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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 1 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. 2 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. 3 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. 4 • 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 5 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: 6 • 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. 7 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". 8 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. 9 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% 10 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. 11 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 12 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. 13 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. 14 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). 15 • 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 ($8.2 million) will be disbursed over severaf year to reduce the impact of the UUT revenue loss which begins in FY2007/08. The most significant effect is not felt until FY2009/10, the beginning of the imbalance between revenues and expenditures. 16 ~ GENERAL FUND BASELINE FORECAST 300 0 . 290. 0 N ZHO.O _ ,.~~ _ ~ 270.0 ~~ ~w ~ = ~ ~~~~-.,: ~' ~ 260.0 ..r$ ^ 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. 17 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) 18 • 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 19 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. 20 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 22 (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. 24 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.