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Home My WebLink About05/26/11AGENDA ADJOURNED REGULAR MEETING HERMOSA BEACH CITY COUNCIL Thursday, May 26, 2011 -7:00p.m. Council Chambers, City Hall 1315 Valley Drive MAYOR Peter Tucker MAYOR PROTEM Howard Fishman COUNCIL MEMBERS Patrick 'Kit' Bobko Michael DiVirgilio Jeff Duclos CALL TO ORDER PLEDGE OF ALLEGIANCE ROLLCALL CITY CLERK Elaine Doerfling CITY TREASURER John M. Workman CITY MANAGER Stephen R. Burrell CITY ATTORNEY Michael Jenkins PUBLIC PARTICIPATION: Although the City Council values your conunents, the Brown Act generally prohibits the Council from taking action on any matter not listed on the posted agenda. 1. PRELIMINARY BUDGET REVIEW a. OVERVIEW OF BUDGET CHANGES b. OVERVIEW OF REVENUE CHANGES c. REVIEW OF DEPARTMENT EXPENDITURES d. STAFF REPORT AND RESOLUTION ADOPTING FEES AND CHARGES FROM COST OF SERVICES STUDY. (Continue to meeting of June 14, 2011 for adoption) e. FORECAST FOR 2012-13 RECOMMENDATION: Review and provide direction to staff. ADJOURNMENT CCIITTYY OOFF HHEERRMMOOSSAA BBEEAACCHH 22001122--22001133 FFOORREECCAASSTT May 10, 2011 Honorable Mayor and Councilmembers: The forecast for 2012-13 is provided herein. The forecast will be incorporated into the final print of the Adopted 2011-12 Budget. Current Financial Condition, 2011-12 A brief overview of the 2011-12 Preliminary Budget is included here so this document may stand alone. The General Fund, Insurance Fund and Equipment Replacement Fund are included in this forecast since the funds are inter-related for purposes of balancing the budget. The primary key to balancing the budget for 2011-12 is the removal of seventeen (17) positions permanently from the budget. Twenty-five (25) unfunded positions resulted from 1) the offering of the Two Year Service Credit early retirement program and 2) frozen positions from the previous budget. A total of ten (10) positions were filled either at Midyear Budget Review or in the 2011-12 Budget: Public Works Director, Police Captain, Fire Captain, two (2) Police Officers, one (1) Police Service Officer, two (2) Administrative Assistants, Public Works Superintendent, and Account Clerk. Three additional positions were dropped: Associate Engineer, Code Enforcement Officer (combined with Senior Building Inspector) and Maintenance I. One new position of Assistant to the City Manager was added. Revenue. Revenue in the General Fund shows a slight increase of 1%. The change in budget estimates for some of the largest revenue sources are shown below: Largest Revenue Sources 2011-12 Secured Property Tax +1% Sales Tax +4% Utility User Tax 0% Transient Occupancy Ta x +3% Expenditures. As mentioned previously, the major impact on expenditures is the reduction in approved positions from 142 in 2010-11 to 126 in 2011-12. (a reduction of 17 positions plus one additional position is a net change of 16 positions). Several contracts were re-bid and many line item adjustments were already made in each department in the 2010-11 budget which carries through to the 2011-12 budget. Department budgets include for the second year a line item for Building Maintenance charges as a means of accumulating funds needed for deferred maintenance. We have 1 a balance of a little over $200,000 this year. The funds are included in the Equipment Replacement Fund. Costs for the MacPherson Oil lawsuit, which are expended from the Insurance Fund, continue to drain resources. $870,000 is included for legal and marketing expenses related to the lawsuit. Capital funding of over $500,000 was provided through a transfer from the General Fund to the Capital Improvement Fund. 2012-13 Forecast The economy seems to be on a very slight upward incline, so slight as to almost be imperceptible. We are seeing positive growth in areas of property tax, sales tax and transient occupancy tax which are some of our largest revenue generators. Those trends, slight as they may be, are expected to continue into 2012-13. Revenue growth for 2012-13 will likely remain consistent with 2011-12 at 1%. According to Beacon Economics, home prices and sales are expected to remain weak. Property tax revenue, our highest source