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Home My WebLink AboutAgenda Report - January 2, 2003 I-01CITY op LODI 17MM AGENDA TITLE: Review and Discuss City of Lodi Budget Calendar and Proposed FinancQ1 Strategy I SUBMITTEDRY-. Deputy City Manager and Finance. -Director. RECOMMENDATION, That the City Council review and discuss the attached proposed calendar for the 2003-05 Financial Plan and budget and that Council discuss the City Manager's proposed financial strategy, BACKGROUND INFORMATION. Based on preliminary comments from Council Members, staff has prepared the attached proposed budget calendar for preparation of the Fiscal Years 2003-05 Financial Plan and Budget. Council should note that the calendar does not include any Shirtsleeve Sessions and it does include one proposed Special Meeting on Saturday® In addition, the City Manager will discuss with Council a strategy for the balance of the current budget year and next year's budget with regard to fiscal uncertainties, Funding. Not applicable. Jsk/VM/si Respectfully submitted, Ja2t S. Fleeter Deputy City Manager au� Vicky McAthie Finance Manager APPROVED: H, Dixon Olynn -- Cid antic 2003-05 Financial Phm and Bud ket Instructions MAJOR BUDGET PREPARATION MILESTONES PUBLIC STAFF MEETINGS Review of Fiscal Policies and Presentation on and Rating 11/19/02 Review 2001.-021B et vs, Actual 11/26/02 Discass Budget Calendar and Pro sed Financial Strategy 1/02/03 Issue Budget Instructiom to Departwnts 1/6/03 Adoption offiscal Pokies and Budget Format 1/15/03 Disewssion on City Council Goals is. SpecW Cowwii Medit* 1/22/03 Discussion an Status of Highest Priority Projects 2/5/03 City Manager Revenue Review 2/10/03 Depwur&wssubink Budget Requests to Finance Department 2/17/03 City Council Review of Revenue Assn tions 2/19/03 City Manager Review of Budget Requests 3/03/03 City Council Review of Re -venue Assumptions 3/05/03 Discuss Siguificant Expenditure & SWfmg Requests 3/19/03 Discuss Significant Expenditure & SUWing Requests 4/02/03 Update on State Budget 4/16/03 Dis�uss Fund Ba -- Regular Cow-wil Meeting 5107/03 Rel eme of I)mft Budget Document 5/W03 City Council Review of 2003-05 ii tial Plan & Budget 6/04/03 City Coumd Review of 2003-05 FinancW Plan & Budget — Special Saturday &07/03 Coumil Meeting Adopt FirmeW Plan & Budgzt 6/18/03 Fiscal " :en cy _ Plan Purpose. Establish framework and general process in responding to adverse financial events What is Not �Specific "recipe" for Qxpenditure cuts or revenue increases; this will be determined on a case-by-case basis. A detai l list of reductIon options before they are recommended for the following reasons: $ 11'not taken seriously, quality thought will not be given to thern. if taken seriously, likely to result in needless anxiety; and sends a conflicting nlessa.gc if "times are good". They would have a short shelf -life, needs and priorities change over Henle. But it does set the foundation of principles and values upon which responses will be based, Any adverse financial circumstances as determined by the City Manager, such as o natural or human -made disasters. o Statetakeawaysas in the early and mid -1990's, o Large, unexpected costs. o Economic dos vnturns. o Whenever there are two consecutive quarters of adverse fiscal changes ill tine top four revenues: sales tax., property tax, VLF, francbise tax. a adverse results are: o Actual declines in revenues oigilificaznt variances in projected revenues 1.. Maintain target fend balances Follow other key budget policies 3. Monitor the City's financial health on air ongoing basis 4. Assess the short and long-term problems 5. Identify options 6� Prepare and implement action. plans Target Fund Balances First Line of Defense c; allows continued operations and project development while responding to short -toren problems o Provides " brcathing room- in addressing longer -terra problems o Especially important under- Proposition 218; limited opportunities to implement neer revenues Other Key Budget Policies is al laced budget * Conservative investment practices Diversified. revenues and investments * User fee cast recovery * Enterprise funds • Contracting .for services • Productivity improvements nitro 'ci salt Interim c? Reliable automated financial management system o I ont.hly .reports * Mid -Years Budget Review a Two -Year Budget and annual. Review Annual o Audited financial statement Assess the.Short and Long -Term T_Projections-__-_ Different Strategies for Different Projections o Sbort-T er a: Orae -time event or downtum that is not likely to continue indefinit0y, "One-time" fixes appropriate response for sone -time" problems. o Long -Terni: Ongoing downturn in revenues or increases in casts that are systerllic. "One-time" fixes won't work Requires new ongoing revenues or ongoing expenditure reductions. Hiring Chill - City Manager approval required to fill vacant positions c) Goal is not just short-term savings, but preserving future options if problem turns out to be ongoing. is Travel Chills I-Ainit travel and training; City Manager approval required for all travel. authorizatioils Capital. Pro ect Deferrals® Defer capital expenditures to allow continued service levels Refinance Debt.