HomeMy WebLinkAbout- Item 1 - Attachment 1 - 5/12/2015Attachment 1
CITY CHIEF EXECUTIVE OFFICER'S
BUDGET MESSAGE
May 5, 2015
Honorable Mayor, Members of the City Council, and Citizens of Costa Mesa:
I am pleased to submit the Fiscal Year 2015-16 Preliminary Operating and Capital
Budget. The objectives used in developing this budget were to submit a balanced
budget to the City Council; to do the best job possible of maintaining current excellent
levels of service to the community; to implement City Council's priorities as feasible; and
to be prudent in our revenue estimates and cautiously optimistic overall. The City's
management team and staff have put together an operating and capital expenditure
plan that addresses the City Council's priorities while fulfilling the service requirements
of the people who live, work, and play in our community.
As presented, this represents a balanced budget for the coming fiscal year without the
use of General Fund reserves and provides the highest level of service to the
community within existing financial resources.
This preliminary budget maintains and, in a few areas, enhances the current level of
service from FY 14-15. Having already reduced operating expenditures to a minimum
base level in prior years, management decided to use the FY 14-15 budget as the
starting point while allowing Departments to make their requests known for new items
that they believed met the community and City Council needs.
On March 3, 2015 the Council adopted updated financial and budget policies. These
policies are outlined in detail in the Appendix Section. Highlights of these policies as
they relate to this budget include:
• Consistency with Council and CEO priorities
• Balanced budgets with the exception of using dedicated non -General Fund
balances for carry-over or one-time items
• Realistic assumptions for revenue forecasts
• A minimum of 5% General Fund revenues dedicated to funding capital projects
• A new goal of an additional 1.5% of General Fund revenues dedicated to capital
facilities
• A goal of $1 million budgeted for contingencies
• Provision for an additional $500,000 payment to reduce unfunded pension
liabilities
The first set of FY 15-16 General Fund base operating budget requests submitted by
the departments to the Finance Department totaled $112.8 million; $3.3 million or 3%
over the prior year budget. A large part of this increase was due to an increase in
retirement costs, assumption of increased number of filled positions, increases in
utilities and certain other operating costs and the additional 1.5% of General Fund
revenues dedicated to capital facilities projects. In addition, departments requested $4
million in budget increases for operating expense increases, enhanced service levels
and a few new positions. During the month of March, the Budget Review Team held
meetings with each department to review and discuss these budget requests.
The first set of FY 15-16 revenue estimates totaled $111.7 million using the
assumptions of modest economic growth, a gradually improving real estate market and
increasing development activity in the City. Revenue assumptions are discussed in
detail in the Summaries of Financial Data section of this budget book.
The departmental budget requests and revenue estimates described above combined
to create an initial budget gap of $5 million. The budget gap was closed by making the
following adjustments in concert with discussions with the CEO, department heads,
Finance and departmental budget liaisons:
• Reduction in the CEO budget for part-time, consulting and professional
development costs of about $276,000
• Reduced the City Attorney budget from a $400,000 increase to a
$200,000 increase
• Reduced the Police Department preliminary budget by about $354,000;
a combination of deleting six vacant custody officers and keeping part-
time positions at the current year level of hours while reclassifying five
Community Service Specialist positions to Park Ranger positions.
