sr-052212-8bCity of City Council Report
Santa Monica°
City Council Meeting: May 22, 2012
Agenda Item: 2 L3
To: Mayor and City Council
From: Rod Gould, City Manager
Subject: Master Facilities Use Agreement and Related Supplemental Agreements
with the Santa Monica - Malibu Unified School District
Recommended Action
Staff recommends that the City Council:
1. Review and approve the recommendations of the Adjustment Conference
Committee;
2. Authorize the City Manager to negotiate and execute a Master Facilities Use
Agreement and related supplemental agreements with the Santa Monica - Malibu
Unified School District for an initial term of ten years (ending June 30, 2022).
Executive Summary
The current five year Master Facilities Use Agreement calls for an annual adjustment
conference in January 2012 to assess the state of the community use of District
facilities, the fiscal status of the City and the School District, and whether to recommend
that the Agreement and related supplemental agreements be extended for an additional
two year period through June 2014. Officials and staff of the City and School District
met over the last five months to review each entity's fiscal conditions and budgetary
challenges, including the challenges facing each as a result of the economic downturn,
State budget reductions, and the dissolution of redevelopment agencies in California. In
an effort to provide more financial certainty to the School District over a longer
timeframe and to provide the City and community with access to playfields, recreational
facilities, and buildings including the expansion of hours at Lincoln Middle School field to
include evenings upon the addition of field lights and synthetic turf and programming of
the Lincoln Middle School swimming pool for community use. The Committee
recommends:
• Entering into a new Master Facilities Use Agreement and related supplemental
agreements for an initial term of 10 years through June 30, 2022, an option to
extend for an additional five years, an annual FY 20012 -13 payment of
$8,120,245 and adjusting that amount by CPI with a minimum adjustment of 2%
and a maximum adjustment of 4 %, per the terms of the Agreement.
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• Providing three years' advance notice of nonrenewal prior to expiration of the
term in which the City or School District determines that it cannot responsibly
and prudently renew the Agreement.
• Convening an adjustment conference each January during the term of the
Agreement to discuss any additional adjustments in payment upward or
downward by a maximum of $1,000,000 or holding the annual payment
constant. Adjustments would be based on the value to the City of use of the
District's facilities and the City's ability to provide the School District with
additional compensation for the use of District properties.
• That the City and School District continue to utilize a methodology in reviewing
the growth of the City's "Big 8" revenues that looks backwards over the past two
fiscal years but also looks forward to the City's projected revenues and
expenditures to allow for the consideration of the City's fiscal status, including
projected revenues and expenditures.
• That the School District includes and clearly acknowledges annual payments
made by the City in its annual budget as a separate income line item.
• That the School District continues to maintain the Special Education District
Advisory Committee ( SEDAC) or similar public committee. SEDAC or its
equivalent shall review the District's special education policies and programs,
make recommendations, and report to the Board of Education. The Board of
Education shall hold a minimum of two semi - annual Board meetings on special
education policies and programs. Changes to policies and programs shall be
considered for approval by the Board at a Board meeting.
The current annual payment to the School District is $7,953,227. Approval of staff's
recommendations would adjust the annual amount by CPI (2.1 %) for a total payment of
$8,120,245 in FY 2012 -13. Future adjustment conferences would be convened to
discuss any additional adjustments in payment based on the City's ability to provide the
District with additional compensation for use of District facilities. The new amount is
reflected in the FY 2012 -13 Proposed Budget changes. Council would formally
appropriate funds with the FY 2012 -13 budget adoption on June 12, 2012.
Background
The City and the School District share mutual goals in assisting youth to become
productive members of society and support each other's efforts in that regard. Many of
the City's projects and programs for children, youth and their families, and certain
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activities provided by Santa Monica youth - serving non - profit organizations, take place at
public parks, playgrounds, play fields, and other City -owned recreational facilities.
However, the City's playgrounds, play fields, and recreational facilities are limited in size
and are not sufficient to accommodate all of the current recreational needs of the
community's children and youth and their families. Opportunities to create new parks
and recreational facilities are limited because the City's total land area is small and the
City is fully built -out. Additionally, land values are very high within the City and are
rising.
The School District owns and operates school sites within the City which include
playgrounds, play fields, recreational facilities, and buildings which are under - utilized
during non - school hours. The purpose of the Master Facilities Use Agreement is to
allow the City and the community to utilize those District recreational facilities to meet
the growing demand for space that existing City facilities cannot support.
