CC SR 20180412 02 - Budget Workshop Draft
RANCHO PALOS VERDES CITY COUNCILMEETING DATE:
04/12/2018
AGENDA REPORTAGENDA HEADING:
Regular Business
AGENDA DESCRIPTION:
Consideration and possible action regarding the General Fund FY17-18 Year-End and
FY18-19Preliminary Budget.
RECOMMENDED COUNCIL ACTION:
(1)Provide Staff direction to develop the FY18-19 Preliminary Budget.
FISCAL IMPACT:
None
Amount Budgeted:
N/A
Additional Appropriation:
N/A
Account Number(s):
N/A
ORIGINATED BY:
Trang Nguyen, Deputy Finance Director
REVIEWED BY:
Deborah Cullen, Director of Finance
APPROVED BY:
Doug Willmore, City Manager
BACKGROUND AND DISCUSSION:
Staff has updated the FY17-18 year-end projections for expenditures and revenues,
with an emphasis on the General Fund. Additionally, this analysis assists in planning for
resources and funding needed for FY18-19.
In preparation of the FY18-19 Preliminary Budget, meetings were held between the
Department Heads and the City Manager, Deputy City Manager and Director of Finance
to discuss service or program changes to the zero-basedbudget.Based on the
discussions from these meetings, Staff prepared this report and the related presentation
for theBudget Workshop.
General Fund Revenues — F17-18Updated Year-EndEstimates
Currently, Staff is estimating that General Fund revenues will end the year slightly under
the revisedbudgetby 0.06% or ($19,000), excluding transfers in.This is a positive
change of almost $466,000from the year-end projections that were presented at mid-
year, primarily due to a quicker-than-expected reimbursement of $150,000 for the storm
damage repairs, an increase of $130,000 in license and permits revenue, and an
increase of $180,000 miscellaneous revenues.
The chart and table below outlines the year-end estimates for revenues compared to
the revised budget by categories.
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FY17-18 General Fund Major Revenue Types
YE Estimates Compared to Revised Budget
Graph 1
Table 1
FY 2017-18 FY 2017-18 Estimate vs.
Revised Estimate Revised
PROPERTY TAX$12,746,100$12,779,760$33,660
TOT6,040,0005,816,000(224,000)
SALES TAX2,580,2002,560,700(19,500)
LICENSE & PERMITS2,321,1002,265,952(55,148)
FRANCHISE TAX2,112,8002,024,900(87,900)
UUT1,871,1001,875,2444,144
OTHER/MISC REVENUES1,351,2001,573,110221,910
OTHER TAXES1,184,8001,292,476107,676
Subtotal30,207,30030,188,142(19,158)
TRANSFER IN230,000230,000-
Total Revenues$30,437,300$30,418,142$(19,158)
Below is a summary of the major revenue categories:
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Property Tax
is currently 0.3% or $33,600 over the revised budget and an increase of
3.5% or almost $434,000 overlast year actuals.
Property Taxes
FY16-17 Actual Revenue:$12,345,821
FY17-18 Revised Budget: $12,746,100
FY17-18 Year-end Estimate:$12,779,760
Transient Occupancy Tax (TOT)
is currently estimated to end the year underthe
revised budgetby 3.7% or ($224,000), and an increaseofabout 3.8% or $215,000 over
last year actuals. This year-end estimate is based on the latest industry information
along with Staff’s analysis.Staff will continue to monitor TOT and will make any
necessary adjustments after the thirdquarter.
Transient Occupancy Tax
FY16-17 Actual Revenue:$5,600,867
FY17-18 RevisedBudget: $6,040,000
FY17-18 Year-end Estimate: $5,816,000
Sales and Use Tax
is estimated to end the year slightly under the revised budget by
0.8% or ($19,500), and an increase of approximately 4% or $98,300 over last year
actuals. This year-end estimate is based on the latest information provided by the City’s
consultant and industry trends.
