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SR-202-001 (47) e e ~;; JAM 8 1985 I~ &S-&b LaO .:z t?2-- t:JO/ CM:MS:LB:mmm 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 "- D .8. - 1 - e e 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 - 2 - e e 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; - 3 - e e 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 - 4 - e e 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. - 5 - e e 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 - 6 - e It 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 - 7 - 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 e e 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 - 8 -