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HomeMy WebLinkAboutItem 10a - Operating Budget and CIP and EquipmentAdoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 1 of 18 DATE: June 19, 2018 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager Hue Quach, Administrative Services Director SUBJECT: RESOLUTION NO. 7224 ADOPTING A BUDGET FOR FISCAL YEAR 2018-19 AND APPROPRIATING THE AMOUNTS SPECIFIED THEREIN AS EXPENDITURES FROM THE VARIOUS FUNDS Recommendation: Adopt RESOLUTION NO. 7225 ADOPTING A CAPITAL IMPROVEMENT AND EQUIPMENT PLAN FOR FISCAL YEARS 2018-19 THROUGH 2022-23 Recommendation: Adopt SUMMARY Sections 1204 and 1205 of the Arcadia City Charter require a public notice and a public hearing for consideration of the proposed Operating Budget and Five -Year Capital Program for the ensuing fiscal year which is required to be adopted by July 1. The recommended actions are necessary to implement the budget for Fiscal Year 2018-19. This year’s budget process included a Budget Study Session with the City Council on May 15, 2018. At the end of that meeting, a copy of the draft proposed budget was provided for the City Council’s review. Inclusive in the draft budget were all operating funds including General, Special Revenues, Enterprise, and the Successor Agency. Additionally, the City Council received the Capital Improvement and Equipment Replacement Fund budgets in a separate document. All funds total $120.5 million in expenditures, of which the General Fund’s budget is $62.4 million (excluding Transfers Out noted below). As Special Revenues, Enterprise, and Debt Service funds are restricted to specific purposes and are generally self-sustaining, this report will primarily focus on the General Fund’s Operating Budget. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 2 of 18 The proposed FY 2018-19 General Fund Operating Budget anticipates Total Operating Revenues of $64.4 million and Operating Expenses at $67.5 million, including new programs added for FY 2018-19 and approximately $5.1 million of Transfers Out to Special Revenue Funds for operational programs and Capital Funds for future critical maintenance and replacement needs. This year, a true rate of transfer to the capital funds are reflected, showing a significant increase in comparison to past year transfer amounts. While there are current fund balances in these capital funds to use for projects proposed in this Fiscal Year, this true rate of transfer comes with the intention to account for and ensure there will be funds available for critical infrastructure improvements and replacements of major equipment in future years. In addition, it highlights the need for the community to either find significant means to reduce its expenditures in the coming years or to find one or more new ongoing revenue sources to truly balance the budget. This true rate was estimated using historical spending patterns and future known budgeted outlays shown in the five-year expenditure plans of Capital Improvement and Equipment Replacement Funds. After total revenue and expenditures are considered, the ending Operating General Fund Balance will reduce by $3.1 million, with a projected ending Operating Fund Balance of $5,109,800. It would be appropriate to note that this is the General Fund Operating Fund Balance, used to manage annual operating cash flow. The City continues to meet the need for setting aside an Emergency Reserve Fund, currently with a balance of $10.1 million, as well as having other designated fund balances for Workers’ Compensation costs, Liability costs, a New City Hall sinking fund, Capital Improvement programs, and Equipment Replacement funds. FY 18-19 Budget Beginning Fund Balance: $ 8,208,600 Total Revenues 64,389,800 Total Expenditures 62,386,800 Subtotal: 2,003,000 Total Fund Transfers (5,101,800) Net Surplus / (Deficit): ($3,098,800) Ending Fund Balance: $ 5,109,800 Added to the City’s overall Operating Budget this year are new programs totaling $349,000 proposed in the General Fund. The vast majority of new program costs address public safety needs. They include re-establishing a Special Enforcement Team (“SET”) with a focus towards crime prevention and apprehension of criminals, updating the City’s crime analysis systems, and participating in radio communications interoperability with regional law enforcement agencies. Other proposed programs look to further enhance services provided to the community based on the changing needs of the community. For instance, the Fire Department continues its effort to meet the increased demand for Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 3 of 18 medical emergencies calls, where roughly 69% of the emergency calls to the Fire Department are now for medical attention. The FY2018 -19 budget proposes to upgrade a Firefighter position to a dual Firefighter/Paramedic position to speed up medical response times while also providing staffing flexibility. The proposed budget transfer of funds