Sales and UseTax
FY16-17 Actual Revenue:$2,462,447
FY17-18 RevisedBudget: $2,580,200
FY17-18 Year-end Estimate: $2,560,700
License and Permit
category is currently estimated to end the year under revised
budget by 2.38% or about ($55,000), and an increase of about 5.8% or $125,000 over
last year actuals. This revenue source isdifficult to predict and can vary widely from
year to year. Permits are driven by the weather, economy, trends in home improvement,
lending rates, turnover rate of housing stock, and the availability of contractors.
Licenses and Permits
FY16-17 Actual Revenue: $2,140,505
FY17-18 RevisedBudget: $2,321,000
FY17-18 Year-end Estimate:$2,265,952
Franchise Tax
is currentlytracking for a decrease of approximately4% or ($88,000)
over the revised budget, and an increase of approximately 2% or $40,000 overlast year
actuals.
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FranchiseTaxes
FY16-17 Actual Revenue: $1,984,787
FY17-18 Revised Budget: $2,112,800
FY17-18 Year-end Estimate: $2,024,900
Utility User Tax (UUT)
is currently estimated to end the year 0.22% or $4,000 over the
revised budget, and an increase of 5.6% or almost $100,000 over last year actuals.
UUT is dependent on outside factors includingweather conditions, consumption of
utilities, the price of natural gas, and rate increases, all of which cannot be predicted
over thelongterm with certainty. Based on these factors, Staff uses historical data,
information available pertaining to the price of natural gas. and the projected increases
estimated by the Bureau of Labor Statistics for the Consumer Price Index for All Urban
Consumers (CPI-U).
UUT
FY16-17 Actual Revenue: $1,775,433
FY17-18 RevisedBudget: $1,871,100
FY17-18 Year-end Estimate: $1,875,244
Other/Miscellaneous Revenues
consist of rentalsand leases, interest, donations and
other miscellaneous revenues in the General Fund. This revenue stream is currently
estimated to end the year over the revised budget by 16.4% or about $222,000, and
approximately 6% or ($107,000) less compared to last year actuals. This revenue
source isalso difficult to predict and can vary widely from year to year. The increase to
budget this year is due to FEMA reimbursement to the General Fund for the work
performed during the winter storm the City experienced last year.
Other/Miscellaneous Revenues
FY16-2017 Actual Revenue: $1,680,347
FY17-2018 RevisedBudget: $1,351,200
FY17-2018 Year-end Estimate: $1,573,110
Other Taxes
consisted of Business License Tax and Golf Tax. This revenue is currently
tracking for an increase of approximately9% or $107,600 over the revised budget, and
an increase of 1.8% or approximately $23,000 overlast yearactuals. The increase from
Business License Tax is due to the increase in gross receipts reported from businesses,
not from arate increase or new businesses.
OtherTaxes
FY16-17 Actual Revenue:$1,269,366
FY17-18 Revised Budget: $1,184,800
FY17-18 Year-end Estimate: $1,292,476
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General Fund Expenditures — FY17-18 Year-End Estimates
Currently, Staff isestimating that General Fund expenditureswill end the year
approximately0.5% or ($154,200) underthe revisedbudget, excluding transfers, and
the details of this underrun are explained below.
The chart and table below outlines the year-end estimates for expenditures compared to
the revisedbudgetby categories.
FY17-18 General Fund Expenditures
YE Estimates Compared to RevisedBudget
Graph 2
Table 2
FY 2017-18FY 2017-18Estimates
RevisedEstimatesvs. Revised
SALARIES$7,817,500$7,016,400$(801,100)
BENEFITS2,599,2882,558,974(40,314)
LEGAL925,0001,455,000530,000
SHERIFF6,135,2006,135,2000
SHERIFF-PRESERVE567,000567,0000
PROFESSIONAL/TECH5,041,1024,904,674(136,428)
REPAIR/MAINT1,557,7001,909,200351,500
SUPPLIES2,230,1242,230,20783
OTHER/MISC569,900511,925(57,975)
Operating Expenditures
27,442,81327,288,580(154,233)
TRANSFER OUT4,813,5004,813,5000
Total General Fund
Expenditures
$32,256,313$32,102,080$(154,233)
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As stated above, the General Fund operating expenditures are estimated to come in
underbudget by approximately ($154,200), excluding transfers out.Below is the list of
major variances between year-end estimates and budget.
