SR-202-002 (30)~~+ . .
~ ~;tyof City Council Report
Santa Monica~
City Council Meeting: January 9, 2007
Agenda Item: ~~~
To: Mayor and City Council
From: Candace Tysdal, Acting Director of Finance
Subject: Five Year Financial Forecast, Public Comment on Budget Priorities
Including Comments on Community Development Block Grant and Home
Investment Partnership Act (HOME) Programs and Discussion of
Community Priorities for FY2007/08 Budget.
Recommended Actions
Staff recommends that City Council:
1) Receive the FY2007/08 through FY2011/12 Five Year Financial Forecast as
backgraund for development of the FY2007/08 budget document; and
2) Receive public comments on FY2007/08 budget priorities, including Community
Development Block Grant (CDBG) and Home Investment Partnership Act
(HOME) program funds.
Based on this information, comment and discussion, staff will return on January 23
to receive Council direction on development of the FY2007/08 budgets and work
plans, including community priorities.
Executive Summary
This report provides an update on the current status of the economy and its potential
impact on budget revenues; presents a forecast of revenues and expenditures for the
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major City funds; and provides an update on work efforts related to the key Community
Priorities for the current year. The report requests that Council receive pub{ic
comments on community budget priorities and at its January 23rd meeting provide
direction to staff regarding Council recommendations on budget development for
FY2007/08.
Although economic signals on a national level are mixed, the economic forecast for
Santa Monica is positive due to the strength of tourism and commercial real estate. The
City also benefits from a diversified tax base which lowers its vulnerability during
economic downturns and provides quicker recovery following those downturns.
In reviewing the impact of the economy on revenues and the projected growth of
existing service costs, the City can balance its budget for the next two to three years,
but only because funds have been set-aside in this fiscal year to buttress against a loss
in Utility User Tax revenue. Additional resources will be needed to better address basic
infrastructure replacement and deferred maintenance or to grow programs beyond their
existing service levels.
Based on comments received to date, the community identified issues of concern as:
mobility, public safety, street lighting, graffiti removal, street aesthetics, education and
fluoridation of drinking water.
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Discussion
Economic Uadate
National and State Economies
On the national level, the economy has been giving mixed signals for a number of
months. The economy continues to expand, but at a slower rate.
• The growth in Real Gross Domestic Product (GDP) is expected be in the 2-2.5%
range in 2007 after averaging well above 3% for the last few years.
• Unemployment remains low (under 5%) and consumer spending has remained
strong.
• Inflation has returned to lower levels reflecting, in large part lower energy costs.
• Interest rate increases by the Federal Reserve (Fed) have ended for the time
being indicating the Fed's expectation for slower economic growth and a
decreased threat of inflation.
More cautionary indicators show:
• The housing market is in its worst slump in a number of years as housing starts
and permits are each down about 25% from their peaks.
• Home prices have begun decreasing in many areas. While many economists
believe that the housing market is close to "bottoming out", value decreases and
sluggish sales are expected to continue through 2007.
• Inverted bond yield curves (short term interest rates higher than long term rates)
are currently in place and have in the past been precursors, along with housing
slumps, of recessions.
• Although few economists are currently projecting a recession in 2007, the
recently released UCLA Anderson Economic Forecast estimates a 10-15%
chance that a recession could happen next year.
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State Economy
The issues for the California economy are essentially the same as for nation. The State
economy appears fairly healthy as state tax collections are high, unemployment is low
and personal income and retail sales are expected to continue to grow, although at
slower rates than in recent history. However, continued softening of the housing market
threatens the economy if it impacts consumer spending. In addition to housing, the
biggest threat to the California economy in the near future is still the State budget, which
according to a recent report by the State Legisfative Analyst, could have a deficit of $5.5
billion in FY 2007/08 possibly requiring tax increases or program cuts.
Santa Monica Economy
Historically, Santa Monica has typically suffered less and recovered faster than many
other areas from tough economic times due in large part to a strong, diversified
economy. No single source of General Fund revenue accounts for more than 15% of
total General Fund revenues. The five major local tax sources (Utility Users Taxes,
Transient Occupancy Taxes (TOT), Sales Taxes, Property Taxes, and Business License
Taxes) each account for between 9-14% of General Fund revenues.
Continued growth is expected in the economy-driven tax sources, particularly from
Transient Occupancy Taxes, Business License Taxes, and Sales Taxes, but at lower
rates of growth than the last few years. On the positive side:
• Tourism, one of the major drivers of the local economy remains strong as hotel
room rental and occupancy rates are up 10% in 2006 after rising 4% the prior
year.
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• The commercial real estate market is also quite healthy with rents up over 20%
from a year ago and an office vacancy rate of only 6%.
However, the local economy does face many of the same challenges as the State and
Nation which can impact City revenues.
• Sales taxes from vehicle sales and leases, which make up slightly less than 20%
($8.0 million) of Santa Monica's annual sales tax receipts, have begun to decline
in recent quarters from the unsustainable levels of the last few year. This was
anticipated in the current year's budget and is expected to result in a slower
growth rate in sales taxes over the next several year.
