Loading...
RPV Long Range Financial Plan Volume I - Revenue and Expenditure Assumptions (1981) r RALPH ANDERSEN AND ASSOCIATES L 1 CITY OF RANCHO PALOS VERDES LONG RANGE FINANCIAL PLAN VOLUME I: • REVENUE AND EXPENDITURE ASSUMPTIONS I 1 L 1446 ETHAN WAY • SUITE 101 • SACRAMENTO, CALIFORNIA 95825 • (916)929-5575 CITY OF RANCHO PALOS VERDES LONG RANGE FINANCIAL PLAN VOLUME I: REVENUE AND EXPENDITURE ASSUMPTIONS RECEIVFD SEP 8 1981 CITY OF RANCHO PAWS VERDES April , 1981 Prepared by: Ralph Andersen & Associates 1446 Ethan Way Suite 101 Sacramento, California 95814 (916) 929-5575 TABLE OF CONTENTS Page Number CHAPTER I INTRODUCTION AND OVERVIEW 1 CHAPTER II OVERALL ASSUMPTIONS/PARAMETERS 6 CHAPTER III REVENUE ASSUMPTIONS AND METHODOLOGY 10 CHAPTER IV EXPENDITURE ASSUMPTIONS AND METHODOLOGY 27 CHAPTER I INTRODUCTION AND OVERVIEW The Long Range Financial Plan Report Is Contained In Two Volumes The complete Long Range Financial Plan Report consists of two volumes which are: . Volume I, a detailed presentation and definition of all assumptions used in preparing revenue and expenditure pro- jections of the Financial Plan. These assumptions not only make clear the bases for financial projections, but also provide the City with the necessary information to update • the plan periodically or modify assumptions in light of changing conditions. . Volume II, a presentation of financial projections detailing ten-year, annual revenue and expenditure projections, an analysis and identification of trends, conclusions, and alternative financing approaches. This Volume Presents Recommended Assumptions That Provide An Important Basis For Developing A Long Range Financial Plan Phase I of the Long Range Financial Plan Project involved a number of tasks that led to the development of the recommended assumptions and methodologies contained in this report. These assumptions have been reviewed and approved by the City Council and City staff. The assumptions contained in this report provide the basis for subsequent tasks of developing long range forecasts of City revenues and expenditures. Therefore, it was important that these as- sumptions were carefully reviewed and a consensus was reached because the 1 subsequent projections, conclusions, and recommended financial plans and strategies are directly influenced by the assumptions and methodologies involved. Identifying A Variety Of Assumptions Enhances The Accuracy And Viability Of The Long Range Financial Plan While straight line projections are appropriate in some cases, it is increas- ingly important to take a more detailed approach to forecasting. This is par- ticularly true where the economy is unstable, the City is growing or changing, and a historical pattern is no longer an accurate reflection of what is likely to occur now or in the future. A more refined forecasting approach implies the need to develop a number of assumptions that are clearly identified, recog- nize differences in various revenue and expenditure components, and can be adjusted or modified to reflect changing conditions. For the Long Range Financial Plan to be flexible and viable, assumptions and methodologies are clearly identified so that they can be reviewed periodically and adjusted as necessary to reflect such things as new legislation or poli- cies, increased experience or technical knowledge, or changes in external economic factors. The City may also wish to test the impact of pending actions or decisions by modifying assumptions to reflect the proposed change in the financial forecast. The Long Range Financial Plan, with the assumptions and forecasts included therein, provides a baseline of information for decision making and developing alternative strategies. Clearly delineated assumptions also enhance an understanding of how key factors can influence the City's financial condition, some of which can be outside the 2 control of the City (general economy, legislation, etc.) and some the City can control or influence (service levels, population, etc.) . Recommended Assumptions Are Based On A Number Of Tasks Completed Under Phase I Of The Project The recommended assumptions are partially based upon our knowledge of public finance, economics and continuing research of economic trends. Importantly, the assumptions are also based upon a series of tasks designed to obtain spec- ific knowledge of the City of Rancho Palos Verdes and factors which specifi- cally affect the City. Phase I of the project included completion of the fol- lowing tasks: . Reviewed project workplan with City staff. . Developed base data using City financial records and reports including the f ollcwing: - Revenue history and trends - Expenditure history and trends - Policies and practices regarding revenues and expenditures. . Interviewed City department heads regarding services, costs, and anticipated changes. . Identified and reviewed factors having an impact on the City's finances including such things as City development plans, service levels, policies, and other agencies directly affecting City finances. 3 . Developed assumptions and methodologies for use in fore- casting ore- casting City revenues and expenditures. . Prepared report on draft assumptions which was reviewed by the City Council and staff. Additional Tasks Were Completed After The Assumptions Had Been Reviewed After the City Council and City staff reviewed and approved the recommended assumptions and methodology, project staff incorporated any requested changes into this report and proceeded with the remaining phases of the project. The subsequent phases and tasks completed by project staff are outlined in the Long Range Financial Plan Volume II, Revenue and Expenditure Forecasts, and Recommendations. Volume II contains the following: . Ten year annualized revenue and expenditure projections showing net overall surplus or deficit for each period, in- cluding: - Separate forecasts for current City boundaries and the planned Eastview area annexation. - Projections in both constant (1980) dollars, and inflated dollars. - Separate projections for ongoing operations, and nonrecurring costs. - Identifiable impacts of Proposition 13 and Proposition 4. . An identification of alternative revenue sources that might be available to fund any projected deficiencies. 4 Assumptions Are Defined Under The Categories Of Overall Assumptions/Parameters, Revenue Assumptions, And Expenditure Assumptions The following three chapters of this report present the recommended assumptions organized respectively into the following categories: . Overall assumptions/parameters - are overall parameters within which more detailed assumptions and calculations function. . Revenue assumptions - are detailed assumptions that provide the basis for projecting each significant revenue category. . Expenditure assumptions - are detailed assumptions that provide the basis for projecting expenditures corresponding to City major budget categories. 