- Explore ebi$Explore savings in refinancing debt service based on interest rates and annual savings Evaluate New Expenditure Increases forDeferral-, Evaluate proposed increases in expenditures to determine if appropriate for de-ferral or elimination Fund Balance: nce: Consider use of fund balance below policy level Implement "sbort-terga" actions Prepare long-terni forecast to define the problem Prepare revenue increase and expenditure reduction options taiHored to problem definition via the forecast. .-) Likely to take 3-6 a ont s to prepare plans: another 3-6 months to implen ent them o Underscores the importance of strong fund balance and short -tern expenditure reductions to create the time needed to prepare and implement reasonable plans. Identify Options Tn [lie long-term, only two basic: options 0 Increase revenues Reduce expenditures (arid. related service levels) o fn the short -terms, use of fund balance Is an option, but it is not a viable long -terra solution Exception The strategic use of fiend balance that reduces future year operating casts or increases ongoing revenues. Expenditure tics tions caningful ongoing expenditure reductions require reductions in regular staff costs. 95% ofGeneral Fund assts are for operating expenditures 81 % of General Fund operating costs are for staffing 54% of General Fant staffing casts are for public safety 8% of General Fuad staffing costs are; for part-time and temporary staffing Gene.ral. Strategy Departments develop expenditure: reduction options that are real, doable and, * Reflect least service impacts to the community * Are esti-going « Describe service impacts Are within the City's ability to do independently Can. be implemented within three months after adoption [Maintain essential .facilit]es, infrastructure and equipment at reasonable levels — no deferred maintenance posing as genuine cost reductions Refect participation from throughout the organization Revenues: Limited tions City Council. will have the lead responsibility for identifying revenue options ® it is likely that any new significant revenues will require voter approval under Proposition 218 * election cannot be field until next regular municipal election (November of even - numbered years) ffi Exceptions: ra Eme i-gc;rzcy declared by unanimous vote of the Council o Two-thirds voter approval for "earmarked" revenues Voter approval will require tine .for effective preparation before a measure is placed on the ballot Critical Success Factor: Effective, community based group that will work hard to pass measure Legislative Advocacy Dependiag on the reason for the adverse circumstances, the City will work closely with its elected representatives and ethers in mitigating service reductions and revenue enhancements Involvement a ation o Organization o Unions c> Community Groups o Communication o With stakeholders o With employees o Employees o Ongoing employee briefings with. City Manager and Finance Director ca Ongoing updates via voice nail or e-mail o Ongoing briefings with employee association representatives Special organization -wide briefings as appropriate o Community o Viewpoint articles in the Lodi. ?dews Sentinel and The Record. o News releases o Presentation to interested community interest groups o Web site updates o Conimunity Forums and Workshops Community Advisory Grog May form "ad hoe" advisory group depending on the circumstances with careful consid ritior of D WheD in the process? o Who should be on it? (qualifications, experience, etc) o What's their role? o Who determines appointments'? o Tat is they ten- of the appointment? A Primer on Proposition 98 Page I of 3 NO, gp- Mor"M A Primer on Proposition 98 October 1996 Provisions of Proposition 98 Entitled the "Classroom Instructional Improvement and Accountability Act," Proposition 98 (1988), as amended by Proposition Ill (1990) and legislation, mandates that: A minimum amount of funding be guaranteed for elementary and secondary schools and community colleges, according to one of three tests. In years of normal or stronger revenue growth, the Proposition 98 guarantee is the larger of Test 1. the same share of the General Fund as in the base year of 1986-87 (recalculated to account for shifts of property tax revenues to schools) or http://www.