• Building and Safety-related revenues are down and the number of property
transfers has decreased 25% from last year reflecting the slump in the housing
market. As a result, an estimated $1.0 million loss in revenue is anticipated in
the current year. This will likely result in declining property tax growth rates over
the next few years.
• Legal challenges on national and State levels pose a significant threat to the
telecommunications portion of the City's Utility Users Tax revenues which could
lead to revenue decreases from $7 -$12 million.
Finally, there is always the danger of many other unknown variables such as the fiscal
impacts of legislative changes, as well as national and international events over which
the City has no control.
Five Year Forecast of Maior Funds
Each year staff projects the status of the City's major funds, for a five year period into
the future, with a primary focus on the General Fund. The projections update the status
of the available fund balances at the end of last fiscal year (6/30/2006), review current
revenue received to date (FY2006/07), update economic forecast information, project
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revenue growth, identify expenditure growth assumptions and project expenditure
growth. These forecasts set the stage for the development of the budgets for next year.
The assumptions used in preparing the FY2006/07 - 2011 /12 Five Year Forecast reflect
a review of information concerning the national, state, regional, and local economies. A
number of respected sources of data were used including the UCLA Graduate School of
Management, the Los Angeles Economic Development Corporation (LAEDC), the chief
economists of several different financial institutions, and various consulting firms.
General Fund
REVENUE PROJECTIONS
The FY2006-07 estimated actual revenues are the starting point for revenue projections
for future years. These revenues have been updated to reflect current year-to-date
actuals. Overall, revenue adjustments in FY2006/07 reflect additional revenues of $3.0
million primarily due to higher Property Taxes ($0.5 m), Business License revenue ($0.7
m), Transient Occupancy Tax ($1.7 m), Parking Citation revenue ($0.7 m), Sales and
Use tax ($0.6 m), Utility Users tax ($0.2 m) and Parking Facilities tax ($0.4 m) offset
by reductions in interest income (-$0.5), Real Property Transfer Tax (-$0.5) and Fees
and Charges ($-0.8), primarily due to lower value on building permits.
Future years' growth is based on a variety of factors, depending upon the revenue
source. The major five General Fund revenue sources are projected as follows:
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• Utility Users Tax grows1.8% annually. It is anticipated that rate increases in
Water and Wastewater will result in modest UUT revenue increases beginning in
FY2007/08. However, these increases are outweighed by projected UUT
revenue losses in FY2008/09 and beyond due to changes in telecommunications
regulations and pending lawsuits. For the first year (FY2007/08) a partial
reduction is projected of $4.8 miflion. Revenue losses in future years are
projected at approximately $7.0 million per year. A total of $8.2 million in one-
time funds has been set aside in FY2006/07 to partially mitigate losses in
FY2007/08 and beyond; the extent of the losses cannot be determined at this
time, but staff may know more in the coming months.
• Baseline Sales Tax revenue (exclusive of extraordinary items) over the five-year
forecast period are projected to grow at an average annual rate of 5.5% based
on information from the City's sales tax consultant and the UCLA Economic
Forecast. Current year revenues are projected to be about 1.8°/o above budget
due to one-time receipts from a business close-out. Revenues in FY2008/09 and
FY2009/10 are projected to be reduced by a total of $11.0 million due to the
anticipated closure of Santa Monica Place for renovations.
• Property Tax revenue is projected to increase based on increases in assessed
valuation: 4.3% in FY2007/08, 3.4% in FY2008/09 reflecting the housing market
decrease and for the remainder of the forecast period, 4.4% in FY09/10 and
4.2% in the last two years.
• Business License Tax is projected to grow at a rate of 4.5% annually
• Based on consultations with PKF consulting and the Santa Monica Convention
and Visitors Bureau, Transient Occupancy Tax (TOT) is projected to grow by
5.5% in FY2007/08 slowing to 3% in the final forecast year.
Based on the above, the General Fund revenues grow from $236.3 million in this fiscal
year to $273.6 million in the fifth year of the projection (FY2011/12). The following chart
shows growth by year.
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General Fund Revenue Forecast
300
250
200
150
100
50
0
~ All Other
^ Fees 1 Charges
All Other Taxes
^ Transient Occup
^ Business License
^ Property Taxes
^ Sales and Use Tax
^ Utility Users Tax
It is important to note that the following scenarios have not been included, which
present risks as well as opportunities to the General Fund.
Risks
• A"worst case" loss of Utility Users Tax due to changes in telecommunications
regulations and lawsuits. If losses exceed the "likely" scenario General Fund
revenues would decrease an additional $5 million annually for a total annual UUT
decrease of $12 million.
• No revenue losses from changes in Voice-Over-Internet Protocol (VoiP) or other
internet erosion of the UUT have been considered.
• A housing decline could be more severe and last longer than projected in the
baseline scenario. An alternative scenario could result in a loss of $0.8 million in
FY2008/09 and FY2009/10 and grow to $0.9 million in the last two years for the
forecast.