5 CHAPTER II OVERALL ASSUMPTIONS/PARAMETERS Certain assumptions or factors are of major significance in that they provide overall parameters within which other, more specific assumptions and calcula- tions are made. For example, a number of specific revenue sources as well as expenditures are directly influenced by the size or growth of the City's popu- lation. This chapter identifies a number of major assumption parameters which influence the other more specific, detailed assumptions and methodologies out- lined in the following chapters. Overall Assumptions/Parameters Are Summarized And Explained Further In This Chapter The overall assumptions/parameters are listed and explained in the following sections of this chapter. For the convenience of the reader they are summar- ized below: Summary of Overall Assumptions/Parameters Parameter Defined . Population - 1980 population: 36,510 - per dwelling unit: 3.0/d.u. - at buildout in 1990 (current boundary): 42,000 - average annual increase to 1990: 610/year - Eastview Area Annexation - actual 1980 population: 6,671 - Eastview Area Annexation - for revenue purposes: 12,201 (3x number of registered voters) for years 1980-1990; 6,671 (actual 1980 population) after 1990 . Service levels - assume maintenance of current service levels for all City services. 6 Parameter Defined . Contract services - assume continuation of current contractual services, or if provided by City there will be no increase in cost (service level to be equal or better) . . Legal/policy framework - assume current laws and policies; continuation of current state and federal legislation that has been implemented. . Inflation - assume 9% per year increase in Consumer Price Index through 1985, and 8% thereafter. - assume 9% per year increase in GNP Deflator (state and local government purchases) through 1985, and 8% thereafter. Population Assumptions Are Based On 1980 Census Data And The City's General P1 an F N 3-S M- Preliminary 1980 census data indicates the City's current population is 36,510. Dividing this amount by the current number of dwelling units results in an average of 2.96 people per dwelling unit, or approximately 3.0 people per dwelling unit after rounding to the whole number. Recognizing the current' actual average population per dwelling unit is less than anticipated by the City General Plan (1975), the projected population at buildout is revised to 42,000. For the Eastview Annexation Area, the 1980 preliminary census data indicates a population of 6,671. For purposes of receiving certain State subvention revenues on a per capita basis, the State Controller's Office will use an estimated population of 12,201, which is based on a statutory method of multiplying the number of registered voters by three. 7 Service Levels Of City Services Are Assumed To Continue At Current Levels Based upon interviews with City staff, City services will be assumed to con- tinue at the (current level') In so doing, the Financial Plan projections will provide a more consistent baseline comparison with current costs and revenues. City Services Currently Provided On A Contractual Basis Are Assumed To Continue It is assumed that those City services currently provided on a contractual basis will continue to be provided by contract. Or, if not, the cost would not be more and the service level would be the same or better. Current Legal And Policy Parameters Are Assumed During The Ten Year Period No changes in current legislation or policies that affect City finances are assumed. While there may be new or modified legislation, the timing, nature, or extent of such changes cannot be anticipated. The detailed assumptions and. methodologies are sufficiently defined that City staff can subsequently update the Financial Plan as changed in the legal and policy framework occur and are implemented. Inflation Indicators Are Expected To Increase At An Average 9% Per Year Through 1985 And 8% Thereafter The Financial Plan includes projections in both constant (1980) dollars and inflated dollars. The constant dollar projections permit an analysis of real changes or growth without the distortions of inflation. Projections are also made including the impacts of inflation. Average inflation rates of 9% through 1985 and 8% thereafter are assumed for both the Consumer Price Index and the GNP Deflator for state and local government purchases. These amounts are based 8 on current long term projections by leading economists and financial institu- tions. nstitu- tions. Increases in the Consumer Price Index are particularly of significance because of their effect (together with population increases) on appropriation limits under Proposition 4 (Article XIIIB of the State Constitution). The GNP defla- tor is significant because of the cost effect on City expenditures as well as certain City revenues, the rates or fees of which are tied to the GNP Deflator. The Eastview Area Annexation Area Will Be Projected Separately. In the following chapters, assumptions for revenues and expenditures applicable to the Eastview Area Annexation area are presented separately. Because the time for the annexation to become effective cannot be accurately predicted at this point, the separate revenue and expenditure estimates for this area will permit an assessment of the City's financial condition with and without the annexation throughout the Financial Plan study period. Revenue assumptions for the annexation area are primarily based on the City's December 12, 1978 report titled, "Up-Dated Study Report On Proposed Western Avenue Area Annexation", (subsequently renamed Eastview Annexation Area) data provided by the State Board of Equalization, State Controllers Office, and the City's Administrative Services Officer. Expenditure assumptions are primarily based on information provided by City department heads and the June, 1980 re- port prepared by Prima Associates, Inc. titled "Civic Center Master Plan, Space Requirements Data Base". 9 CHAPTER III REVENUE ASSUMPTIONS AND METHODOLOGY Revenue Assumptions Are Identified By City Budgeted Revenue Categories With Emphasis On Major Revenue Sources The following assumptions are used to identify and project revenues as con- tained in the City's 1980-81 Budget. Major emphasis is placed on analyzing and projecting principal sources of revenue. It is important that projections of principal sources of revenue are most accurate because of their dispropor- tionate influence on total City revenues. For example, the 1980-81 Budget includes 21 recurring general 'f and revenue accounts. Of these, eight provide nearly 90% of total general fund recurring revenues. These are: Revenue Category 1980-81 Amount % of Total . Motor Vehicle In Lieu Fees $ 954,330 36.0% . Interest 300,000 11.3% . Sales and Use Tax 281,310 10.6% . Property Tax 270,540 10.2% . Franchise Taxes 186,110 7.0% . Building and Safety Fees 142,560 5.4% . Property Transfer Tax 123,950 4.6% . Cigarette Tax 113,350 4.3% Totals $2,372,150 89.4% For both projecting and analyzing revenues it is important to recognize the significance of certain revenue categories. As can be seen from the preced- ing, the top four general fund revenue sources generate over two thirds (68%) of the total. Assumptions for these principal revenue sources are listed below, followed by all others. 