Council approved a five -year Master Facilities Use Agreement and related supplemental
agreements on April 12, 2005. The Agreement provides unrestricted revenue to the
School District in return for use of District facilities. The School District has utilized City
funds to support the District's goal to promote educational excellence and extraordinary
achievement for all students while simultaneously closing the achievement gap.
The Agreement has two renewal options that extend the agreement to June 30, 2014.
On April 7, 2009, Council approved exercising the first renewal option by amending and
extending the Agreement by three years through June 2012. Under the amended
Agreement, both parties are required to prepare annual reports on the status of the
Agreement. Additionally, the School District must maintain the Special Education
District Advisory Committee (SEDAC) or similar public committee to review the School
District's special education policies and program, make recommendations, and report to
the Board of Education. The Board of Education 'must hold a minimum of two semi-
annual Board meetings on special education policies and programs.
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The City pays the School District an annual base payment of $6.0 million, which has
been adjusted each year per the terms of the Agreement and totaled $7,953,227 in FY
2011 -12. This payment is in addition to the funds contributed by the City for programs
and services it provides at District school sites, which totaled approximately $2.8 million
in FY 2011 -12 and for which the City anticipates receiving $854,742 in fee revenue. In
FY 2011 -12, the City provided approximately $37 million in school -based and
community -based youth programs, and provided the School District with $5.7 million in
revenue generated from the half cent transaction and use tax approved by Santa
Monica voters in November 2010.
The Master Facilities Use Agreement calls for an adjustment conference to be held
each January to discuss additional payment adjustments based on the value that the
use of the District's facilities has to the City, and the City's ability to provide the School
District with additional compensation.
The Adjustment Conference Committee convened its meeting on February 7, 2012.
Adjustment conference participants included Mayor Richard Bloom, Mayor Pro Tempore
Gleam Davis, School Board President Ben Allen, School Board Vice President Laurie
Lieberman, City Manager Rod Gould, School District Superintendent Sandra Lyon,
Assistant City Manager Elaine Polachek, City Finance Director Gigi Decavalles- Hughes,
and School District Finance Director Janece Maez.
Discussion
Fiscal Conditions
As part of its charge, the Committee discussed the budgetary and fiscal conditions of
each organization, including the challenges facing each as a result of the economic
downturn, State budget reductions, and the dissolution of redevelopment agencies.
As of June 21, 2011, taking into consideration the budget as adopted and assumptions
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that reflected a struggling national economy, slight or no growth from several of the
City's major tax sources, the State budget crisis, deep losses in pension fund
investment holdings resulting in increased rates, increasing health insurance rates, and
a continuation of the current compensation structure, the City's five year forecast
indicated that the General Fund would experience a structural deficit in FY 2012 -13.
To prevent a future deficit, during the summer and fall, staff implemented a number of
cost saving measures that would save approximately $10 million over the five year term.
Additionally, several key areas of the local economy grew faster than anticipated,
resulting in an improved financial outlook for the City. Among the indicators is the
transaction and use tax, or Measure Y, which was approved by voters in November
2010 and was anticipated to bring $11.4 million in new revenue to the City, half of which
would be provided to the School District per Measure YY, a non - binding measure solidly
approved by voters. The changes pushed the deficit to FY 2015 -16 and shrank it to
$100,000.
However, various factors are threatening to bring the General Fund deficit ever closer.
Staff continues to exercise maximum levels of caution during this time of extreme
upheaval for redevelopment in Santa Monica and in California. Redevelopment
agencies (RDAs) were dissolved on February 1, 2012, following the California Supreme
Court's December 29, 2011 decision in the case of California Redevelopment
Association et al v. Matosantos et al. The Successor Agency of the Santa Monica
Redevelopment Agency is now tasked with making payments on enforceable
obligations approved by an Oversight Board and the State Department of Finance. At
this time, it is unknown whether all of the Successor Agency's obligations will be
approved by these bodies. Additionally, the State Controller's Office has yet to validate
certain asset transfers that were made to the City from the RDA. Unfavorable
decisions related to these assets and obligations could have a very significant effect on
the City's revenues and assets. Staff will not have a full understanding of the situation
until at least the end of the calendar year. In FY 2011 -12, staff anticipates that the
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General Fund will be required to cover over $1.0 million for staff costs and services
previously funded with redevelopment funds. In FY 2012 -13, the General Fund will no
longer receive $4.6 million in reimbursements from the Successor Agency for thirty staff
and accompanying redevelopment administrative costs.
