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AGENDA BILL Agenda Item No. 7(B) Date: March 18, 2014 To: El Cerrito City Council From: Lisa Malek-Zadeh, Finance Director/City Treasurer Subject: FY 2013-14 Mid-Year Budget Update ACTION REQUESTED There are two actions associated with this item: 1. ADOPT a Resolution authorizing adjustments to the Fiscal Year (FY) 2013-14 budget related to already approved changes which occurred since the adoption of the FY 2013- 2014 budget; and 2. RECEIVE an update on the FY 2013-14 budget and an overview of next steps related to development of the FY 2014-15 budget. BACKGROUND/ANALYSIS Each year as part of the budget process, the City Council adopts a resolution that establishes spending limits by fund for the fiscal year. On June 27, 2013, the City Council adopted Resolution 2013-33 authorizing $45,807,472 in total appropriations for fiscal year 2013-14. Changes to the spending limits occur throughout the year to account for unintended opportunities, unforeseen changes or if the City’s financial position changes and additional spending authority is required to meet the needs of the City. These adjustments are typically the result of previously unanticipated events such as the acceptance of new grants, a reauthorization of prior year’s unspent funds, accounting changes related to the City’s financial reporting, receipt of new revenue and/or a response to emergencies or mutual aid. For FY 2013-14, staff is proposing adjustments which require a change in spending authority totaling $6,324,484 across all funds as summarized below: Proposed Amendments General Fund $1,468,225 City LMI Housing Fund $2,860,000 Capital Improvement Fund $1,973,282 Asset Seizure Fund $12,377 Street Improvement Fund $10,600 Total $6,324,484 Summary of Proposed Amendments by Fund ---PAGE BREAK--- Agenda Item No. 7(B) Page 2 The proposed FY 2013-14 amendments are described as follows: Authorize a General Fund transfer of $456,801 to the Capital Improvement Fund (CIP) for the completion of the solar panel installation that began in 2013. These funds were previously approved by the City Council and recorded in the General Fund. However, they are spent out of the CIP and therefore the funds need to be transferred. Authorize a General Fund transfer of $598,957 to the Grants Fund as previously approved for 1-time economic development activities within the current fiscal year from a Municipal Service Corporation grant. Increase General Fund spending authority of $187,467 for Fire Department overtime costs for emergency mutual aid response which is fully reimbursable by the State Office of Emergency Services. These amounts are not known prior to any given fiscal year. Increase General Fund spending authority of $165,000 for contract services for the Residential Rental Inspection Program. These costs are fully recovered by inspection fees associated with the program; however, only the revenues were included in the adopted budget. Increase General Fund spending authority of $60,000 for contracted street sweeping services fully offset by increased franchise fee revenue as approved by the Council as part of the solid waste rate setting process. Approve Low Moderate Income Housing Fund spending authority of $2,860,000 for construction of the Ohlone Gardens housing project reimbursable by a State Prop 1C Infill Grant. The funds are in place; this merely authorizes the spending of those funds. Increase Asset Seizure Fund spending authority by $12,377 for the purchase of Police Equipment. Carry forward existing CIP funds of $1,973,882 from FY 2012-13 for projects to be completed in FY 2013-14. Carry forward existing Street Improvement Funds of $10,600 for unspent FY 2012-13 projects to be completed in FY 2013-14. The following amendments totaling $1,618,194 have been approved by earlier City Council action: Spending authority of $951,562 from the Grants Fund for the purchase of a Fire Ladder Truck funded by a FEMA grant, a contribution by the Kensington Fire Protection District and a transfer from the General Fund of $63,438 for the City’s required grant match for the Fire Ladder Truck. ---PAGE BREAK--- Agenda Item No. 7(B) Page 3 Increase Grants Fund spending authority by $72,042 for the Fire Department purchase of Automatic Chest Compression Devices (a purchase 90% reimbursable by a FEMA grant). Increase Low Moderate Income Housing Fund spending authority by $531,152 to meet Housing Loan Obligations as approved on Recognized Obligation Payment Schedule 13-14A. The following table provides a summary of both the proposed and previously approved adjustments in total for FY 2013-14: FY 2013-14 Adopted Appropriations Approved Amendments Proposed Amendments FY 2013-14 