are itemized as follows: Lighting District, Local Law Enforcement (Officer at AUSD), Capital Improvement, and Equipment Replacement Fund. All transfers total approximately $5.1 million:  Lighting District - $ 759,700  Local Law Enforcement - $ 142,100  Capital Improvement Fund - $2,400,000  Equipment Replacement Fund - $1,800,000 Total: $5,101,800 The Capital Improvement Fund provides the majority of funding for such essential maintenance such as pavement rehabilitation, building repairs, and parks maintenance. A key project in the coming year will be the final phase of modernizing of the City’s signature boulevard medians to comply with water conservation regulations, making them more drought tolerant while ensuring they remain a major community aesthetic component. Other major projects proposed for the year are annual pavement rehabilitation of thoroughfares and residential roads with a Pavement Condition Index (“PCI”) rating of 40 or below, and roof restoration of the City’s Library. Total proposed projects funded by the Capital Improvement Fund will cost $4.1 million. Citywide, the combined capital projects in all funds will cost $14.4 million. The Equipment Replacement Fund provides funding for essential equipment such as computers, vehicles, and major office equipment. Without properly ensuring funds are available to replace or improve upon existing infrastructures, effectively running the Cit y would be impossible over time. The proposed Budget has been prepared with an eye toward slightly expanding the high level of service in Arcadia to respond to community needs in an era of limited financial growth. Operational efficiencies have been identified wherever possible to create additional capacity. Nevertheless, there is an anticipated overall net reduction of $3.1 million in the General Fund balance, which is expected to grow dramatically in the coming years unless significant cost cutting measures are enacted or a new revenue stream is identified. In the coming year, it will be essential that the City resolve this issue in order to ensure that the organization can continue to provide the heightened levels of public safety and overall community service for which Arcadia is known. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 4 of 18 It is recommended that the City Council adopt the proposed resolutions to enact the Fiscal Year 2018-19 Operating Budget as well as the Capital and Equipment Replacement Plans. DISCUSSION Arcadia’s vibrant economy is expected to continue due to the low unemployment rate nationwide, a higher consumer confidence that leads to greater spending, and the continued strength of the local housing market. Specifically, housing valuation continues to be strong in Arcadia, notwithstanding the decrease in sales activities relative to previous peaks. It is in this context that the FY 2018-19 Budget forecasts a continuing growth similar to FY 2017-18. Overall, revenues are expected to increase 3.4%, slightly above the yearly baseline forecast of 3.0%, while expenditures show a growth of 3.6%. On the expenditure side, this growth figure factors in the continued increase in the minimum wage, escalating contractual costs, and the recent labor agreements reached with all five-employee associations. Fortunately, Arcadia’s outlook continues to outpace many other cities within Los Angeles County. However, this year’s operating budget reflects a deficit balance of $3.1 million. This deficit, as presented, includes new programs for the year totaling $349,000, which are described below. It should be noted that the FY 2018-19 deficit balance has been anticipated. When the CalPERS Board approved a reduction in assumed earning rates, from 7.5% to 7.0%, significant upward pressure was put on employer contributions to make retirement funding more sustainable. Similarly, CalPERS has modified actuarial assumptions to encapsulate longer life expectancies, which also leads to increased costs to employers. These retirement costs are expected to continue increasing substantially for the next few years and then stay at those heightened levels for a generation before finally returning to traditionally affordable levels. Summarized in the table below is the General Fund Operating Budget for: FY 2017-18 Year Ending Estimates, FY 2018-19 Proposed Budget for Adoption, and a FY 2019-20 Preliminary Budget Outlook. Please note that FY 2019-20 is not proposed for adoption as the City adopts its Operating Budget annually. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 5 of 18 GENERAL FUND FY17-18 FY18-19 FY19-20 Estimates Budget Budget Beginning Fund Balance 8,166,100 8,208,600 5,109,800 Estimated Revenue 59,038,300 61,094,800 61,818,000 Proposed Expenditures 58,993,300 62,386,800 65,361,200 Revenue over Expenditure 45,000 (1,292,000) (3,543,200) Fund Transfers Transfers-In from other funds 3,661,300 3,295,000 4,000,400 Transfers-Out to other funds (3,663,800) (5,101,800) (5,139,900) Net Transfers (2,500) (1,806,800) (1,139,500) New Programs Subtotal Operating Balance 42,500 (3,098,800) (4,682,700) Ending Fund Balance 8,208,600 5,109,800 427,100 As shown in the table above, the City’s ending Fund Balance will reduce to $5.1 million, which allows for adequate cash flows between Fiscal Years. Per City Council direction, the City also maintains an Emergency Reserve at 20% of annual operating expenditures, which is currently fully funded. This does not include any transfer into the New City Hal l sinking fund, as funding is not available at this time for that effort. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 6 of 18 FY 2018-19 Proposed Revenues For FY 2018-19, total General Fund revenues are expected to increase 3.4% compared to FY 2017-18 year ending estimates. The largest revenue source to the City’s General Fund is from Taxes. The key revenues under this group are: Property Tax, Sales Tax, Transient Occupancy Tax, Utility Users’ Tax, and Motor Vehicle License Fees. Their projected receipts are shown in the table below. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 7 of 18 Description FY 2017-18 YE Estimates FY 2018-19 Proposed Budget Difference % Change Property Tax $ 15,030,200 $ 15,706,000 $ 676,400 4.5% Sales Tax $ 11,271,400 $ 11,553,100 $ 281,700 2.5% Transient Occupancy Tax $ 3,289,500 $ 3,190,800 $ (98,700) -3.0% Utility Users’ Tax $ 6,895,400 $ 6,998,800 $ 103,400 1.5% Motor Vehicle License Fees $ 6,906,100 $ 7,182,300 $ 276,200 4.0% Property Tax: The City expects to continue to benefit from rising real estate prices and a redevelopment trend in both residential and commercial properties. Although home sales and housing activities may have leveled off in comparison to recent years, home sales continue to reflect higher price points and various online real estate sites forecast growth for the Los Angeles area to range from 3% to 5%. Arcadia is expected to be within or greater than the forecasted range based on the City’s historical valuation trend when compared with Los Angeles. The City expects see a continued growth in property tax receipts in the range of 4.5%, or nearly $676,400, for FY 2018-19. Sales Tax: Sales tax revenue is expected to see a 2.5% increase over the prior year. The auto and transportation industry is expected to be flat as built up demands after the Great Recession have been met. Other industry groups are projected for growth between 2.0% to 3.8%. The strongest area is the Restaurants and Hotels industry, which correlates to the low unemployment and higher consumer confidence and spending. Of interest is the projected 7.8% growth in the State and County Pools category. These are sales tax revenues on purchases made out of the State or online at outlets such as Amazon or major telecom sites. Although seen as a positive growth, this shift to online purchasing is a concern because the share of sales taxes received through the pool is significantly smaller than the full 1% rate that the City receives if purchases were made in the City. Transient Occupancy Tax (“TOT”): This tax category is expected to decline in comparison to the prior year. In general, tax from this category has not shown the benefit from an improving labor market (low unemployment rate). While business and vacation travel are up regionally, locally things have stagnated. This is largely due to unique factors, the largest being that the Santa Anita Inn is no longer operating as it has been sold for a new hotel/residential development. Once operational, the new hotel will provide a substantial increase in TOT revenues over the previous hotel on the site; however, the new Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 8 of 18 development will not likely open until FY 19-20. The projection for FY 2018-19 is $3.2 million, a 3.0% decrease over the previous Fiscal Year, which also showed a decrease. Utility Users’ Tax: Utility Users’ Tax (“UUT”) is projected to have a slight increase of 1.5% when compared to the FY 2017-18 Year Ending Estimate. While water conservation is expected to continue, water rates will increase as a result of imported water costs r ising and the need to add treatment to City wells. In addition, rates for statewide electricity & gas utilities are also projected to grow by approximately 2.0%. A continued reduction in the telephone UUT is predicted as landline telephone use continues to drop and cellular companies provide lower cost options for consumers. Overall, the FY 2018-19 projected UUT is approximately $7.0 million, 1.5% greater than FY 2017-18. Motor Vehicle License Fees (“VLF”): This tax is projected to increase by 4.0%, to $7.2 million. Revenues from this line item are largely tied to annual property assessed valuation. Because of this, the City has benefitted from many years of generous growth and will continue to do so in the next Fiscal Year. Other major revenue categories such as Franchise Tax and Licenses and Permits are projected to have little change compared to FY 