SR-202-001 (64)
CMO:\F:\CMANAGER\Staff Reports\Budgetpriorities-2002.doc
Council Meeting: January 8, 2002 Santa
Monica, CA
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to consider the fiscal, economic and community
satisfaction context in which the budget will be formulated and receive public
comment, hold discussion and identify budget priorities for Fiscal Year 2002-
03, including Community Development Block Grant (CDBG) and Home
Investment Partnership Act (HOME) Programs
Introduction
This report presents the significantly altered context in which the FY 2002-03 operating
and capital budgets will be prepared. It recommends that the City Council consider those
conditions, acknowledge the results of a recent community satisfaction survey, 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. This year, following a period of
unprecedented economic growth, the economy is in recession and the events of
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September 11 create a climate of considerable uncertainty in which the budget process
must take place.
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 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.
The process of projection and input is of particular importance, given the current context,
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.
To more effectively focus financial resources and staff effort on key issues of concern to
the community, the City Council is asked to identify priorities for what will likely be a no-
growth budget year.
Discussion
Budget Context – Economic and Fiscal Forecast
The economic and fiscal contexts have substantially changed since last year’s budget
priority session. While the City ended FY 2000/01 in a strong financial position, during the
last quarter of FY 2000/01, the economy began a downturn that became more rapid and
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deeper than expected by almost all economists. Data signaling this more aggressive
slowdown was not available until after the FY 2001/02 City budget was adopted on June
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19, 2001. The effects of September 11 further aggravated the economic slowdown that is
now officially a recession.
As part of the FY 2000/01 Year End budget report, Council received preliminary staff
estimates of revenue losses, primarily from Transient Occupancy and Sales Taxes, that
could be expected this fiscal year and in FY 2002/03. Based on recent economic
projections of the City’s economy provided by California State University at Long Beach,
forecasts from other authoritative economic sources and some additional current year
fiscal data for the City, projected revenue losses will probably be somewhat less than the
early estimates. However, difficult budgetary decisions must nevertheless be made over
the next 6 months to bring General Fund on-going revenues and expenditures back into a
sustainable balance. These decisions will be guided by the availability of updated
economic and fiscal data that may signal how rapidly and how strongly the economy will
recover, and whether the recent combination of unique events has a long-term effect on
the ability of the local economy to generate on-going revenue to pay for City services and
service levels.
The current year General Fund revenue loss is estimated at $ 7.7 million. To mitigate this
revenue shortfall, a cost savings program is underway in every department that may
reduce this loss up to 50%. We have also reviewed the City’s capital expenditure program
and should be able to close out and/or defer various projects to cover the remaining
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revenue losses. Details will be presented to the City Council as part of the FY 2001/02
Mid-Year budget report. For next fiscal year and over the following four fiscal years, the
projected average gap between revenues and expenditures ranges from about $ 4.6
million (2.5%) to $ 11.0 million (6.2%) per year. Due to the City’s overall financial strength
created by years of fiscal discipline and prudent budget decisions by the City Council, staff
has identified a range of strategies to re-balance the General Fund. An analysis of
available strategies and a recommended course of action will be presented as part of the
Proposed FY 2002/03 City Budget in mid-May, 2002. A no-growth budget is currently
contemplated, and staff will be prepared to present budget reductions should that prove
necessary.
As usual, there are several uncertainties that could exacerbate the estimated revenue
shortfall:
1) If there are further terrorist attacks or some other major “shock” to consumer and/or
business confidence, the recession could be prolonged and/or deepened.
2) The State is facing a $ 12.4 billion budgetary deficit as it prepares its FY 2002/03
budget. Privately, State officials have indicated that this deficit could reach $ 14.0
to $ 18.0 billion. To close a budget gap of this magnitude, local officials around the
state are very concerned that the State may, once again, take local revenues to
help balance the State budget, despite assurances from the Governor that such a
budget-balancing strategy will not be used. The local revenue source most
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vulnerable is the Motor Vehicle In Lieu Tax. For the City, about $ 3.2 million is at
stake.
3) Our five year expenditure projections have not included the full impacts of
implementation of a living wage ordinance, or the impacts of possible cost
increases/revenue losses associated with three pending state-wide legal issues:
PERS enrollment of non-permanent employees, binding arbitration, and property
tax assessment practices.
Staff will continue to monitor these uncertainties and refine projections over the course of
the budget preparation process.
Budget Context – Resident Satisfaction
For the fourth consecutive year as part of the budget preparation cycle, the City
conducted a scientifically valid telephone survey, asking, "How are we doing?" in
delivering City services. The report of survey findings from the 411 randomly selected
households is Attachment B to this report and is available on the City web site. The
following summarizes key findings of the survey:
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Fully 84 percent of Santa Monicans say they are "very" or "somewhat" satisfied
with the job the City of Santa Monica is doing to provide City services. This
figure reflects an increase over the satisfaction levels found a year ago, and
nearly regains the very high levels of satisfaction found in the 1999 resident
survey.