Salaries and Benefits
are estimated to end the year 12% or ($840,000) under budget
due to vacancies. This is a mixture of existing vacancies that have not been filled during
the year and a few new vacancies due to internal promotions. Below is a list of current
vacancies, the asterisks representvacancies due to internal promotionsthat occurred
during thisfiscal year?
1.Two (2) Associate Planners*
2.Maintenance Supervisor
3.Two (2) Administrative Assistants
4.Two (2) Associate Engineers*
5.Deputy Director of Public Works
6.Maintenance Superintendent
7.Administrative Analyst II*
Legal Services
areestimated to end the year at 57% or $530,000 over budget. Based
on information from the City Attorney, franchise cable, personnel issues and litigation
are the primary drivers of this overrun.The City Attorney stated that part of the franchise
cable fees are scheduled to be reimbursed by Crown Castleand those will get credited
against this account. Staff will continue to monitor this category and will provide an
update with the preliminary budget.
Professional/Technical Services
areprojectedto end the year approximately 2.7% or
($136,000)under budget. The savings are from professional contracts not needed in
City Administrationand Public Works.
Maintenance and Repair Services
are estimated to end the year over budget by
approximately 22.6% or $351,500.This increase is attributed to emergency activities,
after-hour incidents, increase in water usage, increase in parks repair and maintenance,
increase in stormwater maintenance activities, and an increase in traffic maintenance
activities.
Other/Miscellaneous
is estimatedto end the year underbudget by approximately
21.5% or ($58,000). This is largely due to postponing training and meetings due to
vacancies and increased workload.
General Fund — FY17-18 Estimated Ending Fund Balance
Below is an updated Unreserved/Undesignated General Fund balance or excess
surplus at the end of FY17-18.This fund balance estimate is based on year-end
projections and will be updated after the third-quarter reconciliation. Currently, the
estimated excess unrestricted reserveis over $1.5million, which is net of the required
50% Policy Reserve. This is decrease of almost $280,000 from what was reported at
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mid-year on March 6, 2018.This decreaseis due to an increase in year-end estimates
for expenditures.
FY17-18 General FundBalance Summary
Table 3
FY 2017-18 AdditionalFY 2017-18 Year-end
Adopted BudgetAppropriationRevised BudgetEstimates
Beginning Fund Balance$16,852,403$-$16,852,403$16,852,403
Add: Revenues30,207,300-30,207,30030,188,142
Add: Transfers In230,000-230,000230,000
Subtotal47,289,703-47,289,70347,270,545
Less: Expenditures(25,604,300)(1,838,513)(27,442,813)(27,288,580)
Less: Transfers Out to CIP(4,526,000)-(4,526,000)(4,526,000)
Less: Transfers Out(287,500)-(287,500)(287,500)
Subtotal(30,417,800)(1,838,513)(32,256,313)(32,102,080)
Ending Fund Balance16,871,903-15,033,39015,168,465
Reserve Policy (50% of
12,802,150-13,721,40713,644,290
budgeted expenditures)
Excess Unrestricted Reserve$4,069,753$-$1,311,983$1,524,175
General Fund — FY18-19 ProposedBudget
For the FY18-19 proposedbudget,Staff has factored in several revenue and
expenditure assumptionsto the modified zero-based budget as outlined below.
FY18-19 Revenue Assumptions
Staff is estimatingGeneral Fund revenues to increase by approximately 1.9% or
$565,800compared to the FY17-18 revised budgetand 1.9% or $585,000to theyear-
endestimated, excluding transfers in. The majority of the projected increase is driven by
increases in estimated property taxes, miscellaneous revenuesand other taxes.