10 Base Year Amounts And Assumptions/Multipliers Are Identified For Each Revenue Category For each revenue category, a base year (1980-81) amount or assumption is iden- tified, as well as assumptions/multipliers which are assumed to affect the base year amount over the period covered by the Financial Plan. A brief des- cription of each revenue source is also provided. Separate assumptions are identified for the Eastview Annexation area. Motor Vehicle In Lieu Fees Motor vehicle in lieu fees (2% of vehicles' market value) are collected by the State and are subvented back to cities on the basis of the City's population in proportion to Statewide population (pursuant to Section 11005 of the Revenue and Taxation code) . Base Year (1980-81) Assumption Assumptions/Multipliers $17.84 per capita . Per capital amount tunes City estimated popu- lation opulation annually. . For annexation area, per capita amount times population of area; assume minimal increase in population (base year $258,771 per State Board of Equalization estimate). . Assume annual inflation increase of 9% through 1985; 8% thereafter. It should be noted that the total amount of revenue received by the City in the 1980-81 base year was based on the previous estimated population of 59,925 which will be adjusted to the United States Census figure (36,510) and adjusted annually thereafter by State Department of Finance estimates of increases in popul ati on. 11 Interest Interest revenue is a result of investing idle or unspent City cash funds (re- serves, temporary cash-flow surpluses, etc.) among the several forms of invest- ment permitted by State law. This amount can vary greatly from year to year depending upon cash balances available for investment and prevailing interest rates. It is assumed that the City will increasingly need to draw upon cur- rently established reserves to finance capital costs and offset revenue de- creases, particularly reductions in State subventions resulting from the City's offical census population being less than previous estimates. This should cause interest revenues to decrease by approximately 20% per year until 1984-85 and then return to levels typical to the average for years prior to-1980-81. Based upon average interest earnings as a percentage of average total revenues for the five year period 1974-75 through 1978-79, it is assumed that interest revenues will average 4% of total revenues annually after 1984-85. Base Year (1980-81) Assumptions/Multipliers $300,000 . Decrease 20% per year through 1984-85. . Remain at average 4% of annual revenue (re- curring and non-recurring) thereafter. . For annexation area assume 4% of annual revenue (recurring and non-recurring) . . Assume annual inflation increase of 9% through 1985; 8% thereafter. Sales and Use Tax Of the 6% uniform sales tax, the City receives an amount equal to 1% out of the sales tax collected at sites within the City boundaries. Factors which 12 will typically affect sales tax revenues include: (1) real sales growth (non- inflationary) for existing retail sites within the City, (2) inflation of prices for retail sales, and (3) additional retail sales sites (new retail sales businesses, annexations, etc.) . Assumptions on these factors are indi- cated as follows: Base Year (1980-81) Assumptions/Multipliers $281,310 (Current . Real growth (constant dollar) for current sales sites) sites assumed at 3.5% annually based on his- torical average and economic projections. . In 1981-82 City will begin to receive 8.2% of the City of Rolling Hills Estates' sales tax revenues pursuant to a contractual agreement. This percentage is applied to total sales tax revenue projections for the City of Rolling Hills Estates. . Additional sales tax revenue sites are assumed based on projected completion dates and square footage applied to industry standards of sales per square foot. . For annexation area, assume $274,024 for 1980-81 (per . State Board of Equalization) , with annual real and inflationary growth the same as for current City boundaries. . Assume annual inflation increase of 9% through 1985; 8% thereafter. Real Growth In Sales Tax To illustrate the significance of real growth in taxable retail sales as opposed to inflationary growth, the following historical data shows actual sales tax revenue and amounts adjusted for inflation to reflect constant (1967) dollars: 13 Actual Sales Constant (1967) Real Growth Year Tax Revenue % Change Dollars Amount % Change 1974-75 $135,310 $ 94,954 1975-76 $134,430 (- 0.7%) $ 85,298 (-10.2%) 1976-77 $143,010 + 6.4% $ 85,125 (- 0.2%) 1977-78 $162,640 +13.7% $ 90,556 + 6.4% 1978-79 $188,290 +15.8% $ 97,660 + 7.8% 1979-80 $242,330 +28.7% $113,397 +16.4% Average 15.8% 3.8% As can be seen from the preceding data, sales tax revenues increased an average of 15.8% over the five year period, but after adjusting for inflation, real growth averaged only 3.8% for the same five years. Long term projections (1980-1985) by economists and financial institutions predict average annual real growth rates of approximately 3.0%. Considering the City's recent exper- ience together with long term economic projections, a growth in constant dollar sales tax revenue of 3.5% is assumed. Property Tax The California State Constitution places specific controls on property tax revenues as a result of the passage of Proposition 13 (Article XIII of the State Constitution). Property taxes, generally, cannot increase by more than 2% per year. However, this amount can be exceeded when there is new construc- tion or changes in ownership, in which cases property taxes are brought to a basis of current market value. The City no longer levies a property tax, and instead the county collects property taxes and allocates an amount to the City as specified by state law. Under current state law, the City's property tax revenues will increase on the basis of increases in assessed valuation to current market value resulting from changes in property ownership and new construction, and no more than 2% per year for all other property. 