HomeMy WebLinkAboutFiscal Year 20/21 Proposed Budget - Study Session #1 - Suppl r'
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City of Huntington Beach
File #: 20-1644 MEETING DATE: 6/1/2020
Fiscal Year 20/21 Proposed Budget
City of Huntington Beach Page 1 of 1 Printed on 5/28/2020
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City of Huntington Beach
FY 2020/21 Budget Review
Study Session
June 1, 2020
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SUPPLEMENTAL
COMMUNICATION
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Economic Overview & Local Budgetary Impacts
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The COVID-19 Economic Context — An Unprecedented Contraction
• Lots of unknowns right now... and the economic pain is real
• Real GDP declining at a historic rate
— Q1-2020 GDP dropped by on an annualized basis, the largest drop since 2008
— Economists are projecting that Q2-2020 GDP will drop by -35%to -40% on an annualized basis
• Massive unemployment numbers
— Over 35 million new unemployment claims filed since March 24
— US unemployment rate is currently at 14.7%, the worst since the Depression era
• The only silver lining is that our current economic contraction appears to be bottoming out
— Last week, first-time unemployment claims totaled 2.1 million, the lowest total since March 24
> Continuing claims (the number of people collecting unemployment for at least 2 weeks) experienced a week-over-week DROP of
3.86 million, down to a total of 21.05 million continuing claims
— Most economists are forecasting annualized GDP increases of 10% to 25% in Q3-2020 and Q4-2020
What Might The Recovery Look Like?
• The United States is gradually reopening right now, and here in Orange County, basic economic activities are allowed
• The consensus among economists — right now — is that actual GDP loss for all of 2020 will be between -5% to -6%
• A majority of economists polled by Reuters also expect a U-Shaped Recovery
— This scenario projects that things stabilize in the second half of the year, but that the recovery doesn't strengthen until late 2020 or
early 2021
REAL GDP
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SHAPED RECOVERY
12
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Local Economic Indicators Provide Some Bright Spots
• Given our unique context, HB may feel less economic pain than surrounding locales
— Resorts have begun reporting strong demand,with higher occupancy levels and per-night room rates than currently projected
— Auto sales for local dealerships are appearing to stabilize during the past few weeks
— Parking levels/revenues the past few weeks have pointed to strong consumer demand for HB-style experiences
• City entered the pandemic in a strong financial position
— AAA credit rating, with a diverse tax base
— Significant reserve levels
• Current GF Strategic Planning Reserve: $16.00 M (7.3%of revised projected GF revenues)
• Total Restricted GF Reserve: $56.80 M (25.9%of revised projected GF revenues)
• TOTAL: $72.80 M (33.3%of revised projected GF revenues)
• Federal Stimulus?
— $3 Trillion HEROES Act WILL NOT be approved in it's current form, but under that plan...
• Orange County would receive$1.800 B
• Huntington Beach would receive$88.753 M
• Quarterly budget updates for City Council throughout FY 2020/21
— Given current economic volatility, staff plans on providing detailed quarterly budget updates throughout FY 2020/21
s
But... The COVID-19 Economic Impacts For HB Are Substantial And Real
• Violent and immediate declines in local revenue base
• Increase in one-time COVID-19 pandemic related response costs
• Future economic projections highly volatile and uncertain, with a quick economic rebound no longer being likely
• Revenue drop is too significant to absorb without making substantial adjustments at the City
6
FY 2020-21 Budget Overview
LHUNTiNGTON EA CH
A Balanced Budget... But Difficult Decisions Will Need To Be Made
• The City will need to adjust the City operation to a new reality of constrained revenues
— We don't want to spend one dollar more than we need to this year... but... we have to simultaneously ensure that we don't
shortchange the long-term viability of the City operation
• Based on our preliminary FY 2020/21 budget, staff has developed a balanced spending plan for City Council
consideration, but the plan contains substantial operational adjustments
— The entire COVID-19 situation has been a tragedy, and the corresponding economic impacts are going to require that we make difficult
decisions
— Our proposed FY 2020/21 budget reflects a commitment to:
> Maintaining core external services
> Streamlining internal support operations
> Making new investments to improve quality-of-life issues
8
Our Fiscal Challenge...
A $20 M Drop In Anticipated Revenues
• COVID-19 has created a new reality of constrained revenues
— Pre COVID-19 FY 2019/20 revenue level — $236.9 M --
vs.
— Updated FY 2019/20 revenue level — $218.5 M —$20.0 V I n �
vs. I
> Projected FY 2020/21 revenue level — $216.9 M
— Major revenue variances include:
> Transient Occupancy To
Historical Pre-COVID Level — $14.1 M
Projected FY 2020/21 Level — $ 6.9 M $7.2 M
> Sales Tax
Historical Pre-COVID Level — $43.9 M -$ 14.7 M
Projected FY 2020/21 Level — $39.2 M $4.7 M
> Use of Money/Property
Historical Pre-COVID Level — $17.3 M
Projected FY 2020/21 Level — $14.5 M -$2.8 M
9
Expenditure Plan Reflects An Emerging New Fiscal Reality
• We've identified $21.03 M in FY 2020/21 budget cuts for consideration to balance the City budget
— Operating budget reductions
— Hiring freeze
— Personnel cost reductions
— Reduced level of transfer to savings accounts
— Bond refinance cost savings
• The most significant cut involves a planned reduction in our workforce of around 5%
— Given existing civil service rules/ procedures, and in an effort to reorganize the City operation in as thoughtful a manner as possible,
our proposed budget assumes the institution of an early retirement program that results in a 5% reduction in the City's workforce
> The City has 294 employees currently eligible to retire
> We are assuming that at least 15% of those eligible to retire (44 employees) would participate in an early retirement program, which
would result in annualized ongoing cost savings of at least $6.2 M
— It isn't realistic to assume that revenue levels will return to pre-COVID-19 levels in the near future
> This means that we will need to resize our operation to fit with our emerging new fiscal reality
10
Early Retirement Program vs. Layoffs
• Layoffs vs. Early Retirement
— Using early retirement incentives and a targeted reorganization process afterwards allows us to redesign while scaling down
> In that way, we use reserves for one-time costs to implement our reorganization plans, rather than papering over budget gaps
— Layoffs are an option, but in a civil service environment, layoffs trigger "bumping rights"
> This results in a severely reduced capacity to perform work, as existing tenured-based "bumping right" rules result in misalignments
between operational needs and employee capabilities
— Our goal is to maintain existing service levels with reduced staffing levels
> Ultimately, if we want to provide services more efficiently, we will need to...