Below are the projected amounts as compared to the FY17-18 year-end estimate.
Property Tax
is anticipated to increase 5.1% or $659,200 over the year-end estimate.
Property Tax continues to be the largest and historically the most stable revenue source
in the City, growing by inflation as set by the Consumer Price Index (CPI), andcapped
at 2% in addition to the increased assessed values from sales and home remodeling.
The additionalincrease is fromProp 8 parcels whose values were re-captured to pre-
recession levels, and projected transfer of ownership in FY18-19. Prop 8 allows the
property to be temporarily reassessed at the lower value during a decline in the housing
market. However, as the value of the property rises, the assessed value and resulting
property taxes may increase more than 2 percent peryear, up to the annually-adjusted
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Prop 13 capof 2%. In the past 21 years, the lowest annual change in assessed property
tax has been 1.24%, while the average annual change has been 5.30%.
Property Taxes
FY16-17 Actual Revenue:$12,345,821
FY17-18 Year-end Estimate:$12,779,760
FY18-19 Proposed Budget: $13,439,000
Transient Occupancy Tax (TOT)
is currently estimated to increase by 0.1% or $7,100
over the year-end estimate. This revenue is forecasted based on the latest industry
information along with Staff’s analysis.The revenue stream is a combination of lower-
than-expected estimates from the smaller hotels and a roll-forward of last year’s
estimate for the Terranea Resort.
Transient Occupancy Tax
FY16-17 Actual Revenue: $5,600,867
FY17-18 Year-end Estimate:$5,816,000
FY18-19Proposed Budget: $5,823,100
Sales and Use Tax
is expected to remain relatively flat in FY18-19. According to the
City's Sales Tax consultant,HdL, the lack of revenue growth is being driven by a decline
in general consumer goods as more brick-and-mortar retailers continue to offer deep
discounts to compete with online competition.
Sales and UseTax
FY16-17 Actual Revenue:$2,580,200
FY17-18 Year-end Estimate: $2,560,700
FY18-19Proposed Budget:$2,561,300
License and Permits
as a revenue source can fluctuate from year to year, based on
the economy.Staff uses historical trends and economic indicators to estimate this
revenue stream. Currently, this category is expected toincrease by 1% or $24,300 over
year-end estimates.
Licenses and Permits
FY16-17 Actual Revenue: $2,140,505
FY17-18 Year-end Estimate:$2,265,952
FY18-19 Proposed Budget: $2,290,300
Franchise Tax
is expected remain the same as the year-end estimate. The City
receives payments from franchisees for the use of municipal rights-of-way. The City
receives a majority of this revenue stream from Southern California Edison and
Southern California Gas Company. The main drivers for this revenue areconsumption
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and the price of natural gas. Staff uses historical data and industry projections for this
revenue estimate.
FranchiseTaxes
FY16-17 Actual Revenue:$1,984,787
FY17-18 Year-end Estimate: $2,024,900
FY18-19 Proposed Budget: $2,024,900
Utility User Tax (UUT)
is projected to increaseby 2.5% or $46,400 overyear-end
estimates. UUT is dependent on outside factors includingweather conditions,
consumption of utilities, the price of natural gas, and rate increases, all of which cannot
bepredicted over thelongterm with certainty. Based on these factors, Staff uses
historical data, information available pertaining to the price of natural gas, and the
projected increases estimated by the Bureau of Labor Statistics for the Consumer Price
Index for All Urban Consumers (CPI-U).
UUT
FY16-17 Actual Revenue: $1,775,433
FY17-18 Year-end Estimate: $1,875,244
FY18-19Proposed Budget: $1,921,600
Other/Miscellaneous Revenues
consists of rentalsand leases, interest, donations and
other miscellaneous revenues in the General Fund. This revenue source isalso difficult
to predict and can vary widely from year to year. This revenue source is expected to
decrease by 9.6% or ($150,600) from the year-end estimate to reflect the one-time
reimbursement received from FEMA in FY17-18.
