HomeMy WebLinkAbout02 - SS-1 - Attachment 1 - 5/10/2016CITY CHIEF EXECUTIVE OFFICER'S
BUDGET MESSAGE
May 3, 2016
Attachment 1
Honorable Mayor, Members of the City Council, and Citizens of Costa Mesa:
I am pleased to submit the Fiscal Year 2016-17 Preliminary Operating and Capital
Budget. The objectives used in developing this budget are 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 15-16. Having already reduced operating expenditures to a minimum
base level in prior years, management used the FY 15-16 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 consistent with the purpose of those
funds
• Realistic assumptions for revenue forecasts
• A minimum of 5% General Fund revenues dedicated to funding capital projects
plus 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 16-17 General Fund base operating budget requests submitted by
the departments to the Finance Department totaled $116.2 million; $1.04 million or 1%
over the prior year budget. A large part of this increase was due to an increase in
pension costs, assumption of increased number of filled positions, increases in utilities
and certain other operating costs offset by the deletion of some one-time items in the
non -departmental section of the budget. In addition, departments requested $2.7
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 16-17 revenue estimates totaled $116.8 million using the
assumptions of modest economic growth, a gradually improving real estate market and
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 yielded a
balance of about $600,000 to fund $2.7 million in requests for increases. The budget
was balanced using the following process in concert with discussions with the CEO,
department heads, Finance and departmental budget liaisons:
• All requests for increases were analyzed on the basis of need and
department priority and classified into categories:
o Transfers and required items (e.g. cost increases in existing
service or commodity contracts) which totaled $624,244.
o Department priority one items which totaled $285,096.
o Department priority two items which totaled $402,330.
o Department priority three items which totaled $134,740.
o Department priority four items which totaled $983,083.
o Some requests were withdrawn which totaled $254,661.
After review and evaluation, all transfers, required items and priority
one, two and three items were funded. The priority four items were
deferred to future years. Examples of the funded items will be noted in
the following Highlights of the Preliminary Budget section.
• Initial City-wide salary savings of $3.18 million increased by $1.4 million
representing an average City-wide vacancy factor of 6.15% for the
entire fiscal year
• Revenue projections were increased by about $543,000 based on
updated year-to-date actuals and other items.
As a quick overview, here is the Preliminary Budget for FY 16-17 for all funds compared
to the FY 15-16 Adopted Budget:
PRELIMINARY BUDGET -ALL FUNDS
Appropriations Adopted Preliminary Increase/(Decrease)
All Funds FY 15-16 FY 16-17 Amount Percent
Operating Budget
$ 119,009,800 $
120,809,731
$ 1,799,931
1.5%
Transfers Out
9,416,140
7,752,242
(1,663,898)
-17.7%
Capital Budget
25,763,929
15,994,334
(9,769,595)
-37.9%
Total
$ 154,189,869 $
144,556,307
$ (9,633,562)
-6.2%
GENERAL FUND PRELIMINARY BUDGET
The General Fund provides 90.7% of the total operating budget for all governmental
funds. The total preliminary General Fund budget is $117 million, an increase of $2.2
million or 1.9% from the current year adopted budget. Table 1 is a summary of the total
General Fund resources and requirements for FY 16-17:
Table 1
Estimated Revenues
Transfers In
Use of Fund Balance
Total Resources
Operating Budget
Transfers Out
Total Appropriations
GENERAL FUND PRELIMINARY BUDGET
Adopted
Preliminary
Increase/(Decrease)
FY 15-16
FY 16-17
Amount
Percent
$ 113,638,900
$ 117,376,187
$ 3,737,287
3.3%
400,000
-
(400,000)
-100.0%
$ 114,038,900
$ 117,376,187
$ 3,337,287
2.9%
$ 106,186,760 $ 109,623,945 $ 3,437,185
9,016,140 7,752,242 (1,263,898)
$ 115,202,900 $ 117,376,187 $ 2,173,287
3.2%
-14.0%
1.9%
FINANCIAL OUTLOOK
As a result of the projection for slowing growth in the economy, forecasted changes in
revenue sources are projected to be mixed. Slight decreases from current year levels
of revenue are forecasted for licenses and permits, fines and forfeitures, use of money
and property and fees and charges for services. Modest growth is forecasted for sales
and use tax, property tax, motor vehicle license fees, transient occupancy tax (TOT),
and franchise fees. 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 13-14 and FY 14-15 which helped
increase the overall cash position. The City plans for this trend to continue in the current
fiscal year.
HIGHLIGHTS OF THE PRELIMINARY BUDGET
The FY 16-17 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 pension cost are affected by:
o Increased pension rates from CaIPERS
o Miscellaneous employees contributing 60% of their rate increases
o Inclusion of new, lower cost pension tier rates
o Added costs of $5,850 for required CaIPERS actuarial reports.
• The budget contains funding for an additional payment of $500,000 toward
reducing the unfunded liability associated with pension costs.
• General Fund contribution to Capital Projects is 5% of the General Fund budget:
$5,963,263
• General Fund contribution to Capital Facility Projects is 1.5% of the General
Fund budget: $1,788,979
• Capital Projects include the third year of advance funding of a four-year level -pay
plan for the next generation of the 800 MHz Coordinated Communication
System. Capital Projects also include $1,600,000 for Fairview Park -related
maintenance and $2.6 million for Jack Hammett fields and ADA improvements.
• Continued allocation of funds for scanning and automated retrieval of city
documents.
• Allocations to the Self -Insurance Fund increased by $250,000 as part of a multi-
year plan to rebuild the fund balance. Additional allocations are planned after the
General Fund Reserves target is fulfilled.