— Ensure that we have the right people serving in the right jobs
— Ease internal bureaucratic red-tape
— Move towards becoming a flatter, more customer-focused operation
— Continue to build a distinct organizational culture focused on the provision of exceptional service
• Multiple companies and agencies deploy early separation programs in lieu of layoffs
— Private sector companies (John Deere, United Airlines, American Airlines, Verizon Wireless) and public agencies (Ontario, Santa
Monica, Garden Grove) have all developed voluntary separation programs
— Benefits include maintaining productivity & employee morale, eliminating certain HR legal risks, and mitigating the loss of key staff
Early Retirement Program Design
• We've assessed several early retirement incentive program design options
— Based on our employee population, and the need to shrink our workforce, staff recommends moving forward with the CalPERS early
retirement program
> Provides participants with 2 additional years of retirement service credit
> Cost varies based on classification of the participating employee
— Between —$35 K -—$60 K/ employee for miscellaneous, and —$50 K - —$125 K/employee for safety
> This program is recommended as it would likely attract the highest number of employees accepting the early retirement offer
— We've also looked at self-designed early retirement programs
> Provide participants with $1,500 for every year of service, plus 6-months worth of health insurance coverage
— The average cost per employee for this type of program is estimated at —$40 K/ participant
> This program design may not allow us to achieve our minimum 5% reduction in our workforce
• If we do not achieve a net reduction of -S% of our total staffing levels through the early retirement program, additional
cost cutting measures will need to be considered
12
Key FY 2020/21 Budget Additions
• Quality of life staffing additions
— Police Department
> 3 new sworn officers for enhanced homeless response
— Community Development
> City currently only has 4 code enforcement officers to handle issues for the entirety of our 32-square miles in HB
> 2 new code enforcement officers are included in the budget to help enhance quality-of-life enforcement issues
• Full and robust CIP budget, totaling $29.8 M in proposed projects
13
FY 2020/21 Budget Overview
• Taking into account all of the proposed budgetary adjustments, our proposed FY 2020/21 General Fund Budget is as
follows:
— Revenues: $216.9 M
— Expenditures: $216.9 M
— NET POSITION: $ 0.0 M
14
FY 2020-21 General Fund Budget Review
EFHUNTTINGTON BEACH
FY 2020/21
General Fund Revenue Review
Revenue Decrease Assumptions
Object FY 2019-20 FY 2020-21 Increase / % Increase /
Account Pre-COVID Proposed (Decrease) (Decrease)
Projected Budget
REVENUES
Property Tax 92,408,127 94,350,104 1.941,977 2.1%
Sales Tax 41,283,740 37,000,000 (4,283,740) -10.4%
Public Safety Sales Tax 2,475,075 2,227,205 (247,870) -10.0%
Franchises 6,624,776 5,520,627 (1,104,149) -16.7%
Transient Occupancy Tax 14,001,737 6,895,067 (7,106,670) -50.8%
Utility Users Tax 17,906,061 16,605,315 (1,300,746) -7.3%
Business License Tax 2.401,880 2,000,000 (401,880) -16.7%
License and Permits 5,755,902 5,357,668 (398,235) -6.9%
Fines and Forfeitures 4,518,511 3,282,500 (1,236,011) -27.4%
Interest Income 500,000 0 (500,000) -100.0%
Market Value Adjustment 0 0 0 N/A
Use of Money and Property 17,572,364 14,500,000 (3,072,364) -17.5%
Revenue from Other Agencies 3,066,814 3,130,130 63,316 2.1%
Charges for Current Services 26,388,005 24,630,713 (1,757,292) -6.7%
Other Revenue 1,455,615 980,036 (475,579) -32.7%
Non-Operating Revenue 519,362 428,917 (90,445) -17.4%
Total Revenues 236,877,970 216,908,281 (19,969,688) -8.4%
17
Property Tax Assumption
• Overview
— FY2019/20 Pre-COVID Revenue Estimate: $ 92.41 M
— FY2020/21 Proposed Budget Revenue: $ 94.35 M
— Net Change: $ 1.94 M
• Notes / Assumptions
— The estimated 2.1% increase in Property Tax receipts is based on higher assessed valuations as of January 1, 2020 versus prior fiscal
year
— COVID-19 economic impact on Property Tax revenues is muted in FY2020/21, however, we are projecting possible material declines
beginning in FY 2022/23
18
Sales Tax Assumption
• Overview
- FY2019/20 Pre-COVID Revenue Estimate: $ 41.28 M
- FY2020/21 Proposed Budget Revenue : $ 37.00 M
- Net Change: $ (4.28) M
• Notes / Assumptions
- The estimated overall in sales tax revenues has been based on assuming a -7.5% decrease in Q1-2020 and a -36.1%
decrease in Q2-2020, and then a modest increase over that new baseline of 1.9% in FY 2020/21
- Those top-level numbers are based on the following assumptions:
Industry Group Q1-2020 Q2-2020 FY2020/21
Auto Sales -12.0% -55.0% 4.2%
Building & Construction -7.0% -40.0% 15.0%
Business & Industry -15.0% -30.0% -0.7%
Food & Drugs 5.0% 5.0% -1.2%
Fuel & Service Stations -10.0% -50.0% -8.8%
General Consumer Goods -15.0% -45.0% 1.0%
Restaurants & Hotels -10.0% -60.0% 2.2%
State & County Pools (Internet Sales) 15.0% 10.0% 5.5%
Tota 1 -7.5% -36.1% 1.9%
19
TOT Assumptions
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 14.00 M
