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HomeMy WebLinkAbout101-Staff Report.pdf SARATOGA CITY COUNCIL MEETING DATE: May 20, 2009 AGENDA ITEM: DEPARTMENT: Finance & Admin Services CITY MANAGER: Dave Anderson PREPARED BY: Mary Furey DIRECTOR: Mary Furey SUBJECT: Fiscal Year 2009/10 Proposed Operating & Capital Budget Public Hearing RECOMMENDED ACTION Conduct a public hearing on the proposed FY 2009/10 Operating & Capital Budget, and provide direction to staff for budget adoption on June 3, 2009. REPORT SUMMARY The FY 2009/10 Proposed Operating & Capital Budget is presented to Council for review and consideration. The budget presented to Council is balanced, meaning funding sources exceed funding uses. This staff report will provide Council with an overview of the challenges and strategies in the development of the fiscal year’s operating and capital budgets; summary information of the overall budget, and a review of the structural changes made to improve the financial accounting and reporting system in FY 2007/08 with trend information to illustrate financial continuity. The City Manager’s transmittal letter in the proposed budget document provides an executive summary of the General Fund’s budget challenges and Capital Improvement Plan projects. Additional financial overviews are provided in the proposed Operating & Capital Budget’s Financial Summaries section. Summary budget information will be presented and reviewed in the Public Hearing presentation. REPORT DISCUSSION: As a result of the financial market turmoil starting in September of 2008, housing and retail markets across the country started to decline at a rapid pace. The weakening economy affected some of our neighboring cities immediately with waning retail and auto sales, job losses, and housing foreclosures. Property values dropped considerably, decreasing property tax revenues; cities with auto dealerships and large retail centers felt the impact harshly and quickly; and most cities saw development service fees dry up from the inability to obtain credit for construction work. Due to the financial strength in the Saratoga community, impacts were slower to hit. Housing prices were not as severely impacted, which is attributable to the desirability of the community, and foreclosures were less likely to occur as residents have greater financial stability. As a result, construction projects slowed, but applicants were optimistic their projects would go forward. However, since the beginning of 2009, optimism has faded: economists determined that the U.S. is in a recession that may last several years, and it became clear that city development projects would see a severe drop in activity for the near future. In addition, recreation activities also began to see a drop in program enrollment, adding to the City’s fee decline in FY 2008/09. General Fund Forecast – In the January 2009 Council Retreat, staff presented Council with a five-year forecast which projected ongoing declines in the fee-for-service revenues for the next several years, and a flattening of property and sales tax revenues as a result of the deteriorating housing market and fragile economy. In this projection, revenues were shown as expected to be received over the upcoming years, whereas expenditures were shown with a status quo perspective – meaning staffing levels were not reduced, and expenditures were projected out at current levels, without cutbacks or allowance for growth due to new demands. Forecasts provide an estimated projection under currently adopted fiscal conditions, to identify if changes are needed. The end result indicated that the City was heading into a difficult financial period, with estimated revenues not supporting estimated expenditures, and that changes would be needed. It should be noted that even with fiscal changes, the expected funding decreases are significant enough that revenues would barely exceed expenditures in the next year, meaning the expectation is there will be no remaining fund balance at year end to provide General Fund transfer for CIP projects. During the General Fund forecast discussion, and in subsequent discussions in the Council’s Budget Study Session, the FY 2007/08 Undesignated Fund Balance of $2.2 million was proposed to be allocated as follows: · $500,000 to Undesignated Fund Balance (per Council approved Fund Balance Policy) for fiscal year revenue shortfalls and unexpected expenditures · $200,000 to refund the Economic Uncertainty Reserve (as remaining fund balance in future years is unlikely, it was proposed to refund the Fund Balance borrowing in full with current