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SR-7-B (23) --- ........ I I } I 1..13 i 1\ ~J 2 C1 1991 "nt. " CM:JJ:LCB:CMD:dvm:memocpfc council Meeting: January 22, 1991 Santa Monica, California TO: Mayor and City council FROM: city Staff SUBJECT: BACKGROUND INFORMATION FOR PUBLIC HEARING ON COMMUNITY PRIORITIES FOR THE FISCAL YEAR 1991-92 CITY BUDGET Introduction This is to provide background information for the City Council and publ ic concerning the City I s budget structure, current and projected financial condition, and major service and capital proj ect needs which staff believe should be considered during preparation of the FY1991-92 budget. This background information provides a context for receiving and evaluating public comment about budget priorities for next year. Background Dur ing last year's budget adoption precess, several community groups suggested that the city provide an opportunity for public input earlier in the budget preparation process. This would not only allow time for more thorough staff and Council consideration and evaluation of suggestions, but also allow more time for public education on budget parameters and constraints. This hearing is being held prior to submittal of department budgets to the city Manager. JA~991 - 1 - It is important to note that this early hearing does not preclude or supplant the public review opportunity and hearing process normally scheduled for May and June. Budget struoture The adopted city budget for FY1990-9l totals $174.8 million. The budget is organized into twenty-four separate funds. For ease of discussion, these funds can be grouped into three major categories: Enterprise and Internal service Funds which operate much like private businesses where the services provided are financed primarily from fees. Examples are the Water Fund, Solid waste Management Fund, and the city self-insurance funds. special Revenue Funds which are used expenditures that can legally only be uses and where the revenues come sources. Examples are the Community Grant Fund and the Beach Fund. to keep track of made for specific from specialized Development Block The General Fund in which revenues and expenditures associated with providing basic city services such as POlice, Fire, and Library are tracked. Almost two- thirds of the General Fund is financed from tax revenues with the remaining revenues coming from various fines and cost-Offsetting fees. Attached are a series of pie charts showing the largest funds as well as the major revenue and expenditure components of the General Fund. Current and projected Financial Condition At this early stage of the annual budget process, staff has focused its attention on projecting the financial condition of the General Fund because it comprises a little over half of the total City budget; incorporates all of the primary services which are most easily controlled by the City Council; and is most - 2 - directly impacted by changes in Federal and state budget policies and the economy. Recent Federal and state budget changes have adversely impacted the city. city expenditures have increased this fiscal year due to the increased medicare taxable base and will increase next fiscal year because under Federal regulations some as-needed staff will either have to be enrolled in social Security or the State retirement system. As a result of unanticipated state budget changes, the City now has to pay directly for certain services (i.e. property tax collections, jail bookings and subsidy to the state Board of Equalization) which traditionally have simply been provided to the City, and because of state budget cutbacks various demands for social services have been indirectly shifted to the city. As a result of these actions, city General Fund costs will increase hy at least $.5 million this fiscal year and will grow to about $.9 million in FY1991-92. While the economy has entered a recession, staff believes the impact on the General Fund will be not as severe as it may be in other jurisdictions. This is due to the City's diversified tax and revenue structure which insulates it somewhat from downturns in the economy, the City's desirability as a place to work, live and vacation. The following proj ections of General Fund revenues and expenditures assume that the current recession will last about 18 months and will somewhat depress those revenues which are most sensitive to economic factors. Consumer price index and other - 3 - economic data employed by staff to prepare these projections was derived from the Commission on state Finance's recent la-year forecast of the state and regional economy. The projections also assume that current service levels and the current revenue structure remains unchanged throughout the projection period. This means that in order to establish significant new services or to substantially increase existing service levels, new sources of revenues must be found and/or expenditures must be redirected from current uses. Given these assumptions, here is what the General Fund looks like over the next five years: General Fund "Current Services" Projection (in millions) 90/91 91/92 92/93 93/94 94/95 95/96 Beg. Fd. Bal. $ 6.2 $ 8.0 $ 8.0 $ 7.8 $ 8.2 $ 6.6 Revenues 101. 