of revenue is estimated to grow by 1% as in 2011-12. It could be a bit higher than that but until assessment appeals are known later in the year, it makes sense to assume only 1%. Largest Revenue Sources 2012-13 Secured Property Tax +1% Sales Tax +2% Utility User Tax 0% Transient Occupancy Ta x +2% Sales tax is projected to grow 2% in addition to the 4% assumed for 2011-12. Receipts for 2010-11 are higher by almost 4%. The highest sales tax categories of Eating and Drinking Places, Other Retail, Food Stores and Auto Dealers and Supplies increased (for the first three quarters of 2010-11) by 2%, 4%, 2% and 4% respectively. Utility user tax is assumed to be flat as in 2011-12. Transient occupancy tax growth of 2% is assumed in addition to the 3% growth used in the 2011-12 estimate. Hotel occupancy through March 2011 is at 68% compared to 64% in 2009-10 as shown in the table below. Other comparative measures: Measure U.S. 2011 U.S. 2010 Los Angeles 2011 Los Angeles 2010 Hermosa Beach 2011 Hermosa Beach 2010 Unemployment March 8.8% 1 9.7% 1 12.2% 1 12.4% 1 5.4% 1 5.6% 1 Median Home Price 1st Quarter $158,700 2 $166,400 2 $311,000 7 $321,333 3 $1,108,333 7 $1,019,167 3 Hotel Occupancy Rate (Jul Thru Mar) 73% 4 70% 4 68% 5 64% 5 Consumer Price Index – All Urban Consumers - March 2.7 8 2.3 6 3.0 8 1.9 6 2 Assumptions used in the forecast: • No revenue rate increases are included in the budget. The City Council has been considering fees and charges contained in a cost of services study. Upon approval, those will be factored into the budget, probably at Midyear 2012. • No change in personnel is anticipated for 2012-13 and no salary increases are included other than step increases for employees with less than five years service. • Health benefit increases of 15% and dental benefit increases of 15% are consistent with 2011-12 increases. • Retirement plans will be two-tiered as of July 2011. Rates increases for both tiers are show in the tables below. Group Tier 1 CalPERS Actual Rates 11-12 CalPERS Estimated Rates 12-13 Police 55.353% 56.600% Fire 40.425% 41.400% Miscellaneous 16.036% 16.500% Increase of $ 80,018 Group Tier 2 CalPERS Actual Rates 11-12 CalPERS Estimated Rates 12-13 Police 21.387% 25.887% Fire 21.387% 25.887% Miscellaneous 8.197% 10.197% Increase of $ 25,084 • 3% increases to electric and gas utilities are assumed • Vehicles purchases other than patrol cars and one parking enforcement vehicle will be deferred. • Costs for MacPherson legal fees go from $750,000 in 2011-12 to $125,000 in 2012-13 for an assumed appeal by either party. The result of these assumptions is the following forecast: 201 2 and 2013 Forecast Summary (in millions) General Fund Insurance Fund Equipment Replacement Fund 2012 2013 2012 2013 2012 2013 Beginning Balance $.4 $.4 $3.4 $2.6 $5.2 $5.2 Estimated Revenue $26.9 $27.1 $2.3 $2.3 $1.7 $1.7 Transfers In $.4 $.4 $0 $0 $0 $0 Appropriations $26.0 $26.3 $3.1 $2.4 $2.2 $1.8 Transfers Out $1.3 $1.2 $0 $0 $0 $0 Adjustment for Fixed Asset Additions $0 $0 $0 $0 $.7 $.3 Estimated Ending Balance $.4 $.4 $2.6 $2.5 $5.4 $5.4 Reserves/Loan $.4 $.4 $.3 $.3 $.4 $.3 Investment In Fixed Assets/Bldg Charges $0 $0 $0 $0 $4.3 $4.2 Available Balance $0 $0 $2.3 $2.2 $.7 $.9 Note: A more detailed version of the Fund Summary Forecast is available on page 6. 3 General Fund. The General Fund shows a balance of -0- at year end 2013. Funds of approximately $400,000, estimated to be available in the General Fund at year end, are transferred to the Capital Improvement Fund for projects. Insurance Fund. The position of the Insurance Fund declines slightly due to the fact that there is no funding source for the costs related to the MacPherson lawsuit. Legal costs for MacPherson are reduced from $750,000 in 2011-12 to $125,000 for an assumed appeal by either party. It will take time and favorable claim trends to build the equity back in this fund toward our established goal of $3,000,000. The balance in the Insurance Fund at 6/30/13 is estimated to be $2.2 million however that can change for better or worse when the claims actuarial study is received in June 2011. Equipment Replacement Fund (ERF). The position of the ERF