HomeMy WebLinkAboutFin Budget FY2011-12cIry of 13
Agenda Item No:
Meeting Date: March 21, 2011
SAN RAFAEL CITY COUNCIL AGENDA REPORT
Department: Finance
Prepared by: Cindy Mosser, ,y) W, fivt 'i City Manager Approval• & A4;
Finance Director
SUBJECT: DISCUSSION OF THE PRELIMINARY CITY BUDGET FOR FISCAL
YEAR 2011-2012
RECOMMENDATION: ACCEPT REPORT
BACKGROUND:
As has been the tradition in San Rafael for many years, the City Council is asked to begin the
review of the major elements contained in the 2011-12 preliminary budget. Integrated into the
budget development are the City's Financial Management Policies. Fifteen prudent practices
related to managing the City's human, financial and infrastructure assets are in place to ensure
long-term, sound fiscal management for San Rafael.
Economic conditions are also a major factor when considering the City's budget.. The 2011-12
Budget: California Fiscal Outlook Report issued by the Legislative Analyst's Office cites that
the National Bureau of Economic Research determined that the national recession began in
December 2007 and ended in June 2009. California's recession started earlier than the nation's
and was deeper. Due to the severity, California's recovery is expected to be very slow. Factors
contributing to the delayed revitalization are unemployment rate of 12%, the real estate
inventories, depressed economic confidence, and reduced discretionary income. Many
economists are forecasting that unemployment will not return to prerecession levels and eventual
pickup of the housing market will not occur until 2016.
This report will provide the City Council and community with update on our preliminary budget
progress for fiscal year 2011-2012. At the February 22, 2011 meeting, the City Council was
presented with a mid -year budget review for fiscal year 2010-11. Excluding some one-time
items, fiscal year 2010-11 is the baseline for next year's budget.
At the March 7th Council Meeting, the Interim City Manager provided a comprehensive
background of the City's many budgetary actions taken since fiscal year 2008-09. Therefore, the
in-depth details of the budget sacrifices will not repeated. The numbers contained in this report
represent a high level view of the City's preliminary expenses and financial condition.
FOR CITY CLERK ONLY
File No.:
Council Meeting:
Disposition:
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2
Below is an analysis of the preliminary 2011-2012 budget.
ANALYSIS:
REVENUE ASSUMPTIONS:
Due to the longest recession since World War II and the most severe downturn since the Great
Depression, the City's revenues have taken a major hit. The City's preliminary General Fund
operating revenue estimates of $52.9 million for fiscal year 2011-12 are still 10.8% lower than
fiscal year 2007-08 General Fund actual operating revenue high of $59.4 million.
The major sources of funds required to pay for all of the services provided to the community
continue to be taxes. General Fund taxes comprise approximately 80% of General Fund
operating revenue. Sales tax revenue is still the number one revenue source for the City with
property tax a close second.
• Sales Tax — Preliminarily, we are increasing the sales tax by approximately $700,000. This
6.3% increase is due to modest economic growth and a new auto dealer, offset by the closing
of a book store. This estimate could be changed after we receive our fourth quarter results,
which are expected imminently.
• Property Tax — Information from the County shows a slight decline of $77,000 for property
taxes. Declines are due to the County's process of reassessing property valuations.
• Other revenue adjustments include reductions of Police revenue for vehicle code fines and
red light camera fine of $170,000. The County is still not able to give an accurate breakdown
of red light camera fines.
Our preliminary revenue estimates do not include any of the rumored "take-aways" from the
State's budget woes. We will bring adjustments back to the Council, if the State's budget
eliminates or reduces Literacy funds, Public Library funds, and Child Care funds like First Five.
The elimination of Redevelopment Agencies would also have an impact.
Revenues for services also have not been adjusted. Currently, a cost study is in process and will
be brought to the Council within the next month. The study will allow the City to fully recover
certain cost borne by the staff for development services and inspections.
EXPENDITURES ASSUMPTIONS:
Several key elements have been included in building the "expense" side of the budget for the
next year. To get a starting point, the following items are incorporated into the preliminary
appropriations:
1. All bargaining units' contracts, except for the Child Care bargaining unit, will expire on
June 30, 2011. The Child Care bargaining unit expires on October 31, 2011. No wage
increases were included for the bargaining groups. For management and mid -
management hired before January 1, 2009, health insurance increase of 12.5% is
included.
2. The overall pension rate for the City was increased equally among the personnel cost for
a blended rate of 50.01% (approximately $1.5 million increase). We are waiting on a
breakdown for bargaining unit rates from Marin County Employees' Retirement
Association for a more accurate calculation.