Other/Miscellaneous Revenues
FY16-17 Actual Revenue: $1,680,347
FY17-18 Year-end Estimate: $1,573,110
FY18-19 Proposed Budget: $1,422,500
Other Taxes
consist of Business License Tax and Golf Tax, and is projected to
decrease by 0.2% or $2,100 from the year-end estimate.Although Business License
Tax grew in FY17-18 due to increasesin gross receipts, Staff is not anticipating any
additional increase in gross receipts for the upcoming fiscal year. The decrease is due
toGolf Tax.
OtherTaxes
FY16-17 Actual Revenue:$1,269,366
FY17-18 Year-end Estimate: $1,292,476
FY18-19 Proposed Budget: $1,290,400
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The chart below has built in the revenue assumptions listed above andcompares the
FY17-18 revised budget to FY17-18 year-endestimates and to the FY18-19 proposed
budget estimates.
FY18-19 Proposed General Fund Revenues
Graph 3
Property Tax continues to be the largest and historically the most stable revenue source
in the Cityand this revenue source makes up 44% ofthe total General Fund revenue.
TOT is the next largest revenue source at19% of total revenues.
Thepie chart below showsthe General Fund Revenues by type and their respective
contribution in percentage (%) terms to the overall total.The OtherTaxes category
consists of Business License Taxand Golf Tax.
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FY18-19 Proposed General Fund Revenues
Graph 4
FY18-19 General Fund Expenditure Assumptions
Staff is estimating a decrease of approximately 0.1% or ($38,600) to the FY17-18
revised budget, and an increase of 0.4% or $115,700 from the year-end estimate,
excluding transfers out. The proposed budget is showing a decrease to the revised
budget due to the Purchase Orders carried forward and continuing appropriations from
last fiscal year, whichtotaled $1.8 millionand are reported in the revised budget
number.
The following are assumptions used to prepare General Fund proposed expendituresin
FY18-19:
Personnel Costs
Salaries:
1.COLA increase of 2%
2.An average merit increase of2.5% for RPVEA Association and
Management/Confidential
3.Position reclassification—Public Works Department
a.Changing Maintenance Supervisor to Permit Technician
b.Changing Administrative Assistant to Staff Assistant
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Benefits:
1.CalPERS Normal Costs
Tier 1 – 10.609%, an increase of 0.5%
Tier 2 – 7.634%, an increase of 0.4%
Tier 3 – 6.842%, an increase of 0.3%
2.CalPERS Unfunded Liabilities
Tier 1 – 25.219%, an increase of 12.6%
Tier 2 – 0.044%, an increase of 0.02%
Tier 3 – 0.056%, an increase of 0.3%
3.Health Benefits – 5%
Non-Personnel Costs
Sheriff’sContract:
1.2.57% increase in the cost of a Deputy Sheriff Service Unit
2.3.67% cost for Bonus I Deputy units from the FY17-18 rates.
3.10.5% contribution to the Liability Trust Fund that is administered by the County
of Los Angeles
Preserve-Sheriff:
1.2.57% increase in the cost of a Deputy Sheriff Service Unit
2.10.5% contribution to the Liability Trust Fund that is administered by the County
of Los Angeles
Supplies:
1. Decreased by 43% or ($962,000) from revised budget from one-time
expenditures such as ALPRcameras, HOA security camera grants and vehicles
purchased in FY17-18.
Parks Improvement/Maintenance:
1.Playground equipment repair/maintenance increase of $65,700
2.Ball fields maintenance increase of $60,000
3.Eastview Dog Park maintenance increase of $20,000
The chart below hasbuilt in the expenditure assumptions listed above and compares
the FY17-18 revised budget to FY17-18 year-end estimates and to the FY18-19
proposed budget.
