RPVCCA_SR_2011_02_15_08_Capital_Projects_Strategic_FundsCITY OF
MEMORANDUM
RANCHO PALOS VERDES
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
Project Manager:
HONORABLE MAYOR &CITY COUNCIL MEMB
DENNIS McLEAN,DIRECTOR OF FINANCE &
INFORMATION TECHNOLOGY
FEBRUARY 15,2011
CAPITAL PROJECTS STRATEGIC FUNDING
WORKSHOP
CAROLYN LEHR,CITY MANAGER G9-
Kathryn Downs,Deputy Director of Finance &Information
Technology
RECOMMENDATION
Receive and file.
BACKGROUND
The City of Rancho Palos Verdes (RPV)can be characterized as a bedroom community,
with little commercial presence.In the past,minimal commercial tax revenue caused a
reliance on residential property tax revenue to operate.The City receives one of the lowest
per-capita shares of state shared revenue in the South Bay.It operates while spending
fewer dollars per capita in the South Bay,second only to Lawndale.Until the
establishment of the storm drain user fee in 2006,no dedicated revenue had been
established by the City's voters to maintain or repair any of the City's streets,sewers,storm
drains, parks or buildings.Because it receives less revenue per capita compared to most
California cities,RPV has spent less for infrastructure repairs and maintenance.
However,the City Council and staff have worked together over the last decade to build a
"reserve"that could be used in the event of emergencies and unforeseen circumstances
like significant infrastructure repairs.Past prudent fiscal management is now accompanied
with significant new transient occupancy tax (TOT)revenue from the Terranea Resort that
brings the City to a financial crossroad.The City Council should be commended for
maintaining the operating budget at current levels,and instead using TOT revenue for
infrastructure projects.
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Fiscal Management Programs and Procedures
Over the last decade,the City Council and staff have also established a framework of "best
practices"for effectively managing the fiscal affairs of the City,including the following:
);>Schedule of Estimated General Fund Reserves to use as a "running balance"of
General Fund money as budget adjustments are made throughout the fiscal year;
);>Infrastructure Management Programs,including the
o Pavement Management Program,
o Sewer Master Plan,and
o Water Quality Flood Protection (storm drain)program,with a voter-enacted
funding source monitored by an Oversight Committee;
);>Investment Policy;
~Five-Year Capital Improvement Plan;
~Five-Year Financial Model;and
);>Reserve Policy.
The infrastructure programs/plans are considered with other infrastructure priorities (i.e.
City facilities and park sites)and are integrated into the annual Five-Year Capital
Improvement Plan ("CIP")that was formally established in 2009.The annual CIP,as well
as all other programs (i.e.public safety and recreation)of the City,are integrated into the
annual Five-Year Financial Model that facilitates strategic financial planning beyond the
annual operating budget cycle.
Reserve Policies
The City Council recently revised the City's adopted reserve policies for a number of funds.
A summary of reserve levels is presented in the FY10-11 Midyear Financial Report to be
presented at this same meeting.At its meeting on December 21,2010,the City Council
approved the revision of the Reserve Policy.An excerpt from the staff report follows:
''The City will maintain a minimum of $3 million in the Capital Improvement Projects
(CIP)fund as a reserve for major improvement projects related to roadways,storm
drains,parks,buildings,rights-of-way,and the sewer system.SUbject to the annual
budgeting process,the CIP reserve will be funded,to the extent possible,by
allocating annual Transient Occupancy Tax (TOT)revenue to the CIP fund.All
interest earnings in this fund will be used for capital improvement projects.
Due to the potential volatility of TOT revenue,Staff and the City's Financial Advisor
feel that the dedicated use of TOT revenue for capital projects and debt retirement
would be fiscally prudent.Staff is not requesting the reserve amount be increased,
but rather the TOT revenue received is transferred to the CIP fund and committed for
future capital projects.As a General Fund revenue source,future TOT cannot be
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restricted to a specific purpose.Staff's recommendation seeks to formalize the
process of allocating TOT to fund capital projects."
Capital Project Strategic Funding
The City is at a crossroad marked by infrastructure that is near the end of life and in need
of replacement,repairs and improvements,projects competing for City resources,low
interest earnings rates and reserve levels that will likely improve bond ratings but are not
sufficient to perform all the high-priority projects included within the CIP.
Tim Schafer,the City's Financial Advisor,has been asked to lead the City Council through
a Capital Projects Strategic Funding Workshop.
Purpose:
To discuss the process of how staff and the City Council could manage the funding
alternatives for the high-priority projects included (or contemplated)in the CIP.
Discussion topics include,but are not limited to:
~Financing alternatives available,including use of reserves,grants from other
agencies,voter enacted fees,cost-based fees,property-related debt,leases and
pay-as-you-go financing (PAYGO);
~Managing changing priorities and the impact on financing methods and vice-versa;
~Maximizing the use of and leveraging reserves;
~The management of reserves and future bond ratings;and
~The merits of the current Reserve Policy and transient occupancy tax revenue.
Mr.Schafer and Staff welcome questions in advance and suggestions of additional
discussion topics,time permitting.
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