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FIN:CMD:JLS:f:\finance\budget\FY02 my staff report
Council Meeting: February 26, 2002 Santa Monica, California
NOTE – ATTACHMENTS AVAILABLE AT CITY CLERK’S OFFICE
TO: Mayor and City Council
Chairperson and Housing Authority Members
Chairperson and Redevelopment Agency Members
FROM: City Staff
SUBJECT: Recommendation to Conduct FY 2001-02 Mid-Year Budget Review,
Approve Associated Budget Changes and Adopt a Resolution Establishing
Various Classifications and Salary Rates.
Introduction
This report provides a mid-year review of the FY 2001-02 budget, recommends budget and
personnel changes, and reports on progress of work objectives.
Background
The mid-year budget review is an opportunity to assess the status of the adopted budget
and make necessary mid-course corrections. In addition to reviewing projected revenues
and expenditures after six months of operations, staff evaluates progress on priority and
departmental objectives. Revisions to the adopted budget are recommended based on
this analysis.
Discussion
Economic and Fiscal Context Update -
Based on additional City revenue experience
and new economic forecasts, the magnitude of the anticipated current fiscal year
General Fund revenue shortfall has increased by $ .1 million to $ 7.8 million.
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Projecting the elements of this further decline into next fiscal year results in a revenue
shortfall of between $ 5.6 million (optimistic) to $ 8.5 million (baseline), or $ .5 million
greater than previous estimates. The growth in the shortfall is primarily due to lower
interest earnings on investments. The current fiscal year revenue gap will be mitigated
by: administratively closing out completed capital improvement projects (CIP’s) to
generate savings of about $ 1.9 million; achieving $ 2.9 million in operating budget
savings and/or one-time revenue receipts; and deferring at year end of $ 3.0 million of
currently budgeted CIP’s. No mid year budget action is necessary. For FY 2002/03,
staff will recommend a mitigation strategy during budget study sessions following
release of the Proposed Budget.
The following factors could alter these estimates:
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The emerging consensus is that the national economy will begin to recover by
the start of FY 2002/03, but the strength of the recovery will be less vigorous
than normally expected. The above estimates are consistent with this recovery
scenario. However, if recovery happens faster and is stronger, revenue
shortfalls could be reduced.
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The State faces at least a $ 12.4 billion deficit next fiscal year. There is growing
concern that the Governor’s Proposed Budget does not responsibly address the
deficit, and that it will be necessary for the State to, once again, shift local
revenue to the State. Any revenue shifts will increase the City revenue shortfall
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estimates.
th
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In addition to the “uncertainties” identified at the Jan 8 budget priorities public
hearing that could increase City costs next fiscal year----living wage proposal,
PERS enrollment of non-permanent employees, binding arbitration, and court
invalidation of certain County property tax assessment practices----three others
have emerged: a probable increase in workers compensation benefits, a
proposal to alter the basis for the allocation of Sales Tax revenues, and an
exploration of the legality of shifting some City tax revenue to the school district.
Staff will continue to monitor the developing economic and fiscal context and advise
Council of major changes.
Overview
– A summary review of all funds is at Exhibit A. With respect to the General
Fund, the changes included in the Mid-Year Review report are summarized on the
following page:
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FY 2001/02 GENERAL FUND CHANGES (in millions)
Revised Proposed
Budget as of Budget Revised Projected
12/31/01 Changes Budget _6/30/02_
Beginning Fund
Balance (10/23/01)* $ 16.7 $ 0 $ 16.7 $ 16.7
Revenues 196.5 0 196.5 189.5 ***
Expenditures 213.4** 5.7 219.1 217.0
Balance Sheet
Transactions 19.6 6.0 25.6 25.6
Deferral of Capital
Projects - - - 3.0
Close-out of
Completed Capital
Projects - - - 1.9
Application of Fund
Balance to Revenue
Shortfall - - - ( .3 )
Ending Fund Balance $ 19.4 $ 0.3 $ 19.7 $ 19.4
(6/30/02)
Reflects FY2001-02 changes made as part of Year-End Budget Report for
FY2000-01.