— FY2020/21 Proposed Budget Revenue : $ 6.90 M
— Net Change: $ (7.10) M
• Notes / Assumptions
— The estimated overall -50.8%drop in TOT revenues has been based on the following assumptions:
> July -95% reduction from normal receipts
> August—September -85% reduction from normal receipts
> October — November -80% reduction from normal receipts
> December —June -79% reduction from normal receipts
20
Business License Assumptions
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 2.40 M
— FY2020/21 Proposed Budget Revenue : $ 2.00 M
— Net Change: $ (0.40) M
• Notes / Assumptions
— The estimated overall in Business License revenues has been developed assuming the following factors:
> -25% decline in renewals
> -50% decline in new business licenses issues compared with the prior year
> Business License Deferral program in place through to July 31 with established payment plan options
21
Licenses & Permits Assumptions
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 5.76 M
— FY2020/21 Proposed Budget Revenue : $ 5.36 M
— Net Change: $ (0.40) M
• Notes / Assumptions
— We're projecting that our license and permit fee revenues will decrease by -6.9%, based on the following factors:
> Actual activity in building, planning, and fire permit activity has been fairly consistent even in the midst of the COVID-19 situation
> This is likely due to the digital systems that the City quickly implemented at the onset of the pandemic
> Expect fairly consistent development activity through FY2020/21
22
Fines & Forfeitures Assumptions
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 4.52 M
— FY2020/21 Proposed Budget Revenue : $ 3.28 M
— Net Change: $ (1.24) M
• Notes / Assumptions
— The estimated overall in Fines & Forfeitures revenue has been based on the following factors:
> Primary contributor to revenue drop is an assumed 75% reduction in estimated parking fines and traffic fines in Q2-2020
> Less traffic fines anticipated in FY2020/21 due to workers continuing telework options
23
Use of Money & Property Assumptions
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 17.57 M
— FY2020/21 Proposed Budget Revenue: $ 14.50 M
— Net Change: $ (3.07) Mi
• Notes / Assumptions
— The estimated overall -17.5% drop in Use of Money & Property revenues has been developed assuming the following factors:
> Rent holiday for City concessionaires
> Zero revenue from parking lot fees and parking meters for Q2-2020
> Continued impacts to parking and concessionaire revenues in FY2020/21 due to new normal created for social distancing
24
Charges for Current Services
• Overview
— FY2019/20 Pre-COVID Revenue Estimate : $ 26.38 M
— FY2020/21 Proposed Budget Revenue : $ 24.63 M
— Net Change: $ (1.75) M
• Notes / Assumptions
— We are projecting that Charges for Current Services fee revenues will decrease by -6.7%, based on the following factors:
> Building, planning, and fire inspection fees are trending to show modest decreases
> Overall reduction is due primarily to special event and recreation class cancellations
25
Revenue Decrease Summary
Object FY 2019-20 FY 2020-21 Increase / % Increase /
Account Pre-COVID Proposed (Decrease) (Decrease)
Projected Budget
REVENUES
Property Tax 92,408,127 94,350,104 1,941,977 2.1%
Sales Tax 41,283,740 37,000,000 (4,283,740) -10.4%
Public Safety Sales Tax 2,475,075 2,227,205 (247,870) -10.0%
Franchises 6,624,776 5,520,627 (1,104,149) -16.7%
Transient Occupancy Tax 14,001,737 6,895,067 (7,106,670) -50.8%
Utility Users Tax 17,906,061 16,605,315 (1,300,746) -7.3%
Business License Tax 2,401,880 2,000,000 (401,880) -16.7%
License and Permits 5,755,902 5,357,668 (398,235) -6.9%
Fines and Forfeitures 4,518,511 3,282,500 (1,236,011) -27.4%
Interest Income 500,000 0 (500,000) -100.0%
Market Value Adjustment 0 0 0 N/A
Use of Money and Property 17,572,364 14,500,000 (3,072,364) -17.5%
Revenue from Other Agencies 3,066,814 3,130,130 63,316 2.1%
Charges for Current Services 26,388,005 24,630,713 (1,757,292) -6.7%
Other Revenue 1,455,615 980,036 (475,579) -32.7%
Non-Operating Revenue 519,362 428.917 (90,445) -17.4%
Total Revenues 236,877,970 216,908,281 (19,969,688) -8.4%
26
FY 2020/21
General Fund Proposed Expenditure Plan
Proposed Expenditure Cuts
• Key identified expenditure reductions
> Workforce Reductions: -$ 6.20 M
> Hiring Freeze: -$ 3.10 M
> Personnel Cost Reductions: -$ 1.02 M
> Citywide Operating Budget Cuts: -$ 3.10 M
> Suspend Section 115 Retirement Transfer: -$ 1.00 M
> Bond Refinance/Utilize Bond Reserve: -$ 3.24 M
> Reduce General Fund Transfers: -$ 3.37 M
> TOTAL IDENTIFIED REDUCTIONS -$21.03 M
28
Workforce Reductions
• Background —Workforce Reductions
— Proposed budget assumes a 5% reduction in the City's current workforce
> The City has 294 employees currently eligible to retire
> We are assuming that at least 15% of those eligible to retire (44 employees) would participate in an early retirement program, which
would result in annualized ongoing cost savings of at least $6.2 M
• Impact of Proposed Cut
— Workforce reductions may initially impact service levels, but also provides an opportunity to strategically reorganize and streamline