Amended Appropriations 101 General Fund $28,453,592 $63,438 $1,468,225 $29,985,255 201 Gas Tax Fund $1,253,937 $1,253,937 202 NPDES $454,725 $454,725 203 Landscape and Lighting $1,314,327 $1,314,327 204 Measure J Return to Source $518,741 $518,741 205 Measure J Storm Drain $951,402 $951,402 206 Measure A Parcel Tax $624,970 $624,970 208 Asset Seizure $0 $12,377 $12,377 209 Vehicle Abatement $11,000 $11,000 210 Park In Lieu Fund $0 $0 211 Street Improvement Fund $3,015,684 $10,600 $3,026,284 213 Art in Public Places $0 $0 221 Federal, State and Local Grants $914,783 $1,023,604 $1,938,387 232 City LMI Housing $140,838 $531,152 $2,860,000 $3,531,990 301 Capital Improvements $3,478,220 $1,973,282 $5,451,502 401 Storm Drain Debt Service $521,530 $521,530 501 Integrated Waste Management $2,174,295 $2,174,295 601 Vehicle/Equipment Replacement $168,532 $168,532 701 Employee Pension Trust Fund $112,500 $112,500 834 Finance Authority- Measure A $365,308 $365,308 835 Financing Authority-City Hall $596,308 $596,308 835 Financing Authority-Street Imp $736,780 $736,780 Total $45,807,472 $1,618,194 $6,324,484 $53,750,150 FY 2013-14 Summary of Appropriations By Fund ---PAGE BREAK--- Agenda Item No. 7(B) Page 4 FISCAL YEAR 2013-14 UPDATE General Fund Overview Changes to General Fund projections and the impact on the ending fund balance since the December update are summarized below in Table 1. Included is a column that assumes the proposed FY 2013-14 amendments are approved, better reflecting the budgeted activities of this fiscal year. Assuming the approval of the proposed FY 2013-14 amendments, the projected fund balance at the end of the fiscal year is expected to be lower than projected in December. Although revenues are projected to be better than anticipated, fund balance is lower than previously projected due to a projected increase in expenditures, largely related to unanticipated overtime related to vacancies. Staff is continuing to identify opportunities, such as delayed hiring and reduced professional services, in an effort to increase the ending fund balance prior to the end of this fiscal year. As previously discussed, strategies to increase this amount will be identified in next fiscal year’s budget process. General Fund Revenues At the December 17th City Council meeting, staff provided Council with year-end results for the prior fiscal year 2012-13 and an update on the current year budget based on actual revenues received between July and October. Included in this update were revised projections based on the results of FY 2012-13 as well as more up to date information on anticipated tax revenues that occurred after budget adoption in June 2013. Table 2 provides an overview of projected revenues. Projected General Fund revenues are anticipated to increase by approximately $396,000 above the amount included in the December update. General Fund Summary Revenues + Expenditures FY 2013-14 Adopted FY 2013-14 Projected Update: 12/17/13 FY 2013-14 Amended PROPOSED FY 2013-14 Projected Update: 3/18/14 Beginning Restricted Balance $1,059,672 $1,059,672 $1,055,758 $1,055,758 Beginning Unassigned Balance $1,849,880 $1,195,104 $1,285,480 $1,285,480 Total Revenues $28,479,079 $28,456,546 $28,669,172 $28,798,034 Total Expenses $28,453,592 $28,011,612 $28,866,059 $28,685,116 Personnel $22,182,379 $21,887,454 $22,369,846 $22,228,903 Non-Personnel $6,271,213 $6,124,158 $6,496,213 $6,456,214 Annual Balance/Shortfall $25,487 $444,934 ($196,887) $112,918 Transfer Out- Grants Fund $598,957 $598,957 $598,957 Transfer Out - Solar CIP $460,715 $456,801 $456,801 Total Transfer out of Restricted Funds $0 $1,059,672 $1,055,758 $1,055,758 Ending Unassigned Fund Balance/Deficit $2,935,039 $1,640,038 $1,088,593 $1,398,398 Ending Unassigned Reserve Percent 10% 6% 4% 5% Table 1. General Fund Summary ---PAGE BREAK--- Agenda Item No. 7(B) Page 5 Property Taxes: The most significant change identified in December was a reduction in anticipated property taxes by about $382,000. This reduction was partially offset by an increase in better than expected sales taxes with the net result being approximately $228,000 less in revenues from property and taxes. Through the end of January, the City has received approximately 55% of our property taxes. Based on this information staff anticipates that the City is on target to meet the budget projection provided in December. Sales Taxes: Also included in the December 17th Council report was a discussion regarding the revenue shared with the City of Richmond for sales taxes at the Home Depot store on San Pablo Avenue. In late October of 2013 and after adoption of the FY 2013-14 budget, the State Board of Equalization (BOE) notified the City that intended to