• A reduction in planned hotel rooms (75 new rooms). If these planned new rooms
do not materialize the annual loss to the City could be from $0.2 million in
FY2008/09 growing to $0.4 million in FY2011/12.
• Proposition 1A, passed by the voters in November 2004, does protect local
Property Taxes, Sales Taxes, and Vehicle License fees from State "takeaways".
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Budget Est. Act. FY07/08 FY08/09 FY09/10 FY10/11 FY11/12
However, beginning in FY2008/09, the State may still borrow local government
property taxes under certain specific conditions and limitations.
• Recession, natural disasters and terrorist acts can all significantly affect the
General Fund revenues, as has happened in the past. These events are
unpredictable and to predict timing of these occurrences is impossible. In order
to be able to respond when events like these occur, the City maintains a 10%
unreserved / undesignated fund balance in the General Fund.
Opportunities
• No additional parking revenues have been included for the new Civic Center
Parking Structure. It is assumed that renovations to other structures will offset
any new income. If additional revenues are realized, the impact would be
positive to the General Fund.
• All fees are assumed to increase at CPI. However, during the forecast period a
new fees study will likely be conducted. The most recent study resulted in
projected additional revenue of $1.3 million to the General Fund revenues.
EXPENDITURE PROJECTIONS
Primary Cost Escalator - Labor
Government is primarily a service industry. Labor costs including associated fringe
benefits comprise 60% of the FY2006/07 operating budget city-wide. For the General
Fund, this percentage is 71 %. Increases in these costs above the growth in revenues
can lead to an imbalance in ongoing revenues versus ongoing expenditures. Therefore,
it is essential to maintain controls on the growth of the cost of labor while ensuring that
labor rates and fringe benefits offered by the City of Santa Monica continue to draw
quality job applicants and ensure retention of existing employees.
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GENERAL FUND - OPERATING EXPENSES
FY2006/07
LABOR COST COMPONENTS
Retirement
Contributions
$28:4M
Health Ins 140~0
$21.2M
10%
All Other Benefits
$10.9M
5%
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95% of total labor costs are controlled by three major components. 71 % of the labor
budget is salaries and wages. To control these costs, agreements with City labor
groups escalate salaries and wages annually based on the Consumer Price Index (CPI)
but limit annual increases to a maximum of 4%. A 4% annual increase is $6.6 million
city-wide and $4.6 million in the General Fund.
Employer paid medical costs comprises 10% of the labor costs and are capped at a
fixed average contribution per employee. Currently, under existing labor agreements,
increases in City costs are capped at 12% per year.
Fourteen percent of the labor costs are for contributions into the California Pubic
Employee Retirement System (CaIPERS). In the past, stock market volatility and
benefit enhancements created uneven spikes in the contribution requirements.
Recently, CaIPERS extended the payment period for under-funded plans and the
recognition of credits for over-funded plan in order to minimize contribution fluctuations.
Two Expenditure Scenarios
Because of the impact that labor can have on the growth of the General Fund budget,
two expenditure scenarios are shown. The first is considered a baseline scenario which
calculates labor cost-of-living (COLA) increases at 4.5°lo per year to reflect the
maximum automatic salary increase of 4% under most all City labor contract
agreements, plus a 0.5°!o factor for non-salary increases.
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An alternative scenario reflects a lower costs: COLA increases are equal the Consumer
Price Index (CPI) as of January of each year plus the 0.5% factor of non-salary contract
increases. The CPI increase reflects labor contract language in existing agreements.
For this forecast period the COLA is:
FY07/08 FY08/09 FY09/10 FY10/11 FY11/12
3.0% 3.0% 3.3% 3.1 % 2.9%
Other expenditure assumptions include:
• Medical insurance costs inflated at a Memorandum of Understanding (MOU) cap
of 12% per year.
• Retirement costs reflect CaIPERS actuarial estimates for FY2007/08 and
FY2008/09. FY2009/10 through FY2011/12 are projected slightly above prior
years and estimated to remain flat based on conversations with Santa Monica's
CaIPERS representative.
• In general, supplies and expenses are projected to increase at CPI for FY2008-
09 and beyond.
• Under the Master Facilities Use Agreement, the Santa Monica - Malibu Unified
School District is funded at a baseline of $6.0 million per year plus CPI escalators
equaling $6.5 million in FY2006/07. Based on the agreement, the City and
School District are to begin meeting in January to discuss possible changes to
the contribution. Although potential increases or decreases to the contribution
are not known at this time, the forecast uses a fiscally conservative planning
approach and includes the maximum increase of $1.0 million beginning in
FY2007/08. Should a lesser amount be determined, there would be a gain to the
General Fund.
• Capital Improvement expenditures are primarily flat for ongoing expenditures with
variations for known internal service fund contributions such as vehicle and
computer replacements. Contributions for one-time projects are held flat at $3.0
million per year.
• Balance Sheet Transfers assume General Fund loans to subsidize other funds
such as the Civic Auditorium, Cemetery and Beach. Transfers to the Pier fund to
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support operations are included in the Non-Departmental supply and expenses
line item budget.