14 Since Proposition 13 provides that when property ownership changes, the assessed value is brought to a full market value basis, a type of catch-up occurs for all property that changes ownership each year. Information from the State Board of Equalization indicates property is held an averge of seven years. Therefore, in the seventh year after the 1978-79 base year effective date of Proposition 13, a type of stabilization should occur where one-seventh of the property is brought to market value each year. At that point, property tax revenues should assume a growth trend similar to years prior to the imple- mentation of Proposition 13 (assuming other variables unchanged). In the intervening years property tax revenues should increase at an increasing rate. The immediate years after the 1978-79 base year show somewhat abnormal in- creases reflecting the requirement that the County Assessor has until 1981 to make base year valuations current; as a result, there are some "windfall" increases as in 1980-81 when 10% of the increase in County-wide valuation is attributable to so-called valuation "clean-up". It should also be noted that significant portions of property tax revenues are derived from valuation that is not subject to the limits of Proposition 13, including personal property, fixtures and portions of mineral rights. In 1980-81 these amounted to over one-fourth of the increase in Los Angeles County assessed valuation. In view of the foregoing, the following property tax revenue assumptions are made for the Financial Plan based on an overall average annual increase of 11% in property market values. Base Year 1980-81 Assumptions/Parameters $270,540 . 2% per year for Proposition 13 allowable increase in held property. . 3.0% per year for new construction. 15 Base Year 1980-81 Assumptions/Parameters . 6.0% average inflationary increase per year for property transfers and assessed value outside Proposition 13 limits after 1985. Preceding years as follows: 1981-82: 3% 1982-83: 4% 1983-84: 4.5% 1984-85: 5% . For annexation area assume no property tax revenues pending agreement between cities and County of Los Angeles on an allocation formula. Franchise Taxes Franchise fees are paid by the water, gas, and electric utility companies for the privilege of using the City streets. Fees are related to the gross receipts from sales within the City which are recorded separately by the util- ities. Assumptions regardvolumeof sales and price. Base Year 1980-81 Assumptions/Multipliers $186,110 budgeted . $5.10 per capita times annual population ($5.10 per capita) . For annexation area assume $63,755 base year (1980-81) based on per capita amount times areas population (at three times number of registered voters). . Assume annual inflation increase of 9% through 1985; 8% thereafter. 16 Building And Safety Fees Fees are assessed for building and safety and related regulatory services. Revenue from this source is related to the specific fees charged and the level of building activity in the City each year. Fees collected in excess of contract service costs are returned to the City. The level of activity has been dampened lately by currently high interest rates. Over the long term, the level of activity is assumed to stabilize to a level based on the historical average and projected population growth. Under City policy, fees assessed are adjusted annually by the change in the GNP Deflator for government purchases. Base Year (1980-81) Assumptions/Multipliers $142,560 budgeted . Assume remaining at level equal to five year historical average: $155,000 . For annexation area, assume base year of. $38,500 based on ratio of actual population of area to City; constant thereafter. . Assume annual inflation of 9% through 198 ; 8% thereafter. Property Transfer Tax Property transfer tax revenues relate to the level of resale of existing pro- perties and new construction, as well as the price of property sold. There- fore, the growth trend will be similar to changes in property tax revenues. Base Year Assumptions/Multipliers $123,950 budgeted . Assume $3.39 times annual population. ($3.39 per capita) . For annexation area, assume base year per capita times actual annual population. 17 . Assume inflation at 11% per year (overall average increase in property valuation). Cigarette Taxes Cities and counties receive a share of 3 cents of the 10 cent state cigarette tax. Monies are collected on a statewide basis and the local government share is initially divided between cities and counties on the basis of taxable sales in incorporated and unincorporated areas respectively. The City share is then divided in half and distributed to each City on the basis of population (50%) and taxable sales (50%) . Therefore, the City might expect this revenue source to change on the basis of population growth in the City and growth in the City's taxable sales activity, in relation to growth in statewide population and sales activity. However, the overall history of this revenue has been relatively stable with a slight downward trend (average 3.5% decrease per year). Base Year (1980-81) Assumptions/Multipliers $113,350 budgeted . Assume average decrease of 3.5% per year based on historical data. . For annexation assume same decrease of 3.5% per year, with $33,223 assumed in 1980-81 per State Board of Equalization. . Assume no change for inflation. Business License Taxes Revenue from business license taxes relate to the level of business activity in the City and the tax rates applied to businesses. Under current policy, the City adjusts the rates annually in relationship to changes in the GNP Deflator. The average annual increase over the last five years has been 11.2%. After adjusting for inflation, real growth averaged approximately 2.5% per year. 18 Base Year 1980-81 Assumptions/Multipliers $78,650 budgeted . Assume 3.5% per year real growth. . For annexation area, assume $76,291 base year (1980-81) based on ratio of sales tax to current City sales tax (97%) . Assume same real and inflationary growth. . Assume inflationary growth of 9% to 1985; 8% thereafter. Fines, Forfeitures and Penalties The City receives, as a revenue, a portion of vehicle code fines and court fines which occur in the City. Together these categories of revenue have remained essentially unchanged over the years, with minor variations (less than 5%) from year to year. Base Year (1980-81) Assumptions/Multipliers $92,900 budgeted Assume constant amount of $91,000 (based on historical five year average). . For annexation area, assume base year amount of $14,528 based on ratio of street mile for annexation/City (15.6%) , remaining constant thereafter. . Assume no inflationary increases. Other Recurring General Fund Revenues The preceding ten revenue sources amount to a total of 96% of the City's recurring general fund revenues in 1980-81. The remaining eleven recurring revenue accounts amount to a total of only 4%. The more significant of these (planning and zoning fees, and right-of-way permits) are tied to the GNP 19 Deflator for government purchases under current City policy. Others have historically shown a stable growth rate. Base Year (1980-81) Assumptions/Multipliers $106,060 (total for . Assume constant non-inflationary amount over 11 other recurring period. revenues) . For annexation area, assume base year amount of $19,409 based on ratio of actual popula- tion; remaining constant thereafter. . Assume inflation at 9% through 1985; 8% thereafter. A New Recurring Revenue Source Is Financial Aid To Local Agencies In 1979, the State Legislature enacted AB66 (subsequently amended twice in 1980) which, among other things, increased the tax rate applied to banks and financial corporations, and