SR-202-001 (16)
F:\CMANAGER\Staff Reports\BudgetPriorities-2001.doc
City Council Meeting: January 9, 2001 Santa Monica, CA
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Receive Public Comment, Hold Discussion
and Identify Budget Priorities for Fiscal year 2001/02, Including
Community Development Block Grant (CDBG) and Home
Investment Partnership Act (HOME) Programs
Introduction
This report presents the context in which the 2001/02 operating and capital budget will
be prepared. It recommends that the City Council take input from the public and
provide direction to staff regarding budget priorities, including CDBG and HOME
programs. For readers who are unfamiliar with the structure of the City's financial
operations, background information on the current budget is included as Attachment A
to this report.
Background
Each fall, City staff assesses national, state and regional economic forecasts to project
likely effects on the local economy and on the revenues that support municipal activity.
The projections are refined over the course of the budget process as the revenue and
expenditure experience of the current fiscal year unfolds.
While the City Council and staff receive informal input throughout the year, a telephone
survey is conducted in the fall to assess residents' satisfaction with municipal services
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and identify issues that may require attention. An opportunity is provided in December
and January for community comment on budget priorities on the City’s website. Input
is also requested at the publicly noticed hearing to be conducted this evening.
This process of projection and input is undertaken to ensure that the budget crafted
over the next several months, and proposed for Council adoption in June, reflects
community interests and is a sustainable plan of revenue and expenditure.
Last year, to more effectively focus financial resources and staff effort on key issues of
concern to the community, the City Council established five priorities. Those were
Education, Affordable Housing, Quality of Life/Neighborhood Livability, Mobility and
Environment/Sustainability. In addition, Council recognized the need to strengthen the
City's internal services in support of higher achievement by the operating departments
and to address customer service and satisfaction in a more systematic manner. An
assessment of progress in each of the priority areas will be provided to Council with the
Mid-Year budget report in February 2001.
Discussion
Budget Context - Economic and Fiscal Forecast
During FY 1999/00 the City's economy performed well. With somewhat more licensed
business than in FY 1998/99, the reported gross receipts earned in the City grew 5.8%
to $7.3 billion. The City also ended the fiscal year in a strong financial position.
Primarily due to expenditure savings, $3.3 million is currently held on the General Fund
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balance sheet pending Council determination of its appropriate allocation as part of the
FY 2000/01 mid-year budget review in February.
Recently released information suggests that the national economy is entering a slowing
period and that a mild and short recession could be experienced during 2001. UCLA
forecasters indicate that there is a 60% chance of a national recession. State and
regional forecasters anticipate that these economies will continue to grow during the
next two years at rates exceeding the national economy due to their unique economic
structures. Within this context, the Office of Economic Research of California State
University at Long Beach (CSULB) projects the City economy will continue to
outperform the nation, state and region over the next five years. Should the national
economic slowdown/recession be deeper and/or longer lasting than anticipated, the rate
of growth of the City's economy could be adversely impacted.
Based on CSULB's economic forecast for the City, municipal finances should be
positive for the next five years. General Fund ongoing revenues should be sufficient to
continue current operations and service levels, provide for additional operating costs
associated with major capital projects completed during that period and provide for
modest service enhancement of approximately $1 million per year. In addition to
sustaining current expenditure levels, approximately $10 million of one-time funds
should be available over the forecast period due to expected revenue flows. Of this
amount, $3.7 million is projected for FY 2001/02.
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Embedded in this financial forecast are several risks which could negatively impact the
status of the General Fund:
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About $3.5 million of annual Motor Vehicle In Lieu taxes returned to the
City by the State are no longer constitutionally guaranteed. They are
financed by a State continuing appropriation. While the State's fiscal situation
is currently quite positive, should State appropriations and/or tax cuts exceed
levels recommended by the State Legislative Analyst, their budget could,
once again, become unbalanced. Under such conditions, the $3.5 million
would likely be subject to reduction or elimination.