make a retroactive adjustment of nearly $2.5 million to account for a misallocation of taxes between the Cities dating back to 2005. This proposed reallocation ignored a long standing agreement between Richmond and El Cerrito to share revenues in a 70/30 split and did not account for any payments El Cerrito had already made to Richmond for their share of the sales tax. Nor did it reflect the three special transaction and use taxes that are in place between the two cities. The actual amount that may need to be redistributed between El Cerrito, Richmond and the BOE is not yet known and may not be known until the end of the fiscal year. Since December, the BOE has granted the City an extension through the end of April to review the methodology and amount determined by BOE for the reallocation. City staff continues to gather information from BOE regarding the decision in order to formalize a response and potential recommendation to Council. BOE has expressed no concerns about granting additional extensions, and BOE will not implement its decision during the extension periods. While overall sales tax revenues are projected to be higher than budgeted, projections assumed the City would need to start making payments to address staff’s interpretation of BOE’s decision and therefore only increased overall projections by an additional $143,000. With the extension in place through April and as the City considers options to appeal the BOE decision, staff has included the full increase in sales tax revenue expected by June. This is approximately $425,000 more than was included in the adopted budget. Future budgets will need to account for the ultimate settlement of this issue. General Fund Revenues FY 2013-14 Adopted FY 2013-14 Projected Update: 12/17/13 FY 2013-14 Amended PROPOSED FY 2013-14 Projected Update: 3/18/14 Property Taxes $6,407,213 $6,025,472 $6,025,472 $6,029,710 Sales Taxes $4,593,750 $4,737,154 $4,737,154 $5,018,415 Utility Users Taxes $3,605,000 $3,605,000 $3,605,000 $3,605,000 Other Taxes $2,128,400 $2,138,400 $2,195,900 $2,197,547 Total Taxes $16,734,363 $16,506,026 $16,563,526 $16,850,672 Licenses & Permits $606,000 $636,000 $606,000 $613,974 Fines & Forfeitures $290,000 $290,000 $290,000 $305,000 Intergovernmental Revenues $4,900,128 $5,018,788 $5,120,649 $5,026,265 Charges for services $4,942,062 $4,993,931 $5,052,196 $5,049,034 Other Revenues $202,147 $177,147 $202,147 $118,435 Loan Proceeds, Transfers $804,379 $834,654 $834,654 $834,654 Total Other Revenues $11,744,716 $11,950,520 $12,105,646 $11,947,362 Total Revenues $28,479,079 $28,456,546 $28,669,172 $28,798,034 Table 2. General Fund Revenues ---PAGE BREAK--- Agenda Item No. 7(B) Page 6 Utility Users Tax: Revenue received from Utility Users taxes (UUT) in FY 2012-13 fell short of projections by year end and for this reason, as reported in December, staff expressed concern about meeting this year’s projected revenue target. While cautious, based on UUT revenue collected up to that point, UUT revenues appeared on track and therefore no revisions were made to the year-end projections. Seven months of UUT receipts have been received and collections are about 1% higher than the average for the same period over the last 3 years. This supports that forecasted revenues will meet the $3.6 million budgeted amount. Staff continues to closely monitor this revenue and in addition have identified some issues that are under review by staff: • Energy: UUT remitted by energy utilities remained flat between FY 2011-12 and FY 2012-13, despite increased rates by PG&E, which accounted for the vast majority of these remittances. PG&E is no longer collecting UUT from its wholesale customers. Electricity users who have installed solar panels may not be paying UUT. However, remittances for FY 2013-14 appear to be increasing significantly, indicating that further investigation is needed as to whether UUT for the prior fiscal year was appropriately collected and remitted. • Water: UUT collected by EBMUD has increased consistent with its increase in rates. Cuts in water use due to drought conditions are not likely to affect UUT collections dramatically due to increased rates. • Cable: UUT collection by cable providers has declined, consistent with consumer trends away from cable to internet-based programming services. Staff will explore the applicability of the City’s UUT ordinance to these internet-based services. • Telephone: UUT collections from landline and wireless telephone services have declined, consistent with industry trends away from landlines, to voice-over-internet and cellular communications, and away from contract-based to prepaid cellular service. Staff is exploring consulting firms to perform an audit of