• Additional FY2006/07 anticipated Mid-Year increases have been added for on-
going costs at $2.1 million per year.
• Enhancements included in the five-year forecast reflect the operating costs of
415 PCH reflected in the Beach Fund subsidy, an increase in operating costs to
initially implement the City reorganization and funds to operate the temporary
structure designed to house Planning and Community Development and the
City's Permit Center.
The resulting expenditure projections show baseline (4.5% labor increases) budgets
increasing from $249.9 million in FY2006/07 to $291.4 million in FY2011/12.
Baseline Expenditure Growth
Revised
Budqet FY07/08 FY08/09 FY09/10 FY10/11 FY11/12
Labor 149.8 158.1 167.7 178.2 189.1 200.9
Supplies & Expense 63.6 62.7 64.2 65.8 67.4 69.4
Capital 27.8 17.8 16.3 18.0 18.0 18.0
Balance Sheet
Transfers 8_7 1_5 1_8 0_8 2_6 3_1
249.9 240.1 250.0 262.8 277.1 291.4
Percentage Growth (3.9%) 4.1 % 5.1 % 5.4% 5.2%
FY2006/07 Revised Budget reflects $13 m. in one-time capital project funding and a one-
time set-aside of $8.2 m. for future revenue losses in UUT revenue.
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General Fund Baseline Expenditures
^ Labor
^ Supplies & Expense
^ Capital
^ Balance Sheet Transfers
The alternative scenario (CPI +0.5% labor increase) slows the expenditure increases
with FY2011/12 dropping to $283.1 million.
Alternative Expenditure Growth
Revised
Budqet FY07/08 FY08/09 FY09/10 FY10/11 FY11/12
Labor 149.8 157.1 165.1 174.2 183.2 192.5
Supplies & Expense 63.6 62.7 64.2 65.8 67.4 69.4
Capital 27.8 17.8 16.3 18.0 18.0 18.0
Balance Sheet
Transfers 8_7 1_5 1_8 0_8 2_6 3_1
249.9 239.1 247.4 258.8 271.2 283.0
Percentage Growth
(4.3%) 3.5% 4.6% 4.8% 4.4%
FY2006107 Revised Budget reflects $13 m. in one-time capital project funding and a
onetime set-aside of $8.2 m. for future revenue losses in UUT revenue.
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It is important to note that these scenarios exclude the following challenges to
expenditures:
Challenges
• Deferred maintenance and basic infrastructure replacement needs must be
addressed in the near future to meet health, safety and accessibility needs as
well as provide the most efficient pubic service
• Additional ongoing funding to the SMMUSD per the Facility Joint Use Agreement,
beyond what is stated above, have not been considered. The Agreement allows
for another potential $1.0 million increase to the augmented base amount in
FY2009/10.
• Greater subsidies to other funds could potentially be needed if rate increases are
not implemented (Solid Waste, Water, Wastewater, Big Blue Bus) or if
infrastructure needs become more pressing (Airport, Pier, Civic, Cemetery) or if
program operating needs exceed available revenues (Cemetery, Civic, Beach).
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• New facility costs often exceed anticipated costs. Additional budgets were
needed to cover expenses in the Public Safety Facility, Main Library, Virginia
Avenue Park, Swim Center. New projects such as 415 PCH, Airport Park, Euclid
Park, PCD/Permit Center could all require some additional resources as yet
unidentified.
• Legal and liability risks are budgeted based on known variables. Extraordinary
events cannot be quantified financiafly and must be addressed at the time that
risks become known.
Opportunities
• General Fund subsidies to other funds could be reduced if those funds (such as
the Beach, Pier, Cemetery) generate more revenue than projected.
• To the degree that non-General Fund financing for projects can be leveraged
from grants or bonding, General Fund revenues can be freed up or projects can
be accomplished in a more timely manner.
BUDGET GAPS
Overlaying the revenue projections plus available balance sheet resources and the
expenditure projections, the City's financial forecast shows a structural deficit in either
scenario. The baseline scenario (4.5% labor increase) shows a General Fund deficit
beginning in FY2009/10 of $4.7 million. lf no expenditure adjustments are made and
revenues remain at projected levels, the deficit grows to $19.1 million by the last
forecast year, FY2011/12. This scenario assumes that the one-time set-aside for UUT
($8.2 million) will be disbursed over severaf year to reduce the impact of the UUT
revenue loss which begins in FY2007/08. The most significant effect is not felt until
FY2009/10, the beginning of the imbalance between revenues and expenditures.
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~ GENERAL FUND
BASELINE FORECAST
300
0
.
290. 0
N ZHO.O
_ ,.~~
_
~
270.0 ~~
~w ~
= ~ ~~~~-.,: ~'
~ 260.0 ..r$ ^ Revenues & Resources
__
'
250
0
.