2017-18. One noted exception is Building and Plan Check fees, which are expected to return toward their “normal” levels at around $1.4 million. All other revenue categories for the General Fund are expected to have modest growth for the coming Fiscal Year. FY 2018-19 Proposed Expenses City Manager 2% City Clerk 1% City Attorney 1% General City 3% Administrative Services 5% Police 37% Fire 26% Public Works Services 7% Development Services 8% Recreation & Community Services 5% Library & Museum Services 6% GENERAL FUND EXPENDITURE FY17-18 Budget Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 9 of 18 Total operating expenditures are expected to grow 3.6%. The Operating Expenditure budget continues to maintain the same high level of services with no material increases beyond those described in the New Programs section below. Where possible, line items have been reduced to reflect efficiencies that have been implemented over time and to remove any potential for waste. The most significant increases relate to the labor agreement contracts (salaries & medical benefits) and the continuing rise of pension costs in order to make retirement funding more sustainable. In February 2018, the City successfully negotiated a two-year labor agreement with all five-employee associations. The City and associations agreed to a two-year term that provided for a 2.0% cost of living adjustment each year and a one -time $100 increase to the current monthly medical allowance. In December 2016, the CalPERS Board of Administration approved lowering the CalPERS the expected long-term rate of return, from 7.5% to 7.0%. Lowering the discount rate means pension plans will see increases in both the normal costs (the cost of pension benefits accruing in one year for active members) and the already accrued liabilities. These increases result in higher required employer contributions. The projected increase for Arcadia is roughly $633,000 in FY 2018 -19. As the “phase-in” period ramps up, it is expected that Arcadia will be affected in the form of $1.9 million annually through FY 2022-23. Once fully phased in, these heightened levels will be sustained for the foreseeable future. While some new services have been added to meet community demands and some natural inflationary increases have been included, staff has carefully controlled costs in most areas so that the increases are negligible and have no material effects to the overall operating expenditures. Proposed New Programs New programs and expenditures are anticipated from various departments to respond to emerging operational needs, as well as to respond to direction received at City Council study sessions and City Council meetings. The new programs total $349,000 and include:  Police Special Enforcement Team (“SET”) ($70,100): The Special Enforcement Team (“SET”) was originally created in January 2009 and disbanded in 2011 due to budgetary concerns. The Police Department would like to re-establish the SET in order to support crime prevention and criminal apprehension. SET is a unit of the Detective Bureau whose duties would include surveillance, apprehension of wanted suspects, filing cases with the District Attorney, addressing special problems in the community, and coordinating with members of the Detective Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 10 of 18 Bureau and Operations Division. In the past, SET also participated in, established, and/or hosted special task forces related to gangs, organized retail crime, and burglaries. These task force connections throughout the local area and region are available to the SET team today and the Department is optimistic about joining efforts with various groups to produce notable arrests and significant case productivity. No new employees would be required for the SET program; rather, the costs would be for supplies, equipment, and specialty and overtime pay for the SET members.  Accurint Crime Analysis ($13,800): Accurint Crime Analysis is a secure online dashboard that enables crime data sharing, pattern analysis, crime mapping, predictive analytics and reporting for law enforcement. Law enforcement agencies can view, analyze and download their own crime and call data as well as from agencies in their region or even agencies across the nation. It also provides law enforcement with dashboard analytics, mapping and reports to help analysts, investigators and decision makers fight crime. The requested cost is for access to the full version of this essential software. This upgrade also allow for unlimited users to access the system.  Interagency Communications Interoperability (“ICI”) ($65,000): The ICI radio system is trunked radio system that is shared with components purchased and constructed by individual cities and linked together through a microwave network in order to provide regional radio coverage. The concept of ICI was born out of the need for its current member agencies to replace their aging infrastructure. The systems are interconnected to create a regional footprint that would allow agencies wide area coverage with interoperability for the cost of a small municipal system. Each city maintains its own network components. The regional makeup of the current ICI network also allows for better grant funding offsetting the costs to ICI subscribers. This request would add Arcadia to the ICI system.  