UUT collected to determine if there are any utilities that are not: 1) collecting and remitting UUT from their El Cerrito customers, 2) calculating UUT collected consistent with the City’s ordinance, and/or 3) collecting from all El Cerrito utility users. Other General Fund Revenues: Projections for the remaining revenues within the General Fund remain fairly consistent with the adopted budget. An increase of approximately $200,000 has been included based on some anticipated changes in licenses and permit revenues as well State reimbursements. ---PAGE BREAK--- Agenda Item No. 7(B) Page 7 General Fund Expenditures Total General Fund expenditures are projected to be under budget by about $232,000 for the current fiscal year. Projections are based on personnel and non-personnel costs incurred through the end of January in conjunction with information from prior year’s expenditure trends. Personnel: The City adopted a personnel budget of approximately $22 million that included salary savings of close to $1.5 million. As in prior years, the Fire department is often dispatched to emergency response throughout the state for Mutual Aid. Staff is proposing an increase of $187,000 to reflect these costs that are fully reimbursed by the Office of Emergency Response (OES). With this change, the amended personnel budget is closer to $22.2 million. In December, salary savings from personnel costs were projected to be about $295,000. As discussed over the last several months, the City has had a high turnover rate in the Police department and has experienced more vacancies than were included in the adopted budget. In order to ensure adequate staffing, some of these unanticipated vacancies have required a much greater use of overtime. In addition, extended family and other leave in the Fire department has also had an impact on overtime. While savings from personnel costs are less than previously anticipated, these savings represent about $1.6 million. Non-Personnel: Assuming approval of the proposed FY 2013-14 amendments, expenditures for non-staff related costs are projected to be under budget by about $40,000. This includes anticipated increases in professional/technical services, partially offset by new revenue and fee increases in credit card processing and bank fees. Savings in professional and property services and supplies help offset most off the increases in other line items. Special Revenue Funds With the elimination of redevelopment funding and declining General Fund revenues due to the recession, there has been a greater dependence on Special Revenue Funds. About 88% of expenditures in Public Works rely on Special Revenue Funds, but the use of these funds is limited to eligible expenses for activities such as street improvements, storm drain repairs, transportation improvements, grant funded projects and other similar costs. The City has limited or no ability to increase revenues in most of these Special Revenue Funds. As costs continue to General Fund Expenditures FY 2013-14 Adopted FY 2013-14 Projected Update: 12/17/13 FY 2013-14 Amended PROPOSED FY 2013-14 Projected Update: 3/18/14 Personnel $22,182,379 $21,887,454 $22,369,846 $22,228,903 Non-Personnel Purchased Professional & Technical Services $2,299,700 $2,189,700 $2,464,700 $2,532,804 Property Services/Professional Services $2,006,850 $1,969,795 $2,066,850 $1,975,586 Supplies $640,150 $640,150 $640,150 $592,518 Property & Capital $375,032 $375,032 $375,032 $376,179 Financing Costs $814,381 $814,381 $814,381 $844,026 Transfers Out $135,100 $135,100 $135,100 $135,100 Total Non-Personnel $6,271,213 $6,124,158 $6,496,213 $6,456,214 Total Expenditures $28,453,592 $28,011,612 $28,866,059 $28,685,116 Table 3. General Fund Expenditures ---PAGE BREAK--- Agenda Item No. 7(B) Page 8 increase for personnel and contracted services, it becomes more difficult to keep expenses in line with available revenue. For example, Landscape and Lighting Assessment District (LLAD) annual revenues have been generally flat (~$770,000) since the late 1980s but LLAD-eligible expenses are approximately $1.3 million. This year, Public Works has implemented program changes resulting in savings across its funds of more than $200,000. These savings are the result of holding open vacancies and making some service reductions in landscaping and park maintenance. Additional balancing measures affecting service may be required to bring these funds into balance this fiscal year or in FY 2014-15. A more detailed overview of some selected special revenue funds are highlighted as follows: NPDES: Over the last few years, due to inadequate revenues, activities have been supplemented with Storm Drain Funds to assist in storm drain projects that relate