the City's operations
— Ensure that we have the right people serving in the right jobs
— Ease internal bureaucratic red-tape
— Move towards becoming a flatter, more customer-focused organization
• Recommendation
— Institute workforce reductions through the CalPERS early retirement program and strategic reorganization
29
Hiring Freeze
• Background — Hiring Freeze
— Currently, the City has around 69.5 vacant positions
> This represents around 7.2% of the City's overall workforce
— Freezing the hiring of all non-critical positions will save the General Fund an estimated $3.1 M in FY 2020/21
• Impact of Proposed Cut
— Not filling vacant positions will increase the workload for existing staff, however, the hiring freeze is not expected to materially impact
current service levels
• Recommendation
— Save the General Fund $3.1 M by freezing the hiring of all non-critical positions
30
Personnel Cost Reductions
• Background - Personnel Cost Reductions
- In total, the City has identified $1.02 M in personnel cost reductions in authorized overtime and part-time staffing
• Impact of Proposed Cut
— A reduction in authorized overtime and part-time staffing will increase the workload for existing staff, however, the personnel cost
reductions is not expected to materially impact current service levels
• Recommendation
— Save the General Fund $1.02 M by reducing authorized overtime and part-time staffing
31
Citywide Operating Budget Reductions
• Background - Operating Budget Reductions
— For FY 2019/20 Pre-COVID, the City's revised operating budget totaled $42.0 M
— In total, the City has identified $3.1 M in operating budget cuts for FY 2020/21 (for an approximate —7% reduction)
> Given the COVID-19 situation, a variety of cost savings have been realized due to new societal restrictions
> In addition, staff has worked to identify other operating budget cuts
• Impact of Proposed Cut
- No material impacts to current service levels are expected from the identified operating budget cuts
• Recommendation
— Save the General Fund $3.1 M by instituting the identified operating budget cuts
32
Section 115 Retirement Transfer Reduction
• Background — Section 115 Retirement Fund Transfer
— Section 115 Trust was established in September 2016
— Historically, the City's practice has been to transfer $1 M annually to fund the Section 115 Trust
— The Section 115 Trust has a fund balance of$7.16 M as of April 2020
• Impact of Proposed Cut
— There is no required annual savings level for the City's Section 115 Trust
— Instituting a temporary 1-year suspension of our normal practice of saving $1 M through our Section 115 Trust would not constitute a
material impact on City operations
• Recommendation
— Save the General Fund $1 M by reducing the transfer for the Section 115 Trust for FY 2020/21
33
Bond Refinance Savings
• Background - Bond Refinance / Utilize Bond Reserve
— The City currently has 3 outstanding bonds for the following projects:
> Pier Plaza
> Senior Center
> Library/Sports Complex
> Civic Center
— The total annual GF payment for our existing bonds is —$4.2 M
— The City is in the process of refinancing eligible outstanding bonds at a lower interest rate, without extending repayment terms
— Anticipated first year savings total $3.4 M
• Impact of Proposed Cut
- None
• Recommendation
— Save the General Fund $3.4 M by refinancing the City's bonds and utilizing undesignated bond fund reserves
34
Reduce General Fund Transfers
• Background — General Fund Transfers
— Proposed reduction of$3.37 M in General Fund Transfers to the General Liability, Equipment Replacement, and Infrastructure Funds
> The City's General Liability fund is projected to be overfunded at 135%at the end of FY2019/20
> The City historically transfers-$4.7 M/year into the Equipment Replacement Fund
> Reduce the Infrastructure Fund transfer by$1 M, pending a final decision on upgrades to the City's Police Department
• Impact of Proposed Cut
— Reduce the General Liability Transfer amount by $1.4 M
> Reducing the GL fund transfer down to$3.4 M would still result in the fund be overfunded at-115%, even after reducing the transfer
— Reduce the Infrastructure Fund Transfer by $1 M, pending a decision on Police Department upgrades
> Reducing the General Fund transfer from $4 M to$3 M does not impact our ability to meet the 15%GF infrastructure spending requirement (est. at
15.6%after identified adjustments)
— Equipment Replacement Fund Transfer Reduction of$0.97 M
> Reduce the proposed -$4.8 M in equipment replacement expenditure budget by utilizing$0.97 M in eligible infrastructure funding
• Recommendation
— Save the General Fund $3.37 M by reducing the General Fund Transfers to the General Liability, Equipment Replacement, and
Infrastructure Fund
35
FY 2020/21
Proposed Budget Summary
Overall Budget Adjustment Summary
• Revenue adjustments
— Proposed FY 2020121 Revenues: $216.9 M
> This represents a $20 M decrease (-8.4% reduction) from our Pre-COVID FY 2019/20 projected revenues of$236.9 M
• Key identified expenditure reductions
> Workforce Reductions: -$ 6.20 M
> Hiring Freeze: -$ 3.10 M