required that the revenues from this increase be deposited in a fund titled Financial Aid To Local Agencies (FALA) . These revenues are to be distributed to cities and counties twice each year. One half of each period's allocation is to be distributed on the basis of popula- tion (pro-rata) . The remaining half is to be distributed initially to counties on the basis of welfare benefit payments in the Aid to Families With Dependent Children category (AFDC) . Within each county, these funds would be distributd to cities and the unincorporated area on the basis of population divided by per capita income. Payments are to be made in June and December of each year. The second payment of FALA funds has been delayed by SB246 (Chapter 1220, 980 Statutes) from December 1980 to March 1981, in order to allow the Legislature time to adopt a 20 replacement formula for the inverse per capita formula which distributes one- half the funds (this formula has proven unworkable). Therefore, the basis for distributing only one-half the funds is presently known (per capita). That portion is estimated by the League of Cities to be $1.36 per capita. Since the Legislature seems to want the remaining half of FALA funds to be distributed on an inverse relationship to local per capita income, it is likely that the City of Rancho Palos Verdes will receive the second half FALA funds at less than the $1.36 per capita for the first half. For purposes of the financial Plan projections, it is conservatively estimated that the City will receive $1.36 per capita on the first one-half formula, and the second half formula (currently unknown) will provide 50% of the first half amount, or $0.69 per capita. Base Year (1980-81) Assumptions/Multipliers none budgeted . One-half FALA allocation formula = $1.36 per capita. . One-half FALA allocation (formula currently unknown) at $0.68 per capita. . For annexation area, assume same per capita amounts, times area's population. . Assume annual inflation growth at 9% through 1985; 8% thereafter. Transient Occupancy Tax Revenues Will Be Derived Only From The Annexation Area The City currently receives no Transient Occupancy tax revenues. However, since the annexation area contains a motel , there will be such revenues from that area. 21 Base Year (1980-81) Function/Multiplier $0 budgeted (current . Assume no revenue within current City bound- City) aries. . For annexation area, assume base year amount of $12,614 based on $30 room rate, 24 rooms, 80% occupancy factor, and 6% tax rate. . Assume annual inflationary growth at 9% through 1985; 8% thereafter. Non-Recurring General Fund Revenues (Grants) Are Assumed Not To Continue Or Offset Expenses The 1980-81 budget includes non-recurring grant revenues for a Safety"Dilinea- tion Grant ($55,000), Local Coastal Program ($34,140), and Comprehensive Employment and Training Act, CETA ($62,910) . It is assumed that these grants will not be continuing revenue sources, and that they offset specific expendi- tures. As new grants may be obtained from time-to-time, it is assumed that they will also offset additional expenditures, therefore, no specific projec- tion is made for either non-recurring grant revenues or expenditures (Chapter IV). SPECIAL FUNDS Certain Revenues Are Limited To Specified Uses And Are Budgeted In Separate Funds Either by law or City policy, certain revenues have been allocated to separate funds and are limited to specified expenditures. The following portions of this chapter deal with assumptions regarding these special fund revenues. 22 Highway And Transportation Fund Revenues Are Used For Maintaining, Improving, And Constructing Streets, Bikeways And Traffic Control Systems A principal source of revenue for this fund is the State subvention for Highway Users Taxes. These are subvented to the City under Sections 2106, 2107, and 2107.5 of the Streets and Highways Code. Assumptions regarding these revenues are as follows: Highway Users Tax Base Year (1980-81) Assumptions/Multipliers . Section 2106: . Section 2106: Assume annually, $4,800 plus $4,800 plus $4.61 $4.52 pier capita (historical average) . per capita . Section 2107: . Section 2107: Assume $4.34 per capita an- $4.41 per capita nually (historical average). . Section 2107.5: . Section 2107.5: Assume $6,000 annually $6,000 . For annexation area, assume same per capita rates for Sections 2106 and 2107 revenues times area's population. No additional 2107.5 revenue (no change in total population bracket). . Assume no inflationary growth. County Aid Base Year (1980-81) Assumptions/Multipliers $50,000 budgeted . Assume average $70,000 per year based on historical average. . For annexation area, assume average annual amount of $7,819 based on ratio of road miles for annexation/City (17.5/111.9) . . Assume no inflationary growth. 23 Interest Base Year (1980-81) Function/Multiplier $105,000 budgeted . Assume 11% of annual revenue to fund (based on historical average correlation). Periodically the City may receive special grants to fund projects in this fund. As with the general fund, such grants are assumed to be non-recurring and/or offset special expenditures related to grants; no revenues or expendi- tures are therefore assumed related to grants. Federal Revenue Sharing Is Assumed To Be A Continuing Source of Revenue Revenue Sharing has just recently been renewed by Congress for another three years. Based upon the overall assumption regarding continuation of existing legislation in Chapter II, it is assumed that Federal Revenue Sharing will be a continuing source of revenue for this special fund. Since the current legis- lation does not provide for increases in allocations from year-to-year, it is assumed the current allocation will continue. Base Year (1980-81) Assumptions/Multipliers $185,800 budgeted . Assume $196,000 per year (including interest on invested funds) . . For annexation area, assume no increase in funds due to the fixed allocation level for Revenue Sharing Funds under current legisla- tion. . Assume no inflationary growth. 24 Environmental Excise Tax Fund Revenues Are Directly Related To New Construction Environmental Excise Tax revenues result from the residential and commercial construction occurring each year. Projected construction is based upon the General Plan, development currently approved or pending approval , and project- ed timing of developments by the Planning Director. Current tax rates are assumed with annual adjustments for changes in the GNP Deflator for local government purchases. Base Year (1980-81) Assumptions/Multipliers $75,480 budgeted . Assume current tax rates of: tax revenues - $577 per one bedroom unit $5,250 budgeted - $1153 per two bedroom + unit • interest revenue - $0.35 per 1,000 sq. ft. commercial . Development ass umpti ons: - Residential average 163 units per year after 1980-81 through buildout in 1990. - Commercial : .. 1982-83: 81,500 sq. ft. .. 