to clean water. Funds in the current year are once again insufficient and Public Works has identified and implemented approximately $94,000 in cost savings, both through personnel and non-personnel changes. As expenses in the Clean Water program have been growing faster than tax revenues as a result of continually increasing permit requirements, in order to bring this fund into balance Public Works will continue to identify potential new revenues for and/or service cuts to programs supported by this fund. LLAD: Tax revenues to the Landscape and Lighting Assessment District are generally fixed as the only growth that could occur would result from new development, for which there is little potential relative to the size of the existing LLAD tax base. In the past this fund has received subsidies from the General Fund and more recently Gas Tax revenues have supplemented a lack of funding. General Fund support was eliminated and Gas Tax funds have been reduced significantly. Public Works has identified $92,000 in cost savings through reductions in both personnel and non-personnel expenditures. However, because the cost of providing the services supported by this fund are increasing while the revenue available is fixed, unless other revenues eligible to fund these programs are secured or the General Fund support returns to prior levels, significant service reductions will be needed to bring this fund into balance over the next few years. Capital Improvement Fund: Projects funded through the Capital Improvement Program (CIP) are generally only initiated when sufficient revenue for projects has been identified. However, revenues from outside sources are generally received on a reimbursement basis and therefore can be delayed past the end of the fiscal year in which the costs occurred. Due in part to these types of timing issues in recent years, the fund started the fiscal year with a significant negative fund balance. Public Works is working to ensure all expenses eligible for reimbursement are billed to the funder in a timely fashion. Additionally, as several multi-year projects were being closed out during the current fiscal year, it was determined that some internal funding for projects by the former Redevelopment Agency between 2006 and 2011 were never transferred to the CIP despite the City having relied on the funding commitment to award construction contracts. The City Council, acting on behalf of the Redevelopment Successor Agency, approved an obligation for these funds ($431,000) on its Recognized Obligation Payment Schedule for the upcoming year. However, should this effort to recover the funds be ---PAGE BREAK--- Agenda Item No. 7(B) Page 9 unsuccessful, the Fund will continue to have a negative balance until other funding sources for the deficit can be identified. Low Income Housing Assets: Revenue to this special revenue fund is limited to payments from the Redevelopment Successor Agency of funds obligated to developers or repayment of loans from housing funds taken by the Redevelopment Agency in prior years. Due to information recently provided by the California Department of Finance, projections of revenue to this fund in the current year are limited to funds already obligated to developers and cannot be used for City expenditures on housing programs or staff. Current year program and staffing expenses are being funded from cash on hand from the payment received from the Successor Agency, which is expected to be depleted by the end of the fiscal year. Staff is evaluating various options for pursuing revenues due to this fund so that housing programs can continue in the upcoming fiscal years. FISCAL YEAR 2014-15 NEXT STEPS With only a few months remaining in FY 2013-14, staff has already started the process to develop next year’s proposed budget. Sales in the housing and retail market are strong and continue to grow in El Cerrito. In contrast to the last few years, the overall financial outlook seems to have stabilized; however, revenue has not and is not predicted to return to the levels experienced before the great recession. The impact of redevelopment dissolution and the loss of approximately $1 million per year will likely be felt next fiscal year regardless of the outcome of the current lawsuit against the State Department of Finance. For the past two years, the City has relied on one-time restricted funds to offset the loss of these revenues to the General Fund. The City has taken many steps to preserve services even with these diminishing resources. Vacant positions have been eliminated, others have remained unfilled, staff has made a number of wage concessions, departments have been reorganized to achieve better efficiencies, funding from grants