> Personnel Cost Reductions: -$ 1.02 M
> Citywide Operating Budget Cuts: -$ 3.10 M
> Suspend Section 115 Retirement Transfer: -$ 1.00 M
> Bond Refinance/Utilize Bond Reserve: -$ 3.24 M
> Reduce General Fund Transfers: -$ 3.37 M
> TOTAL IDENTIFIED REDUCTIONS -$21.03 M
37
Proposed FY 2020/21 General Fund Budget Overview
• Proposed FY 2020/21 General Fund balanced budget is as follows:
> Revenues: $216.9 M
> Expenditures: $216.9 M
> NET POSITION: $ 0.0 M
38
FY 2020-21 Capital Improvement Budget Review
I. ]BEACH
HUNTINGTON
CIP Budget Overview
• FY 2020/21 Budget includes $29.8 M in proposed capital enhancements
• Key improvements include:
— Facilities — Parks
> Lake Fire Station Renovation > Rodgers Senior Center Park Redevelopment Plan
> Central Library improvements, including for the Central > Blufftop Park
Library Fountain > Central Park Group Picnic Areas
> City Gym & Pool Renovations > New beach showers /fountains
> Playground equipment @ Bushard, Circle View, LeBard, and
— Utilities Schroeder Parks
> McFadden Lift Station
> Sewer relining — Streets
> Water main replacement > Residential Overlay in Zone 3
> Arterial Rehabilitation Project —Atlanta, Newland, Talbert,
Garfield, Brookhurst, Warner, and Edinger
40
CIP Funding Sources
Capital Improvement Program FY 2020/21
New Appropriations by Funding Source
RMRA
13% Park Funds
22%
Water Funds
13%
Gas Tax/Prop 42
10%
infrastructure Fund
13% Grants/Other
6%
Measure M
Sewer Funds 4%
19%
41
Key Facility Upgrades
• Lake Fire Station Renovation
- $1.0 M allocation to complete planned station upgrades
• Central Library improvements, including for the Central Library Fountain
- $1.136 M in planned upgrades (Tabby Theater, meeting rooms, lower level restrooms, and Central Library Fountain)
• City Gym & Pool Renovations
— $220 K for renovations to the City Gym & Pool facility
M
42
Key Park Upgrades 't
• Rodgers Senior Center Park Redevelopment Plan
- $925 K to create a passive park at the former Rodgers Senior Center
• Blufftop Park
- $1.3 M in funding to upgrade Blufftop Park
• Central Park Group Picnic Areas
- $1.32 M to upgrade the play equipment at Central Park
• Playground equipment
— $1.22 M for playground equipment upgrades
— Upgrades planned at Bushard, Circle View, LeBard, and Schroeder Parks
• New beach showers / fountains
— $100 K for new beach showers and drinking fountains
43
Key Street Upgrades
• Residential Overlay in Zone 3
- $3.9 M allocation to fund neighborhood street and curb ramp improvements in Zone 3
• Arterial Rehabilitation Project
— $3.6 M allocation to fund our annual arterial
— Arterials slated for rehabilitation include Atlanta, Newland, Talbert, Garfield, Brookhurst, Warner, and Edinger
Arterial Rehab— Before Arterial Rehab—After
44
Key Utility System Upgrades
• McFadden Lift Station
— $3.4 M to improve McFadden lift
• Sewer Relining
— $1 M for lining sewers in various locations
• Water Main Replacement
— $1.25 M for our water main replacement
"i� r 1 E
FY 2020-21 Budget — Next Steps
J.
HUNTINGTON BEACH
City Council Feedback Requested
• City Council review/ feedback of the proposed FY 2020/21 Budget is requested
• Key budget components include:
— Projected $20 M drop in General Fund revenues
— Budget balancing plan includes a City workforce reduction by—5%, achieved through use of the recommended CalPERS early
retirement program
— Increase in police staffing (3 positions) and code enforcement staffing (2 positions)
— Robust $29.8 M Capital Improvement Program budget
47
FY 2020/21 Budget Next Steps
• Based on City Council feedback tonight, staff will make requisite adjustments to the proposed FY 2020/21 Budget
— Given the fluid nature of the current economic situation, staff plans on providing the City Council with quarterly budget updates
throughout FY 2020/21
• Revised budget will be brought back for formal City Council consideration / adoption on June 15
48
Questions?
Estanislau, Robin
From: Fikes, Cathy
Sent: Thursday, May 28, 2020 1:08 PM
To: Estanislau, Robin; Esparza, Patty
Cc: Chi, Oliver;Jun, Catherine
Subject: FW: Example of How Fiscal Information Needs to Be Presented to the City Council
Attachments: Long Beach's Fiscal Information Presented to the City Council.pdf
From: Dan Gooch <dangooch66@gmail.com>
Sent:Thursday, May 28, 2020 8:39 AM
To: CITY COUNCIL<city.council@surfcity-hb.org> SUPPLEMENTAL
Subject: Example of How Fiscal Information Needs to Be Presented to the City Council. MUNICATI®N
Meetlrtlg Date:
I would like this to be: Agenda IlWn No.-
a) Sent to each of the Councilmembers and the City Manager; and,
b) Put on the next City Council meeting in the public comments
section
On a) and b) above I would appreciate having the following
accompany the attachment.
City Councilmembers:
I am presenting what I believe to be an excellent example of how
financial analysis of the city's financial picture should be presented to
you. The attached is comprehensive, thoughtful and presents an
accurate picture of a municipality's efforts at meeting the current
challenges of today's challenges.
Dan Gooch
Please confirm receipt and acknowledgement of request.