~r '
^ Expenditures & Uses
L . ,
~~
`~ 240. 0
o ~
~ 230.0
220. 0
210.0
FY FY FY FY FY FY
06/07 07/08 08/09 09/ 10 10/ 11 11 / 12
Fiscal Year
The alternative scenario (CPI +0.5% labor increases) slows the structural deficit to
FY2010/11 ($5.5 million) with the last projection year showing a$10.6 million deficit.
This scenario for FY2008J09 through FY2010/11 also uses the $8.2 milfion set-aside for
UUT revenue loss.
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GENERALFUND
ALTERNATIVE EXPENDITURE FORECAST
(CPI plus 0.5% Labor Increase)
290.0 _ ._ ,, ~
,.
280.0
~
a
270.0
s
~ 260. 0
^ Revenues & Resources
c 250.0
^ Expenditures & Uses
~ 240.0 `
~a
0 230. 0
~
220.0
210.0
FY FY FY FY FY FY
06/07 07/08 08/09 09/ 10 10/ 11 11 / 12
Fiscal Year
Other Funds
Other funds that are reviewed during the Five Year Forecast fall into three categories:
1) Enterprise funds that are operated to generate sufficient revenues to sustain
necessary operating and capital needs, 2) Enterprise funds that require General Fund
subsidies in order to meet their operating and capital needs and 3) Special Revenue
Funds.
• Non-Subsidized Enterprise Funds
o Airport (33) / Special Aviation (52)
o Big Blue Bus (41)
o Solid Waste (27)
o Wastewater (31)
o Water (25)
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• Subsidized Enterprise Funds
o Cemetery (37)
o Civic Auditorium (32)
o Pier (30)
• Special Revenue Funds
o Beach (11)
For these funds, only one expenditure scenario is developed which is the baseline
forecast where labor costs are increased at 4.5% per year. In general, fee and utility
rate revenues are assumed to increase at CPI. Where funds show a structural deficit,
higher fee and rate increases are proposed as alternatives. Staff will be addressing
Solid Waste, Water and Wastewater rates with City Council this coming Spring. In
summary, the funds status is:
Airport - During the five year forecast period the fund maintains a positive fund
ba{ance; however, only minimal capital expenditures are assumed and no payments
to the General Fund are assumed on loans totaling $9.2 million until 2015 when
rental rates can be adjusted to market rate. The last loan to the Airport was in
FY2004I05 for capital expenditures totaling $2.4 million.
Big Blue Bus - Under revenue assumptions identified below, the fund has sufficient
revenues to cover anticipated expenditures through FY2009/10. Annual ongoing
revenues however, are not sufficient to cover annual operating expenses. The fund
is using prior year funding allocations to cover ongoing operating expenses. It will
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have a total revenue to expenditure gap of $0.5 million in FY2010/11, growing to
$4.9 million in FY2011/12.
Operating revenues increased in FY2006/07 including additional reimbursement for
the regional EZ pass ($109,000) and higher lease/rental revenue ($1.4 million in
FY2006J07 and $717,500 ongoing). Additional one-time subsidy revenues were
received in FY2006/07 from the MTA including $1.0 million for higher fuel costs and
$3.6 million in one-time State Transit Assistance funds. FY2008/09 reflects
additional $1.2 million in ongoing STA revenue from Proposition 42. The forecast
also assumes a two-phase fare increase generating an additional $1.0 million per
year in FY2007/08 and $3.2 million in FY2008/09 by implementing a Day Pass
program and updating discounted fare programs.
Solid Waste Fund - For FY2006/07, City Council approved a Solid Waste rate
increase of 2% above CPI (7%) which provided a positive fund balance and the
establishment of a modest operating reserve in FY2006/07. Without a rate increase
above CPI, in FY2007/08 reserve funds are necessary to cover operation costs.
In addition, the City is seeking proposals on cotlection of commercial waste in the
City and for the future operation of the transfer facility and disposal services. Until
additional information is available, the forecast assumes maintenance of existing
operations and does not consider how those changes will affect the fund balance.
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The cumulative revenue shortfall each year while maintaining a$0.5 million
operating reserve for emergencies is as follows (in millions):
FY 08/09 FY 09/10 FY 10/11 FY 11 /12
(0.4) (1.5) (3.1) (5.1)
The balances reflect an accumulated growth amount assuming that no corrective
actions are taken to increase rates above CPI. If no emergency reserves are
maintained the Solid Waste Fund will forestall a negative position in FY2009/10:
FY 09/10 FY 10/11 FY 11/12
(1.5) (3.1) (5.1)
A rate increase of 2% above CPI maintains a positive fund balance throughout the
five year forecast period, maintaining the $0.5 million emergency reserve. A rate
increase above CPI of 2% in FY2007/08 and 4% in future years would allow for
additional reserves to be established in the amount of $4.2 million, as recommended
by the Solid Waste consultant.
Water Fund - In FY2006/07 the Water Fund is undertaking a consultant study to
review Water rates and make recommendations regarding rate adjustments and
structure. In addition, a Water Infrastructure study is recommended for FY2007/08
to assess infrastructure needs and propose financing options to meet those needs.