In March 2012, the CALPERS Board voted to decrease the discount rate of the
CALPERS investment portfolio to better reflect its low rate of return. This will result in a
significant increase in employer contribution rates beginning in FY 2013 -14, which will
ultimately increase costs for General Fund employees by as much as $2.8 million by FY
2014 -15. It is anticipated that PIERS contributions may be subject to additional
increases in FY 2015 -16 as they are further adjusted to reflect that rate of return.
In addition to State - driven changes, changes at the federal level will also negatively
impact the General Fund. In FY 2012 -13, the City will receive $1.23 million less in
CDBG, HOME and Section 8 grant funds, and will be required to absorb administrative
and housing- assistance costs that were previously funded with these grants.
Given current projections, and at current levels of spending, the City estimates a
potential budget shortfall of over $3.6 million in FY 2014 -15 and $4.6 million in FY 2015-
16.
The School District is also facing significant reductions in revenue as a result of State
budget cuts. The School District receives 71% of its revenue from the State and about
5% of its revenue from the federal government. The School District is projecting
operating deficits of $9.7 million to $10.6 million per year over each of the next four
years in the absence of additional revenue and /or expenditure reductions. The
Governor's 2012 -13 budget eliminated approximately $2.2 million in COLA increases
and $800,000 in transportation funding from the School District's revenue limit funding -
a loss of approximately $3 million. The School District has identified a number of
proposals to close their deficit, including expenditure reductions of $3 million in the next
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fiscal year and additional reductions in each of the next three fiscal years. The Board of
Education preliminarily discussed reducing expenditure cuts for FY 2012 -13 based
largely on anticipated increases over budgeted Measure YY revenues and approved
increasing enrollment from permit students. A significant portion of these deficits are
likely to be reduced if the Governor's tax measure, or another equivalent measure
passes in November; however, the School District cannot budget based on the
assumption that this will happen.
Committee Recommendations
The Adjustment Committee recognized that the community's desire for and commitment
to excellent public schools is balanced with its expectations for a wide range of
municipal services and programs as well as a safe and well- maintained City
infrastructure. Accomplishing both goals will be especially challenging given the pace of
the economic recovery, the loss of redevelopment funds, the State's budget crisis, and
the need for both organizations to have revenue certainty.
Term: Under the current Agreement, the School District and the City have the option to
extend the Master Facilities Agreement to 2014, after which it expires. However, a two
year extension does not correspond with the School District's budget reporting
mandates, which require the submittal of three year revenue and expenditure
projections. The School District desires a longer term agreement that would provide
more revenue certainty for forecasting while providing the City and community with
longer -term access to District playfields, recreational facilities, and buildings. In
consideration of a longer term, the School District would allow for expanded use of
Lincoln Middle School's playfield after school hours to include evenings at such time as
synthetic turf and field lights are installed. These improvements are being considered
as add - alternates by the School District as part of the Measure BB project. Additionally,
increased access to the Lincoln swimming pool for City -run lap swimming, swim
lessons, or other aquatic activities would be made available during non - school hours.
The availability of the swimming pool for community use is particularly desirable as the
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City's Swim Center pools are often at capacity for lap swimming and there are typically
waiting lists for swim lessons.
Contingent upon approval of the proposed Agreement, the City and District would enter
into a Lincoln Middle School Supplemental Facilities Use Agreement ( "Supplemental
Use Agreement ") which would set forth details related to time periods for use of the
facilities at Lincoln Middle School. The Supplemental Use Agreement would govern,
among other things, program scheduling, maintenance, staffing, monitoring, permitting,
priorities for use, the setting and charging of applicable permit fees (with fees set at an
amount not to exceed the costs of administering the permits), and all other
administrative and operational aspects of the City's use of the pool and field. Revenues
and expenditures associated with Lincoln Middle School pool and field community use
would be included in future City operating budgets.
The School District proposed the same term as the Santa Monica High School Program
Agreement approved by Council on May 26, 2011 (Staff Report and Supplemental
Report). This agreement provided the School District with 50 percent of the revenue
generated by the half percent transaction and use tax approved by Measure Y and YY
in exchange for City and community use of Santa Monica High School recreation
facilities. This agreement had an initial term of 10 years with additional 10 year term
extensions by mutual agreement. The City's typical agreement term is five years with
several one -year options. Staff was able to recommend a longer term for the High
School Program Agreement as it only committed future revenues and not expenditures
to the School District.
For the Master Facilities Use Agreement, the proposed term length of 10 years with an
option to extend for an additional five years, while longer than most City contracts,
strikes a balance between providing budget certainty for the School District, committing
future Councils to expenditure obligations, and allowing expanded public access to
school recreational facilities and buildings.