I
thank you,
Dan Gooch
16342 Woodstock Lane
Huntington Beach, Ca
Daniel P. Gooch
dangooch66(a�gmail.com
562-896-0475
2
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2:
Budget Update and Restart of the Budget Process
Projections, Goals, and Proposed Actions
Study Session - May 19, 2020
CITY OF
LONGBEACH
Discussion Topics
• Financial strength of the City
• Impact of COVID- 19 pandemic on economy and services
• Projection update and budget process
• Goals and strategies for budget balancing
CITY OF
LONGBEACH
w
1�
9
Financial Strength of the City
CITY OF
LONGBEACH
Strong Financially
• Balanced budget
o A key to good financial management and maintain bond rating
• Reserves
o General Fund: Operating reserve - $13.5 million (2.5%); Emergency reserve - $45.5
million (8.5%)
o Other reserves - primarily for unfunded liabilities, capital, and one-time projects
• Other
o AA credit rating
o Large and diverse tax base, strong liquidity position
o Prior to pandemic - great economy and development activity
o Full service city
CITY OF
LONGBEACH
Impact of the COVI D- 19 Pandemic on Economy and
City Services
CITY OF
LO N C .
The COVID- 19 Pandemic Impact is Severe and Unprecedented
• The nation has not seen anything like this before
• Businesses shut-down, unemployment skyrocketing
• Revenue decline is sharp and quick
• Substantial pandemic expenditures - level of reimbursement not certain
• Uncertain economy restart pattern and unknown pandemic pattern
• A quick rebound is no longer considered likely
• Lack of one-time funding
• Bond (credit) rating and reserves at risk
• City services will be impacted
CITY OF
LONOBEAH
Many Cities Are Severely Impacted
• Cities in California and across the country are recognizing the major
financial and economic problem requiring major budget actions
• Most California cities use a July 1 fiscal year
Agency Shortfalls and Budget Actions
City of Los Angeles $231m revenue loss in current year; $194 - $594m in FY 21
• Borrowing $70m from special and reserve funds
• 26 furlough days (excludes public safety and sanitation workers)
• Significant cuts such as 20% reduction in street sweeping
• 10% reduction in infrastructure spending
San Diego $300m revenue loss over FY 20 and FY 21
• 10% reduction in services including elimination of 342 positions — including 23 police
staff with 17 sworn positions, 97 library positions, 89 parks positions
CITY OF
LONGBEACH
Many Cities Are Severely Impacted
Agency Shortfalls and Budget Actions
Santa Monica • $48m revenue loss in current year; $102m in FY 21; $74m in FY 22
• $86m in proposed cuts (337 FTEs and 144 temp positions)
• Up to 15% reduction in pay for management
• Street sweeping from weekly to monthly
• Voluntary early separate incentive program
San Francisco • $167 - $287m shortfall in current; $528 - $779m in FY 21; $444-$612m in FY 22
• Budget timeline pushed back 2 months, adopting budget in October instead of July
Oakland $36m revenue loss in current year; $54m in FY 21
• Hiring freeze
• Laid off part-time employees including parks and library staff
Sacramento $30m revenue loss in current year; $60m in FY 21
• Looking at redirecting Measure U (their version of Measure A) previously slated for
economic inclusion projects
San Jose • $45m revenue loss in current year; $65m in FY 21
• Furloughs for more than 1,000 of its temporary and part-time employees
• Use of earmarked reserves and cutting capital expenses
CITY OF
• LONGBEACH
Long Beach Services Will Also Be Impacted
• As with many other cities, the revenue losses are too large to absorb.
Both staffing levels and services will be impacted
• Actions need to be taken quickly to minimize shortfall impacts
• The City did not receive Large City CARES Act funding, but the Governor
has proposed a $450m allocation of state CARES monies to cities and
Long Beach is a recipient
o Potentially fund payroll and other expenses re: COVID-19 response and future
response and recovery efforts to help residents and businesses
• HEROES Act under consideration that could provide more than $1 trillion
to state and local governments
• Pursuing other grants and funding including County funding
CITY OF
LO N C
Opportunity to Transform and Reimagine Service Delivery
• The pandemic has created a significant fiscal crisis and likely substantive
impact on services
• Opportunity to look at new ways of delivering services and transform the way
the City works to provide services to our residents and businesses
• We have already rapidly and effectively adapted our organization to respond
to the crisis and stay at home orders
• Moving forward, we will continue to reimagine work and service delivery, and
assess strategic investments to propel Long Beach into the future
o Technology investments and innovations
O Investments into businesses to lay foundation for resilient local economy
O Organizational structures and service delivery models
CITY OF
LONGBEACH
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Budget Projection Update and Process
CITY OF
LCJ NUBEACH
FY 20 Direct Impacts of City's Actions re: the Pandemic
Area Impact
EOC operations and • $11m General Fund and $5m other funds (total $16 m) through 5/18, excl Health Dept
departmental actions • Potential General Fund unreimbursed/unbudgeted costs $3-6 m for year
• Response activities rapidly change depending on community needs and virus spread
Health staffing and • $2.5m through 5/18, might be $15-20m by end of year, $3-5m unreimbursed
testing • Anticipate expenses through FY 22 until vaccine is available; will drain Health Fund reserves
Parking citation revenue • About $2m through 5/18; might be $5-6m by end of year if no enforcement continued
Towing • About $300,000 now; if extended, might be $1.5m by end of year
Utility related fees • About $700,000 through 5/18; if extended, might be $2.Om by end of year
(no fees/shut-offs) • Unknown costs from permanently unpaid normal service charges
Bus. License penalty • About $170,000 through 5/15; might be $650,000 by year end for penalties
waivers • Unknown cost from permanently unpaid business license tax
Permitting deferrals • Less than $200,000
Rent deferral • City gets over $2.4m/month in rent. Could have significant impact in FY 20; if deferral results in
eventual non-payment, may result in permanent losses. No loss estimate possible at this time.