• Initial City-wide salary savings of $1.75 was increased by about $1.4
million representing an average City-wide vacancy factor of just under
4.7% for the entire fiscal year
• CEO, department heads and Finance reviewed all requests for budget
increases and made further budget reductions of $1.3 million by
identifying one-time items that could be purchased out of the current
budget and deferring lower priority items
• Revenue projections were increased by about $1.3 million based on
updated year-to-date actuals and other items
As a quick overview, here is the preliminary budget for FY 15-16 for all funds compared
to the FY 14-15 adopted budget:
ADOPTED BUDGET - ALL FUNDS
Approprations/ Adopted Preliminary Increase (Decrease)
All Funds FY 14-15 FY 15-16 Amount Percent
Operating Budget $ 114,958,461
Transfers Out 5,517,067
Capital Budget 19,421,001
Total $ 139,896,529
$ 118,083,807 $ 3,125,346
7,452,140 $ 1,935,073
22,299,929 $ 2,878,928
$ 147,835,876 $ 7,939,347
GENERAL FUND PRELIMINARY BUDGET
2.7%
35.1%
14.8%
5.7%
The General Fund provides 89.2% of the total operating budget for all governmental
funds. The total preliminary General Fund budget is $113 million, an increase of $3.5
million or 3.2% from the current year adopted budget. Table 1 is a summary of the total
General Fund resources and requirements for FY 15-16:
Table 1
PRELIMINARY BUDGET - GENERAL FUND
Operating Budget $
Adopted
Preliminary
Increase (Decrease)
1.5%
FY 14-15
FY 15-16
Amount Percent
Estimated Revenues $
109,451,662
$ 113,067,900
$ 3,616,238 3.3%
Transfer in
-
-
-
Use of Fund Balance
-
-
-
Total Resources $
109,451,662
$ 113,067,900
$ 3,616,238 3.3%
Operating Budget $
103,934,595
$ 105,502,050
$ 1,567,455
1.5%
Transfer Out
5,517,067
7,452,140
1,935,073
35.1%
Total Approprations $
109,451,662
$ 112,954,190
$ 3,502,528
3.2%
FINANCIAL OUTLOOK
As a result of the continued improvement in the economy, most revenue sources are
projected to continue to increase. The City experienced increases in Sales Tax,
Property Tax, Transient Occupancy Tax (TOT) and Building Permit revenue last year
and expects those to continue in FY 15-16. The City will evaluate revenues and
continue to find ways to mitigate costs. Doing so will continue to stabilize the City's
budget, provide necessary services to the community and work towards re -building
reserves.
The City remains careful about its cash position. With the depletion of reserves in
previous years, it is very important for the City to maintain a balanced budget and
stabilize cash. Based on the timing of the receipt of certain revenues, the City has
periods of time when it uses more cash than it receives. That use of cash is
replenished later in the fiscal year with the receipt of property tax revenue. The General
Fund had operating surpluses at the end of both FY 12-13 and FY 13-14 which helped
increase the overall cash position. The City plans for this trend to continue in the current
and next fiscal years.
HIGHLIGHTS OF THE PRELIMINARY BUDGET
The FY 15-16 preliminary budget contains funding for on-going services to the
community. The following highlights reflect some of the changes and facts regarding
the budget:
• Budgeted amounts for the City's share of employee retirement cost are affected
by:
o Increased retirement rates from CalPERS
o Miscellaneous employees contributing 60% of the rate increases
o City pick-up of 5% of Police employee retirement
o Inclusion of new retirement tier rates
o Corrections to budget calculation formulas used to determine retirement
budget amounts
• The budget contains funding for an additional payment of $500,000 toward
reducing the unfunded liability associated with retirement costs.
• Internal charges for vehicle replacement are reinstated after a one-year internal
rate holiday.
• General Fund contribution to Capital Projects is 5% of the General Fund budget:
$5,587,335
• General Fund contribution to Capital Facility Projects is 1.5% of the General
Fund budget: $1,676,201
• Capital Projects include the second year of advance funding of a four-year level -
pay plan for the next generation of the 800 MHz Coordinated Communication
System at $1,239,969 per year. The Police Department will fund $763,889 of
this project.
• Allocations to the Information Technology (IT) Replacement Fund will increase
from $100,000 to $150,000 for the accumulation of funds for future IT equipment
replacements and upgrades.
• Conversion from City Jail staffing to G4S contract staffing is implemented by fully
funding the G4S contract and deleting the remaining Custody Officer positions.
• Fire Department
o Staffing is increased by the addition of an EMS/Training Captain
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o Planned replacement of thirteen cardiac monitors
o Replacement of two aging fire trucks
• Development Services:
o Permit & plan check revenue is estimated to increase by $568,000 based
on projected development activity.
o Budget reflects the creation of a new Community Improvement Division
staffed with existing resources and a new Assistant Director position.
• Public Services Department
o Includes the new street sweeping contract offset by a reduction of three
full-time positions
o Includes the new custodial services contract with enhanced services
o Staffing is increased by the addition of an Assistant City Engineer to assist
with the high volume of capital projects.
• Three new Code Enforcement Officer positions are added to enhance services to
the community from various perspectives: one each in the Fire Department,
Police Department and Development Services.
• Contingency appropriations are $1,000,000.
GENERAL FUND RESERVES/USE OF FUND BALANCE
The General Fund — Total Fund Balance was $50.2 million as of June 30, 2014. As part
of the mid -year budget report on March 3, 2015 the Council approved allocation of $4
million toward the planned Neighborhood Community Center/Library/Park project. The
City continues to maintain a $14.125 million emergency general operating reserve, in
addition to reserves for workers' compensation, general liability claims, and
compensated absences. On March 3, 2015 the Council reviewed a new Reserves
Study that took a risk-based approach to establishing reserves for economic volatility,
major infrastructure failure, natural disasters and other emergencies. The Council
approved a reserves goal of $52 million and a plan to achieve that goal by increasing
existing reserves by up to $1.5 million per year funded by any actual annual operating
surplus.
