HomeMy WebLinkAboutSupplemental Communication - Strategic Planning Retreat - Ja ' r
1/25/2017
Strategic Planning Retreat
January 26, 2017
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FY 2015/16 General Fund Year-End Performance
(Preliminary[Unaudited)
❑FY 2015/16 Fund Balance Recommendations
FY 2016/17 General Fund Overview
❑FY 2016/17 Adopted Budget Recap
❑Pension Costs and Unfunded Liabilities Update
❑Upcoming Challenges and Opportunities
Governor Brown's FY 2017/18 Budget
Next Steps
1/25/2017
trategi� Plannin 4ktreat ,=
FY 2015/16 Year-End Performance
(Preliminary/Unaudited)
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■Actual Citywide Departmental Expenditures $210.9
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t!�ne Time Insurance fool Cost fi r ;cess Claims* ` 1.9
•Transfers to Section 115 Trust 2.5-
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Increase its CXaitns,Settlements;and$awsuits* . ., 2,.1.
Total Estimated Expenditures" $217.4
To be included in the FY 2015/16 Year End Request for Council Action.
"This amount is only an estimate and is still subject to change based on final adjustments by independent auditors and GAAP rules.
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FY ert Fundiq %%
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General Fund I2ee�iirin�g Revenue
General Fund One-Time Revenue 3.3
tital t►ruaEed. eueral Fund'Reveuue* ,
Minus Total Estimated Expenditures* (217A)
*Estimated AvalableYear-End Fundalauee naudited}: `$I.6
'this amount is only an estimate and is still subject to change based on final adjustments by the City's independent auditors and GAAP toles.
**Year-end fund balance is one-time in nature.
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FY 2015/16 General Fund
Balance Recommendations
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.Fund Dalar��e
❑ Recommended Option
➢ Assign the estimated$1.6 million one-time available Fund Balance to the
following:
• Creation of a new Technology Fund($0.8 million);
■ Transfer to Workers'Compensation Fund to reduce liability($0.5 million);
■ Set-aside funding to improve Central Park($250,000).
❑ Financial Policies Alternative
➢ Use entire one-time Fund Balance to fund Economic Uncertainties Reserve
• Policy:Two months of Adopted FY 16/17 Expenditures=$36.7 million
• Current Economic Uncertainties Reserve=$25.0 million
• This option will assist in retention of AAA credit rating from Fitch
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CirismS;lTneertattittt4-... $24,011 .. 1Ii`` r4�I%' 25iU1#-,
Litigation Reserve 900 900':� 900 s ju,�yej` v
lgtpmgaReplaten
Redevelopment Dissolution 1,323 1,323 1,323 1,080'`
Retir.Med r-I v tfi ded�.tabtll ;,3"',;'', :a 698
.':General Plan Maintenance 720 720: 720 1580.`
04tai ltnproventent Reserve(CIR?',-' 7,13i�= ' 7 t36+ 7936
Senior Center Debt Service Reserve 2,000 2000'. 2,000 2,000"
UPERS One Equals Five I>W, ;.300 1,5001 500
ICalPERS Rate Increase - 1,287 1,287 1,287
Crtyvie.Replacement iji'�h ., „ �645.,, 88,9 •8
iAnimal Control Shelter 1,500 H
City Facility:Security Enhsnceme';nk5
Sand Replenishment and Park Improvement - - 366
Section 115`trust
Other Fund Balance* 1 8,924 12,187'. 12,715 12,619..
Total Fund Balance ' ... / F, $34,So7 S 61 U3{; $G¢792
*Other Fund Balance includes Pre-paid insurance,Encumbrances,Non-Spendable and Other Restricted items.