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While it is difficult to look forward 10 years, the City regularly plans five years in
advance through financial status updates. The five year projections enable staff to
adjust spending and revenue generation in time to maintain necessary services at their
most effective levels. The Master Facilities Use Agreement payment is included in the
City's projection as a necessary expenditure to promote educational excellence and
extraordinary achievement for all students and provide needed playgrounds, play fields,
and recreational facilities and buildings to meet the growing demand for space that
existing City facilities cannot support. Conservative projections determine whether a
structural deficit might occur, and staff adjusts accordingly. Such an adjustment was
performed successfully this fiscal year, with changes in MOU agreements that now
require all employees to contribute to PIERS and medical insurance, the use of reserves
to spend down unfunded PIERS liability, and other adjustments that decreased General
Fund spending by $10 million over five years. Staff will make the necessary
adjustments to eliminate the deficits projected in FY 2014 -16 when developing the FY
2013 -15 biennial budget.
With this in mind, the Adjustment Committee recommends entering into a new Master
Facilities Use Agreement and related supplemental agreements for an initial term of 10
years through June 30, 2022, with an option to extend for an additional five years. If the
City or District determines that it cannot responsibly and prudently renew this
Agreement, three years' advance written notice of nonrenewal shall be provided prior to
the expiration of the term.
Revenue Performance and Payment Adiustments: The current Agreement calls for an
adjustment conference to be convened in January to discuss any additional adjustments
in payment based on the value to the City of its use of the District's facilities, and the
City's ability to provide the District with additional funding. In addition to the annual CPI
February adjustment of a minimum of 2% and a maximum of 4 %, eight of the City's
General Fund revenue sources are evaluated as a basis for recommending adjustments
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to the City's base payment to the School District. The "Big Eight" revenue sources are
property tax, sales tax, utility user tax, transient occupancy tax, business license tax,
real property transfer tax, parking facilities tax, and fines /forfeitures.
The Agreement specifies two conditions whereby the adjustment conference will
discuss adjusting the annual payment. The first condition is whether the growth of
these revenues for the two previous fiscal years exceeds 4 %, and the second test is
whether the growth of these revenues exceeds CPI by 1.25% in each of the two fiscal
years. If these conditions are met, the Adjustment Conference Committee will discuss
adjusting the annual payment by an additional % of one percent of the average of the
actual "Big Eight" revenues for the two previous fiscal year period to a maximum of $1
million. In addition to looking backwards over the past two fiscal years, the Agreement
looks forward to the City's projected revenues and expenditures to allow for
consideration of the City's fiscal status, including projected revenues and expenditures.
This exercise will be supported by the City's six -month updates of financial projections.
The Adjustment Committee recommends retaining the same revenue performance and
payment adjustment provisions in the proposed Master Facilities Use Agreement.
Accountability: Both the City and the School District agree that it is in the best interest of
the community if the benefits of the Agreement as well as the financial status of the two
organizations continue to be well understood. And while both organizations
acknowledge and agree that the decisions on use of the City's payments are best left to
the discretion of the Board of Education, a Master Facilities Use Agreement will
continue to call for School District accountability to the community.
To that end, the Adjustment Committee recommends that the School District continue to
include and clearly acknowledge annual payments made by the City in its annual
budget as a separate line item. Further, the School District would continue to maintain
the Special Education District Advisory Committee (SEDAC) or similar public
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committee. SEDAC or its equivalent shall review the District's special education
policies and programs, make recommendations, and report to the Board of Education.
The Board of Education shall hold a minimum of two semi - annual Board meetings on
special education policies and programs. Changes to policies and programs shall be
considered for approval by the Board at a Board meeting.
Financial Impacts & Budget Actions
The current annual payment to the School District is $7,953,227. Approval of staff's
recommendations would adjust the annual amount by CPI (2.1 %) for a total payment of
$8,120,245 in FY 2012 -13. Future adjustment conferences will be convened to discuss
any additional adjustments in payment based on the City's ability to provide the District
with additional compensation for use of District facilities. The new amount is reflected in
the FY 2012 -13 Proposed Budget changes shown in Item 8A of tonight's Council
Agenda. Council would formally appropriate funds with the FY 2012 -13 budget
adoption on June 12, 2012.
Prepared by: Elaine Polachek, Assistant City Manager
Gigi Decavalles- Hughes, Director of Finance
Approved By: Forwarded to City Council:
Rod Gould Rod Gould
City Manager City Manager
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Reference Contract No.
9588 (CCS).