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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