3 103.9 110.3 117.8 122.9 129.9 Expenditures (99.5) (103.9) (110.5) (117.4) (124.5) (134.3) End. Fd. Bal. $ 8.0 $ 8.0 $ 7.8 $ 8.2 $ 6.6 $ 2.2 These projections show that through FY1993-94, revenues will somewhat exceed expenditures but that in FY1994/95 it will be necessary to augment revenues and/or reduce expenditures to bring revenues and expenditures back into balance. Throughout the FY1990/91 FY1993/94 period, the General Fund unobligated balance remains in the range of 7% to 8% of General Fund expenditures. The generally accepted guideline is for a city to maintain a General Fund unobligated balance of between 5% and 16% (about 2 months of operations) of budgeted expenditures. - 4 - Gann Limit For FYI990/91, the city will be under its Gann Limit. However, based on the existing revenue structure, the City is projected to exceed its Gann Limit in FYI991/92. This is primarily due to tax increases approved to help provide financial assistance to the Santa Monica-Malibu Unified School District, increase police resources and other service level enhancements adopted in the FY1990/91 City Budget. If the FY1991/92 City Gann Limit is exceeded, under existing State law, the City will have two years to either seek voter approval to adjust its Gann Limit by increasing existing overrides and/or by decreasing the amount of tax proceeds to be received. pen4in9 Unfunded Needs Each year, difficult decisions must be made to balance expenditures and revenues. This results in many worthwhile projects and service level improvements having to be deferred for a period of time. Presently, the following program/project suggestions which may have General Fund impact are pending consideration: - 5 - Police o Additional police officers Parks o Increased park maintenance Social Services o Implementation of Youth Taskforce recommendations o Childcare o Homeless service facility TOTAL FUNDS NEEDED - Operating Costs Parks o Palisades Park preservation and improvements o Proposed recreation building at Clover Park o Lincoln Park renovation o Miles Playhouse seismic and accessibility improvements o Virginia Park renovation expansion o Ocean Front area master plan implementation o pier infrastructure improvements street and Traffic Improvements o Traffic signal improvements o street resurfacing/ reconstruction program Downtown Parking structures o Expansion Library o Main Library expansion o Increased meeting room space - Montana and Fairview - 6 - projected operating costs (Annual Expenses) $ 2.0 million 1.5 .3 .1-1. 0 .2-1. 0 $ 4.1-5.8 million Projected Capital Costs (One-Time Expenses) $12.0-$18.0 million .6 .5 1.1-2.0 .3-7.0 2.9 3.0 2.0 .5 5.0 12.0 1.5 Youth Center 2.2 Public Safety o Expansion of Main Fire station No. 5 o Replacement of Fire Station No. 2 on Hollister o New Police facility and employee parking o Fire training facility 1.0 1.9 35.0 1.0 Social Services o Homeless service facility 2.0 TOTAL FUNDS NEEDED - Capital Costs $84. 5-98. Imillion TOTAL FUNDS NEEDED - Grand Total $88.6-l03.9million Historically, the annual General Fund contribution to the City'S capital improvements is approximately $ 3.5 million which will fall far short of funding the projects listed above. Some of these funds may be able to be raised through the issuance of bonds, specifically the expansion of the Main Library or a new Police Facility, but the majority of these projects are not appropriate for debt financing. Additionally, as the result of a projected reduction in development activity, the city's housing and parks funds generated by the Office Housing and Parks Mitigation Fees will be significantly reduced. It should be noted that the above list is not intended to be an all-inclusive summary of major expenditure/policy issues which will need to be addressed in the upcoming year. Environmental programs, wastewater treatment, water production and conservation, traffic improvements and mitigations, affordable housing development, solid waste management are funded from - 7 - sources other than the General Fund but will take considerable Council and staff attention. Recommendation It is recommended that the Council conduct the public hearing and receive input regarding priorities for preparation of the 1991-92 City budget. Prepared by: John Jalili, City Manager Lynne C. Barrette, Assistant City Manager Mike Dennis, Finance Director Attachments - 8 - (/') m () ~ :J o (f)~ mCP :Jo CO') ~(j) QJ~ a:>- -eLL m-o -+-' c a.::J eU. -0 <(ctS ~ o~ ~Q) ~(!J CO E E :J C/) ., il 0 ~ N ell ., (,) ell > 10 III en ~ ::l C III C C. > III 0 III ... ... a: ... c.. - ... ..... ., u.. 0 >- (? ~ I III CO C 10 ... ell 0 il III Ct 2: Ir.I &. ... ell (g - 10 - III 1.0 0 ~ 0 Ll- e,) CI) Q) c Q) CI) 0 ... => - ::l - ""'-.." 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