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sr-052611-4a Two Year Budget Proposal • Maintains core municipal services and enhances emergency preparedness • Addresses emerging community needs • Avoids any new tax proposal, layoffs and furloughs • Maintains city staffing levels and competitive compensation • Supports critical infrastructure needs • Provides direction and resources for civic advancement • Promotes sustainability, livability, education, human capital, economic development, mobility and fiscal stability 1 m __ Economic Outlook -National • Economic recovery uncertain and fragile • GDP increasing moderately - 3% annually through 2012 Dangers persist • World economy • Domestic unemployment • Real estate (commercial and residential) • Inflation 2 Economic Outlook -California • California unemployment rate 11.9% • Second highest in nation • Predicted to remain high at least into 2013 • Statewide taxable sales and personal income will experience modest increases projected through mid-2013 • Housing market improving in many areas, but foreclosures still an issue • Commercial real estate improving • State/local government budget challenges 3 Economic Outlook -Santa Monica • Local economy showing signs of improvement • Number of property sales increasing and decreases in residential property values appear to have bottomed out • Sales tax increases due to improvements in local economy and reopening of Santa Monica Place • New transaction & use tax revenues from voter approved Measures Y and YY • Tourism showing signs of recovery • General Fund revenue growth: 2.5% to 3.5% annually tia 4 Deficit Reduction Strategies Multi-year, multi-pronged strategy to address projected structural deficits in the General Fund while maintaining services, staffing, and infrastructure in Santa Monica: • Reductions in operating expenditures without jeopardizing core services • Business process and efficiency improvements, including the use of technology to reduce costs Negotiate changes in employee compensation and/or cost sharing to ensure costs are sustainable over long run Deficit Reduction Strategies Greater cost recovery through updated fees and charges foe individual. benefit services • Prudent use of an economic uncertainty reserve (not drawn down as of yet) • A transactions and use tax approved by the voters in November 2010 (Measures Y and YY) to be evenly divided with the school district to stabilize schools and maintain city services _~- Impact of Deficit Reduction Strategies Revised Five-Year Ferr_rast E e a fl Impact of Deficit Reduction Strategies Changes In Forecast Based on Corrective Action 6 FY1U/t1 FY1tN2 FYt2/13 FY13t74 FY7df15 FY75t76 ~ Ongoing Sources ~ Uses Budget Challenges Remain • Uncertainties in economic recovery • Long-term revenue vs. expenditure growth rates • Ongoing operating costs • Increasing subsidies to enterprise funds • Increasing CaIPERS rates & health insurance rates • Economic impacts of state budget cuts • Uncertainties with redevelopment funding ~ Budget Challenges Remain Growth in Health Insurance & CaIPERS Costs (General Fund FY2011-12 FY2012-13 FY2013-14 FY2014-15 FY2015-16 Health Benefits -4.0% 11.0% 12.0% 12.0% 12.0% CaIPERS 18.8% 5.7% 13.3% 5.2% S.0% Revenue 5.8% 2.4% 3.4% 3.2% 3.3% Growth 9 7 se5 Sao a3s E $~ $25 $20 $15 $10 FY 201142 FY 2012-13 FY 2013-t9 FY 2010.15 FY 2016-16 a Health Insurance aPERS ~ Budget Challenges Remain Benefits As Percent of Sa/arias -Miscellaneous Employees 49.0 % 50.0% as.o% ~, 7 ) 43.0% 44.3% 47.9% ao.o% 3s.a% 30.0% 25.UY. I 2a.a% 15.0% 1o.a% s.o% er zonnz 6v zotvts 6r zo13na rr zotuss 6v zouao s PERS :Medical Other ~ Budget Challenges Remain Health Insurance and CALPERS Rate -Annual Total Costs (General Fund) Budget Challenges Remain Benefits As Percent of Salaries -Fire 0% 65.0% 64 ss.a~ . 62.9% . 