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P'lann�tn�,
FY 2016/17 General Fund Budget
Overview
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net and Item noes %!%� :yi. $226.4
Total Sources of Funds $220.4'
General Fund Expenses 220.4
Total Uses of Funs
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• Balanced Adopted General Fund Budget
• A slight General Fund revenue increase of 1.7% was projected at
budget adoption
➢ This is being monitored closely given softening of economy
• More than half of the budget is for Public Safety
• 15% Charter requirement for Infrastructure is met
• Strong financial and emergency reserves of$64 million
• Lean budget and culture of fiscal conservatism have allowed the
City to retain its underlying "AAA" Fitch Rating
• Multiple plans to reduce unfunded liabilities contained in budget
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• FY 2016/17 Adopted Budget focuses on core services:
■ Public Safety
■ Infrastructure
■ Quality of Life Programs
■ Financial Sustainability
■ City Service Delivery
• Essentially flat staffing levels with minor exceptions:
■ One new Community Prosecutor to improve public safety
■ One new Parks Recreation Supervisor(paid for by park fees)
• $3.6 million in new capital projects for concrete, roadway, sand
replenishment,park improvements, and other projects
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Public Safety Represents 54%of General Fund
City City City Library
Clerk Manager Attorney Services Human
City OA% 1.1% 1.2% Ll% Resources
Cm-cil 2.7%
0.2%
Finance
City Treasurer 2.7% Inrormation
0.1% Semrcs
Police 3.1%
33.6
Community
Development
3.3%
Community
Services
4.5
Public Worka
� 10.4%
Non-Departmental
Fire 13.8
20.8%
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Total Funded Sworn Officers in FY 201212013 207.0
Additional Officers Funded in FY 2013/2014 +5.0
Additional Officers Funded in FY'2014/2015 +2.0
Additional Officers Funded in FY 2015/2016 +8.0
Adopted Budget +2.0
Revised Budget +6.0
Total Funded Sworn Officers 222.0
Increase Since FY 2012/13 +15.0'
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1,200 ................_......_..............................................-...----.._..-----............................_..__...................................................................................................................
Post-Recession Era
1,000 ...... ...._... ......... ........................................... . _.... ................................
219 2u7' r r 1 a 2 21 ;E • +7%
a„
+4%
600
400 - N
a
200 xj„ ? } j s -- -- %Police:Sworn
IIIPolice:Non Sworn
All Others
FY 09/10 FY 10/11 FY 11/12 FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17
1,144 970 9" 926 949 956 971 973
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Pension Costs &
Unfunded Liabilities
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■ Employee compensation currently totals almost three
quarters of the General Fund Budget (73%)
■ Ca1PERS costs have grown from $19.2 million in FY 08/09
to $34.4 million in FY 16/17, an almost 80%increase
■ These costs will continue to rise in future years
■ Pension costs currently comprise 14.7% of the City's
General Fund
■ While Pension Reform Act Legislation was adopted in
2013, it will take decades for savings to be realized
■ As of July 1, 2017, CalPERS rates will increase and place
further burdens on the City's budget
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Fin e+ �`T�S VS, T RS'
;.
% . .
+88%
3,600.00 ......_._.,....____„.,_........................ ....._.._ __,,,_,,, ,_,,,,,,.
S34AM
- ^PERS Costs
-0-Funded FTEs S3112
3,100.00 .... ______:_.:......_.,,________r ..._„
528.2
8 1.4M
2,600.00 ,,.,..., ,,,,,.e „.,,... ,_._..;,.-.....u...W.__ .w..«..............w«,
'.. $23.4M S23.6
$Z"M
U B 2,100.00 «_.......... ,.._
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1,600.00
11 .00 i.,x 1.3a 15%.00
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1,100.00 92
600.00
FY 08/09 FY 09/10 FY 10/11 FY 11/11 FY 12/13 FY 13114 FY 1411' FY 15116 FY 16117
Actual Actual Actual Aemal Actual Actual Aemal Estimate Revised
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'210ty
iVIisceltanet�us' � � ,
Classic 8,00% 28.428% 36.428%
PEPRA" .25% 28A28%° 34.6i78%
Safety
-Classic—PMA'&FMA' 11.00% 43.701% 54.701%''
Classic—All(tW§ 9.Otl°fo 45.701°l° 54.701%'
-PEPRA 11.00% 45.701% 56.701%'
� IrER
❑ In December 2016, the Ca1PERS Board voted to lower the
investment portfolio's annual earnings rate assumption from
7.5%to 7.0% over a three-year period.
❑ While this is a more realistic plan, it will require significant
increases in the City's contributions to make up the difference.
❑ At the end of the implementation period, the additional cost to
the City will be $4 million per year.
❑ This increase is in addition to other planned pension cost
increases due to changes in mortality and actuarial methods.
❑ The phase-in begins with the rates effective July 1, 2018.