CITY OF
LONGBEACH
FY 20 General Fund Projection - Significantly Worse
Revenue / Expense Adverse Impact Additional Notes
in $ millions - loss
Sales Tax (Non Measure A) $12 • 17% decline from pre-pandemic projections
Transient Occupancy Tax $10 • 43% decline
Oil Revenue $3 • 30% decline
• Budget is $55/bbl vs. current is mid-$20s/bbl
• Loss is partially mitigated by not funding $1.3m
set-aside for future abandonment costs
Parking citation revenue $2 11% decline
Pandemic costs $6 • $13.9m costs to date
• $3-$6m estimated as not reimbursed
Other revenues TBD • Anticipated to impact other revenues but
additional review needed
• Based on preliminary analysis — actual data not available; may change significantly
CITY OF
LONGBEA H
FY 21 General Fund Projection - Significantly Worse
Revenue / Expense Adverse Impact in Additional Notes
$ millions - loss
Sales Tax (Non Measure A) $6 • 9% decline from pre-pandemic projections
Transient Occupancy Tax $8 • 36% decline
Oil Revenue $5 • 55% decline
• Project was $55/bbl vs. revised $30/bbl
• Loss is partially mitigated by not funding $1.3m
set-aside for future abandonment costs
Other revenues TBD • Anticipated to impact other revenues but
additional review needed
• Projection will change significantly depending on situation; more likely to be worse than better
CITY OF
LONGBEACH
, General Fund Shortfall
Current Projection of Shortfall ($ in millions)
(25) to (41) (30) (13) (22)
Each years' shortfall starting in FY 21 must be structurally solved to avoid the unsolved amount adding to the next year's shortfall
• Key assumptions:
• Range in FY 20 reflects the high level of uncertainty for revenue loss
• Pandemic revenue losses mostly end in FY 21 with no second phase or other general recession
• Includes current negotiated contract costs and general cost of living raises for others
• Includes higher CaIPERS costs in FY 22 and beyond due to FY 20 investment losses
• Long-term large projected shortfalls indicate a need for a long-term plan and substantive
corrective actions
CITY OF
LONG BEACH
Tidelands Operating Fund Shortfall
• Without any corrective action, fund is projecting to end FY 20 with negative
$5m in funds available. If no changes are made, it grows to negative $19m by
end of FY 21
• Key assumptions:
• Oil is budgeted at $30, $35, $45 and $55 per barrel in FY 21 through FY 24 respectively
• Extra costs for bonds due to Aquarium and QM revenue shortfalls as assumed to occur only in
FY 21
• Funding, per contract, of Convention Center loss of $5m in FY 20 and $2.5m in FY 21
• No funding of $6m annual oil well abandonment costs in FY 20 - FY 22 (3 years)
• Fund has major uncertainties and risks; FY 20 and FY 21 shortfalls
recommended to be addressed by combination of project defunding, reduction
of operating costs, and use of reserves
CITY OF
LQNGBEACH
AdvertisingSpecial and Pr omotion • Shortfall
• Without any corrective action, fund is projecting to end FY 20 with negative
$0.7m in funds available. If no changes are made, it grows to negative $2.6m
by end of FY 21
• Key assumptions:
• Transient Occupancy Tax revenues are heavily impacted for one-half year in FY 20, and
throughout all FY 21 . Assumes a general recovery by FY 22
• Extra 1% tax, effective July 1 , is not included in these numbers and is assumed dedicated
per resolution for specified purposes
• Fund has significant risk with volatile revenue source; FY 20 and FY 21
shortfalls recommended to be addressed by combination of project defunding,
reduction of operating costs, and use of reserves
CITY OF
• Projected revenue loss of $5m in FY 20 compared to FY 20 budgeted Measure A
plan and projections. For FY 21 , below projected revenues by $2 m
• Inclusive of the approved ballot measure, out-years beginning in FY 22
projected to be higher than revenue levels assumed in the FY 20 budget plan
• Assumes a general recovery by FY 22 - may be optimistic
• A revised spending plan will be developed and proposed that takes into
account temporary revenue decline, the difficulty in funding public safety
operations, and long-term revenue increase from the approved ballot measure
• May recommend use of some unallocated revenue and projects to be
potentially postponed or defunded to help maintain public safety services
CITY OF
L 0 N G R RE A,-
' Airport Fund
• Unprecedented drop in traffic - loss potentially up to $20m in FY 20
• Too early to have meaningful future projections
• Maintaining adequate cash is the key goal
• City's practice of maintaining a large funds available has made a huge difference
• The $18m CARES grant funds help but anticipate expending over next 6 months
• The Terminal Area Improvement Project is being phased to allow it to be halted at
various points, if necessary to protect cash
• Adaptation by airlines and passengers could affect the Airport's future
• The status of the Airport Fund and the airline and passenger situation will be
continuously monitored
CITY OF
• LONOBEA H
Other Funds and - Impacts
• COVID- 19 is likely impacting most funds, including enterprise funds
• Mobility and other State and County funding from Gas Tax and Sales Tax
will be adversely impacted
• Utility funds revenues including penalty fees likely down
• Towing fund revenues are down significantly due to reduced tows and
cancellation of lien sales
• Impacts such as these have not yet been fully analyzed and will be
monitored and evaluated
• All funds will be asked as part of budget process to evaluate health of
fund and find efficiencies
CITY OF
r LON GBEAGH
Revised FY 21 Budget Process
• Restart the delayed process - goal of normal adoption date
• Intent is to provide City Council and the public with close to normal time
for review, budget hearings, and discussion
• Shortened process times; less time or information for in-depth analysis
• Proposed budget will be a booklet summarizing proposed changes and
will also include the Mayor's recommendations
• Adopted Budget book prepared and published after budget is adopted
• During the FY 21 year, strategies will be developed for future years
CITY OF
r LONG BEACH
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Goals and Strategy for Budget Balancing
CITY OF