1983-84: 74,000 sq. ft. . Assume 90% of residential units are two bedrooms or more. . Assume annual i nfl ati on i ncrease at 9% through 1985; 8% thereafter. . For annexation area, assume no revenue, since area is almost entirely built-out. The Parks And Recreation Fund Is Financed By Quimby Act Fees, Grants, And Transfers From The Revenue Sharing Fund And Environmental Excise Tax Fund Assumptions for the Revenue Sharing Fund and environmental Excise Tax Fund are made separately in this chapter. It is assumed that revenue from these funds 21 will continue to be the principal sources of financing for projects in the Parks and Recreation Fund. Quimby Act park development fee revenues are pro- jected based on the Municipal Code Fee standard of 4 acres per 1,000 population and an average of 3.6 people per unit, which results in a factor of .0144 acres per unit requirement. This 0.14 factor is multiplied by an average value of $175,000 per acre which is in turn multiplied by the projected development of 163 units per year through 1990. Grant revenues are assumed to be non-recur- ring, and related to specific projects as an offset. The only grant revenue that is assumed is $144,750 from the 1980 State Park Bond Grant which is as- sured to be received by the City in 1982-83. The Capital Improvements And Acquisition Fund Is Also Financed By Transfers From Other Funds The Capital Improvements Fund accumulates resources to finance City capital improvements and acquisitions. Primary funding has been transfered from the General Fund to capital reserves, particularly for the Civic Center Complex. Assumptions relative to the General Fund are presented earlier in this chapter. It is assumed that transfers from the General Fund will continue. Histori- cally, these transfers have averaged $435,238 per year since 1974-75. In the future it is assumed that the amount of General Fund transfer to the Capital Improvement and Acquisition Fund will be equivalent to the amount of General Fund revenues available after deducting all General Fund operation and mainte- nance costs. 26 CHAPTER IV EXPENDITURE ASSUMPTIONS AND METHODOLOGY Expenditure Assumptions Are Identified By City Departmental Budget Categories And Assume Current Service Levels And Continued Contracting For Services This chapter presents assumptions and methodology that are used for expenditure projections in the Long Term Financial Plan. Expenditure assumptions and sub- sequent projections are identified by City departmental or other major appro- priation categories as organized in the City's annual budget. Assumptions are primarily based upon a continuation of existing contract ser- vices and overall maintenance of current service levels. Definitions and pro- jections of requirements to maintain current service levels as a contract City are based on interviews with City department heads, Eastvi ew Area Annexation Report, and data provided in the June, 1980 Civic Center Master Plan Report by Prima Associates, Inc., particularly the volume on "space requirements data base" . City Council Expenditures It is assumed the City Council will continue its policy of serving without com- pensation. Therefore, no salaries and wages expense will be projected; only annual operating expenses for office supplies, meetings, mileage, etc., are assumed. Base Year (1980-81) Assumptions/Multipliers $9,290 budgeted . Assume continuation of current level of expenses annually. . For annexation area, assume no additional expenditures. 27 Assumptions/Multipliers . Assume inflation growth at 9% through 1985; 8% thereafter. City Manager Expenditures It is assumed that staffing for the City Manager's Office will remain at the current level over the period of the Financial Plan. Annual operating expenses are also projected to remain consistent over the study period. Base Year (1980-81) Assumptions/Multipliers $74,420 budgeted . Assume continuation of current level of staffing and operating expenses. . For annexation area, assume no additional expenditures. . Assume inflation growth at 9% through 1985; 8% thereafter. City Attorney Expenditures City Attorney services are provided under a contractual agreement. It is assumed that the City will continue to require the current level of attorney services. Base Year (1980-81) Assumptions/Multipliers $134,400 budgeted . Assume current level of contract services. . For annexation area, assume an additional $10,000 annual expense. . Assume annual inflationary increase of 9% through 1985; 8% thereafter. 28 Public Works Administration, Engineering And Maintenance Expenditures The City presently contracts with Roy Jorgensen Associates (RJA) to provide Public Works Administration and Engineering services. Assuming continuation of the current contract approach for providing services, RJA indicates no ex- pected increases in Public Works Administration and Engineering levels of staffing over the Financial Plan study period. Similarly, the Public Works Maintenance function is also assumed by RJA to remain unchanged over the study period if current service levels and contract services are continued. However, based on our firm's experience in conducting fiscal analyses, it is assumed that these costs will increase, as a minimum, in proportion to the average in- crease in population for the study period (1.6%) which is reflective of in- creased service requests. Base Year (1980-81) Assumptions/Multipliers $108,720 budgeted . Assume current level for administration, engineering and various maintenance factors, increased annually by average population in- crease of 1.6% per year. . For annexation area, assume estimates by RJA: - Addition of 0.6 Public Works Engineering Aide split equally between General Fund and Highway and Transportation Fund - Purchase of City truck and miscellaneous office equipment - Unit maintenance costs at current level applied to •annexation area, street miles, curb miles, sidewalks, etc. . Assume annual inflationary increases at 9% through 1985; 8% thereafter. . Engineering review and plan check services will continue to be 100% offset by fees. 29 Parks And Recreation Expenditures Parks and Recreation expenditures consist primarily of (1) salaries for recrea- tion staff, and (2) costs for maintenance of City parks. The City also pro- vides special interest recreation classes which are provided by contract em- ployees, and registration fees offset costs incurred by the City. A major im- pact on expenditures for recreation staff salaries and park maintenance costs will occur as the City implements the Parks Master Plan and additional park sites are acquired and developed. Base Year (1980-81) Assumptions/Multipliers $244,210 budgeted . Assume current amount for existing facilities over period. . Assume increased costs corresponding to im- plementation of City' s Long Range Park Development Plan (as most recently amended) based upon: - Recreation services costs to serve in- creased park acreage at current service levels. - Maintenance costs based upon current unit costs per acre applied to the var- ious types of acreage developed under the Park Development Plan. . Assume continuing level of subsidy for swim- ming pool and therapeutic programs. . For annexation area, assume no developed park acreage to maintain, recreation staff- ing (part-time) at 2,977 hours for recrea- tion programs at two school sites, and re- lated supplies and capital costs. 