HomeMy WebLinkAboutItem 3a: Budget Review Update: FY 2009-10DATE:
TO:
FROM:
SUBJECT:
SUMMARY
March 2, 2010
Mayor and City Council
Donald Penman, City Manager
Hue C. Quach, Administrative Services Director
Fiscal Year 2009 -10 Budget Review Update
Recommendation: Receive and File
STAFF REPORT
Administrative Services Department
Enclosed are the most recent General Fund revenue budget projections and an estimated
ending fund balance for the fiscal year 2009 -10. The newly revised fund balance is
$4,616,330, a small decrease from the November estimates. In short, little has changed
since our November forecast that would require further budgetary actions. Back in
November 2009, staff presented to Council a budget review of the fiscal year where
revenues were reduced in the Sales Tax category and Council chose the option of
balancing that shortfall from savings achieved primarily through hiring freezes, the deferral
of the year's slurry seal project, fee increases and added savings in expenses.
The latest revenue projections have shown little change since November's forecast. In
total, the latest projection shows that revenues are slightly lower than the November
projections by approximately $140,000, a 0.35% difference in comparison to November.
Please note however, that this revision continues to follow a conservative projection and
that actual Sales Tax data for the quarter ending in December 2009 have not been
remitted to the City. In addition, the Transient Occupancy Tax collected in January, which
includes the Rose Bowl and BCS games, will not be known until April 2010. Both factors
are believed to show better than expected estimates, however, we continue to be
conservative in our projections of these categories to provide a margin for error should
those results come in less than expected.
Overall projections also assume a very conservative approach of fully expending budgeted
amounts for the fiscal year, which historically has not been the case. As of the end of
January 2010, total General Fund expenditures are at 53.1%; much lower than the
prorated budget expenditure rate of 58.3% that is typical after expenses are posted for the
month ending January 2010. Each 1°/0 of expenditure savings in General Fund represents
approximately $447,000. Although staff would not presume that the margin of savings will
Mayor and City Council
March 2, 2010
Page 2
continue or become greater, historically, year end expenditures achieve a savings of
approximately 2% though it could be somewhat smaller since expenses have already been
reduced. This would equate to $894,000 savings and if achieved would eliminate any
projected shortfall.
The deferral of the slurry seal was an option that gave staff additional time to monitor the
economy's recovery and come back to Council with a recommendation to proceed or
continue deferral of the project. Based on the updated revenue projections, it would
suggest that we continue to defer the slurry seal project until we are more certain of
improvements ahead. However, staff would return to Council after the December 2009 tax
receipts are posted and if favorable recommend proceeding with the project.
DISCUSSION
The City Council adopted a FY 2009 -10 General Fund budget projecting the need to use
approximately $300,000 in reserves and a projected ending fund balance of $4,614,612.
In November 2009, that projected fund balance was to decrease by $966,838 due to
further decreases in our revenue projections. As Council may recall, the change in fund
balance was primarily attributed to further sales tax decreases due to the economy and
partly due to the State's projection in calculating Arcadia's share of the "in -lieu" sales tax
portion as part of the "Triple Flip" arrangement when Proposition 1A was passed in 2004.
The Council, at that time, took a number of actions to address this decrease in revenues
which are outlined on page 4 of this report.
Since then, our revenue forecast reflects additional decrease to overall revenues of
$137,842. This projected decrease will revise the fund balance to $4,616,330 for the fiscal
year ending 2009 -10. Provided in the table below are the fund summary balances during
each point of the year as staff briefed Council on the fiscal year 2009 -10 budget. The far
right column in the table below reflects the most recent changes in revenue and the effect
to fund balance in comparison to the November numbers (center column).
Mayor and City Council
March 2, 2010
Page 3
Beginning Fund Balance
Revenues:
Revenues
Transfers in from other funds
Total revenues
Ex pe n ditures:
Expenditures
Transfers out to other funds
Total expenditures
Authorized Use of Reserve Fund
CITY OF ARCADIA
GENERAL FUND
FISCAL YEAR 2009 -10 BUDGET REVIEW UPDATE
March 2, 2010
Net Revenue / Expenditure (under)
FY 2009 -10 FY 2009 -10 FY 2009 -10
Adopted November March
Budget 2009 Review 2010 Review
$4,900,612 $4,900,612 $4,900,612
40,725,840 40,029,902 39,892,060
4,380,610 4,880,610 4,880,610
45,106,450 44,910,512 44,772,670
44,736,680 44,401,182 44,401,182
655,770 655,770 655,770
45,392,450 45,056,952 45,056,952
286,000 300,000 300,000
153,560 15,718
Ending Fund Balance $4,614,612 * 4,754,172 * $4,616,330
* Inclusive of the proposed revenues, expenditure savings, and authorized use of reserve fund in resolving the
projected shortfall during the November 3, 2009 budget review.