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There is considerable regulatory and political uncertainty regarding the prices
of electricity and natural gas. As this staff report is transmitted to Council and
the community, the PUC will likely be enacting a rate increase for Southern
California Edison. Staff will be evaluating the impact of any increase on the
utility users tax and evaluating how best to approach what may be a short-
term spike in that revenue source. In addition, it appears that the use of hard-
wired long distance and local telephone service is decreasing as wireless
services penetrate the market. Resolution of the extent to which municipal
utility users taxes are applicable to wireless communications has not been
reached. These issues are not addressed in forecasts and could impact City
revenues negatively.
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State-Local fiscal reform is still under discussion in Sacramento. For a City
such as Santa Monica with relatively high sales tax revenue per capita, the
likelihood of being kept financially whole under reform proposals is slim. It is
not possible at this time to estimate a potential revenue loss or its likely timing
since consensus on reform has been elusive.
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SB402 was signed by the governor, requiring compulsory and binding
arbitration in certain municipal labor negotiations. If it survives legal
challenge, wage and benefit costs may exceed projections.
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Sales tax losses due to the shift of transactions to the Internet are expected to
reach about 5% by 2004/05 and that shift has been accounted for in the City's
projections. Should the shift accelerate, revenue expected over the forecast
period may not be realized.
The sustainability of revenue streams dictates the extent to which new programs and
services of an ongoing nature can be delivered to residents. Staff will continue to
monitor these risks and refine projections over the course of budget preparation.
Budget Context - Resident Satisfaction
As part of the budget preparation cycle the City has, for several years, asked its
residents "How are we doing?" A scientifically valid telephone survey of 429 randomly
selected households was conducted in November using the International City
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Management Association (ICMA) Performance Measurement Project survey instrument.
The instrument addresses public satisfaction with City services in general and,
specifically, with streets, sidewalks, alleys, refuse collection, parks and recreation,
libraries and public safety. In addition to the basic survey, information was sought on
local parking, water and communication issues.
The report of survey findings is attached to this report as Attachment B and is available
on the City website. The following summarizes key findings of the survey:
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While 80% of Santa Monicans are currently satisfied with municipal services, the
percentage saying they are very or somewhat satisfied declined by 8 percentage
points from last year. More than two-thirds of respondents gave excellent or
good ratings to refuse collection services (78%), range and quality of park and
recreation opportunities (both 72%), availability of library materials (85%) and
quality of library services (81%), Police Department handling of emergencies
(77%), Fire Department response time (87%) and handling of emergencies
(90%). The City's communication with residents was satisfactory to 74%, a 10-
point decline from 1999's survey.
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Positive ratings for the appearance of Santa Monica's parks increased from 77
percent last year to 80%. Also noteworthy is a marked improvement in opinion
on the condition of alleys, with the "good all over" rating up from 14% to 22%.
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Homeless, growth, housing and parking topped the list of concerns voiced by
residents. In response to an open-ended question asking respondents to identify
the top one or two issues facing the City, 32% indicated "too many
homeless/homeless causing problems," 26% identified "too much growth," 23%
named "lack of affordable housing" and 13% pointed to "lack of parking."
Responses to questions on parking suggest that most residents (81%) find
parking in the downtown "always" or "sometimes" difficult, and 94% feel the
amount of parking in the downtown area should be increased.
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Topping suggestions for improved City services were "offer more services for the
homeless" (21%), "communicate better with residents” (18%), "reduce traffic
congestion" (15%) and "stop growth" (14%).
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The City Seascape newsletter ranked highest among information sources for City
news, mentioned by 38% of respondents, with CityTV ranked second at 29% (a
10% jump from last year.) The now defunct Our Times was mentioned by 20%
of respondents and the Westside Weekly by 15%.
Results of the survey are communicated to employees and City departments are
encouraged to use the survey data to inform budget preparation, including performance
measures.
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Budget Context - CDBG/HOME
In conjunction with development of the 2000/01 Budget the City conducted open
proposal processes for social service grants. Funding for the successful agencies was
recommended for a period of three years, commencing with the current year and
dependent on appropriations in each of the two subsequent fiscal years. Second year
funding for grantees will be recommended in the 2001/02 Budget for agencies that are
meeting the performance targets and work plans set out in their grantee agreements.