30 Base Year (1980-81) Assumptions/Multipliers . Assume all special programs are 100% self sustaining, therefore no net costs or rev- enues are assumed. . Assume annual inflationary increases at 9% through 1985 and 8% thereafter. Environmental Services Expenditures Through the ten year period, the staffing and expenditure levels for Environ- mental Services are expected to essentially remain constant to serve the exist- ing City. After build-out of the City (assumed by 1990) some reductions in } staff may occur. Annexation of the Eastview area is assumed to require an additional Assistant Planner position related to amendments to the General Plan and zoning. Base Year (1980-81) Assumptions/Multipliers $151,930 budgeted . Assume current level of staffing and expendi- tures through 1990. . For annexation area, assume addition of one Assistant Planner position and related costs. . Assume annual inflationary increases of 9% through 1985; 8% thereafter. Community Services Expenditures Current data indicates that "public-responsive" services comprise one-third of this department's workload. This portion (1/3) of the departments expenses should increase proportionate to population increases resulting from develop- ment of the City through build-out and annexation of the Eastview Area. 31 Base Year (1980-81) Assumptions/Multipliers $63,290 budgeted . Assume one-third of expenses will grow in proportion to annual population increase percentage. . For annexation area, assume 6% additional cost based on one-third of workload/expense times population increase for annexation area (1/3 x 18% = 6%). Administrative Services Expenditures Over the next ten years, areas of change for this department are primarily re- lated to population increases and include the need for an additional full-time position for the City Clerk function, and a full-time Administrative Assistant. Both of these additions will be partially offset by deletion of part-time staff currently assigned to these areas. Elections cost will be reflected every other year and will increase in proportion to population. Other areas of the department will remain essentially constant. The Eastview Area annexation will require one full-time and one part-time position primarily in the area of business license enforcement, revenue collection and accounting. Base Year (1980-81) Assumptions/Multipliers $119,470 budgeted . Assume constant level until 1984-85, and then: - add one Administrative Assistant - add one Assistant (Deputy) City Clerk - delete part-time intern and clerk . Assume elections cost in alternating years, beginning 1981-82, with increases proportion- ate to percent change in population. . For annexation area, assume additional 12 positions and related costs. 32 Base Year (1980-81) Assumptions/Multipliers . Assume annual inflationary increase of 9% through 1985; 8% thereafter. Non-Departmental Expenditures City General Fund expenses that are not readily chargeable to individual departments are appropriated in this area. Most are tied or related to total City costs, such as retirement (a percentage of gross pay), workers compensa- tion (variable percentages of payroll) , employee benefit insurance premiums, utility expenses, contingency reserves, miscellaneous office supplies, liability insurance premiums, and various official City memberships. r, Base Year (1980-81) Assumptions/Multipliers $544,760 budgeted . Assumptions are made by expenditure account numbers as follows: - Account 140: assume constant amount for salary increases. - Account 191: Public Employees Retirement System, assume $61,230 plus amount equal to percentage increase in full-time employees. - Account 192: Workers Compensation Insur- ance, assume $8,920 (excludes amount for CETA employees) plus amount equal to percent increase in total employees. - Accounts 194, 196, 197: Assume consoli- dated amount of $38,090 for employee insurance benefits (excludes amounts for CETA employees) adjusted for percen- tage change in full-time employees. - Account 201: Utilities, assume: .. $10,560 for telephone adjusted annually for percent change in employees. 33 t a Base Year (1980-81) Assumptions/Multipliers .. $8,030 for electricity adjusted annually for change in City buildings square footage. .. $7,780 for water adjusted annually for acreage watered. - Account 203: Miscellaneous Office Supplies and Postage, assume $25,910 adjusted for annual percent change in employees. - Account 205: Contingency Reserve, assume 10% of annual General Fund appropria- tions. - Account 206: Bank Payroll Charges, assume $1,900 adjusted annually, by percent change in number of employees. - Account 212: Auditing Services, assume constant level of $2,000. - Account 221: City Memberships, assume current level of $5,880. - Accounts 224 and 225: Books and Train- ing, assume increase proportionate to % increase in employees. - Account 232: City Liability Insurance, assume current level of $39,000. - Accounts 242 and 247: Equipment Rental and Maintenance, assume current level .of $15,130 adjusted by percent change in number of employees. . For annexation, assume added cost for non- departmental equal to percent increase in number of employees added due to annexation. . Assume overall annual inflationary increase of 9% through 1985, and 8% thereafter. 34 Public Safety Expense Major expenditures for Public Safety include contract services of the County Sheriff, crossing guards, disaster preparedness (Area G) , jail , and emergency ambulance services. The sheriff services contract amounts to the largest com- ponent (99% in 1980-81) and consists of General Law and Traffic Services, Burglary Apprehension Team, Community Relations Officer, Palos Verdes Drive South Parking Central, and the Student and the Law Program. Significant changes over . the period of the Financial Plan will occur in the area of General Law and Traffic Services, where the City has just recently im- plemented a regional concept of providing these services. The City has joined with the cities of Rolling Hills and Rolling Hills Estates to contract with the County Sheriff on a regional basis. Under the regional concept, costs are expected to decrease slightly, but will then increase generally in proportion to population growth and development over the study period. Base Year (1980-81) Assumptions/Multipliers . Public Safety Appropriations . Sheriff: - Sheriff: General Law and - Assume General Law and Traffic Traffic - $635,940 at regional level (60.16% of total) or $634,423 plus annual - Sheriff: Burglary Appr. increase equal to percent in- Team - $140,050 crease in population. - Assume Burglary Apprehension - Sheriff: Comm. Rela- Team at current level plus tions