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3
3. No cost of living increases are included for non -personnel expenditures. Most of the
expenditures remain at fiscal 2007-2008 level. We have included increases or
adjustments for contracts or required expenditures. Examples of some increases include
Fire dispatch services with the County -currently estimated to increase by $137,000;
MARINet cost for the Library will increase by $18,000 and audit services increase of
$2,000.
4. One-time items from fiscal year have been added back or reduced from the preliminary
budget. For example, we have added back funds for non -safety equipment
(approximately, $290,000). Non -safety furlough savings of approximately $450,000 are
eliminated to show total personnel expenditures. Marinwood contract of $300,000 has
been eliminated. One-time Police temporary help of $200,000 has been eliminated.
5. We adjusted the reserve level. The General Fund reserve is estimated to be 2.4% or
approximately $1.33 million at the end of fiscal year 2010-2011. This amount is well
below the 10 percent goal our approved financial policies. Therefore, we have
preliminarily added $500,000 to the reserves in fiscal year 2011-2012.
"One Time" Savings of Prior Years
Oftentimes when addressing a budget deficit, reductions are identified that are "one-time" in
nature meaning that they can act as savings that year but are not expected to act as savings on an
on-going basis. They can be a very useful tool to address a short term problem and they can also
"buy time" for economic recovery to start having a positive impact on revenues. However, they
can not address an on-going structural deficit as the savings are not intended to be permanent.
In January 2010, fiscal year 2010-11 had a deficit of $4.4 million: The following table shows the
reductions used to eliminate the deficit.
- Description
Amount
Original Fiscal Year 2010-2011 Deficit
($4,400,000)
One-time items including furloughs; equipment
deferrals; transaction based revenues, one-time
contract reduction; transfer of funds for
operations (Gas Tax funds)
2,656,600
Ongoing operational costs like supply reductions,
elimination of positions and layoffs
1,193,400
Reduction & duplication error (Marinwood
contract was eliminated but renegotiated for a
ear)
550,000
Total
$0
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4
Our preliminary estimate for fiscal year 2011-12 indicates a deficit of $4.3 million, however, as
Exhibit I indicates, there are actions the City Council can consider that have been utilized in the
past to reduce this deficit figure to approximately $800,000. The following table shows the
elements of the deficit:
Description
Amount
One-time items: furloughs; vehicle replacements;
one-time use of funds (gas tax); transfers
$3,600,000
Additional pension costs for fiscal year 2011-12
1,500,000
Increase reserves
500,000
Revenue adjustments: Sales tax increase;
Property tax decrease; Police fines decrease;
Transaction & Use tax increase;
(860,000)
Elimination of one-time expenses: Marinwood,
Police temporary help
(500,000)
Contractual updates (combination of increases
and decreases): Fire dispatch service, MARINet;
debt service payments, etc.
130,000
Total
$4,370,000
Exhibit I gives an itemized schedule of the preliminary budget gap and examples of one-time
items used in previous years. These are items for discussion at a future Council meeting and are
included here to illustrate possible approaches to closing a portion of the budgetary gap.
Expenditures and revenues are very preliminary at this stage. Departments have until March 25
to review their department's operational information for accuracy and contractual differences.
Since a budget is never a static document, we will continue to monitor all funds and adjust as
information is remitted to the City. As the Interim City Manager's March 7th report noted the
following unknowns, the statements have not changed:
State Budget Impact
At this point, the State's budget deficit stands at over $25 billion. It remains unclear at this stage
how the State budget will affect local government. Even given Prop. lA and Prop. 22, we seem
to be in a constant defensive position regarding state takes. The Governor's current proposal
would take City funds primarily in the areas of the Library, Community Services, and
Redevelopment. If this were to occur, popular programs such as economic development,
affordable housing, literacy, and early childhood education would be affected. There are other
proposals such as "realigning" State programs to local governments with the impact as yet
unknown. It is too early to tell how the State's deficit will impact our budget, but it will become
clearer in the coming months as the City's budget is assembled.
Unknown Factors
Also during these next four months, staff will be engaged in labor negotiations with all
bargaining units. All labor contracts (except Childcare) will expire on June 30, 2011. Cost
savings that can be achieved through the negotiation process, such as reductions to pension or
other costs, would have a direct positive impact on the General Fund.
SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 5
Also, other economic factors could impact the City's budget. It is unknown how Japan's
earthquake and the resulting tsunami will affect the current fragile economy. The City's modest
sales tax growth could change if consumer confidence takes a nose dive or if prices for goods
increase exorbitantly, so that consumers can not afford to purchase goods.
This preliminary budget information will be updated and brought forward for Council review
and approval in the upcoming months.
FISCAL IMPACT:
There is no fiscal impact of accepting this informational report.
ACTION REQUIRED: ,
Staff recommends Council accept this informational report and provide any direction regarding
the preliminary budget projections.
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