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SR-202-001 (58) }1S: MS: C~l: bp Council Meetlng: 1/14/86 Santa Monica, Callfornla ;202 -00/ 11- C- JAM 1 <\ 19aG TO: i1ayor and City Council FROM: City Staff SUBJECT: 1986-87 Budget Guidelines INTRODUCTION The purpose of thlS report lS to provlde the Clty Councll with an opportunlty to reVlew and comment upon proposed gUldellnes for 1986-87 budget preparatlon. The background sectlon provldes a brief comparison to the 1985-86 budgeting process. The flscal overview sectlon ldentlfles key factors which have been conSldered in development of the gUldelines. The 1986-87 budget guidelines seetlon sets forth the general framework for preparatlon and reVlew of departmental requests. Flnally, a comprehenSlve calendar of budget reportlngjpreparatlon actlvltles durlng thls flscal year is attached. BACKGROUND The process followed to prepare the 1985-86 budget lS the cu1mlnatlon of a three year effort to uaprove Santa Monlca 's budgetlng practlces. Three key changes were lntrodueed In 1985-86: 1) a mul tl-year capl tal improvements program; 2) an extended schedule for budget preparatlon; and 3) development of an on-line budget system. The underlYl.ng obJectl ve in each of the system refinements was to reduce the amount of staff time invested In budget preparatlonjmoni torlng whlle retainlng high standards of quality. Feedback from Clty staff, the budget II-C JAN 1 4 1986 - 1 - systems improvements team and members of Councll l.ndicate that this obJectlve was accomplished. Relat~vely few slgnlflcant changes are proposed for 1986-87. As a reflectlon of our lncreased attention to employee productivity, the format of d~vlslon summarles in the Budget document will be modlfled to ~nclude key performance statlstics. A broader scope of performance indicators wlll continue to be presented ln the Departmental Performance Plan document. However, 1n both documents the t~mefrarne of comparison data will be expanded to a three year perlod. Several very m1nor modlflcatlons to departmental request forms are planned to further strearnllne paperwork handling 1n the preparation process. FISCAL OVERVIEW Wlth adoptl.on of the 1985-86 budget, the Clty Council endorsed an organizational and performance plan WhlCh emphaslzed adherence to prudent fiscal principles: 1) maintaining adequate reserves; 2) rnlnimlzing addltlonal recurrlng costs (e.g. personnel); and 3) maxlrnlzlng revenues from cost recoverlng user fees, grants and other speclal revenues. The City I S General fund reserves were increased whlle selected bas1c services were enhanced, tools for employee productivlty improvement were provided, and recommended funding was provided to maintain our capltal plant and equlpment. The most sign1f1cant indicators of our flscal health were: recurrlng revenues lncreased more than recurrlng expendltures; and capital budget needs were supported by recurring revenues. Recognition of future vulnerability to economic condltions and State and Federal actlons prompted steps to further establlsh and - 2 - malntaln our fiscal lndependence. It now appears that the Clty lS llkely to be slgnlflcantly burdened by these flscal pressures in the forthcomlng year. At the local level, the outlook for 1986-87 revenues lS cautlous pendlng availability of updated mld-year estlmates based upon SlX months of actual experlence. Slnce sales tax recelpts provide about one-quarter of all general fund revenues, changes in consumer purchaslng patterns may slgnlflcantly affect the City. Prellmlnary lnformatlon suggests that retall sales are lagglng behlnd our budget estlmates for 1985-86~ thlS lS apparently due to reglonal competltion from the Westside Pavllllon and a statewlde decline in sales tax revenues. The State Commlssion on Flnance expects automoblle sales to be stronger 1n the latter part of 1985-86 which may ffi1t1gate the overall revenue decrease 1n Santa Mon1ca. The Commlssion lS also predlcting contlnued strength 1n automobile sales through 1986-87 due to low lnterest rates. At the state level, a new JarV1S Initlat1ve 15 now belng c1rculated for signature to authorize placement on the November 1986 ballot. The proposed lnitiative would effectlvely ellminate the local authority to establlsh/lncrease taxes which was clarif1ed In the Farrell Declslon. Santa Monica's prev10us 1ncreases In buslness license tax rate would not be retroactively prohibited. However, our local autonomy for future revenue producing actions would be curtalled. - 3 - Recent Congress1onal and Pres1dential budgetary act10ns may result 1n the loss of $.2 million to $1.0 m1llion or more 1n 1986-87 revenues to the C1ty. As descrlbed in detall 1n a related staff report on Proposed Community Development Program Guidelines for 1986-87, the reductlons would impact federal fund1ng from the CDBG, General Revenue Sharing and Rental Rehabilitation programs. G1ven the hlgh level of uncertalnty surrounding these potent1al funding reductlons, staff have separately recommended that the Commun1ty Development (CD) Program applications for funding in 1986-87 not be restr1cted. Th1S approach represents a both reasonable and prudent budgeting practlce. However, lt also foreshadows a dec1slon-mak1ng process which would place CD Program applicants in competlt1on for unrestrlcted City revenues. Federal