�dsoitree.org/pub__e,.d.fct—prov98,cf:m 12/26/2002 A Primcr on Proposition 98 Test 2: the prior year's funding from state and property taxes, adjusted for inflation and enrollment increases. "Inflation" is defined as the growth in per capita personal income. in years of low revenue growth, when General Fund tax revenues per capita increase more slowty than per capita personal income, the Proposition 98 guarantee is Test 3., the same as Test 2 except inflation is defined as the growth in per capita General Fund revenues plus one-half percent. The difference between this amount and what Test 2 would have yielded is to be restored to education funding in years of high revenue g rowth, Test 3b.- any reduction, compared to the previous year, must be no worse than cuts in state spending per capita for other budgeted services. v The state maintain a "prudent" reserve (not defined). Each school produce an annual School Accountability Report Card (SARC) with information about student achievement, dropout rates, class size, discipline, expenditures, programs, instructional materials, and other items. Suspending the provisions of Proposition 98 requires a two-thirds vote of the legislature and agreement by the governor. Page 2 of 3 http:/'/www,edsource,org/pub_edfct_prop98.cfm 12/26/2002 As provided bt, LSO (L eg islafi e An alvsts Office) December 16, 2002 Proposition Overview In the December revision, the Governor proposes to reduce Proposition 98 funding for 2002-03 by approximately $1.9 billion. The Governor's proposal would reduce funding to the estimated minimum guarantee of $44.6 billion. Figure 3 summarizes the main components of the proposal, While tho Governor's proposal does not identify a total spending level for 2003-04, it does specify savings totaling $1.1 billion in the budget year. Main Features The current -yeas Proposition 98 reduction of $1.9 billion consists of the elimination of the $143 million reserve and the following three components. Across -the -Board Reduction ($13 illioli). The Governor proposes reducing. almost all Proposition 98 current -year General Fund appropriations by 3.66 percent. '.flus would result in $1.1 billion in savings. Figure 4 shows the impact of the across-the-board cuts on major programs. The across-ibe-board reduction applies only to the General Fund portion of K-12 revenue limits (not the local property tax portion), so the reduction represents a 2.15 percent cut to total revenue limits. It is our understanding that the revenue limit reduction is a pen-nanent one:. The Governor's proposal, however, is ambiguous as to whether the categorical reductions are one-time or pen-nw-iont. The proposal does not r duce any of the statutory requirements of the categorical programs. Targeted Reductions ($298 Mfflion). The Govemor proposes targeted reductions totaling $298 million. Most of this reduction is due to: (1) the elimination of California. Work Opportunity and RespOrisibility to Kids (CalWORKs) Stage 3 child care, affective April 1, 2003 ($99 million) and (2) an adjustment to community colleges funding to account for improper concurrent enrollment of K- 12 students ($80 million). Proposition tion Reversion Account Swab ($357Million). The [governor proposes reverting funds into the Proposition 98 reversion account from. various prior -year appropriations for which the funds were not needed due to in-tplenaentation delays or ti ndcrutilizat%on. Prior -year reversions include numerous child care programs ($103 million), the Child Care Facilities Revolving Frond ($22 million), Math and Reading Professional Development ($31.7 million), and various state mandates (S20 million). The proposal would use the reversion account funds to backfill $357 million of the 2002-03 General Fund appropriation for the Regional Occupational Canters and Prograrn. This swap saves the state $357 million, A similar swap for adult education was part of the solution reflected in the 2002-03 Budget Act. Governor Proposes to Defer 2003--04 State Mandate Fasts. In the .2002-03 Budget Act, the state provided 5125 million for K-14 education mandates and deferred approximately 600 million in payrnerits. The Government Code requires the state to pay interest (at the Pooled Money Irrvestmont Account rate) when baying overdue mandate claims. Thus, the current -yeas mandate deferral is equivalent to a. low-interest loan from school districts. The Governor proposes to defer payments of K-1.4 state mandates for the 2003-04 budget and conduct audits of reirnbursernent claims, which the Governor estimates to be $87 million (we estimate that the cost could exceed $1. billion). The Legislature could reduce budget -year casts by suspending or eliminating specific mandates. LAO Comments Because the Governor's proposal would lower the Proposition 98 base, the state not only saves money in .2002-03, but also in. 20€.13-04 and beyond. (While a current -year reduction dowry to the minimum guarantee can generate savings over several years, it does not affect the lora-arra Proposition 98 spending level.) Given these potential multiyear savings, we believe the Governor's goal of reducing 2002-03 Proposition. 98 funding to the aiinirnuin guarantee is fiscally prudent, We also generally support the Governor's proposals for targeted reductions, the Proposition 98 reversion account swap, and elimination of the Proposition 98 reserve fund. We do, however, have concerns with the $1.1 billion across -the -hoard reduction proposed irr the December revision. Specifically, we believe the across-the-board cuts would lave an adverse, impact can direct services to students and would be difficult for school districts to absorb in the remaining months of the fiscal year. The across-the-board approach ass€arnes that all existing programs have equal value. While relying mainly on all across- the-board reduction appears to allow school districts flexibility to determine how to implement the proposed cuts, this is not really the case. Since the Governor's approach would require school districts to continue to Meet all of the program requirements of each of the categorical programs, school districts would have little ability to reduce program costs. For example, while the proposal would redraw funding for K-3 Class Size Reduction (CSR) by $60 million and special education by S99 million, school districts would ,still havo to meet the 20 to l student -to -teacher requirement for K-3 CSR and provide all required special education services mandated by state and federal law. In contrast, targeting the reductions at programs that do not have, a direct influence on student services would allow school districts to absorb the reductions with the least impact on students. Targeted reductions also allow programmatic requirernerits to be modified along with the funding. AO Alternative Approach. Figure S (see page 8) shows aro LAO alternative to the Governor's $1.1 billion across-the-board reduction, It includes (I) more targeted reductions, (2) additional reversions, (3) a funding shift for Stagc 3 child care, and (4) defen-als. We believe that these alternatives would allow the Legislature to minimize the impact of the reductions on the classroom by eliminating prograrnniatic requirements along with the funding. Our approach would result in over $500 rnillion in additional general purpose Rinds compared to the Governor's approach. Cour approach also takes advantage of additional orae --time savings and carry-over funds to generate wire -tire reductions in Proposition 98 General Fund appropriations. art �'m aaalty €01 fu�� if�Era ��rai �rjrtd sa+nn�s %: Ar��fii�r��l a�kiQn nece�sar�+ k�a �snveri s��tn�s Budget -Year Decisions. As noted above, a reduction of $1.9 billion in current -year Proposition 98 appropriations also reduces the 2003-04 minitn m. funding guarantee by a shudar amount. However, to achieve these: budget -year savings --and additional savings of almost $800 million ----the legislature would need to repeal specific statutory provisions related to "maintenance factor" repayments and deferrals. The Legislature could also avoid increased education casts in excess of $400 million in 2€104-05 by acco i-nodating .Proposition 49-requirQd increases in after school spending in 2003-04. K-12 School Revenues Lccal Fri ince 4VY ther - twttp Aid Pr ' if n 98 Proposition 98 is the shorthand teen for the state's constitutional M.iniM11111 1`irndingrequirement for K-14 education. This annual spending guarantee is met from two revenue sources., state aid and local property taxes. The state will provide 57 percent of all -12 school revertue in 2002-03, while local. goven-iment sources (property taxes and other local income) will contribute 31 percent. The federal governraeut will provide 12 percent, The state lottery provides Icss than 2 percent of total school. revenues, around $138 por pupil. As provided by LAO (Legislative Analysts Gffice)