r LONG B.EAC
FY • and FY 21 Budget • Goals
• No adverse impact to COVID- 19 pandemic public safety/health response
• Reduce non-critical expenditures as much as practical
• Strategic use of operating or emergency reserves that preserves for future
• No layoffs of full-time staff in FY 20, reduction in part-time staffing/hours
• Minimize layoffs by utilizing attrition / reduction of vacant positions in FY 21
• Balanced Proposed Budget
• Emphasize core services and maintaining a balance of services
• Look for transformation opportunities
• Find ways to make needed investments in the City's economic future
CITY OF
LONGRE C-
' FY 20 Budget Actions Strategy
• Hard hiring freeze and cutback on non-essential expenses
• Provide recommendations on defunding non-critical capital projects
• Reconsider summer activities and programs impacted by pandemic
• Emphasize full-time staffing over part-time or non-career staffing
• Defer decisions on the fire and police academies until later in the FY 21
budget process to better understand funding and budget ramifications
• Encourage innovation and investment opportunities
CITY OF
LONG BEACH
TY 21 Multi-Prong Strategic Approach for General Fund
as� Look to new or reallocated revenue
Measure A and Ambulance fees to support public safety
Reallocated
"J Revenues
• Explore additional efficiencies,
innovations, and strategic investments
Identify options for operational efficiencies,
$30 consolidations, new ways of business, leveraging
ff' • • Mllllorl technology, strategic investments, economic resiliency
Strategic
Investments
Shortfall Assistance and contributions from
employee groups
Savings to help reduce layoffs and service cuts
Assistance/Contributions Service reductions that prioritize the City's
rom Employeescore services/values, and outcome based
decision making process
CITY OF -^
LONG
' A
Balanced Outcomes-Based • .
• Balance of the following critical services
o Meet required local, State, federal mandates and legal requirements
o Ensure adequate support staffing for front-line services and systems for effective delivery of service!
o Core services to the community
o Prioritize and balance the following core services with reasonable response/service levels
o Police patrol, emergency medical, and fire services
o Infrastructure response (sidewalks, potholes, facilities maintenance)
o Maintenance of public spaces/assets (landscapes, graffiti abatement, tree trimming, etc.)
o Response to homelessness
o Maintaining or enhancing revenues
o Quality of life services (library, recreation, community programming)
o Youth and senior support
CITY OF
LONGBEACH
BalanceAchieving the
• Outcomes:
O Structurally balance the budget
o Preserve organizational capacity to effectively operate
o Retain acceptable service levels
• Steps to take
O Review additions over the past five years
O Reevaluate acceptable service levels
O Explore technology and other ways of serving the public
O Whole organization approach - look at outcomes, rather than percent of funding reduction
O Review service delivery changes from a whole City and equity lens.
O Pursue fee and cost recovery where appropriate
O Look at services differently - need to consider different ways to operate
O Recognize that service reductions will occur and adapt approach
CITY OF
LONG BEACH
, Why a Balanced Approach?
• Overconcentrating service reductions in any one area would be detrimental
• Exempting areas leads to fractured service approach
• All areas should be evaluated in a crisis of this level
• Our services are linked, e.g. public safety continuum
o Public Safety relies on libraries and parks
o Poor infrastructure and maintenance can drive fire calls and crime
O Homelessness drives increases in fire and police
O Support for front line workers is critical to their effective operation
CITY OF
: LONGBEA H
Continuum of Public Safety
Serokes
Graffiti City
Removal Prosecutor
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Affordable city
Housing Pubtic Safety Attorney
ContinuumEr
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Parks, FIRE T Pt3LICE
Recreation DPEC infrastructure
&Marine
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Workforce Cods
Development Enforcement
fUBUG UBitORf
Homeless& library
Health Services
ervices
CITY OF
► • LONGBEA H
' $ 30 MillionSolutions Difficult
Department FY 21 Base Budget %of General
• Service reductions will be ($ in Millions) Fund
substantial, although will Police 249.1 48.3%
work to minimize with Fire 103.8 20.1%
other offsets as available Disaster Preparedness and 12.9 2.5%
Emergency Communications
Public Works 41.3 8.0%
• Size of shortfall ($30m)
Parks, Recreation, and Marine 35.1 6.8%
makes it necessary to look
Library Services 14.3 2.8%
at entire organization and
Elected & Appointed 29.2 5.7%
menu of options
All Other Departments 29.8 5.8%
Tota 1 515.5 100%
CITY OF
c LONGBEACH
Budget Process Will Identify Options
• Generating of many options to consider, and what the alternative is, leads to
better decision-making
• Reduction targets will total above the expected need - provides options and
flexibility
• All departments, including non-City Manager Departments, will be requested to
submit reductions
• Non-Public Safety will be a range from range of 0-12% of budgets; Public Safety
will be a range of 0-3. 5% of budgets
• Final recommendations will be based on the Balanced Outcomes-Based Approach
• Projections will be updated during the budget development process - may get
worse
• Contingency plans will be reviewed/developed
CITY OF
c L 0 N G B *kC
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Wrap-Up
All
CITY OF
c LONGBEACH
Conclusion
• Pandemic has substantially changed the City's financial landscape
• Significant service reductions across the board will be needed
• Service reductions will emphasize maintaining core services and values
• Making the necessary difficult decisions will position the City for the
future
• Long Beach's strong economic position and attraction for development
and businesses should help it recover as quickly as possible
• This budget year and the next few years will be very difficult, but the
City is resilient and innovative!
CITY OF
c LONGBEACH