Upgrade one Firefighter Positon to a Firefighter/Paramedic ($11,100): Continued enhancement of the Arcadia Fire Department's paramedic service model by upgrading one (1) Firefighter position to a Firefighter/Paramedic. Due to the rising number of emergency medical calls received over the years, maximizing Paramedic staffing will help meet the growing demands of the community. Further, this will improve the Fire Department’s ability to provide a paramedic on scene immediately even when traditional paramedic rescue is delayed. For instance, hospitals have been increasingly busy, resulting in longer hospital wait times for Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 11 of 18 the Department's Paramedic personnel. Having a Firefighter/Paramedic on a fire apparatus will enable immediate medical response until an available Paramedic unit can arrive.  EnerGov – Phase 2 / Mobile Devices and iG Workforce Apps ($48,800): The City recently completed the implementation of a new permit tracking and software system known as EnerGov. Phase 2 of this program is the deployment and use of EnerGov’s mobile apps by field staff such as Code Services Officers, Building Inspectors, Fire Inspectors, and Public Works Engineers. This will allow Staff to view daily inspections with a map interface, display inspection details and history, set or lift holds, automatically track the time an inspection was performed, upload photos and notes, digitally sign inspection cards, and distribute notices or inspection results via email or hard copy—all from the field. The mobile devices and applications will be linked to the City's GIS system, and routing, photos, notes, and results can all be submitted in real time. The requested funds would enable the purchase of devices and associated application licenses for 10 users: 1 Building Official, 4 Building Inspectors, 3 Code Services Officers, 1 Fire Inspector, and 1 Public Works Inspector.  Contract Inspector for the Le Meridien Hotel Project ($100,000): This is a dedicated inspector hired through VCA Code Group to provide as -needed inspection services for the Le Meridien hotel project at the former Santa Anita Inn site. The inspector would likely start out as limited part-time hours, but evolving into nearly full-time as the job progresses. In an effort to speed up the development process and to ensure consistency throughout construction phases, the developer/contractor will have direct access to the inspector as needed, although the inspector will report directly to the Building Division. This position is funded out of permit fees collected so these costs will essentially be offset.  Elementary Summary Playgrounds (Net revenue of $10,600): Currently, materials and supplies costs for activities in the Summer Playground program are either absorbed by the City or charged on a per -event basis throughout the summer. In an effort to streamline the process and increase overall participation, an up-front charge of $20 would be added to the registration process. These activities would enhance the program and provide a consistent experience for participants. The $20 materials fee will offset costs related to necessary materials and supplies. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 12 of 18  Saturday Adult Basketball League Project (Net revenue of $200): The proposed program consists of a Saturday Adult Basketball League at the Dana Gym from 6-10pm beginning July 2018. The League will be comprised of six teams and provide a minimum of 10 games, officials, scorekeepers, and awards. Team and player statistics will also be tracked and made available to participants. The goal is to provide three seasons over the course of the Fiscal Year. Increased expenses are estimated at $8,900 with offsetting revenue of $9,100, providing a nominal net savings to the City.  City Website Upgrade ($40,000): This program is intended to modernize the City's website to include the latest features in web-design, customer service, user interface, content management, translation services, and other contemporary features of modern website technology. This program also includes funds for the retention of professional multimedia services to create new visual imagery for the website including photography, video, and drone footage of the City's attributes. The intent is to incorporate multimedia imagery in the website design to not only provide quality content, but also an end user customer experience that markets the City, its services, and unique characteristics.  