Staff had previously predicted the Water Fund going into a negative position in
FY2007/08; however, due to higher than anticipated CPI rates, fee adjustments
21
based on the revised city-wide fee study and a reduction in administrative costs of
MTBE litigation, the fund does not require a rate increase in FY2007/08 to maintain
a positive fund balance. However, as with the Solid Waste Fund, operating costs
are outpacing revenues.
Applying Baseline assumptions, the Five-Year Financial Forecast for the Water Fund
shows that the fund will go into a negative position in FY2008/09. The cumulative
revenue shortfall each year while maintaining the established operating, capital and
rate stabilization reserves is (in millions) as follows using CPI only rate increases:
FY 08/09 FY 09/10 FY 10/11 FY 11/12
(3.2) (7.3) (12.0) (17.3)
The balances reflect an accumulated growth amount assuming that no corrective
actions are taken to increase rates above CPI. The forecast assumes full retention of
existing operating reserves (10% of operating budget) capital reserves ($1.275 m)
and rate stabilization reserves ($1.0 m) throughout the forecast period. If no
emergency reserves are maintained the Water Fund will go into a negative position
in FY2009/10:
FY 09/10 FY 10/11 FY 11 /12
(3.6) (8.2) (13.4)
Pending the rate study, a couple of rate increase scenarios have been developed by
staff and show that with a 15% rate increase in FY2007/08 and FY2008/09
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(FY07/08 - 11.8% above CPI, FY08/09 - 12.5% above CPI) plus a 10% increase in
FY2009/10 and FY2010/11 (FY09/10 - 7.2% above CPI, FY10/11 - 7.4% above
CPI) and a CPI increase in the last year, the fund maintains a positive fund balance
and would not need to dip into reserves.
Alternatively, with a 5% increase above CPI in FY2007/08 (8.2%) and FY2008/09
(12.5%) and a 10 % increase above CPI in FY2009/10 (12.8%), FY2010/11 (12.6%)
and FY2011/12 (7.4%), the fund would dip into rate stabilization reserves but restore
them by the end of the fifth year. However, neither rate scenarios adjust rates to
promote additional water conservation.
Wastewater Funds - In FY2006/07 the Wastewater Fund is undertaking a
consultant study to review of rates and wilf propose recommended rate adjustments.
Staff had previously predicted the Wastewater Fund going into a negative position in
FY2007/08; however, due to higher than anticipated CPI rates, fee adjustments
based on the revised city-wide fee study and a one-time capital payment adjustment
which reduced Hyperion costs, the fund does not require a rate increase in
FY2007/08 to maintain a positive fund balance. However, as with the Solid Waste
Fund and the Water Fund, operating costs continue to outpace revenues.
Applying Baseline assumptions, the Five-Year Financial Forecast for the
Wastewater Fund, the fund will go into a negative position in FY2008/09. The
23
cumulative revenue shortfall each year while maintaining the established operating,
capital and rate stabilization reserves (in millions) is as follows (in millions):
FY 08/09 FY 09/10 FY 10/11 FY 11 /12
(1.9) (4.9) (8.1) (11.2)
The balances reflect an accumulated growth amount assuming that no corrective
actions are taken to increase rates above CPI. The forecast assumes full retention
of the operating reserves (10% of operating budget) capital reserves ($2.1 m) and
rate stabilization reserves ($2.0 m) throughout the five year period. If no emergency
reserves are maintained the Wastewater Fund's negative position will move to
FY10/11.
FY 10/11 FY 11/12
(2.5) (5.6)
Pending the rate study, a couple of rate increase scenarios have been developed by
staff and show that a 10% rate increase in FY2007/08 (6.8% above CPI), 15%
increase in FY2008/09 (12.5% above CPI), 5% increases in FY2009/10 and
FY2010/11 (FY09/10 - 2.2% above CPI, FY10/11 - 2.4% above CPI) and a CPI
increase (2.4%) in FY2011/12, the fund maintains a positive fund balance without
dipping into reserves. Alternatively a 6% increase above CPI in FY2007/08 (9.2%),
FY2008/09 (8.5%) and FY2009I10 (8.8%) plus a 5% increase above CPI last two
years, FY2010/11 (7.6%) and FY2011/12 (7.4%) the fund would dip into rate
stabilization reserves but restore them by the end of the fifth year.
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Cemetery - Applying Baseline assumptions, the Five-Year Financial Forecast for the
Cemetery Fund shows that a continuing subsidy is required from the General Fund
as follows (in millions):
FY 07J08 FY 08/09 FY 09/10 FY 10/11 FY11/12
(0.3) (0.5) (0.5) (0.5) (0.6)
Revenues are projected to remain steady over the five year forecast period, while
operating expenditures will increase at an average of 4 to 5°lo annually. An
inventory of available burial plots is currently underway and upon completion of the
inventory, an operation study will commence. This update should provide staff with
possible revenue growth/expansion options and should provide direction as to the
future.
Civic Auditorium - Applying Basefine assumptions, the Five-Year Financial
Forecast for the Civic Auditorium Fund, shows projected revenues insufficient to
meet basic operating and capital needs throughout the five year forecasting period.