** Does not include reappropriation of ongoing capital projects, which are financed
from funds reserved or designated on the General Fund balance sheet.
*** Consists of $7.8 m. revenue shortfall, partially offset by $.8 million of one-time
revenue receipts. Does not include $1.0 m. of additional Public Safety Facility
interest revenue, not available for other uses
Details of previously approved budget actions and the mid-year analysis of City revenues
are contained at Exhibit B1- Exhibit D.
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Budget changes recommended at this time are outlined in Exhibits E and F. Revenue
adjustments will more accurately reflect grant and other revenues the City will receive
during the fiscal year. In addition to various proposed technical expenditure adjustments,
the budget and balance sheet changes recommended at Exhibit F include the
appropriation of $2.6 m to finance various Low/Moderate Income housing projects. The
appropriation represents all such funds determined to be available at this time.
Personnel Actions
– Included at Exhibit G1 is a resolution establishing new
classifications and adopting salary rates for various positions. These salary changes
result from an analysis of similar positions in comparable cities and internal equity factors.
The cost of these changes will be absorbed in the existing budget.
At Exhibit G2 is a listing of position changes and classifications that have been reviewed
and approved by the City Manager and the Director of Human Resources and require
approval by Council in order to be incorporated into the FY 2001-02 City budget. No
appropriation is required, at this time, to implement these changes.
Departmental Program Performance Review
– All FY 2001-02 performance measures
and objectives have been reviewed. With the exception of those listed at Exhibit H1 – H2,
collaborative and departmental work objectives and performance measures are on target.
Capital Improvement Projects (CIP) Review
– A CIP Status report as of December 31,
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2001 accompanies this staff report. It presents information on project implementation,
financial status, management responsibility and changes in the scope or cost of project
work authorized. All projects authorized in the FY 2001-02 revised budget are listed, as
well as those projects from prior years, which were not completed by June 30, 2001.
There remains a significant need for capital dollars in excess of anticipated funds in both
the short- and long-term. The City will defer $3 million in approved capital projects this
year and will likely continue to defer projects over several years in anticipation of a
reduced availability of capital funds. Over a 10-year period, projected capital needs
exceed anticipated revenues by $80 million to $160 million (with the higher number
assuming that the City would fund all improvements recommended by the Downtown
Parking Task Force). More detailed information on the Capital budget will be presented to
Council in May 2002 at the budget study sessions.
Recommendations
It is recommended that
1) City Council, Housing Authority and Redevelopment Agency approve the budget
changes detailed in Exhibits E and F and position and classification changes
detailed in Exhibit G2 and,
2) City Council adopt a Resolution establishing various classifications and salary
rates for various positions (Exhibit G1).
Prepared By: Susan McCarthy, City Manager
Gordon Anderson, Assistant City Manager
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Mona Miyasato, Assistant to the City Manager
Karen Bancroft, Director of Human Resources
Mike Dennis, Director of Finance
Ralph Bursey, City Treasurer/Revenue Manager
David Carr, Assistant City Treasurer
Janet Shelton, Budget Manager
Kathy Chang, Principal Budget Analyst
Annette Morales, Senior Administrative Analyst – Budget
Joan Akins, Administrative Services Manager
EXHIBITS
A: FY 2001-02 Revenue and Expenditure Analysis by Fund
B1: Revisions to the Adopted Revenue Budget through December 31, 2001- Summary
B2: Revisions to the Adopted Revenue Budget through December 31, 2001 - Detail
C1: Revisions to Adopted Expenditure Budget through December 31, 2001 - Summary
C2: Revisions to Adopted Expenditure Budget through December 31, 2001 – Detail
D: FY2001-02 Mid-Year Revenue Analysis
E: Proposed Changes to FY 2001-02 Revenue Budget
F: Proposed Changes to FY 2001-02 Expenditure Budget
G1: Resolution Establishing New Classifications and Adopting Salary Rates for Certain
Positions
G2: Position and Classification Changes
H1: Exception Report on Work Objectives
H2: Exception Report on Performance Measures
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