tax reform proposals are expected to have less direct and immedl.ate flscal l.mpacts on Cl t1es r the characteristics of the municipal bond market are expected to be altered wl.th the general effect of substantlally reduclng the opportunities for tax exempt debt flnancing. On the expenditure side, rislng personnel costs, 1nsurance costs and the Gann limitation are all concerns, The C1ty'S pOllCl.eS of pay equ1 ty among its employees and with comparison Cl tles has resulted in increased recurr1ng costs for wages/benefits. Wh1le these expenditures are supportive of a healthy, product1ve organization, the cumulative impact of recent years' MOD settlements may be particularly apparent in 1986-87. Previously antlcl.pated settlement costs wlll be exacerbated by applicatlon of the Fal.r Labor Standards Act whl.ch becomes effectlve 1U April - 4 - 1986. Personnel related costs are essentially flxed ln the short run and thereby necessltate that any requlred expenditure reductlons be disproportlonately concentrated on supportive serVlces, materidls or capital costs. Similarly, prudent management requires that reservlng for rlslng lnsurance costs take precedence over dlscretlonary expendltures. In summary, the flscal outlook for Santa Monica In 1986-87 is less certaln than 1 t was one year ago. Economlc condltlons, Federal actions and the cumulative effect of recent years' MOD settlements may each contrlbute to a somewhat more dlfflcul t budgetlng process. The basic fiscal prlnclples applled ln 1985-86 wlll continue to be emphasized ln preparation for 1986-87. PROPOSED APPROACH The areas of emphasls recommended for 1986-87 budget preparatlon generally reflect a continuity of approach wlth last year's budget guidelines and speclflcally lnclude: 1) We will propose a malntenance of effort budget WhlCh emphasizes baS1C serVlce dellvery, staff productlvlty and lmplementation of maJor planning and development proJects WhlCh the Council has prevlously initiated regarding the Airport, Downtown Mall, Pler and C1V1C Center areas. 2) Requests will be potentlal for service enhancements ln other operatlng areas consldered to a Ilml ted degree depending upon the for offsetting productivlty savlngs, revenue - 5 - generatlng capablllty and the avallability of grant or speclal revenues. 3} The emphasls on baS1C serVlce delivery, productivity and lmplementatlon of maJor development proJects wlll be reflected ~n departmental objectives and performance lnd~cators. 4} Community Development program development has been lncorporated in the cltywide budget plannlng agenda agaln thlS year. To the extent available, General Revenue Sharing and CDBG revenues wlll be targeted to support thlS program. The attached calendar of budget reporting/preparatlon activities and listing of key dates are provlded for your reVlew and reference. The schedule of actlvltles WhlCh lnvolve the City Councll and/or the publlC corresponds very closely to the schedule followed last year wlth one exceptlon: the budget study sesslons are scheduled to conclude before adoption of the Communlty Development Program Budget on May 27. This change lS recommended to ensure that the City Councll has a comprehenslve vlew of potential fundlng trade-offs prior to any budget adoption actions. Prepared by: John Jallll Clty Manager Meganne Steele Budget Dlrector - 6 - r .;... --- ~~J;..~ ~ ;~~ 1986-87 Budget Schedule " Q;~ '\l ~ \'J \'. '\.y '~ I Key Dates for City council and Publ1C Dav Date '" Tuesday 1/14 Thursday 1/16 Frlday 1/27 Tuesday 2/11 Frlday 2/28 Thursday 4/24 7hursday 5/8 Frlday 5/9 Frlday 5/9 Tue~day 5/20/ U~tf-.1 S-/7/ Thursday OS/22 ....s-a-+ 1 , ,..-....:i =-" T r;/,)/l --- --..l. -- I - - Tuesday 5/27 Wednesday 5/28 Tuesday 6/17 Activitv ... Budget GU1de11nes and CD Program grant selection criterla to City Councll CD program RFP's lssued CD Program RFP workshop Mld-Year ReVlew report to Clty Councll CD Program RFP's due to C/ED Draft CD Plan avallable to publlC Admlnlstratlve hearlng on CD Plan CD Plan transmltted to Clty Councl1 Proposed Budget Documents Transmltted to Clty Counc11 Budget study seSSlon for Clty Council) b p h1 . f V If L( c,. ~ &- I Budget study seSSlon for Clty Councl1J 3'.!~Sek:----$ Ludy session for Cl ty L:uuw..:-rr- CD Plan publlC hearlngs and adoptlon (potentlal carryover from 5/27) Proposed Budget publlC hearlngs and adoptlon Day Tuesday Thursday Friday Tuesday Fr~day Thursday Thursday Fr~day Fr~day Tuesday Thursday Saturday Tuesday Wednesday Tuesday Key Dates for C~ty Council and Public 1986-87 Budget Schedule Date 1/14 1/16 1/27 2/11 2/28 4/24 5/8 5/9 5/9 5/20 5/22 5/24 5/27 5/28 6/17 Activ~ty Budget Guidellnes and CD Program grant select~on cr1teria to C~ty Counc11 CD Program RFP's ~ssued CD Program RFP workshop Mid-Year Review report to City Council CD Program RFP's due to C/ED Draft CD Plan available to publ~c Adm1nlstrative hear~ng on CD Plan CD Plan transmitted to City Councll Proposed Budget Documents Transmltted to City Council Budget study sess~on for Clty Counc~l Budget study sess~on for C~ty Counc~l Budget study seSS10n for Clty Council CD Plan publlC hear~ngs and adoptlon (potent~al carryover from 5/27) Proposed Budget publlC hearings and adoptlon LD co I Lf\ co a> ....--\ (!) :z: er.: ~ ~ z o ..... l- e:( e::: <( 0.. 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