The shortfall is as follows (in millions):
FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11 /12
(0.2) (1.3) (1.0) (1.1) (1.2)
Revenue is anticipated to decrease in FY 2007/08 by approximately $40,000 from a
loss of interest earnings due to declining fund balance. Subsidies from the General
Fund will be required beginning in FY2007/08. Fund projections do not reflect
25
potential impacts of the Civic Center parking structure scheduled to open in January
2007 which could reduce revenues generated from the Civic Center surFace parking
lot if patrons opt to park in the new parking structure whose revenues go to the
General Fund. In addition, no infrastructure improvements are proposed for the
facility.
Pier - Applying Baseline assumptions, the Five-Year Financial Forecast for the Pier
Fund shows that a continuing subsidy is required from the General Fund as follows
(in millions):
FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12
($1.4) ($1.4) $1.5) ($1.7) ($1.9)
General Fund subsidy for the forecast period of FY07/08 to FY11/12 is based on
revenue growth per lease agreements and expenditures growth of 4% to 5% for the
period. Pier revenues include Pier Vendor rentals, Parking lot operations, Carousel
operations and other miscellaneous revenue categories. The forecast only projects
basic CIP expenditures (basic fleet, computer and telecommunication expenditures).
Beach - The largest cost increase to the Beach Fund will be the addition of
programming at 415 PCH. Although still not finalized, the Five Year Forecast
assumes a program that when added to other Beach Fund expenditure needs will
require the following subsidies from the General Fund (in millions):
26
FY 09/10 FY 10/11 FY11/12
($0.3) ($1.$) ($2.1)
If additional parking revenues can be generated, the General Fund subsidy could be
lowered by approximately $100,000.
Each of these funds will be updated and further addressed during the development,
presentations and discussions on the FY2007/08 budget.
Communitv Priorities
Update on FY2006/07 Community Priorities Work Plan
Exhibit A is a status report on work efforts associated with the Community Priorities
adopted by Council with the FY2006/07 budget. The Community Priorities include:
• Address the impacts of homelessness on the community;
• Enhance the quality of life, safety and community involvement of residents
of the Pico neighborhood;
• Ensure that the public received timely and responsive service from all
departments and that the City's regulatory processes are fairly, efficiently
and courteously administered with a high degree of predictability for
customers moving through the process;
• Incorporate ways to achieve the goals of the Sustainable City Plan into
daily activities and special projects; and
27
• Capitalize on Santa Monica's climate and community amenities to
promote "Active Living.
Community Outreach
As part of developing plans for next fiscal year's budget, City staff has been engaging
the community in a variety of dialogs to solicit input in areas of specific program interest
such as the Community Development Program and Cultural Arts along with general City
programs benefiting neighbarhoods.
Community and Cultural Services Department (CCS) has initiated outreach in three
areas for their Community Development Program. Information gathered through these
efforts will provide a framework for developing department's budgets, as well as the
proposed Community Development Program funding rationale for FY 2007/10, which
wi11 be presented to City Council on January 23, 2007.
Community Voices 2006
Community Voices is the process City staff undertakes to engage community
members in identifying emerging and critical human service needs and funding
priorities. In the summer of 2006, staff initiated Community Voices 2006, a
community assessment update that reviewed existing data and identified new
needs and trends. Community Voices 2006 also took a special look at the
interests, needs and priorities of Santa Monica's baby boomers and seniors, of
which less is currently known and will also serve to inform a concurrent senior
services evaluation that is underway. Since there have been several recent
efforts to gather input from youth, Community Voices 2006 did not duplicate
these efforts.
Evaluation of City-Funded School-Based Mental Health and Support
Services
A major funding area of the CD Program includes programs supporting children,
youth and families, including funding of school-based mental health and support
28
services in the Santa Monica-Malibu Unified School District (SMMUSD). The CD
Program supports eight programs in six non-profit agencies that provide
counseling, parent support, case management, crisis intervention, peer conflict
medication and tutoring services. On June 28, 2005 City Council awarded a
contract to WestEd to conduct an evaluation of City-funded school-based mental
health and support services.
Evaluation of Sanfa Monica's Homeless Service Delivery System
The Urban Institute has been authorized to conduct a system-wide evaluation of
Santa Monica's homeless continuum of care to produce a description of the
current homeless service delivery system and recommendations for a refined
version of service delivery and action steps over the next five years. The City
Council will receive the report and provide policy guidance to staff based on the
results of the study session held on January 9, 2007.
CCS is also involved in gathering community consensus on the direction of arts
activities in the community for its cultural arts plan:
Creative Capital: Culture, Community, Vision
Over the past year, as part of the development of the forthcoming cultural plan,
the community has engaged in an extensive dialogue regarding the future of the
arts and culture in Santa Monica. Several commissioned studies also provided a
detailed portrait of Santa Monica's creative sector. Combined, these sources
yielded new information, such as the fact that 43 percent of residents make all or
part of their living in the creative sector, and that sector is responsible for
approximately 9 percent of the jobs in Santa Monica. These changing
demographics and the importance of the creative sector highlight the need for the
plan and for the resources necessary to implement it over the next ten years.