funds) · $250,000 to fund the Mid-Peninsula Open Space land purchase · $25,000 to supplement the City’s FY 2009/10 recreation program. These allocations will be brought forward in the FY 2009/10 Proposed Operating & Capital Budget Hearings. The Council directed that they would discuss and allocate use of the remaining $1.15 million of unreserved fund balance at a future meeting in June. Budget Development Armed with the understanding from the five-year forecast projection that fiscal course correction was required, development of the FY 2009/10 budget began with acknowledging that the cause of the sharply declining revenues were attributable to the decrease in development application and building permit revenues, and that recreation revenue was also significantly below budgeted revenues as a result of declining enrollment. Additionally it was concluded that: diminishing property values and low house sales would result in almost flat property tax revenue growth; declining retail sales would impact sales tax revenues: and the approximately 10 – 15% drop in hotel and construction taxes were not likely to increase in the near future. There are also concerns that the State and County raids on city funds – notably the increases in VLF, Property Tax, and public safety administration fees, and the delays in payment of state mandates, would continue to increase. Furthermore, there is the added threat of ongoing delays in tax payments and a suspension of Prop 1A of 2004 resulting in State take-aways in FY 2009/10 which are contributing further to the City’s fiscal concerns. It was determined that both current year and next year’s General Fund revenues would fall below FY 2008/09 adjusted budget projections, meaning there would be limited general fund monies available to assist with smoothing services fee declines. In addition, the city would expect to see increasing costs for additional facilities opening at Kevin Moran Park and the North Campus sites; from annual contract increases for sheriff services, for annual staffing costs, and from overall increases in materials, supplies, utilities, service fees, and the City’s contract and consultant expenditure costs. With these financial challenges, it was clear the Fee-For-Service departments would need extensive cuts to meet cost recovery policies and service levels, and the General Fund departments would need to reduce costs where available to meet fiscal constraints. Budget Strategies To address the decrease in both revenue and service levels, the Community Development Department is eliminating two positions, contract and consultant services, the planning commission’s attorney and transcription services, and other operational materials, supplies, and fees where possible. As service requirements decreased with the downturn in the housing industry, one planner position from Development Services, and one building inspector position from Building & Inspections were identified as the appropriate positions to eliminate. With these reductions, counter hours would also be reduced to offset the decrease in staff available to provide counter services. The Planning and Building counters will now be open Monday through Thursday, 7:30 am to noon. Counter hours on the City’s open Friday were eliminated. In addition, the stated turnaround time for inspection requests will be extended from 24 hours to 48 hours to allow for possible delays. Other significant changes include the elimination of consultants for the General Plan, environmental reports and zoning ordinance updates. This work will be completed in- house with planning staff In the Recreation Department, staff’s proposal includes de-funding one vacant staff position, reducing one office support position from full-time to .75 FTE, and eliminating temporary staff assistance for the current year’s recreation and teen program staffing shortages. The remaining recreation program staff’s workload was shifted to departmental functions which support cost recovery activities. One-half of Recreation’s excursion trips were eliminated to free up staff time for classes, camps, and other departmental workload, and the Teen Services program will focus on providing staff support for the Youth Commission. Operating expenses were already very meager; however they have been reduced even further to minimal levels for anticipated program activities. Citywide cost cutting measures in the non fee-based departments include a .25 FTE reduction in the Executive Assistant to the City Manager position, temporary staff reductions in the Finance & Administrative Department, reductions and eliminations in contract