• Allocations to the Information Technology (IT) Replacement Fund will increase
from $150,000 to $200,000 for the accumulation of funds for future IT equipment
replacements and upgrades.
• Police Department
o Anticipated approval of the Costa Mesa Police Association memorandum
of understanding.
o Purchase of new department issued firearms
o Funded ten new e -citation devices compatible with the county -wide
system.
o General fund assumed $185,000 in employee costs previously funded by
the Narcotics Asset Forfeiture Fund.
• Fire Department
o Funded contracting out annual fire hose testing.
o Funded 15 iPads used to enter patient data to maintain county -wide
reporting standards in emergency medical services.
o Funded an additional $75,000 in contracted fire safety building plan check
and inspection services.
• Development Services:
o Adds one full-time Senior Combination Inspector.
o Funded an additional $30,000 for night-time inspections
o Funded and additional $18,500 for training and development of new staff.
• Public Services Department
o Funded $55,000 for additional consultant help with transportation
workload.
o Funded $25,000 for consulting and other support costs related to the
Bikeway & Walkability Committee.
o Funded $60,000 for the Bike Safety Education Program.
o Funded $50,000 for additional city tree trimming.
o Funded $13,860 for State mandated prevailing wage increase for tree
workers.
o Funded ongoing $50,000 for Fairview Park cattail removal.
• Contingency appropriations are $1,000,000.
GENERAL FUND RESERVES/USE OF FUND BALANCE
The General Fund — Total Fund Balance was $53.8 million as of June 30, 2015. 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 $55 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. The City is within $1.2 million of that goal.
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 preliminary capital budget is recommended in the amount of nearly $16 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. The lower funding compared to FY 15-16 is
due to one-time funds of $4 million used in FY 15-16 for the Library/Neighborhood
Community Center/Park project and reduced FY 16-17 estimates for Gas Tax, Narcotics
Asset Forfeiture Funds, Measure M, Traffic Impact Fees, and Drainage Fees.
Approximately $7.75 million or 49% of the total funding for capital projects is from the
General Fund; $2.4 million or 15% is from the Park Development Fund, $2.1 million or
13% is funded by Gas Tax, and $1.8 million or 11 % is from Measure M Funds.
Table 2 below illustrates the total capital projects funding by category planned for FY
16-17. Please see the Capital Improvement Program section of this budget for the
complete list of projects and project details.
Table 2
CAPITAL IMPROVEMENT PROJECTS
Adopted
Preliminary
Increase (Decrease)
FY 15-16
FY 16-17
Amount
Percent
Parkway & Median Improvements
$
700,000
$
160,000
$ (540,000)
-77.1%
Fairview Park Program
110,000
1,600,000
1,490,000
1354.5%
Street Improvements & Maintenance
6,675,946
3,501,137
(3,174,809)
-47.6%
Storm Drain Improvements
510,000
600,000
90,000
17.6%
Curbs & Sidewalks
1,150,000
400,000
(750,000)
-65.2%
Traffic Planning
1,022,208
742,000
(280,208)
-27.4%
Active Transportation Programs
-
300,000
300,000
N/A
Traffic Operations
-
604,990
604,990
N/A
Park Development & Maintenance
5,702,350
4,105,965
(1,596,385)
-28.0%
Building Maintenance
2,977,255
1,009,622
(1,967,633)
-66.1%
Capital Facility Projects
5,676,201
1,788,979
(3,887,222)
-68.5%
Next Gen. 800 MHz Comm. System
1,239,969
1,181,641
(58,328)
-4.7%
Total Appropriations
$
25,763,929
$
15,994,334
$ (9,769,595)
-37.9%
General Funds
$
12,663,536
$
7,752,242
(4,911,294)
-38.8%
Other Funds
13,100,393
8,242,092
(4,858,301)
-37.1%
Total Appropriations
$
25,763,929
$
15,994,334
$ (9,769,595)
-37.9%
BUDGETARY REPORTING AWARDS
The Preliminary Budget was prepared in accordance with local ordinances, state
statutes, and best practices in budgeting recommended by the National Advisory
Council on State and Local Budgeting (NACSLB). Additionally, this document will also
be prepared in a manner that meets the Budget Awards Program criteria established by
the Government Finance Officers Association (GFOA) of the United States and Canada
and the California Society of Municipal Finance Officers (CSMFO).
The Government Finance Officers Association of the United States and Canada
presented a Distinguished Budget Presentation Award to the City of Costa Mesa for its
annual budget document for the fiscal year beginning July 1, 2015. This is the 15th
consecutive year that the City has received this prestigious award. In order to receive
this award, a governmental unit must publish a budget document that meets program
criteria as a policy document, as an operations guide, as a financial plan, and as a
communications device. This award is valid for one year only.
In addition, the California Society of Municipal Finance Officers presented the
Excellence in Operational Budgeting, and the Excellence in Public Communications
awards to the City of Costa Mesa for its FY 15-16 Adopted Budget.
Staff believes the FY 16-17 Preliminary Operating & Capital Improvement Budget
document will continue to conform to the award program requirements. The City will
again apply to both GFOA and CSMFO for these awards.
SUMMARY
Although current economic conditions continue to be favorable, this Preliminary Budget
continues to be careful with our reliance on volatile Sales Tax revenue. The budget
maintains a lower level of reoccurring cost in addition to a fewer number of full-time
employees, in order to support an important capital improvement program. 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 Preliminary 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 Department 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,
, Kow �' ;� W
Thomas R. Hatch
Chief Executive Officer
City of Costa Mesa