NeoGov/Recruitment Software ($11,000): NeoGov is the technology leader for public sector human resources software. Their public sector model automates the various components of the recruitment/hiring process from job posting to communication with candidates. Because they are exclusively dedicated to the public sector, they work with cities, counties, and school districts to eliminate redundancies, streamline processes, and provide for a defendable recruitment process to on-board the most qualified candidates in a timely manner. Outlook and Budget Challenges While the City’s 5-Year Financial Forecast indicates that most revenues and expenditures will continue to grow modestly, the Forecast also anticipates sharply rising pension costs – especially those related to public safety services. Despite major reforms put in place by the City in 2011 and the State in 2013, recent policy changes by the CalPERS Board of Administration add an additional layer of challenges to the budget. In December 2016, the CalPERS Board of Administration approved lowering the CalPERS discount rate assumption, the expected long-term rate of return, from 7.5% to 7.0%. Lowering the discount rate means pension plans will see increases in both the normal costs (the cost of pension benefits accruing in one year for active members) and Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 13 of 18 the already accrued liabilities. These increases will result in higher required employer contributions. The projected increase is expected to average $1.9 million annually through FY 2022-23 and remain at those levels for the foreseeable future. In order to maintain a balanced budget, it will be essential for the City to not only continue its history of conservative spending, but also to either find substantial new revenue sources or modify its service delivery to reduce costs significantly. The staff will work with the City Council and the community in the coming year to fully explore all available options in both of these areas to ensure the long-term health of the organization. Capital Improvement and Equipment Replacement Funds Unexpectedly strong revenues and the underspending of authorized budgets over the past several years have allowed the City to transfer a significant amount of funds into the Capital Improvement and Equipment Replacement Funds. It is still important for the City to continue a steady deposit into these funds, which were not replenished for many years during the last economic downturn. The FY 2018-19 Budget proposes a transfer of $2.4 million from the General Fund, a “sustaining” funding level to ensure the availability of resources for future capital improvements. As shown in the chart below, the 5 -Year Financial Forecast reflects the $2.4 million transfer for FY 2018-19 and future year scenarios where if the City can only transfer an annual deposit of $750,000 (as we have in recent years) from its General Fund Operating 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 2 4 6 8 10 12 14 16 MillionsMisc $Safety $ Misc %Safety % Escalating Retirement Costs Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 14 of 18 Budget. As the chart below illustrates, the Capital Improvement Fund would quickly come close to being insolvent, as resources cannot support the level of expenditure necessary for ongoing infrastructure up keep. This presents a concern and challenge to find a revenue mechanism to sustain those needed infrastructure improvements. Capital Improvement Fund Balance (in $ millions) The FY 2018-19 Capital Improvement Plan proposes 45 projects totaling $14.5 million in expenditures, of which $4.2 million would be paid from the Capital Improvement Fund. The remaining $10.3 million would come from grants, state subventions, and local special funds such as the Prop C Transportation Fund. The table below summarizes some of the major proposed projects. $4.4 $3.7 $6.2 $7.0 $10.2 $11.4 $5.7 $4.6 $4.2 $3.4 $3.3 $2.7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Capital Project Costs Additional Funding Capital Improvement Fund Balance Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 15 of 18 FISCAL YEAR 2018-19 MAJOR CAPITAL IMPROVEMENT PROJECTS Project Description Project Budget Funding Source Annual Slurry Seal Program $805,000 Capital Improvement & Gas Tax Funds Median Turf Reduction Program $897,600 Capital Improvement & Water Funds Annual Meter Replacement Program $350,000 Water Fund Live Oak Well Treatment Construction $2,000,000 Water Fund Library Roof Restoration $685,000 Capital Improvement Fund Duarte Road Sewer Capacity Improvement $750,000 Sewer Fund Eisenhower Park Improvement Project - Design $590,000 Parks Fund Fire Station 105 Roof Restoration Project $300,000 Capital Improvement Pavement Rehab Program $400,000 Capital Improvement Orange Groove Reservoir 2 Repair $500,000 Water Fund Fairview Park Improvement Project $568,800 Parks Fund As shown in the table below, the Equipment Replacement Fund is also shown to decrease steadily based on available funds to deposit. This fund is projected to have a balance of $3.0 million at the end of FY 2022 -23 with a deposit of $1.8 million in FY 2018 -19 and where future year deposits revert to $750,000 as it was in recent years. Based on an analysis from historical spending patterns and making an allowance for future budget outlays, in order to remain sustainable over the long-term, the Equipment Fund requires an annual transfer of $1.8 million on average from the General Fund. Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 16 of 18 Equipment Replacement Fund Balance (in $ millions) The Equipment Plan proposes 30 different equipment purchases totaling $2.3 million in expenditures, of which $1.6 million would be paid for from the Equipment Replacement Fund. The table below summarizes some of the major proposed equipment purchases. $4.6 $3.6 $6.8 $9.3 $9.6 $7.9 $6.0 $6.3 $4.9 $4.2 $3.1 $3.0 0.0 2.0 4.0 6.0 8.0 10.0 Equipment Purchase/Replacement Additional Funding Equipment Replacement Fund Balance Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 17 of 18 FISCAL YEAR 2018-19 MAJOR EQUIPMENT REPLACEMENT PURCHASES Equipment Replacement Description Replacement Budget Funding Source Vehicle Replacement – Water $550,000 Water Fund Public Works Tools & Equipment Replacement $144,000 Equipment Replacement/Sewer/ Water Funds Police Dept. Vehicle Replacement: 3 New Patrol vehicles; 4 Used Detective Vehicles; 2 SUV in Administration; Including the Installation of communication, emergency, & fueling transmitter packages $398,000 Equipment Replacement Fund Street Division Vehicle Replacement: 1 CNG Water Tanker Truck; Installation of communication, emergency, and fueling transmitter packages $304,000 Equipment Replacement / Sewer / Water Funds Fire – Cardiac Monitor Replacement Program $100,000 Equipment Replacement Library Furniture Replacement $52,200 Equipment Replacement It is imperative that the City find a means for depositing funds into these highly essential accounts at or above the minimum required contributions to help them approach sustainable levels. Otherwise, the City’s infrastructure will quickly fall into disrepair and the staff will not have the tools and equipment necessary to do their essential duties. CONCLUSIONS The FY 2018-19 General Fund Operating Budget, as proposed, shows a deficit balance of $3.1 million. This is based on Total Operating Revenues of $64.4 million, Operating Expenses of $62.4 million (including new programs) and transfers of $5.1million that provide funding support to: Street Lighting District, Local Law Enforcement (Officer at Adoption of the Operating Budget and CIP and Equipment Plan Resolutions June 19, 2018 Page 18 of 18 AUSD), Capital Improvement, and Equipment Replacement Funds. The anticipated overall net reduction is expected to grow in the coming years unless significant cost cutting measures are enacted and/or a new ongoing revenue stream is identified. The proposed Budget reflects a continuation of steady revenue growth seen in recent fiscal years and near-term expenditure growth that is fairly constrained generally. However, special attention needs to be given to future years as pension costs – especially those related to public safety services – will grow at a rate considerably higher than the norm. While the budget provides funding to meet short-term equipment and capital needs, a revenue stream must be identified to increase the deposits into these funds to ensure their sustainability over time. In the coming year, the single most important program for the City to undertake will be a comprehensive review of the City’s finances to identify opportunities for cost savings and/or revenue enhancement to keep up with growing cost areas. Without doing so , critical public safety programs will be negatively impacted and the community’s infrastructure will fall into disarray. The City is fortunate to have had a history of conservative spending and has amassed the savings necessary to absorb the increases over the short-term while long-term plans are identified and implemented. By implementing this Budget, the City’s staff will maintain its commitment to providing the Arcadia community with unsurpassed service in a fiscally responsible manner. Attached to this staff report are the following:  Exhibit “A”: a summary of Sources and Uses of Funds for All Funds reflecting the proposed Operating Budget presented to Council for adoption  Exhibit “B”: a summary of the proposed Five-year Capital Improvement and Equipment Replacement Plan RECOMMENDATION It is recommended that the City Council: 1) adopt Resolution No. 7224 adopting a Budget for Fiscal Year 2018-19 and appropriating the amounts specified therein as expenditures from the Funds; and 2) adopt Resolution No. 7225 adopting a Capital Improvement and Equipment Plan for the Fiscal Years 2018-19 through 2022-23. Attachments: Exhibit “A” – All Funds Operating Budget Summary Exhibit “B” – Five-Year Summary of Capital and Equipment Plan Resolution No. 7224 Resolution No. 7225