SR-202-001 (47)
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JAM 8 1985
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CouncIl MeetIng:
Santa Monica, California
1/08/85
TO: Mayor and CIty CounCIl
FROM: CIty Staff
SUBJECT: 1985-86 Budget GuidelInes
INTRODUCTION
The purpose of thIS report IS to prOVIde the CIty Council wIth an
opportunIty to reVIew and comment upon proposed guidelInes for
1985-86 budget preparatIon. The background sectIon prOVIdes a
summary of key changes from the 1984-85 budgetIng process. The
fIscal overVIew sectIon IdentIfIes key factors WhICh have been
conSIdered In developIng the gUIdelInes. The 1985-86 budget
gUIdelines set forth the general framework for preparation and
review of departmental requests. A comprehenSIve calendar of
budget reporting/preparation actIVItIes durIng thIS fIscal year
IS attached.
BACKGROUND
Santa MonIca's budgeting practIces have been SIgnIfIcantly Im-
proved durIng the past few years as a result of a major Invest-
ment on the part of all management staff In the CIty. In plan-
nIng for the 1985-86 bUdgetIng process, Input has been receIved
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from the C1ty Council, an lnterdepartmental budget systems 1m-
provement team, the CIP Commlttee and other C1ty staff. The fol-
lowlng ltems summarlze the key changes Wh1Ch have resulted:
1) Multl-year Capital Improvements Program - Clty Councll wlll
be requested to appropriate funds for projects budgeted to
begln 1n 1985-86 and to approve 1n concept the fundIng
requests for the second and thlrd years.
2) Extended Schedule for Budget Preparation - In order to even-
out workload, capltal budget requests were reviewed earlier
to avold overlap ln the mld-year reVlew and operatlng budget
schedules.
3) On-l1ne Budget System - Data Processing staff have developed
an on-llne budget system WhlCh 1S expected to substantially
reduce the tlme required for budget calculat10ns and
reV1Slons.
An underlYlng obJect1ve 1n each of the ref1nements made has been
to reduce the amount of staff tlme invested in budget
preparatlon/monltor1ng efforts wh1le retalnlng h1gh standards of
qualIty.
FISCAL OVERVIEW
In adoptlng the City'S 1984-85 operat1ng and capltal budgets, the
CIty councll endorsed budget increases to enhance the Clty'S
phys1cal, econom1C and soc1al 1nfrastructure. Budget increases
were generally llmlted to one-time expenditures and enhancement
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of baSIC serVlces rather than fundlng of expanded, recurrlng ac-
tivitles whlch mlght be JeopardIzed by future revenue or spendIng
constralnts. The 91% Increase in the CIty'S capital budget was
supported due to hIstorical under-lnvestment In thIS area and the
establIshment of a more fIrm analytIcal base upon WhlCh to make
investment POlICY deCISIons. The capItal budget Increases neces-
sitated signIficant reductIons in projected fund reserves WhlCh,
although considered prudent for 1985-86, cannot be supported on
an on-golng baSIS.
Based upon the November electIon results on the Gann overrides It
appears reasonable to conclude that there has been a specifIC
endorsement prOVIded for maintainIng at least current levels of
spendlng for publIC safety functions and for further Investment
In maIntenance of the CIty'S capItal Infrastructure. However,
the rate and nature of any additIonal Investments 1n these areas
must be cons1dered in light of existIng and potential fiscal
constraints.
At the local level, the outlook for 1985-86 revenues appears
favorable but cautIon IS adVIsed pendIng the avaIlabIlIty of mId-
year expenditure and revenue est1mates. Overall, prelIm1nary
revenue forecasts for the CIty'S general fund suggest that estI-
mated actuals may exceed the budget by 6.0% In 1984-85due to
hIgher than antICipated sales tax revenues and return by the
State of Motor VehIcles In-LIeu Tax revenues to cities. For
1985-86, revenues could Increase by an addlt10nal 8.5%, after
adjustments for one-time program revenues to be recelved 1n 1984-
85. Sales tax revenues are expected to contInue to be strong;
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thIS revenue source provIdes about one-quarter of all general
fund revenues to the City. The mid-year reVIew WIll provIde up-
dated estimates based upon SIX months actual experIence In 1984-
85. It IS not until thIS data 1S available that we WIll be able
to confIdently establIsh the speCIfIC fundIng levels to be used
In 1985-86 budgetIng.
The strong CalIfornIa economy In 1984 has bolstered the State's
reserves WhICh are now estImated to be $1.1 bIllIon and $1.3 bll-
lIon at the close of fIscal years 1984-85 and 1985-86, respec-
tIvely. These estImates were prOVIded by the Commisslon on State
FInance as of December 1984 and are based upon an apparently con-
servatIve set of expendIture and revenue assumptions. Therefore,
although the State's long-term role In local government finanCIng
is far from clarifIed, It does not appear that fiscal pressures
will eXIst to reduce eXIstIng subventIons.