Through the process the community identified a number of cultural priorities and
needs, in two broad categories: increasing participation and access to the arts
and sustaining the cultural life of the community. Key issues in each of those
categories include:
Increasing cultural participation
• Building awareness through a comprehensive community-wide cultural
marketing program
• Providing more cultural opportunities in public venues such as parks,
the libraries, or senior centers
• Producing more festivals and cultural events, such as art walks.
29
Enhancing sustainability
• Increasing the number of cultural facilities, from studio and exhibition
space to performing venues
• Expanding funding and other support programs for the arts and culture
During the month of December neighborhood meetings where held by the City
Manager's Office throughout Santa Monica to receive comments from the community
regarding their priorities for City programs and services. Comments received at the
meetings through discussion and on comment cards, through e-mail to the budget e-
mail address (budqetCa~smaov.net) or City Manager's e-mail box, can be categorized into
the following major areas:
Mobility
Mobility issues continue to be of major concern among residents. Residents
expressed frustration with traffic and described the difficulty of getting around and
through the City. While acknowledging that longer-term solutions are in the
works, residents expressed a need for more immediate actions. Some asked for
new traffic studies of their neighborhood areas to determine better or new traffic
calming measures, signal synchronization projects and traffic methodology.
Some noted that key north-south and east-west corridors need to be expanded to
encourage people to ride public transit. Given that much traffic is caused by
workers or visitors trying to exit/enter and City from Los Angeles, suggestions
called for improved coordination with the City of Los Angeles as a method to
improve traffic in Santa Monica.
Regarding parking, residents agreed that a balance approach is needed; one that
gives residents and visitors equal consideration. Some suggested that building
additional parking structures is in conflict with sustainabi{ity goals and that
development of downtown structures should be curtailed or re-evaluated; other
recommended that no new structures be developed above ground - that they
should be confined to subterranean structures; many agreed on the need to
encourage use of alternative transportation.
Several individuals had suggestions regarding bicycle and pedestrian safety.
Some requests were to maintain the width of bicycfe lanes and identify additional
bicycle safety precautions especially on major streets and boulevards. Many
suggested that the City improve crosswalks to increase pedestrian visibility,
increase the use of pedestrian activated crosswalk systems, and increase length
of time provided for pedestrian to clear crosswalk before signal changes.
30
Pedestrian safety improvements for Ocean Park Boulevard were noted by
residents in that area.
Public Safety
Another consistent message was the concern for public safety. Residents
requested improved communication befinreen the Police Department and
residents; better reporting of City crime statistics; increased police presence in
their neighborhoods; and reduced presence of homeless or others in alleys ad
parks where residents feel vulnerable
Street Lighting, Graffiti Removal and Street Aesthetics
Some residents expressed concern that their neighborhoods are too dark at night
and need additional neighborhood lights. A few residents recommended that
utility lines should be placed underground and recommended formation of
assessment districts to identify and fund those projects or identify the most
opportune time to move forward on these projects based on other infrastructure
improvements. Many expressed gratitude and appreciation for the City's quick
and thorough graffiti removal program.
Education
Some residents expressed thanks for the City's assistance to the SMSMUD and
urged continued and additional financial support. Some residents suggested
continued and improved partnerships and collaboration with Santa Monica
Malibu School District, Santa Monica College and the City.
Fluoridation of Drinking Water
A few residents recommended that the City needs to re-assess the decision to
fluoridate the drinking water.
More detailed summaries by meeting are included in Exhibit B. In addition, public
comments will be received tonight.
Budqet/Financial I mqact
There is no immediate budget impact as a result of receiving the information provided
tonight. Direction provided by City Council based on information in this staff report and
31
public input received during the Council meetings will assist in determining the direction
to be taken in deciding budget recommendations for FY2006-07.
Prepared by:
Janet Shelton, Budget Manager
Approved:
Forwarded to Council:
~ndace Tysdal
Acting Director, Finance
~./Lafnont Ewe
a~/Manager
ATTACHMENTS
Exhibit A: FY2006/07 - Community Priorities Update
Exhibit B: Community Comments December 2006
32
~~ Supplemental
~ ~~tY °f ~ Cit Council Report
Santa Monica y
City Council Meeting: February 6, 2007
Agenda Item: ~
To: Mayor and City Council ~~ u~lc~w~Y~-~ ~~Y-~-~~-
From: Carol Swindell, Director of Finance
Subject: Complete Listing of Community Priorities Received to Date
Attached is a listing of all community priorities received by the City as of January 30,
2007, including input from boards and commissions, email communication, letters and
feedback from community meetings held in December, 2006.
Prepared by:
Janet Shelton, Budget Manager
Attachment
Approved:
Forwarded to Council:
~
Carol Swindefl
Director, Finance Department
Cy~y I~(anager
1
ac men s
. .
ava ~ a e o r rev ~ ew
. . ,
in i er s
~ce.