❑ As a result, the City will need to start planning for these
increased costs as soon as possible.
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1/25/2017
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CalPERS Historical Allocation Assumed Rate of
Return and 1Oyr US Treasury Yield
14%
80?i
in- y
70%
10%
40%
6
( 30 k
4°b <
It 26°i
2% 10%
-7.
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01.
a UsM —RBnk*M MMxstlwf H tv^ !nlatCf taMbe .—ArauaaeF .TRem—'o1'-lRexryumj
i1�3atux:G#flfCi:;m�tMewee.MNeIF1�rmIWDem R:P!'R7br m�ppeC lNe E11&um aw78fagtloe
.}py,Muy.RylMxy MLnYR 14C Teaxwep Cnn+4reYYaeY Rde QMSTfR"3
Matoae�ynwa0.nx xmNeC mawpreb bw ikmie bu8lUt/a2315 itFW tUeE!MaxMNxeb+a 82tn
te.U.CemNrlrrp
Change in Market Conditions
--2014 ABM Assumptions —Current Environment
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BTi� 875
fli 3 85 i
d2i� B.OSX 6.?a'
7.8SX
h 7.T3 7.5 Y
R7i g 6.76 I
8.25 .... 625 i
e
f 3 5 7 0 it 13 15 17 19 21 73 75 27 29 1 3 5 7 9 11 13+5 17 ffl 21 23 25 27 21
YOM 1130 Y.-1.30
Assur"RN d Rts,
•ALM stands for Asset and Liability Management review which occurs at PERS every four years.Next one due in February 201 g.
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Contribution & Benefit Payments
Historical&Projected PERF Contributions&Investments for Benefit Payments
350 __..... ....... _.... ., _ __,... .............. .._.............
250;___ .. .......... ..____ .__._. ........ _ rr;_.
e
15.0 ..._................................................................................................................................. ...... ...... ...... ...... .............. ...... ..... ._... ...... ...... ..... _.
150 ._...___.........�......,,...
1.0
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Fltcal Yw
MC,—(.d hAtr Addoo n Caobdwlim 7r-: ahhlnmxi('.PbA.7 C`% a I--Vnems I Met
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es
B B
B P
1 B
alPERS(Safety}. 237,239 64 6%,r "1=5"Plan 25 years
Ca1PERS (Misc) 151,808 70.5% Standard PERS Plan 30 years
Subtotal 389,047 "-671i/`
Retiree Medical(Safety) 10,071 67.3% "25 to 10""Flan" 10 years
Retiree Supplemental 14,688 76.6% "16 to 10"Plan 10 years
TOTAL 1 413,806
Wet Pension and/or Unfunded Liability amounts are not constant and are subject to annual change for market conditions,demographics
and actuarial methodology. The Net Pension Liability is based on CaIPERS'GASB 68 actuarial valuations as oflune 30,1016.
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❑ The "25 to 10"Plan was implemented in FY 2013/14 to
payoff the unfunded liability for the Retiree Medical Plan in
10 years and save taxpayers $7 million.
❑ Please note the unfunded liability for retiree medical for
Miscellaneous employees was paid off last year!
❑ The "16 to 10"Plan was implemented in FY 2013/14 to
payoff the unfunded liability for the Supplemental
Retirement Plan in 10 years saving taxpayers $9 million.
❑ The"One Equals Five" plan added in FY 2014/15
contributes $1 million extra per year to reduce liabilities,
potentially saving taxpayers $54 million.
❑ In FY 2015/16 the City created a new Section 115 Trust
with a$2.5 million contribution.
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Challenges &
Opportunities
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❑ The economy is steadily improving, albeit slowly, with a national
unemployment rate of 4.7%.
❑ However,the number of long-term unemployed(those jobless for 27 weeks
or more)remained unchanged at 1.8 million.
❑ The Labor Force Participation Rate remains historically low at 62.7%.
❑ The CPI for L.A.and Orange County was 2.0%in January remaining
unchanged from the prior month.
❑ GDP rose 3.5%,reflecting the best results seen in two years;however, the
fourth quarter GDP is expected to be more moderate.
❑ The Index of Leading Economic Indicators was unchanged in December at
124.6,but it is expected the economy will expand a bit in the 1 It half of 2017.