Federal admlnlstratlon proposals for tax reform and the federal
budget could profoundly affect state and local governments In the
long-term. One key element of the federal tax reform package IS
a proposal to el~mlnate the deductlb~llty of state and local tax-
es; Since thIS would lead to hIgher effective federal tax rates,
some economists theorize that pressures could be created to re-
duce overall state/local taxes. Other elements of the tax reform
package are expected to substantIally alter the characterIstIcs
of the munICIpal bond market; however, the compleXIty of Inter-
actIng factors makes it dIffICUlt to predlct the net effect on
the market. The proposed Federal budget cuts are eaSIer to un-
derstandj however, the current proposals would not materially
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affect the Clty'S budget In 1985-86 and are llkely to be substan-
tially modlfied before adoptlon. Looklng towards a three year
horlzon, the proposed elimlnatIon of General revenue sharIng and
reductions in the Communlty Development Block Grant program could
result in a loss of about $1.0 mlllion in revenues annually in
Santa Monlca. ThIS may not occur but slmply serves as an example
of the uncerta1nty 1n federal revenues In future years.
As we look to the long-run, It 1S clear that Santa MonIca's fIS-
cal posltion may contlnue to be affected by economic condltlons
and by State or Federal actIons. In order to further establlsh
and malntaln flscal lndependence from such external lnfluences,
the following are recommended:
1) maintaln adequate reserves;
2) minimize addltlonal recurring expendltures, e.g. personnel
costs; and
3) maXlmlze revenues from user-fees, grants, and other special
revenues.
PROPOSED APPROACH
The general areas of emphasls recommended for 1985-86 budget
preparatIon generally reflect a contlnulty of approach wlth last
year's budget guidellnes:
o Contlnue to respond to cltlzen lnput recelved from the needs
assessment survey regardlng the lmportance of malntalning
high quallty baslc serVIces.
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o The CIty IS already commItted to an ambItIouS agenda of
publIC developments and staff energIes need to be devoted to
InsurIng successful Implementation of those InItIatIves.
o Opportunities for addItIonal expendItures In the areas of
capItal infrastructure and public safety should be
consIdered.
More specIfIcally:
1) We wIll propose a maIntenance of effort budget WhICh empha-
SIzes enhanCIng baSIC serVIce delivery and ImplementatIon of
major plannIng and development projects WhICh the Councll has
prevlously inltIated regardIng the Alrport, Downtown Mall,
Pler and CIvic Center areas. MaIntaIning prudent reserves
and lImItIng budget growth WIll be the framework for budget
dISCUSSIons.
2) Requests for serV1ce enhancements 1n other operatIng areas
WIll be consIdered to a llmlted degree dependIng upon the
potentIal for offsettIng productIVIty saVIngs elsewhere,
revenue generatIng capabil1ty and the avaIlab1llty of grant
or special revenues.
3) The emphas1s on enhanCIng basic serVIce delIvery and Im-
plementatIon of major development projects WIll be reflected
1n departmental ObjectIves and performance measures.
4) Community Development program development has also been In-
corporated In the CItYWIde budget plannIng agenda agaIn thIS
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year. As In past years, General Revenue Sharlng revenues
wlll be targeted to soclal serVlce actlvltles.
The attached calendar of budget reportlng/preparation actlvltles
and llsting of key dates lS provIded for your reference. The
schedule of actlvitles WhICh involve the Clty CounCll and/or
publlC corresponds very closely to the schedule followed last
year.
Prepared by:
John Jalill
Clty Manager
Lynne C. Barrette
Asslstant City Manager
Meganne Steele
Budget Dlrector
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Day Date
Tues. 1/08
Thurs. 1/10
Mo n . 1 /2 1
Tues. 2/12
Thurs. 2/28
~1on. 4/22
Thur s. 5/02
Wed. 5/08
Frl. 5/17
Tues. 5/28
Ttled. 5/29
Sat. 6/01
Tues. 6/04
Thurs. 6/06
Sat. 6/08
Tues. 6/18
Tues. 7/16
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1985-86 Budget Schedule
Key Dates for CIty CouncIl and PublIC
ActIvity
Budget GUIdelInes and CD Program grant selectIon
crIterIa to CIty CouncIl
CD Program RFP's Issued
CD Program RFP workshop
MId-Year RevIew Report to CIty CouncIl
CD Program RFP's due to C/ED
Draft CD Plan notIce to publIC
AdminIstratIve hearIng on CD Plan and General
Revenue SharIng
CD Plan transmItted to City Council
Proposed Budget Documents Transmitted to CIty
CouncIl
CD Plan publIC hearIngs and adoptIon
(potentIal carryover from 5/28)
Budget study seSSIon for City CouncIl
Budget study seSSIon for City CouncIl
Budget study seSSIon for CIty Council
Budget study seSSIon for CIty CouncIl
Proposed Budget public hearIngs and adoptIon
Gann lImIt pUblIC hearIng on 1985-86 budget
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