Mayor and City Council
March 2, 2010
Page 4
At the conclusion of the November 3 City Council meeting, staff was given direction to
use "Option 2" as the means to balance the budget shortfall presented during that meeting.
In summary, Option 2 proposes the deferral of street rehabilitation project, savings from
unfilled positions, fee increases and other reductions in general expenses. A complete
summary of Option 2 is provided below. The deferral of Street Rehabilitation project would
allow Council to transfer that amount, $500,000, to the General Fund for all operational and
qualifying "Gas Tax" expenditures. Implementation of this option would result in a net
surplus of $153,560, though staff is proposing to expend just over $100,000 on the
concrete /sidewalk program.
Option 2:
FY 09 -10 Projected Deficit Balance: $ (1,252,838)
Reserves /Revenue /Contract Savings:
Gas Tax Transfer to General Fund / Deferral of Slurry 500,000
Seal Street Project
FY 09 -10 Reserve (Council approved) 300,000
FY 09 -10 User Fee Increase (already approved) 270,000
General Plan Update Savings 86,529
Savings - Janitorial & Porter Contract 43,751 1,200,280
Unfilled Vacancies Savings:
DSD - Assistant Planner - vacant 6 mths 37,325
Library - Librarian II - vacant 3 mths 19,606
PD — Two (2) unfilled positions /vacant for several mths 64,840
PW - Maint Worker - vacant 2 mths 9,374
PW - Maint Worker (2) - vacant 6 mths 56,244
PW - Fleet Technician I - vacant 2 mths 11,419
PW - Storekeeper /Buyer - vacant 5 mths 7,310 206,118
Revenue Projections:
Net Surplus /(Deficit) Balance: $ 153,560
Provided below are information, by line item, of the various revenues in our analysis for this
report. Their forecast has been a challenge given the recession and its affect on revenues
that are collected by the City. A greater challenge was to project accurately revenues that
are sensitive to the state of economy as their volatility were more difficult to gauge than
past years. In particular, Sales Tax and Transient Occupancy Tax were among the major
revenue categories that were known to be sensitive to the economy; however, their
volatility could not be accurately predicted due to the numerous dynamics that influenced
Description
FY 2009 -10
Adopted
Budget
FY 2009 -10
November
Projections
FY 2009 -10
February
Projections
November
vs
February
November
vs
February
Property tax
9,102,000
9,218,268
9,101,400
(116,868)
-1.3%
Public Safety Augmentation
390,000
342,903
287,800
(55,103)
-16.1%
Franchise fee
1,100,000
1,100,000
1,058,100
(41,900)
-3.8%
Sales tax
9,189,000
8,122,350
7,983,300
(139,050)
-1.7%
Transient occupancy tax
2,495,000
2,495,000
2,279,800
(215,200)
-8.6%
Utility users tax
5,300,000
5,300,000
5,300,000
0
0.0%
Business license tax
961,580
961,580
1,021,100
59,520
6.2%
Building permits
680,000
680,000
790,800
110,800
16.3%
Plan check fee
535,000
535,000
631,300
96,300
18.0%
Motor vehicle license fee
4,526,000
4,556,642
4,486,400
(70,242)
-1.5%
Ambulance charge
900,000
900,000
1,033,900
133,900
14.9%
All other
5,547,260
5,547,260
5,647,260
100,000
1.8%
Total Revenue:
$40,725,840
$ 39,759,002
$ 39,621,160
$ (137,842)
-0.35%
Mayor and City Council
March 2, 2010
Page 5
their results. Staff has reviewed all of the major revenue categories noted in the table
below and adjusted those estimates based on more recent data collected since November.
In comparison to the November 2009 numbers, revenues are trending lower but relative to
the overall increases and decreases, the net affect is a decrease of approximately
$137,842, a difference of 0.35% in comparison to the November assessment. Please see
the chart below on the changes to each revenue category.
CITY OF ARCADIA
GENERAL FUND
FISCAL YEAR 2009 -10 BUDGET REVIEW UPDATE
MARCH 2, 2010
Mayor and City Council
March 2, 2010
Page 6
Property Tax: Property tax has been readjusted to $9,101,400, back to the level of when
the budget was initially adopted. The decrease is a result of lower receipts as of to date in
comparison to November's projection of a 2.9% increase.
