008 -09. The City's current employer
contribution rate is 16.485 %.
POSSIBLE ALTERNATIVES TO ADDRESS THE BUDGET SHORTFALL
The City Council will once again be addressing the City's declining revenue. A decline in
building permit revenue in fiscal year 2007 -08 required the City Council to cut $2 million
from the fiscal year 2007 -08 budget. In presenting the fiscal year 2008 -09 budget, an
additional $1.1 million was trimmed, without affecting services or staffing levels. Last
September, an additional $2 million was cut for the fiscal year 2008 -09 budget, resulting
in the layoff of nine employees and the implementation of one furlough day a month for
staff the remainder of the fiscal year. At the February 24, 2009 mid -year budget report,
a further $1.1 million was reduced from revenue for fiscal year 2008 -09.
On May 6" , City Council was notified in a memo from the City Manager of a potential
$3.1 million budget deficit for fiscal year 2009 -10. The following day, May 7` the City's
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
Page 5 of 7
labor negotiation team met with representatives of the employee labor union to present
them a copy of the memo given to City Council and to start the process of possible
adjustments to the current labor union MOU. The MOU is effective through June 30,
2011.
The City Manager and the Acting Director of Administrative Services met with the City
Council and the City Attorney at a closed session meeting on May 12 regarding labor
negotiations and to seek Council direction. The next morning, May 13 th , the City
Manager meet with all City staff to inform them of the fiscal year 2009 -10 projected
budget shortfall.
In the course of discussions with department directors and managers, City Council and
labor union representatives, several strategies have been discussed to resolve the fiscal
year 2009 -10 deficit. Staff is presenting three alternatives to consider in order to
balance the budget.
Alternative #1
Alternative #2
Alternative #3
Possible Alternatives to Resolve the FY 2009.10 Budget Deficit
10% Salary Cut
2 Furlough Daysl
Month
1 Furlough Day/ Month &
Employee PERS
Contribution
FY 2009 -10 Budget Shortfall
(2,978,877)
(2,978,877)
(2,978,877)
Proposed Reductions:
Gross Salaries Reduced Full -Time/ Part-Time
493,600
Benefits Reduction PERS,FICA, Work Comp, SDI
180,600
Gross Salaries Reduced (Full -Time only/ 199 hours)
480,700
Benefits Reduction PERS,FICA, Work Comp, SDI
179,600
Gross Salaries Reduced Full -Time only/ 103 hours
244,000
Benefits Reduction PERS,FICA, Work Comp, SDI
91,200
Employee PERS Contribution 7%
319,300
Police Services Reduction - Additional
500,000
500,000
500,000
CALPERS Golden Handshakes 3 estimated
240,000
240,000
240,000
Estimated One -Time Funds Available to Use
250,000
250,000
250,000
Subtotal - Shortfall Remaining Before COLA/ Merit Reductions
1,314,677
1,328,577
1,334,377
Cost of Living Adjustment COLA -Gross Salaries
101,250
101,250
106,875
Cost of Living Adjustment (COLA)-Benefits
37,350
37,350
39,425
Merit Increases -Gross Salaries
95,310
95,310
100,605
Merit Increases- Benefits
36,411
36,411
38,434
Subtotal -Shordall Remaining Before Any Allocation of Funds
from the Supplemental Revenue Reserve ("RainyDay')
(1,044,356)
(1,058,256)
(1,049,038)
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
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All three alternatives include the following assumptions:
1. An additional reduction in Police Services of $500,000.
2. An estimate of three employees taking advantage of CALPERS Early Retirement
Program ( "Golden Handshake). This is estimated at $240,000.
3. One -time Funds available to use for $250,000. These funds have been identified
in other funding sources. .
4. The effect of the Cost of Living Adjustments (COLA) and merit increases if they
were frozen or postponed for FY 2009 -10. This would have to be agreed to by
the employees labor union since these items are included the current MOU
(Memorandum of Understanding) between the union and the City. The current
MOU does not expire until June 30, 2011.
Additional assumptions were used for each alternative:
ALTERNATIVE #1: 10% SALARY CUT
Alternative #1 assumes that a 10% salary reduction was applied to all employees, full
time and part time. The result of this salary reduction would be a savings of $493,600
on gross salaries with a corresponding reduction on certain benefit costs of $180,600.
The total of this alternative would be a savings of $674,200.
ALTERNATIVE #2: TWO FURLOUGH DAYS A MONTH (24 DAYS)
Alternative #2 assumes that employees would take two furlough days (time off without
pay) a month. These would be set days and would result in a reduction of 7.65 hours
per pay period (26 pay periods). This would result in a reduction to expenditures of
$480,700 in gross salaries and a corresponding reduction in certain benefit costs of
$179,600. This would result in a savings of $660,300.
A proposal was suggested to allocate these 24 days (199 hours) as following:
1. Close City Hall the week of Thanksgiving (3 furlough days)
2. Close City Hall between Christmas and New Years (4 furlough days)
3. Close City Hall on Fridays between September 2009 to May 2010 (17 furlough
days)
4. City Hall would be open every Friday during the summer (June to August).
FY 2009 -10 City Operating Budget Study Session
May 21, 2009
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ALTERNATIVE #3: ONE FURLOUGH DAY A MONTH (12 DAYS) AND EMPLOYEE
CONTRIBUTION OF 7% TO CALPERS RETIREMENT
Alternative # 3 assumes that employees would take one furlough day a month, which
would be set days, and contribute 7% toward their CALPERS retirement. The furlough
day would result in a 4.00 hour reduction per pay period (26 pay periods). This would
result in savings of $244,000 in gross salaries and $91,200 in related benefits. The
employee contribution of 7% to CALPERS would be a pre -tax reduction that reduces
the amount employees pay in taxes and increases take home pay. The City currently
pays the employee portion of the CALPERS contribution, which is 8 %, in accordance
with the MOU between the labor union and the City. The savings to the City would be
$319,300. The grand total reduction from furlough and employee contribution for
CALPERS would be $654,500.
RECOMMENDATION
All three alternatives leave a budget shortfall:
1. Alternative #1: $1,044,356 deficit.
2. Alternative #2: $1,058,256 deficit.
3. Alternative #3: $1,049,038 deficit.
A combination of various factors could bring some additional reduction, but it would not
be significant to cover -the remaining shortfall. There is a balance of $2,790,700
remaining in the City's Supplemental Revenue Reserve ( "Rainy Day Fund "). This
reserve was established to supplement future year's budget. As it is the desire of the
City Council to avoid layoffs, staff recommends the remaining budget shortfall, up to an
amount to be determined by the City Council, be allocated from the Supplemental
Revenue Reserve Fund.
Prepared by: James R. Rile
Acting Director Administrative Services
Approved by: Robert A. Brady
City Manager