66.0% 57.5% ss.ox ss.ox as.o% zs.ox ts.ox s.ox _..... . _....... rv zotvu er zotvta tvzatana er mtars rrzotsns a PERS 'Medical =Other ~? Budget Challenges Remain Benefits As Percent of Salaries -Police 9 10 FY 2011-13 Proposed Biennial Budget Year 1: $647.1 Million; Year 2: $624.2 Million [ernal Service Funds 3% other Funds 4% 11 Citywide Expenditures by Fund FY 2011-13 Proposed Biennial Budget Year 1: $275.6 Million; Year 2: $288.6 Million ~. FY 2011-13 Proposed Biennial Budget Year 1: $275.6 Million; Year 2: $288.6 Million ier 12 General Fund F_xoenditures by Tvge General Fund E~enditures by CatepoN 0 Significant Budget Issues • Return on Investments recommendations for resource allocations that will result in ongoing revenue increases or savings • Changes to rectify historical under-budgeting and address other high priority needs • Create Office of Emergency Management g 13 Significant Budget Issues • Recommended One-time Uses of Funds • Pay down PERS liability - $10 million; will save $800,000 annually • Expo light rail betterments & traffic circulation - $5.0 million • Bicycle Action Plan - $2.5 million Increase economic uncertainty designation - $1.5 million Economic Uncertainty Designation • No use required for FY2010-11 through FY 2012-13; balance remains at $8.2 million • $2.0 million shortfall in FY 2012-13 covered by carried forward surplus • Staff recommends increasing this designation by $1.5 million, to $g.7 million. With the 10% Emergency Reserve, General Fund will have 14% total reserve for emergencies/uncertainties 14 Significant Budget Issues • Additional support for Education -Measures Y and YY • Council action requested on May 26 to approve giving one half of proceeds to School District • Estimate is $5.7 M for FY 2011-12, bringing total general fund support for SMMUSD to $13.7 million • Labor Negotiations -currently underway with all bargaining units • Subsidies to Enterprise Funds - $3.6 to $9.6 million during forecast period o General Fund Subsidized Funds 15 • Beach Fund projected to require subsidy in FY2013-14 Long-Term Strategies • Return on investment proposals and increased efficiencies • Employee negotiations to ensure long-term sustainability of compensation plans • Reduce or eliminate enterprise subsidies • Expenditure control budgeting -departments can carry over 1/3 of annual savings, which creates incentive for creativity and efficiencies • Adjust fees periodically to ensure appropriate cost recovery ffi 16 Budget Process Improvements • Culmination of work by interdepartmental teams • Improvements to both the process and document • Implement a biennial budget • Streamline document -size pared by half • Improvements to City's management system • Focuses on a succinct number of core services with greatest community impact Budget Process Improvements • Creates opportunities for operational efficiencies • Focuses on maintaining current levels of service and making strategic investments with limited resources 17 ~a Emerging Issues • Fiscal/Economic Stability • Mobility/Connectivity • Public Safety and Violence Prevention • Livable Neighborhoods • Children, Youth and Family Services • Pedestrian Enhancements • Water Self Sufficiency • Expo Light Rail integration ~ Budget Milestones • May 24 -May 26, 2011 ~r -FY 2011-2013 Biennial Budget Study Sessions • May 26, 2011 -Grant Funding Recommendations - Human Services Grants Program and the Organizational Support Program • June 21 , 2011 -BudgetAdoption • July 1, 2011 -Fiscal Year 2011-12 Begins • August 2011 -Adopted Budget Document is Released 19 Conclusion The FY 2011-12 & 2012-13 Proposed Biennial Budget • Retains core services; new programs provide a return on funds invested • Responds to emerging community needs including creation of new Office of Emergency Management • Improves fiscal stability without need for new tax proposals, budget reductions, layoffs, or furloughs e> Conclusion • Provides funding for critical infrastructure and affordable housing needs Focuses work initiatives on achieving goals and objectives measured by service benchmarks Captures needs and expectations of residents and businesses using a fiscally responsible approach ~a ~. 20