Public input on year two of the grant program, including use of the City's CDBG and
HOME funds, will assist in preparation of an action plan for this year as required by the
U.S. Department of Housing and Urban Development.
Budget Context - Known Requirements for Capital Projects and New Ongoing Services
In developing a sustainable budget, provision must be made for the ongoing costs of
maintenance and operation associated with capital projects that are undertaken.
Current projections suggest the need to add nearly $3.6 million annually within the next
five years to support expanded park maintenance and operations, including at Virginia
Avenue Park, the park at the airport, and 415 PCH. These estimates do not yet include
the maintenance and operation costs related to community use of open space to be
developed on school campuses or of public space in the Civic Center. In addition, $1.3
million annually must be added for maintenance and operations for the Main Library
expansion and $1 million annually for maintenance and operations of the new Public
Safety Facility.
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Other likely additions to ongoing costs include a more substantial investment in staff
development and a supportive Human Resources function to ensure that well-qualified
employees continue to deliver municipal services, additional traffic and parking
enforcement staffing to address resident concerns, additional planning and building
staffing to improve the accuracy and timeliness of service and enhanced
communications strategies to better reach the public.
A number of significant capital projects remain un-funded or under-funded based on
current estimates. Those include seismic retrofit of municipal buildings and parking
structures ($14 million), a Civic Center parking structure ($16 million), downtown urban
design elements not related to the transit mall ($1.8 million), Virginia Park improvements
($500,000), reconfiguration of City Hall and the police wing on completion of the Public
Safety Facility ($10 - $17 million), 20th and Cloverfield streetscape improvements ($2
million), a ramp from the Pier to the 1550 lot ($1.2 million), and implementation of the
City Yards Master Plan ($45 million). Not listed here are costs of developing 415 PCH,
a harbor in relation to the proposed breakwater north of the Pier and a skate park
should an appropriate site be identified.
In addition, the City will undertake a planning process for the Civic Center this spring.
The cost of realizing the plan that is developed will be borne in whole or substantial part
by the City given the likely mix of housing and public open space with supporting
parking that has been contemplated. While those costs cannot be estimated with
certainty until the plan takes shape, we should anticipate an investment in excess of
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$40 million. The Council has also expressed interest in building a fund for future
acquisition of land for parks and no defined commitment has yet been proposed for that
purpose.
A Focused Agenda with Outcome Measures
Development of the 2000/01 budget and work plan benefited from Council's early
identification of key priorities. The mid-year report will detail progress achieved by
focusing staff and material resources to address them. It would be timely now for the
City Council to consider public input, reaffirm or change, and if possible more finely
hone priorities for 2001/02.
The slight erosion in overall satisfaction measured in the survey of residents suggests
that it will be important to sustain a focus on the delivery of excellent basic services and
staff interactions with the community. It also suggests that the City could do a better
job of measuring and reporting progress on issues of concern to the public, including
the key priorities. Staff will address this in developing the 2001/02 Budget.
Budget/Financial Impact
There is no direct financial impact of establishing priorities for the 2000/01 budget. Staff
will return with a plan of work with a corresponding budget in support of those priorities
for Council consideration in June 2001.
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Recommendation
It is recommended that the City Council consider the context in which the 2000/01
budget will be prepared, hear input from the public, and provide direction to staff
regarding priorities for the coming fiscal year, including the CDBG and HOME
programs.
Prepared by: Susan E. McCarthy, City Manager
C.M. Dennis, Director of Finance
Katie Lichtig, Assistant to the City Manager for Management Services
Judy Rambeau, Assistant to the City Manager for Community Relations
Barbara Stinchfield, Director of Community and Cultural Services
Attachment A: Structure of City’s Financial Operations
(NOT AVAILABLE
Attachment B: Resident Satisfaction Survey 2000
ELECTRONICALLY – SEE CITY’ CLERK’S OFFICE ORIGINAL COUNCIL PACKET)
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