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HomeMy WebLinkAboutAgenda Report - January 5, 2005 I-01� CITY OF LODI AGENDA ITEM COUNCIL COMMUNICATION TM AGENDA TITLE: Fiscal Year 2005-06 Budget Strategy Update and Discussion MEETING DATE: January 5, 2005 PREPARED BY: Finance Director RECOMMENDED ACTION: That the Lodi City Council discuss the update regarding the Fiscal Year 2005-06 Budget Strategy. BACKGROUND INFORMATION: As you will recall, the City Council received information from the Finance Department regarding the estimated structural imbalance at the regular City Council meeting of November 3, 2004. The following information is to provide you with an update on the projected 2005-06 budget imbalance and the initial steps taken to begin to resolve the imbalance. First of all, the 2004-05 budget, which was approved by following information. As of that presentation, the General The primary element of this surplus is property taxes that amount of approximately $1.9 million. • • �,IL'. : f Budgeted Revenues Budgeted Transfers In Total Revenues Budgeted Expenditures Budgeted Transfers Out Total Expenditures Net Difference Other items included in other sources and Uses Net Amount the City Council in July 2004, showed the Fund Budget showed a surplus of $417,990. were allocated to the General Fund in the $32,587,481 5,966.255 38,553,736 (34,490,227) (5,319,519) (39,809,746) (1,255,010) 1,674,000 APPROVED: Jan S. Keeter, nterim City Manager Fiscal Year2005-06 Budget Strategy Update and Discussion January 5, 2005 Page Two The following shows that the initial estimate of the structural imbalance in 2005-06 was approximately $1.33 million. This was based on estimates of very little growth in revenues and that expenditures would grow in a linear pattern at the same rate as had been the case in previous years. Verbal testimony at that Council meeting indicated that the imbalance would be in the magnitude of $1.7 million. That verbal estimate was based on preliminary information on the bargaining agreements with the Police and Dispatch associations and little information related to the PERS increases. The other items included at the bottom of the budget in past years, were also reclassified so as to show these items as expenditures and revenues instead of grouping them under the general "other category'. In this presentation, General Fund Expenditures were estimated in total for 2005-06 at $38.9 million. Anticipated revenues were $37.6 million. Expenditures were reduced by a net amount of $900 thousand related to anticipated savings from several elements as enumerated below. Essentially those savings were anticipated to be reductions in 04-05 that will be shown as beneficial elements of the 05-06 budget. ES M&t M If ce � iif V �) Revenues and Transfers In 2004-05 Other items (Sales Taxes 500K and Permits 400K) One time property taxes transfer included in 04105 Estimated State Take away - for 05106& 06/07 Subtotal Estimated Base Line Revenues 05-06 Expenditures and Transfers Out 2004-05 hems movW from Other to Expenditures: Bargaining unit increases PERS Increases in addition to amounts budgeted Savings from Step E budgeted salaries Administrative Leave cash out and VTO savings Savings from Additional Vacancies Estimated employee's share of Health Insurance Budget Savings in Supplies, Materials, Services Subtotal Estimated Base Line Expenditures 05-06 38,553,736 900,000 (2,039,615) 157,920 81 37,572,041 (39,809,746) (981,833) (189,940) 200,000 300,000 770,000 552,700 250,000 900927 (38,908,819) Net Structural Imbalance LI,336,7781 As of this writing, the estimates for the imbalance have grown somewhat based on netting the growth in revenues and revised information on expenditures. General revenues appear to be ready to grow by approximately 5% (Including Sales Taxes as the primary element) and direct revenues (those attributed directly to programs and for purposes specifically designated) with growth in the range of 10-20%. Payroll related expenditures [principally bargaining unit increases. Public Employee Retirement System (PERS) rate increases, and insurance premium increases] drive the increases in expenditures. Fiscal Year2005-06 Budget Strategy Update and Discussion January 5,205 Page Three Staff is recommending that two steps be taken to reduce expenditures that amount to approximately $1.2 million in savings; and reduce the imbalance to approximately $1.7 million as shown below. One of the steps we are recommending is that the PERS rate increases be amortized over the maximum period allowable. Under the circumstances this is a prudent business practice and takes advantage of the leveraging opportunity this strategy affords. The other element of strategy is to not charge electric, water or sewer charges to the General Fund for publicly owned facilities. This is consistent with the practices currently in place with these Utility funds. The cost of utilities for City owned utility operations are not charged to those facilities directly. The savings from not charging city facilities will be matched by corresponding reductions in costs in city owned utilities. The net effect will be that these revenue reductions will not result in any additional amount charged to city customers. Es i`rgte x-46 [Whg1jace its stated on 1-" Initial Base Line Revenues 05-06 37,572,041 Additional General Revenues 1,132,845 Additional Direct Revenues 200,000 Reduced Direct Revenues (First Responder Fees) -240,000 Subtotal 1.092,845 Revised Baseline 05-06 