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FY18-19 Proposed General Fund Expenditures
Graph 5
Transfers Out
In FY17-18, the City Council directed Staff to reduce the TOT transfer out to the Capital
Improvement Fund by the same amount as the increase in Public Safety. For FY18-19,
Staff is estimatingTOT fromTerranea to be $5.6 million. Based on this estimate, the
TOT transfer to Capital Improvement Fund will be scheduled as follows:
Projected TOT Revenue from Terranea $5,613,000
Less FY17-18 Public Safety increase $(893,000)
Less FY18-19 Public Safety increase $(200,500)
Proposed TOT transfer to CIP $4,519,500
Other miscellaneous transfersincludes$20,000 tothe Improvement Authority
Portuguese Bend and $25,000 to the Improvement Authority Abalone Cove.
Below is an updated fund balance for the General Fund at the end of FY18-19, based
on the current year-end estimates and assumptions.While the City still has revenues
that support the core expenditures, the increases in the Sheriff’scontract, legal
expenses, CalPERS unfunded liability, and General Liability Insurance are significantly
reducing the excess reserve year over year.
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Table 4
FY 18-19 Estimated Fund Balance
Beginning Fund Balance @ 7/1/2018$ 15,168,465
Add: Proposed Revenues30,773,100
Add: Proposed Transfers In220,000
Subtotal
46,161,565
Less: Proposed Expenditures (27,404,237)
Less: Proposed Transfers to CIP(4,519,700)
Less: Proposed Misc.Transfers(45,000)
Subtotal
(31,968,937)
Ending Fund Balance @ 6/30/201914,192,628
13,702,119
Reserve Policy (50% of budgeted expenditures)
Excess Unrestricted Reserve$490,510
FY18-19 Capital Improvement Projects
Below is a list of capital projects and proposed cost by funding type. This list was
presentedand ranked by IMAC on March 8, 2018, and presented to Planning
Commission on April 10, 2018. The projects were ranked by Staff and IMAC, and were
given either a 1, 2 or 3. Projectswith a ranking of 1areconsidered a high-priority and a
ranking of 3arelow-priority. More information about these projects will be presented at
the Budget Workshop by the Public Works Department.
Table 5
Capital
Improvement Beautification Propropositio Proposition A Measure R
Hesse Parking Lot Improvements and Lighting
Project - Design100,000
Ladera Linda Community Center - Construction300,000
Lower Hesse Improvement Phase 2 - Construction900,000
Lower Hesse Improvement Phase 2 - Design100,000
Abalone Cove Sewer System Rate Study and
Rehabilitation Program250,000
Citywide ADA Transition Plan290,000
Coastal Bluff Fence Replacement Program200,000
Pavement Management Program Biennial Update120,000
Residential Roadways Rehabilitation Program -
Area 3 & 4 Design500,000
Residential Roadways Rehabilitation Program -
Area 8 Construction3,500,000
Annual Portuguese Bend Landslide Area
Resurfacing Program600,000
Silver Spur Rd. Transit Improvement Project -
Phase 1 Design50,000
Silver Spur Rd. Transit Improvement Project -
Phase 2 Construction450,000
Annual Sidewalk New/Replacement Program
250,000
TOTAL COSTS FOR #1 RANKED PROJECTS
6,260,000-600,000500,000250,000
Hawthorne Blvd. Beautification Project - Design200,000
Storm Drain Deficiency Improvement Program -
Design * +
250,000
TOTAL COSTS FOR #2 RANKED PROJECT
250,000200,000---
Bubbles Restoration and Installation
75,000
TOTAL COSTS FOR #3 RANKED PROJECTS
75,000----
TOTAL FOR ALL PROJECTS 6,585,000200,000600,000500,000250,000
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CONCLUSION:
Currently, Staff is estimating that the General Fund will end FY17-18 with a surplus of
over $1.5million, and is currently estimating about $0.5million surplus at the end of
FY18-19.The FY18-19 General Fund Preliminary Budget will be prepared with the
assumptions detailed in this report and any modifications or changes directed by the
City Council.The Preliminary Budget, including all funds, will be presented at the
regularly-schedule City Council meeting onMay 15, 2018.
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