and consultant services, operating expenses, and Internal Service Fund charge-backs throughout the non-fee based departments. As citywide costs and support services are administered through Internal Service Funds (ISF), the departments are charged an allocation for their share of the program expense. Normally, ISF program expenses are fully allocated out to the departments, however this year the program charge-backs were reduced and cost savings from prior years will be utilized to reduce the costs charged back to the departments by approximately $150,000. Per Council direction in the budget study session, any State “borrowing” of property tax monies would be funded from the Economic Uncertainty Fund. Under Proposition 1A, the State is required to repay cities, counties, and special districts the total amount of the property tax take-away before borrowing again, meaning it cannot occur more than one year at a time. In addition, the State is legally required to repay funds within a three year period after the fiscal year the funds were taken, and may not suspend Proposition 1A more than twice in a ten-year period. Summary Budget Information The FY 2009/10 Proposed Operating and Capital Budget was developed with no significant changes in city services levels or operations while reflecting a reduction of approximately $1,150,000 in estimated General Fund revenues and $900,000 in General Fund expenditures from the prior year’s budget. Customer demand-driven services however, were reduced in alignment with lower demands. Through effective budgetary planning and practices, the General Fund budget maintains public safety services, street and park maintenance, city landscaping and lighting, general and development engineering services, recreation classes and camps, facility maintenance, website and commission support, most development and building services, city management, financial and administration services, and general internal support services at near the same service levels as the prior year. In total the FY 2009/10 General Fund Operations are proposed as follows: General Fund Sources Operating Revenues 15,773,320$ Operating Transfers In 148,859 Economic Stabilization Funds 25,000 Development Reserve 75,000 Environmental Program Reserves 50,000 Capital Projects Reserve 500,000 Total General Fund Sources 16,572,179 General Fund Uses Operating Expenditures 15,968,914 Operating Transfers Out 600,000 Total General Fund Uses 16,568,914 Net Operations 3,265$ The Proposed Capital Budget includes the current estimated status of adopted projects at FY 2008/09 year end, and additional funding to be received for these projects in FY 2009/10. Proposed projects and additional funding can be added to the Capital Budget as Council directs throughout the year. Capital Program totals are shown in the schedule below: FY 2008/09 Current FY 2009/10 Estimated Year Total Balance CIP Grants Gas Tax Transfers Funding Budget Street Improvements Program 1,769,548 732,718 6,187,043 556,000 502,287 7,978,048 9,747,597 Park & Trails Program 716,525 10,000 1,976,963 - 250,000 2,236,963 2,953,488 Facilities Program 791,018 40,000 - - 137,571 177,571 968,589 Administrative Improvements Program 99,859 - - - 175,000 175,000 274,859 TOTALS 3,376,950 782,718 8,164,006 556,000 1,064,858 10,567,582 13,944,532 CIP SUMMARY TOTALS FY 2009/10 FUNDING Budget Structure Consistent with the prior two years, the proposed FY 2009/10 Operating & Capital Budget continues the structural changes enacted with the FY 2007/08 budget. As the City’s prior fund structure was not in conformance with accounting or budgeting standards, and was due to be revised with the planned implementation of the City’s new financial system, the fund structure was realigned and several programs and funds were either reclassified, eliminated, or opened effective with the FY 2007/08 budget. Closed programs will continue to appear in the budget document with prior year funding activity until the funded fiscal years fall off the charts. Within the General Fund, numerous revenue and expenditure accounts were shifted between programs to improve historical reference for presentation purposes and future budgeting placement. The realignment of operational support services and pro-rated asset cost allocations from the General Fund into Internal Service Funds was another structural change effective with the FY 2007/08 budget. Isolating the internal support services and asset replacement costs provides a funding mechanism which captures these allocations as part of a department’s regular, ongoing budget, which in turn provides a more complete