Revenues 38,664,886 Initial Bose Line Expenditures 05-06 (38,908,819) Bargaining unit increases estimated in 04-05 981,833 Actual Bargaining unit increases in comparison to (1,350,000) budget Estimated Health and other insurance increases (450,000) Corrected Estimate of Health Insurance Contribution (250,000) Estimated Cost of Living Increases (440,000) Estimated Step Increases (250,000) Public Employees Retirement System Rate Increases (900,000) Amortization of PERS rate increases over 30 years 650,000 Eliminate Utility Charges for Public Facilities 560,000 Subtotal (1,448.167) 05-06 Expenditures Without additional cuts (40,356,986) Net Structural Imbalance (1,622,100) 05-06 Expenditures Before implementing (40,356,986) cuts Structural Changes Needed to Balance 1,692,100 Targeted Expenditures (38,664,886) Fiscal Year 2005-06 Budget Strategy Update and Discussion January5, 2005 Page Four As indicated by the revised numbers, the imbalance has grown since the last discussion with the City Council. Several conclusions related to the problem are apparent as follows: 1) The General Fund needs to either reduce expenditures by at least $1.7 million or revenues need to be added in that amount. There are several revenue enhancement ideas. And of course, many of these require either a vote of the public or a protest hearing and vote. 2) Cuts in expenditures will need to include consideration to the priorities that have been established; but all departments will feel the effect of cuts of this magnitude. 3) Structural changes should be given paramount consideration. Changes, which are one time in nature, will only defer the effect of those cuts to a later time. The changes needed at this time are those that will provide for a stable fiscal condition in future years as well as provide the needed financial effect in fiscal year 2005-06. Discussions -with Dwartrwmts Interim City Manager Keeter and Jim Krueger have met with each department to discuss the initial stages of how to implement adjustments of the magnitude enumerated above. The reductions that have been discussed are based on assumptions that do not include the long-term amortization of the PERS increases nor did they include the reduction in utility fund charges for public facilities. The range in reductions discussed so far has been between 3% and 15%. This range will be reduced to a more moderate amount of 3% to 10%; with the largest reductions recommended in the non-public safety areas and the smallest in the public safety area. In addition, discussions have included the basic assumption that all city departments will need to feel the effect of this structural imbalance in order for a fair and effective resolution of the problem. This means that all departments will need to examine how they can reduce expenditures within the framework of 3%-10% cuts. There has been considerable discussion of how this problem can be resolved without reducing expenditures. Some departments will be making recommendations regarding rates and revenue increases. In cases where the service provided (Parks, Recreation and Community Center) is not subject to protest, those changes may be simpler to effectuate than those of a general nature. In all cases, however, the City Council will undoubtedly hear from those effected that these rate and fee increases will be difficult to live with. Be prepared to hear ideas from departments that will include options that are revenue oriented as well as service cut oriented. Conclusion: There has been the usual hesitancy to move forward with cuts, until the full financial picture is known. The financial picture will most likely not get worse; however, it could. Revenues are still not as secure as would be expected with a fully recovered economy. Sales tax revenues in the first quarter of 04-05 appear to be looking better than was last conveyed to you in November 2004. But if a downturn in the local economy occurs we will need to adjust the expenditures rapidly since we are operating with a reserve of approximately 6%. We are hopeful that nothing will occur to damage the economic recovery and cause further adjustments to be made. We are looking at bringing our financial resources in to line with our expenditures in fiscal 2005-06. We will not see our fund balance increase until future years when the full effects of bringing revenues and expenditures in line with each other are felt. Until then our fund balance will hover at the 6% to 10% range. This is still less than the fund balance of many other cities in California; but we will start to make progress in the next two years. We should be able to achieve a 15% fund balance within approximately 5-7 years. Fiscal Year 2005-05 Budget Strategy Update and Discussion January 5, 2005 Page Five The resolution to this budget problem will require the concerted efforts of all city staff, City Council and the public. We hope to be able to start implementing changes as soon as is practicable and within the time frame of when they are needed in order to bring about fiscal balance. We will be discussing the impacts to departments with you and the cuts or revenue enhancements in more detail during the months of January and February. We also anticipate that our new City Manager will want to have input in this process too. We will keep you apprised as the budget continues to unfold along with the resolution to the structural imbalance. FUNDING: Not Applicable. "IArnes R. KrueWr finance Director JRK/JSK Janj6 S. Keeter r Int rim City Manager