improves somewhat with replacement of only four vehicles as mentioned above. State Budget Impact. No impact is assumed from the State budget. As of the May Revise, released on 5/16/11, the state still has a projected shortfall for 2011-12 of $10.8 billion and an ongoing gap of $10 billion thereafter, which is of concern to the City even though no current proposals affect Hermosa Beach’s budget (since we do not have a Redevelopment Agency). Since there appears to be no consensus at the State level on how to solve the remaining deficit, cities will need to continue to monitor the situation. Impact of Economic Environment on CalPERS Employer Rates for 2012-13. As already mentioned, the City has implemented a two-tier retirement system to address the rising rate environment with CalPERS. The good news is that CalPERS’ investment return for 2010 was 13.3% and is 17.5% for year to date as of 1/31/11. While the past two years losses are still being realized in the city’s rates, the current returns are a marked improvement in performance. The balance in our Retirement Stabilization Fund is $765,000. No funds were used from this fund in balancing the budget for 2011-12 or in the forecast for 2012-13. Contingency Fund. The Contingency Fund is not shown in the forecast however the goal of having a balance equal to 15% of General Fund appropriations is met for both 2011-12 and 2012-13. The Contingency Fund is the City’s “Rainy Day Fund”. CONCLUSION With the personnel reductions made permanent and slight improvement in the revenue picture, the City’s General Fund position is improved. There are a number of efficiency items or economic measures that will be examined or undertaken to further improve our financial position. Those are listed in the Budget Message of the 2011-12 Preliminary Budget and Capital Improvement Program. A solution for infrastructure funding of our aging sewer system must be found as well. Staff will continue with research and/or implementation of items that may save the City money or improve efficiency, as well as monitoring of our revenue trends closely. Respectfully submitted, Viki Copeland Finance Director 4 1 Employment Development Department 2 National Association of Realtors 3 Data Quick Information System, average of January-March 2010 prices 4 Los Angeles Economic Development 5 Hermosa Beach Finance Department 6 U.S. Bureau of Labor Statistics, March 2010 7 Data Quick Information System, average of January-March 2011 prices 8 U.S. Bureau of Labor Statistics, March 2011 5 CITY OF HERMOSA BEACH FUND SUMMARY FORECAST FY 2012-13 EQUIPMENT GENERAL INSURANCE REPLACEMENT FUND FUND FUND 001 705 715 ESTIMATED REVENUE Taxes $19,967,937 $0 $0 Licenses/Permits $642,005 $0 $0 Fines/Forfeitures $2,112,044 $0 $0 Use of Money/Property $318,391 $0 $0 Intergovernmental/State $194,073 $0 $0 Intergovernmental/County $0 $0 $0 Intergovernmental/Federal $0 $0 $0 Current Service Charges $3,844,651 $2,279,647 $1,703,492 Other Revenue $58,504 $0 $3,000 TOTAL ESTIMATED REVENUE $27,137,605 $2,279,647 $1,706,492 INTERFUND TRANSFERS IN $351,947 $0 ESTIMATED FUNDS AVAILABLE $27,489,552 $2,279,647 $1,706,492 ESTIMATED FUND BALANCE 7/1/2012 $397,100 $2,619,017 $5,232,053 TOTAL FUNDS AVAILABLE $27,886,652 $4,898,664 $6,938,545 APPROPRIATIONS Operating Budget $26,148,261 $2,422,000 $1,547,856 Capital Outlay $0 $263,532 Capital Improvements $150,000 $0 $0 TOTAL APPROPRIATIONS $26,298,261 $2,422,000 $1,811,388 INTERFUND TRANSFERS OUT $1,198,267 $0 $0 TOTAL APPROPRIATIONS/TRANSFERS OUT $27,496,528 $2,422,000 $1,811,388 ADJUST FUND BALANCE FOR FIXED ASSET ADDITIONS 1 $263,532 ESTIMATED FUND BALANCE 6/30/13 $390,124 (a) $2,476,664 $5,390,689 (a) DESIGNATIONS/RESERVES OF FUND BALANCE: Investment In Affordable Housing $41,831 Fixed Assets Reserve for Capital Outlay $9,592 $3,890,536 Reserve Greenwald Theatre Improvement donation $45,000 Designate Building Charges Clark Building Future Renovations $1,000 $304,665 General Plan Maintenance Fees $98,709 Verizon PEG Grant $50,121 Sales Tax Receivable - Due 01/14 $143,871 $390,124 Storage Lot Loan (reduced by lease revenue) ($293,502) ($293,505) Available Fund Balance 6/30/13 $0 $2,183,162 $901,983 6