Officer - $53,210 amount equal to annual increase in population. - Sheriff: P.V. Dr. So. - Assume Community Relations at Parking - $5,500 current level. - Assume Parking Control at cur- - Sheriff: Student & Law rent level . $2,420 - Assume Student and the Law at current level. - Crossing Guards: . Assume Crossing Guard costs at cur- $2,490 rent level 35 Base Year (1980-81) Assumptions/Multipliers - Disaster Preparedness: $1,240 . Assume Disaster Preparedness at cur- rent level. - Jail : $300 . Assume Jail Services at current - Emergency Ambulance: level plus percent increases in $3,120 population. . Assume Emergency Ambulance at current level plus percent increase in population. . For annexation area, assume: - Sheriff: addition of $377,115 Sheriff's Dept estimate at current billing rates. - Crossing Guard, assume one additional at $2,500. . Assume annual inflationary increase at 9% through 1985, and 8% thereafter. Regulatory, Inspection and Miscellaneous Services Expenditures Included in this category of expenditures are costs associated with Building and Safety, Engineering, District Attorney prosecutions of municipal codes, and Health Code enforcement. Animal control services have been included in this category, and in the current year, fees completely cover the cost of contract services of the SPCA and no net costs are included in the budget. However, the current level of fees is not sufficient to cover anticipated custs, and City staff estimate an average $2,500 per year in costs to supplement fees. Over- all , it is assumed that the present mode of contract services will continue to be provided at current service levels. Base Year (1980-81) Assumptions/Multipliers Appropriations for: . Assume current level of expenditures for - Building & Safety Building and Safety, Engineering, District - $6,530 Attorney and Health. - Engineering - $22,030 . Assume average cost of $2,500 per year to - District Attorney supplement Animal Control fees - $800 . For annexation area, assume pro rata in- - Health - $200 crease based population of annexation/City - Animal Control - $0 . Assume annual inflationary increases at 9% through 1985, and 8% thereafter 36 Highway And Transportation Fund Expenditures Included in this category are expenses for engineering, maintenance, and con- struction of City transportation systems, primarily roads, bikeways and related improvements. While each year's budget contains a variety of maintenance and construction projects. Overall , the level of expenditures tends to be limited by the amount of special revenues allocated to this fund, such as gas tax revenues, County aid, special grants, and developer contributions. Normally, General Fund revenues are not used as a revenue source for this fund unless special revenues are not sufficient to cover expenditures necessary for basic maintenance, in which case General Fund revenue would be transferred. Base Year (1980-81) Assumptions/Multipliers $2,063,690 budgeted . Assume annual maintenance expenditures based on current unit costs. Construction amounts equal to remaining revenues from special revenue sources. . Annexation area expenditure assumptions based on current unit costs applied to annexation area quantities, e.g. curb miles, street miles, etc. . Assume annual inflationary increases equal to 9% through 1985, and 8% thereafter. NON-RECURRING EXPENDITURES Parks and Recreation Fund Expenditures Expenditures in this special fund relate only to the acquisition and develop- ment of City parks. A Long Range Park Development Plan has been prepared by the City which, with subsequent amendments, provides the basis for expenditure assumptions in this fund. Priorities have been established which, together 37 with available funding have helped determine current phasing of development. Revenue sources for this fund are derived primarily from the Federal Revenue Sharing Fund and the Environmental Excise Tax Funds, which are discussed further in Chapter III. Other revenue sources for this fund have included Quimby Act (Park Dedication fees) revenue, special park grants (primarily State bonds), and sale of City lands. 1 Base Year (1980-81) Assumptions/Multipliers $2,033,630 budgeted . Expenditure requirements are based on the City's Long Range Park Development Plan, as most recently amended, and input from the Parks and Recreation Director. The level of expenditure each year is assumed to equal the available revenue from Quimby Act fees and transfers from the Revenue Sharing and En- vironmental Excise Tax Funds. It is assumed that available revenue will be utilized to accomplish the Parks Master Plan on a prior- ity basis. . For the annexation area no park acquisition or development expenditures are assumed. It is assumed that the area will be served by existing County park facilities (Peck Park), school playground and recreation sites, and projected park sites within current City boundaries. . Inflationary assumptions are applied to pro- jected acquisition and development costs on the basis of 9% per year through 1985, and 8% thereafter. 38 Revenue Sharing Fund And Environmental Excise Tax Fund It has been the City's practice to accumulate revenues in these funds from the respective special revenue sources and transfer amounts to other funds for expenditure, primarily the Parks and Recreation Fund and the Capital Improve- ments and Acquisition Fund. Normally, expenditures are not made directly from these funds. Capital Improvements And Acquisitions Fund This Fund provides for capital improvement and acquisition costs other than those associated with the Parks and Recreation Fund, and the Highway and Transportation Fund. It is assumed that capital projects directly associated with specific developments are either constructed by the developer or financed by the developer through contributions to this or other funds. During the period of the Long Term Financial Plan, the only City expenditures anticipated for the Capital Improvements and Acquisition Fund are for development construc- tion and related improvements of the Civic Center. Phasing and construction costs of the Civic Center are based on the Civic Center Master Plan prepared by Prima Associates, Inc. dated October, 1980. Base Year (1980-81) Assumptions/Multipliers Encumbered Reserves: . Assume Civic Center is the only ex- Civic Center $1,169,890 penditure during study period. Encumbered Reserves: . Civic Center expenditures are assum- Other 177,320 ed at mid-point of cost estimate Total Reserves $1,347,200 ranges provided in Civic Center Master Plan. . Timing for six phases of Master Plan development are assumed on basis of: 39 1 • Base Year (1980-81) Assumptions/Multipliers Phase IN) 1981-82 Phase I(2) 1982-83 Phase II 1983-84 Phase III 1984-85 Phase IV(2) 1985-86 Phase IV(h) 1986-87 Phase V(k) 1987-88 Phase V(h) 1988-89 Phase VI 1989-90 . Inflation assumed at annual rate of 9% through 1985, and 8% thereafter. . For annexation area, no capjtal improvement costs are assumed . for this fund. 40