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HomeMy WebLinkAboutStudy Session #2 - Supplemental Communication - PowerPoint5/7/2018 Overview • The City's FY 2018/19 Proposed Budget was presented to the City Council on April 16, 2018 • The FY 18/19 Proposed Budget is a status quo balanced budget • However, the impact of both past and upcoming budgetary challenges will impact the City's budget in FY 19/2o and beyond • One of the City's Strategic Plan goals is to "Strengthen Economic and Financial Sustainability" • At the February 13, 2018 Strategic Planning Retreat the City Council directed staff to recommend budget balancing options COMMUNICATION Meeting Date: 5-1 8 1 Agenda Rem No.: SS A 5/7/2018 A Decade of Fiscal Challenges 2008-2018 The 2008 Great Recession TUWAUsrRE'ErIbrJRM1 - Eeonomle Fears Hit Global Mai"" �� .na IAM lRdllkd HB Workforce Slashed 15% PERS Mandates Higher Payments Ca1PERS Actuarial Changes in 2012, 2015 and 2018 181 HB yobs eliminated !0 Police Officers eut from hudget C7 Eliminated 2011 Unfunded Mandates AB 109, Props 57 and 47 Impacts to public safety, health care, Ongoing Operating and Capital Needs < 6 UNDER ill $200 million shortfall for infrastructure Over 200 technology systems to maintain and replace t woryof kload and 14 %1 staff Inadequate $ for City and community facilities 0,,�A 1'. 1 -:--T - Increase in tourism has increased impact on services bPO�MF ■ $170 million m equipment/fleet to maintain 2 5/7/2018 Rising Pension Costs - League of CA Cities Report 1. City pension costs will dramatically increase to unsustainable levels. • Between FY 18/19 and FY 24/25, cities' dollar contributions will increase by more than 50% 2. Rising pension costs will require cities to nearly double the percentage of the General Fund dollars they pay to Ca[PERS. • On average, from FY 06/07 to FY 24/25, cities will nearly double the percentage of the General Fund dollars that goes to CaIPERS. 3. Cities have few options to address growing pension liabilities. ✓ Develop and implement a plan to pay down the City's Unfunded Actuarial Liability ✓ Create a Pension Rate Stabilization Program (Section 115 Trust) ✓ Change service delivery methods and levels of certain public services ✓ Use procedures and transparent bargaining to increase employee pension contributions ❑ Issue a pension obligation bond (this is strongly discouraged) ❑ Consider local ballot measures to enhance revenues Budget Balancing - Revenue Options Ballot Measures Increased Cost Recovery Leveraging Assets & Pgs 10 Cost Benefit Analysis 3 5/7/2018 Results of 2016 Election - CA Cities • Local tax measure activity in California in the November 2o16 Presidential Election was unprecedented: • The number of ballot measures proposed by cities, schools and districts • The number of ballot measures approved by the voters Local Revenue Measure highlights: o There were 650 local measures on the November 2016 ballot • 224 non -school local revenue measures (county, city, district) • Of those, 153 were City ballot measures • City General Tax Measures (Majority Vote) had 85 % approval rate • 120 total measures;102 passed and 18 failed • City Special Taxes or G.O. Bonds (2/3 Vote) had 58% approval rate 33 total measures; i9 passed and 14 failed I 5/7/Z018 Successful Ballot Measures in CA Cities - 2016 Types of Non -School Local Tax Measures Passing and Failinq City/County/District November 2016 Measures by Type Ut rtyUsers Sales Tax Tax 8 s ParcelTax 16 Hotel BusnucTax Cannabis 1 Tax, 16 SalesTax Special ® 15 ■ Piss 3fajorin� Hotel Tax 5 Fall Vnry G.O. Bond iW2 3 ` \ BusnLicTax Butr Lic7ax Other BusnLlcTax r a Vote \2 \Cannabis,Utll ityUsers7ax ®3 Cannabis \ Hotel Tax Special Special 1 \ 12 4 1 UtilltyUSersTax " 1 GeneralTax Other 1 Special 1 PropTransf Tax 01 HoteTax BOther 11UsnbcTex BusnLicTax Cannabis Spec 1 l Special 8 \- PropTransf Tax 2 utilhyusersrax Special 1 ',i - GeneralTax Other 1 \ p 2016 M.Ch— Coleman \ type of Kevenue - Transient Occupancy Tax (TO No tax impact to residents Limited revenue Yes ✓ 60%+1 ✓ Yes generation Only visitors would be Requires a Vote of the No 67.0% No ✓ impacted Electorate Highest Orange County May impact tourism rate is Anaheim at 15% Current ;Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate Rate Generated 10% $11,400,000 11% $12,540,000 $1,140,000 Average Passage Rate 5 5/7/2018 Type of Revenue — Sales Tax (General High typical passage rate, Requires a Vote of the Yes If 50%+ 1 ✓ Yes especially after polling electorate Advisory measure can help Sensitive to the economy No 67.0% No J identify proposed use of and downward trends funds for concerned voters Adjacent cities of Fountain May impact sales activity — Valley and Westminster at estimated -7% migration 8.75% Current Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate Rate Generated Average Passage Rate of Revenue — Special Sales Tax Public Restricted tax can address Requires a Vote of the Yes ✓ 50% + 1 yes citizen's concerns Electorate Potential high revenue Higher passage threshold No 67.0% ✓ No ✓ generation capability is more difficult to achieve Increased revenue can Likely to impact sales enhance public safety and activity — estimated -20% other core services migration Current Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate Rate Generated Average Passage Rate • or 1', .7 5/7/2018 Examples of Use of 1/4 Cent Measure Proceeds - $6.2M ■ Increased funding for residential street repairs - $1,000,000 ■ Central Park Improvements - $1,000,000 ■ Increased Funding to address homelessness - $750,000 ■ Other Park improvements - $1,000,000 ■ Repair of aged community centers and facilities - $1,750,000 ■ Beach restrooms, playground equipment, etc. - $750,000 7 5/7/2018 We of Revenue - Citywide Fees & Charges .. Required?lecto - s No vote required of Impact to the User of the Yes 50% + 1 Yes ,/ electorate services Decrease in General Fund If fee increases are not No ✓ 67.0% No subsidy of fees and comparable to other cities charges not at 100% may discourage use of svc Can be adjusted annually during budget process or as needed Current Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate'' Rate' Generated Cost Recovery Rate Citywide Fees Et Charges Scenarios Community Services Parking Meters $1.50 to $1.75 per hour year round vs summer only Room rental, specific/special events, select recreation sports Finance Business license renewal & application Massage & entertainment permit Parking citation processing credit card convenience fee $3 to $3.28 Utility Customer Setup Fire Fire Inspections, Special Events Marine Safety, Junior Lifeguard Sand Crab Library Library room rentals Public Works Construction plan review Information Services Automation fee 5% to 6% Police Animal Control - Pet Licensing Fees Total $200,000 $96,000 $179,000 $62,000 $40,000 $13,000 130,000 $10,000 $4,000 65,000 5/7/2018 � r w i Xpe yr Revenue — rarKing ILAUITions No vote required of This revenue type is Yes 50%+ 1 Yes ,/ electorate sensitive to economy Only parking violators will No ✓ 67.0% No be impacted Proposed rate is consistent with Orange County cities Current Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate Rate Generated Parking Citations Scenarios ojected tat Fine Revenue Increase Proposed Pr Description of Parking Ci ions I Street Sweeping $42 $46 $149,000 Expired Registration S66 $82 S44,000 72 Hour Violation $42 $90 $125,000 Total $318,000 01 5/7/2018 iyue Ul revenue — Commerciai Reruse Franchise Fee Threshold'lectorate Vote Current rate is lower than Cost would eventually be Yes 50%+ 1 Yes ,/ other cities passed on to commercial rate payers No ✓ 66.7% No MCurrent Annual Revenue Proposed Revised Annual Revenue �Rate Generated 1 5% of $900,000 7%-10% of $1,260,000 - $1,800,000 $360,000 - $900,000 commercial commercial service fees service fees 10 5/7/2018 iypu yr Revenue — uarK riper Leasing Fee Electorate Vote Existing Fee? .. No tax impact to residents Limited revenue generation Yes 50% + 1 Yes City owned fiber decreases Unknown Demand — only two o leasing fees paid by the City to carriers have expressed No ✓ 66.7 /o NO ✓ gad Parties interest Proposed rate is consistent with California cities who lease this asset. N/A $0 $1,000 per 380 Fiber Miles - $380,000 $380,000 fiber mile Tvpe of Revenue — PCTA Cable Franchise Fees/PEG ..Existing Fee?