and accurate cost of services for use in fee recovery assessments. In essence, the internal service charge backs increase both operating revenues and expenditures overall as the charges to the General Fund departments become revenues to the Internal Service Funds. General Fund 10 Year History - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 1 9 9 9 /0 0 2 0 0 0 /0 1 2 0 0 1 /0 2 1 2 0 0 2 /0 3 2 0 0 3 /0 4 2 0 0 4 /0 5 2 0 0 5 /0 6 2 0 0 6 /0 7 2 0 0 7 /0 8 2 2 0 0 8 /0 9 E s t 2 2 0 0 9 /1 0 B u d 3 Revenues & Transfers In Expenditures & Transfers Out Fiscal Year Revenues & Transfers In Expenditures & Transfers Out Transfer Out to CIP Expenditures Net of CIP % Change from Prior Year 1999/00 8,751,181 6,794,480 - 6,794,480 17.59% 2000/01 10,638,677 7,719,417 - 7,719,417 13.61% 2001/02 1 11,314,033 16,489,070 7,606,869 8,882,201 15.06% 2002/03 11,627,322 13,391,287 4,449,410 8,941,877 0.67% 2003/04 9,999,693 10,585,635 2,434,621 8,151,014 (8.84)% 2004/05 10,457,578 9,507,599 898,733 8,608,866 5.62% 2005/06 11,864,857 9,975,193 392,000 9,583,193 11.32% 2006/07 12,630,833 13,300,000 2,296,523 11,003,477 14.82% 12,945,776 10,605,191 1,126,985 9,478,206 (13.86)% 13,247,307 12,410,889 1,543,500 10,867,389 14.66% 13,194,113 12,336,078 600,000 11,736,078 7.99% Note: Actuals are from audited records and include budget adjustments, fund transfers, and auditor adjustments. In years where there is a negative cash flow the City has transferred funds to the CIP from fund balance. (1) Transfers from the General Fund to CIP Projects began in FY 2001/02 (2) Beginning in FY 2007/08, dollar amounts are restructured to align with prior year funding structure. 2009/10 Bud 2008/09 Est 2007/08 2 Operating Budget modifications also include relocating capital expenditures to the Capital Improvement Plan budget, thereby limiting Operating Budget expenditures to ongoing services and core operations. This change was reflected in the realignment of the Gas Tax revenues and related capital project expenses into the Capital Budget. In turn, the Streets Program staffing costs were realigned into the General Fund budget as the majority of Street and Storm Drain program services are ongoing operations and maintenance, whereas capital improvement project work, such as street resurfacing, is completed by contractors. These structural changes resulted in a discontinuity between General Fund revenues and expenditures since 2007/08, and prior year information. To fill this gap, the General Fund Budget under the former structure, with 10 years of historical information, is presented in the above schedule: This next schedule portrays the General Fund 10 Year History above net of CIP Transfers to present actual operating budget financial information, as is integrated into the financial structure effective with the FY 2007/08 budget. General Fund Revenues & Expenditures (Net of CIP Transfers) - 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 1 9 9 9 /0 0 2 0 0 0 /0 1 2 0 0 1 /0 2 2 0 0 2 /0 3 2 0 0 3 /0 4 2 0 0 4 /0 5 2 0 0 5 /0 6 2 0 0 6 /0 7 2 0 0 7 /0 8 R /E s t 2 0 0 8 /0 9 R /B u d Revenues & Transfers In Expeditures Net of CIP The above presentations show a comparison of current operations (FY 2007/08 on) to prior year information solely for presentation of trend information. The current financial structure presents operations per generally accepted accounting practices and standard budgeting practices and is represented in various graphs within the budget document. REPORT CONCLUSION The Proposed Operating Budget for Fiscal Year 2009/10 represents a continued focus on core city services, consistent with prior year operations, and the Capital Improvement Plan presents ongoing Street, Park & Trail, Facility, and Administrative projects with new and carryforward funding. Staff will present an overview of the Proposed FY 2009/10 Operating & Capital Budget as part of the Public Hearing. Any changes to the proposed budget as directed by Council and/or identified by staff as a clean-up item will be included for Council consideration in the resolution adopting the budget at the following Council meeting to be held June 3, 2009. CONSEQUENCES OF NOT FOLLOWING RECOMMENDED ACTION The City would postpone adopting an Operating and Capital Budget for FY 2009/10. ALTERNATIVE ACTION N/A FOLLOW UP ACTION Proposed budget amended with Council direction to be brought back to Council on June 3, 2009. ADVERTISING, NOTICING AND PUBLIC CONTACT Public Hearing notification published in the Saratoga Weekly on May 5, 2009 ATTACHMENTS FY 2009/10 Operating & Capital Summary Budget Document in electronic format.