❑ The Industrial Production Index rose 0.8%with manufacturing output
increasing 0.2%.
❑ Future interest rate hikes may reduce spending and discretionary income.
et On tlook
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❑ While the economy is still in recovery,revenue growth is moderating
o Certain revenue categories are starting to show weakness, some as much as$500k
less than budgeted
❑ Pension and Other Fixed Cost Increases
o Higher Ca1PERS Employer Rate Increases
o Litigation costs are rising with multiple large cases predicted to pay out soon
❑ Infrastructure
o A recent analysis by Public Works indicates there is a$200 million funding gap for
the City's critical yet significantly antiquated storm drain system
o In addition, another $1.2 million annually is needed to achieve a Pavement
Condition Index of 80 or"Good"for Citywide arterials
o Further,to improve residential streets to a PCI of 80, $3.3 million more is needed
per year
❑ Preliminary analysis of FY 2017/18 projections indicates the need to
constrain spending in the City's General Fund Budget
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❑ FY 2015/16 Available General Fund Balance of$1.6 million
■ Provides funding for technology, workers' compensation
liabilities and park improvements.
❑ General Fund Loan Repayments
■ The City may receive reimbursement of its General Fund
loans to the former Redevelopment Agency.
■ These one-time funds can be used to mitigate recessionary
or budgetary impacts.
■ These funds can also be used to address the City's
technology needs, aging infrastructure and other one-time
needs.
j -.,State.,
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Governor Brown's FY 2017/18
Budget Highlights
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FY 21
❑ Budget Deficit of$1.6 billion
o The Budget includes$3.2 billion of reductions
o Adjusts the spending level of Proposition 98($1.7 billion)
o Recaptures unspent one-time funds($0.9 billion)
o Constrains Spending Growth($0.6 billion)
❑ Revenue Volatility
o Major revenue sources—Income,Sales,and Corporate Taxes are showing weakness.
o Budget reflects a revised revenue forecast that is $5.8 billion lower for FY
2015/16 through FY 2017/18.
o Five of the past seven months have fallen short of revenue estimates.
o Even with the reduced revenue forecast,revenues are expected to grow by almost
3 percent from the current year.
❑ Unfunded Liabilities
o Ca1PERS discount rate lowered to 7 percent will increase pension costs by$2.0
billion over the next three years.
o Ca1PERS contributions are expected to increase from $5.3 billion to $9.7 billion
by FY 2023-24.
o Administration is focusing on addressing$74 billion unfunded liability for retiree
health benefits through collective bargaining process.
❑ Information Technology Security
o The Budget includes $9.9 million ($5.3 million General Fund)to strengthen the
State's information technology security operations across various departments.
❑ Localities
o Elimination of Community Infrastructure Grants.
o $8.1 billion shifted from schools to cities and counties to replace Vehicle License
Fee(VLF)revenue losses due to reduced rate of 0.65 percent.
o Includes over$1.6 million in fuel excise tax to cities. MIJ
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❑ Uncertainties
o A moderate recession will drop State revenues by about$20 billion annually.
o The current recovery appears to be taking 3 years longer than average.
o Repeal of the Affordable Care Act will have a financial impact, currently covering 4
million Californians.
x
Recap z, s
❑ Preliminary Unaudited FY 2015/16 Year End Balance Options
❑ Ca1PERS Discount Rate Change Impact over a 3-Year Period
❑ Rising CatPERS costs will continue to strain annual budgets
❑ Financial Outlook Overview
❑ Potential Reductions in Sales Tax and Parking Revenue
❑ Higher CalPERS Employer Rate Increases
❑ Governor's Budget does not reflect cuts to cities;however,the State
legislature has not considered the State budget recommendations yet
❑ General Fund revenue growth is starting to moderate
❑ Sales Taxes and Parking revenue are showing weakness this year
❑ Fiscal prudence and caution must be exercised in developing the FY
2017/18 Budget
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Timeline
❑ February/March 2017—Final FY 2015/16 Year-End Close-Out Adjustments
and Fund Balance Assignments
❑ March 2017—Budget Kickoff for FY 2017/18
❑ May 2017—FY 2016/17 Mid-Year Budget Update
❑ July 2017—FY 2017/18 Proposed Budget Recommendations
❑ October 1,2017—New Fiscal Year Begins
QUESTIONS?
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