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Issues related to the homeless, growth, housing and traffic top the list of
concerns voiced by residents in the 2001 survey; however, concern about
housing and growth fell substantially from the prior year (each by more than
50%), while concern about traffic increased (from 9 to 21%).
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While improving communication was a top suggestion made by residents for
ways to improve City services, respondents expressed high levels of satisfaction
with the way the City communicates with residents (73% saying they were "very"
or "somewhat" satisfied), with the Seascape newsletter once again ranked
highest (35%) as a source of City information and CityTV and the Los Angeles
Times ranked second (18%).
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For the first time, residents in the citywide survey were asked to rate customer
service at City Hall for courtesy and responsiveness. Of those who had
contacted a City department in the past year (52% of those surveyed), 90
percent said the staff they dealt with was "very" or "somewhat" courteous and 75
percent said staff was "very" or "somewhat" responsive to their needs. Seventy-
two percent said they were satisfied with the service received after contacting a
City department.
Results of the survey are being communicated to employees and City departments will
use the survey data to inform budget preparation, including performance measures.
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Budget Context – CDBG/HOME
As part of the FY 2000-01 budget process, funding for social service grants was
recommended for a period of three years dependent on appropriations in each of the two
subsequent fiscal years. Third year funding for grantees will be recommended in the FY
2002-03 Budget for agencies that continue to meet the performance targets and work
plans set out in their grantee agreements. Public input on year three 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
The funding needs for existing and planned capital projects continue to exceed the
availability of capital funds. Several significant capital projects remain unfunded or
underfunded in the current three-year capital plan. These projects (and their respective
budget needs) include the reconstruction of the Main Library ($5 million), Virginia
Avenue Park ($4.3 million), 415 PCH ($8.3 million); downtown urban design elements
not related to the transit mall ($1.4 million); Airport Park ($800,000); Exposition Bike
Path ($660,000); renovation of the Senior Recreation Center ($2.2 million);
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construction of a breakwater ($1.9 million); Pier Ramp ($2.5 million) and 20 and
Cloverfield Improvements ($2 million).
Other projects that will require substantial financial resources within the next ten years,
with some portion likely from the General Fund as well as other revenue sources,
include the Civic Center Specific Plan Working Group proposal (over $70 million);
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seismic renovation and rebuild of the downtown parking structures (over $90 million);
renovation and seismic upgrade of City Hall and a new public facilities building ($60 -
$70 million); the Corporation Yards Master Plan ($50 million) and requests from Santa
Monica College for seismic retrofit resources.
In addition, current projections include approximately $5.7 million in on-going
expenditures within the next five years to support expanded maintenance and
operations at Virginia Avenue Park, Airport Park, the new Public Safety Facility and
Main Library.
As staff identifies strategies to rebalance the General Fund for FY 2002-03, some
capital projects that were previously adopted or included in the current three-year
capital plan may have to be deferred or phased over time. These strategies will be
presented to Council as part of the FY 2002-03 budget presentation in May.
A Focused Agenda with Outcome Measures
Development of the FY 2001-02 budget and work plan benefited from Council’s early
identification of key priorities. The FY 2001/02 mid-year budget 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 in light of current
economic conditions, more finely hone priorities for FY 2002-03.
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Budget/Financial Impact
There is no direct impact of establishing priorities for the FY 2002-03 operating and capital
budgets. Staff will return with a plan of work and a corresponding budget in support of
selected priorities for Council consideration in June 2002.
Recommendation
It is recommended that the Council consider the context in which the FY 2002-03 operating
and capital budgets 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 McCarthy, City Manager
Gordon Anderson, Assistant City Manager
C.M. Dennis, Director of Finance
Mona Miyasato, 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
Attachment B: Resident Satisfaction Survey 2001
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Attachment A
STRUCTURE OF THE CITY’S
FINANCIAL OPERATIONS
The financial operations of the City are organized into funds for which budgets are prepared. These funds are
grouped into three major categories: , which is the largest fund which constitutes about one-
The General Fund
half of all City revenue, provides basic City services such as Police, Fire, and Library. About 73% of the General
Fund is financed from tax revenues such as the Utility User’s Tax, Sales Tax, Property Taxes, Business License
Tax, Transient Occupancy Tax (also known as the bed tax) from hotels and motels and the Parking Facilities
Tax on all paid parking in the City. Remaining revenues primarily come from other governmental agencies,
various fines and cost offsetting fees and charges. operate much like
Enterprise and Internal Service Funds
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. keep track
Special Revenue Funds
of specialized revenues and expenditures that can legally only be made for specific uses. Examples are the
Community Development Block Grant Fund and Beach Fund.
The following pie charts show where the City’s money comes from and where it goes.
PIE CHARTS:
Analysis of Adopted City of Santa Monica FY 2001/02 General Fund Revenue – Local Taxes
Analysis of the adopted FY 2001/02 Budget: All funds
Analysis of the ado
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