A schedule of estimated fund balances for all budgeted funds is found in the Summaries
of Financial Data section of this budget book.
CAPITAL IMPROVEMENT PROJECTS
The capital budget is recommended at $22.3 million. In reviewing the Capital
Improvement budget, it is important to keep in mind that most projects are funded by
restricted revenue sources or grants. Consequently, there will potentially be significant
differences from year to year in both the numbers of projects adopted and the total
dollars budgeted.
Approximately $11.3 million or 50.5% of the total funding for capital projects is from the
General Fund; $5.35 million or 24% is funded by the Gas Tax Fund and another $2.3
million or 10% is from Measure M Funds. Both the Measure M Funds and Gas Tax
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Fund are earmarked for streets and/or transportation -related expenditures. Other
funding sources for capital improvements are the Community Development Block Grant
(CDBG) Fund, Drainage Fees, Traffic Impact Fees and Narcotics Asset Forfeiture
Funds.
Table 2 below illustrates the total capital projects funding by category planned for FY
15-16. It reflects an emphasis on streets, parks, and capital facilities projects including
$4 million for the Neighborhood Community Center/Library/Park facilities and nearly
$1.7 million set aside for eventual replacement of Fire Station 1.
Table 2
CAPITAL IMPROVEMENT PROJECTS
General funds
Other Funds
Total $19,421,001 $22,299,929 $2,878,928 14.82%
5,450,000 11,263,536 5,813,536
13,971,001 $11,036,393 (2,934,608)
Total Appropriations $19,421,001 $22,299,929 $2,878,928
NEXT STEPS
The next steps in the FY 15-16 budget process include the following events:
• May 12, 2015 Council Study Session
• May 21, 2015 Community Meeting
• June 15, 2015 Council budget hearing and adoption.
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106.67%
-21.00%
14.82%
Adopted
Preliminary
Increase (Decrease)
Program Category
FY 14-15
FY 15-16
Amount
Percent
Parkway & Median Improvements
$ 813,900
$ 700,000
-$113,900
-13.99%
Street Improvements/Maintenance
5,038,307
6,675,946
1,637,639
32.50%
Storm Drain Improvements
2,090,000
510,000
(1,580,000)
-75.60%
Curbs and Sidewalks
550,000
1,150,000
600,000
109.09%
Traffic Planning
3,257,000
1,022,208
(2,234,792)
-68.62%
Traffic Operations
3,330,694
-
(3,330,694)
N/A
Park Development & Maintenance
1,116,100
3,912,350
2,796,250
250.54%
Building Maintenance
1,641,000
1,377,255
(263,745)
-16.07%
Equipment Maintenance
-
36,000
36,000
N/A
Capital Facility Projects
-
5,676,201
5,676,201
N/A
Next Gen 800 Mhz Comm System
1,584,000
1,239,969
(344,031)
-21.72%
General funds
Other Funds
Total $19,421,001 $22,299,929 $2,878,928 14.82%
5,450,000 11,263,536 5,813,536
13,971,001 $11,036,393 (2,934,608)
Total Appropriations $19,421,001 $22,299,929 $2,878,928
NEXT STEPS
The next steps in the FY 15-16 budget process include the following events:
• May 12, 2015 Council Study Session
• May 21, 2015 Community Meeting
• June 15, 2015 Council budget hearing and adoption.
Vi
106.67%
-21.00%
14.82%
SUMMARY
Although current economic conditions are improving, and continue to do so, this
adopted budget does not fully support the overall high level of operating service that the
citizens of Costa Mesa had grown accustomed to in the past. Those levels are likely
unsustainable. It does however propose a balanced financial plan, maintains and in a
few areas, enhances the current level of service and enhances infrastructure
improvements.
ACKNOWLEDGEMENT
The development of the adopted budget takes a great amount of staff time and effort,
and has to be completed within a defined timeline. I sincerely appreciate the
contribution made by all department directors, division managers, and departmental
budget liaisons. Special recognition is extended to the Finance budget team and
Central Services staff. I thank the City Council for their continued support in making
Costa Mesa a financially stable and well-balanced community.
Respectfully submitted,
Thomas R. Hatch
Chief Executive Officer
City of Costa Mesa
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