—, __ Required? No tax impact to residents Limited revenue generation Yes 50% + 1 Yes ✓ No additional fee increases Requires City to divest from required PCTA No 1/66.7% No q Revenue would come directly to City's General Fund instead of JPA Current Current Annual Revenue Proposed Revised Annual Revenue Additional Revenue Rate Rate Generated 000 5.0% $3,000,000 $350,000 for PCTA 11 5/7/2018 Shared Services Agreements The City is constantly exploring opportunities to partner with other agencies to increase revenue or reduce costs Current partnerships include: • Metro Net Cities Fire Authority o Central Net Operations Authority • Big Independent Cities Excess Insurance Pool • Newport Beach and Costa Mesa Police Air Unit Support o West Orange County Water Board Public Safety Departments are currently exploring opportunities with several other cities to provide services and generate revenue However, in certain cases, reduced staffing levels pose a challenge 12 5/7/2018 Revenue Opportunities and Challenges Various tools currently exist for cities to generate increased revenue However, a current referendum may alter local control over certain revenue tools currently at our disposal The "Tax Fairness, Transparency and Accountability Act" sponsored by the American Beverage Association would drastically limit local revenue authority • Requires ALL proposed tax increases to be subject to a 2/3 vote • Requires a 2/3 vote of the governing body (City Council) before a tax is placed on the ballot • Severely limits the ability to achieve t00% cost recovery on fees that do not currently require a vote • Applies retroactively to January 1, 2018 13 5/7/2018 Budget Balancing - Expenditure Reductions V4$>. Across the Board Targets Increased Employee Pickups In Depth Program Reviews September 2018 Across -the -Board Cuts General Fund % Share by Department $226 Million city Cl.,lerk aD On ' CIL. Wr.n- Humm ]Ou(tt At1or>tep Serskn Ars°um 0.1% ComKll 1.1N 1.27Y �2.1K 1.]!., 0.2N _ ifm ncr Pollee Cllc7re°ssver. 2.7% 11-ft °Ino A 1 % Cut = $2.0 million 330. o.l •. Srn'1n1 but � commnml. City cannot cut. °.;; �,�`°` ➢$25 million UAL Payment 1 ➢$5 million in debt service million for Insurance Co.-➢$2 �,,,�„ 41, s 'I P°blic %%orks 10.1!r ➢$5 million for utilities \'o°-Drpsnmerta1 RPe 13.iN 20.iN 14 5/7/2018 Employee Cost Sharing ➢PEPRA became law effective January 1, 2013 );,Agencies through collective bargaining can cost -share pensions ➢2018 is the first year that employers can "impose"* 50 percent of the Normal Cost of PERS to employees ➢The current Classic Miscellaneous employee pick up is 8 % ➢For FY 18/19 the Normal Cost for Miscellaneous employees is 9.2% ➢The current Classic Safety employee pickup is 9 % ➢For FY 18/19 the Normal Cost for Safety employees is 19.8% ➢50 percent of Normal Cost of the Safety pickup is 9.9% (o.9% higher), which could generate $400,000 in annual savings ➢Each additional 1% of PERS pickup Citywide (Safety and Misc) results in $gook in annual estimated savings *Imposition only after completing the full bargaining process up to/including fact finding. **PMA and FMA currently contribute ii%. 15 5/7/2018 5 Year Financial Plan Estimates General Fund Summary ➢The FY 2018/19 Proposed Budget is balanced as proposed ➢However, planning must begin for FY 19/2o and beyond to address: ■ Lack of funding for infrastructure needs in City of $ 200 million ■ Lack of funding for economic development, business attraction/retention ■ Inadequate resources to address homelessness ■ Fewer Police Officers and other staffing to maintain existing services ■ Insufficient funding for technology, cyber security and innovation ■ Lack of funding for curbs, streets, gutters, alleys and block walls ■ Inadequate funding for improvements to parks, beaches, public restrooms ■ Insufficient funding to support increasing labor costs 16 5/7/2018 5 Year Financial Plan Strategy - Next Steps • The City has been addressing financial challenges for over io years • Staffing has been cut, services eliminated and programs curtailed • The City's finances are conservative, AAA rated and award winning • The City's long term sustainability must be based on best practices • Develop a forecasting model and tool to assist in financial planning • Identify viable strategies to address shortfalls in FY 19/2o and beyond • Develop a comprehensive plan of increased revenue, public private partnerships and expenditure reductions to promote financial balance • A third party review of the City's finances can offer new approaches • In Fall 2018, staff will have program based budget review 17