and other funding sources have been secured in addition to implementing other innovative solutions to save money and maintain programs and services to the community. As we begin discussions about next year’s budget, increasing costs and limited revenue growth remain an issue. Agreements for three of our labor groups have expired or are expiring, contractual cost of living increases for public safety employees, double-digit cost increases in employee health rates, and the elimination of one-time money to fund economic development are some of the realities that must be addressed next year. Restoring reserves that have declined due to one-time uses also remains a priority for next year’s budget. Projections are very preliminary, but based on current cost and revenue assumptions; staff estimates balancing measures of approximately $1-$1.5 million in the General Fund will be required to align expenditures with available revenue and to increase reserves. Staff anticipates that some Special Revenue Funds will also require measures to bring the funds into balance. To gather important input on next year’s budget and further the City’s value of Transparency and Open Communication, staff has begun a series of community engagement activities to involve the public in setting priorities and allocating resource based on the goals and strategies developed within the Strategic Plan. The City is holding a series of Community Budget meetings during the month of March at various locations throughout the City. These meetings are intended to reach residents within their neighborhoods as well as gain feedback on budget ---PAGE BREAK--- Agenda Item No. 7(8) priorities and how the City should concentrate its resources in FY 2014-15 to best serve the community. An online forum will also be available on the City's website at www.el-cerrito.org/budgetpriorities that will allow residents an additional way to participate in identifying FY 2014-15 budget priorities and provide feedback. Engaging our residents and other stakeholders in the budget process is intended to increase understanding, create better and more sustainable decisions, improve customer satisfaction with our services, and build trust and a more cohesive community. Input and information provided by the community, along with staffs Implementation Action Plan (lAP) for the Strategic Plan goals, will be shared with the City Council in future months as staff begins a more in-depth discussion and development of the FY 2014-15 budget. Staff anticipates scheduling a budget study session for the April 15, 2014 City Council meeting to discuss priorities and goals, and review of initial projections for the next fiscal year. R;;(tL~ Scott anin City Manager Attachment: 1. Resolution Page to ---PAGE BREAK--- Agenda Item No. 7(B) Attachment 1 RESOLUTION 2014-XX RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO AMENDING THE SPENDING AUTHORITY BY FUND FOR THE CITY OF EL CERRITO FOR FISCAL YEAR 2013-14 WHEREAS, on June 27, 2013 the City Council of the City of El Cerrito adopted the Fiscal Year 2013-14 Budget with spending limits across funds; and WHEREAS, changes to the spending limits throughout the year may be necessary to account for unintended opportunities, unforeseen changes or if the City’s financial position changes and additional spending authority is required to meet the needs of the City; and WHEREAS, proposed changes to spending authority from tax proceeds are within the City’s Fiscal Year 2013-14 Gann Appropriations Limit, as defined the California State Constitution Article XIIIB. NOW THEREFORE, BE IT RESOLVED that the City Council of the City of El Cerrito hereby amends the spending authority by fund for Fiscal Year 2013-14 as follows: General Fund $29,985,255 Gas Tax Fund $1,253,937 NPDES $454,725 Landscape and Lighting $1,314,327 Measure J Return to Source $518,741 Measure J Storm Drain $951,402 Measure A Parcel Tax $624,970 Asset Seizure $12,377 Vehicle Abatement $11,000 Street Improvement Fund $3,026,284 Federal, State and Local Grants $1,938,387 City LMI Housing $3,531,990 Capital Improvements $5,451,502 Storm Drain Debt Service $521,530 Integrated Waste Management $2,174,295 Vehicle/Equipment Replacement $168,532 Employee Pension Trust Fund $112,500 Finance Authority- Measure A $365,308 Financing Authority-City Hall $596,308 Financing Authority-Street Imp $736,780 Total $53,750,150 ---PAGE BREAK--- Agenda Item No. 7(B) Attachment 1 I CERTIFY that at a regular meeting on March 18, 2014, the City Council passed this resolution by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSTAIN: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on March XX, 2014. Cheryl Morse, City Clerk APPROVED: Janet Abelson, Mayor