Public Safety Augmentation Fund: This revenue source derives from the State and is
based on the result of Statewide Sales Tax collection. The decrease is due primarily to
lower statewide sales tax collections.
Sales Tax: As Council may recall, at the November 3 City Council meeting, staff
presented information regarding the sales tax decline due to the state of the economy in
addition to the State's overall projection in calculating Arcadia's share of the "in -lieu" sales
tax payment as part of the "Triple Flip" arrangement that was agreed to when Proposition
1A was passed in 2004.
Since November's estimate, staff has received data up through the 3 quarter of calendar
year 2009 that was included for this analysis. Unfortunately, those data show further
downtrend that gives the basis for the decrease to prior estimates. Sales tax is projected
to further decrease by $139,050 and revises our budget figure to $7,983,300.
Please note however, that this revision continues to follow a conservative projection and
that actual Sales Tax data for the quarter ending in December 2009 have not been
remitted to the City. News and indicators have since noted that the holiday quarter had
experienced better than expected results. Our continued conservative assessment in this
category is to provide a margin for error should those results come in Tess than expected.
Transient Occupancy Tax (TOT): Since November, data has been remitted up through
the quarter ending December 2009. Based on those tax remittances, TOT is expected to
decrease $215,200, 8.6% off the adopted budget of $2,495,000. Although this year's TOT
was expected to be better than the previous year due to Breeder's Cup, Rose Bowl, and
the BCS game; when staff spoke to a few hotel /motel managers, all have indicated that
business travels have continued to decline more than they had expected.
Other Revenue Variance:
Based on staffs analysis, other major revenue projections are showing positive results.
Some of those increases were a surprise but they seem to correlate to what we see in the
economy. As an example, the increases to Building and Permits and Plan Check Fees
seem to be driven by the current low mortgage rates that are being offered. Other
revenues expected to increase are: Business License and Ambulance charges.
Mayor and City Council
March 2, 2010
Page 7
The latest revenue projections have shown little change or much improvement since
November's forecast. In total, the latest projection shows that revenues are slightly lower
than the November projections by approximately $140,000, a 0.35% difference in
comparison to November. Overall projections also assume a very conservative approach
of fully expending budgeted amounts for the fiscal year, which historically has not been the
case. As of the end of January 2010, total General Fund expenditures are at 53.1 %; much
Tower than the prorated budget expenditure rate of 58.3% typical after expenses are posted
in our financial system for the month ending January 2010. Each 1% of expenditure
savings in General Fund represents approximately $447,000. Although we would not
presume that the margin of savings will continue or become greater, historically, year end
expenditures achieve a savings of approximately 2 %. This would equate to $894,000
savings that would further improve current projected shortfall.
The deferral of the slurry seal was an option that gave staff additional time to monitor the
economy's recovery and come back to Council with a recommendation to proceed or
continue deferral of the project. Based on the updated revenue projections, it would
suggest that we continue to defer the slurry seal project until we are more certain of
improvements for the remaining fiscal year.
Improvements to the financial condition could result from a combination of revenue
increases or further expenditure savings achievable in the latter part of the fiscal year. As
noted above, expenditure savings to date are greater then where we typically should be.
The continuing pace of savings would provide enough iatitude to cover projected shortfall
and allow for the slurry seal project to occur.
However, should Council feel that further measures should be implemented, outlined below
are alternative options that can be implemented to further alleviate any concerns for the
newly projected revenue shortfall.
• Continuing to put a "freeze" on existing vacant positions for the rest of the fiscal year
to achieve additional savings.
• Develop a list of cuts from the Remaining 5% Priority List that was instituted during
the budget adoption process. Further cuts from this list would affect services
delivery by each department.
• Use additional reserves, specifically those that were authorized last fiscal year
($450,000) but not needed.
In summary, Council actions taken to date have been very responsive to the changing
economy and consistent with prudent financial planning. It would have been our hope to
Mayor and City Council
March 2, 2010
Page 8
be able to present to Council a financial report that would allow us to proceed with the
street rehabilitation project at this time. However, we have always stated that a "measured
approach" was the best plan of action to deal with these difficult economic times as it
allows for sensible and planned cuts without causing unpredicted cost increases or
impacting moral by making unnecessary services cuts. We continue to believe that the
outlook for the rest of the fiscal year will improve and the options we currently have in place
provide for a balanced budget with limited or no use of reserves by year end.
RECOMMENDATION
It is recommended that the City Council receive and file this report.
Approved By:
Donald Penman
City Manager