CC SR 20200413 01 - Budget Workshop
CITY COUNCIL MEETING DATE: 04/13/2020
AGENDA REPORT AGENDA HEADING: Regular Meeting
AGENDA DESCRIPTION:
Consideration and possible action regarding the General Fund FY 2019-20 Year-end
and FY 2020-21 Preliminary Budget.
RECOMMENDED COUNCIL ACTION:
(1) Review the FY 2019-20 Mid-Year Estimates and Year-End Estimates; and,
(2) Provide staff direction with potential options to develop a balanced FY 2020-21
Preliminary Budget.
FISCAL IMPACT: None
Amount Budgeted: None
Additional Appropriation: None
Account Number(s):
ORIGINATED BY: Christopher Browning, Senior Administrative Analyst
REVIEWED BY: Trang Nguyen, Deputy Director of Finance
APPROVED BY: Ara Mihranian, AICP, City Manager
BACKGROUND AND DISCUSSION:
In preparation of the FY 2020-21 Budget Workshop, before the COVID-19 health crisis,
Staff prepared a list of assumptions used in the development of the FY 2020 -21 General
Fund budget. These assumptions have also been incorporated into the City’s five -year
model to forecast the City’s financial position over the next five years. Analysis was
conducted assuming that all other factors were held constant. This future forecast helps
determine the direction Staff needs to take to maintain a structurally balance budget.
Over the past few months, several meetings were held between the City Manager,
Finance Department, and Department Heads (including Department Deputy Directors)
to discuss service or program changes and outcomes to the FY 2019-20 budget, which
is used as a baseline for the FY 2020-21 budget. Additional regulatory and mandated
changes, as well as department requests are applied to create the proposed budget for
FY 2020-21. Based on the discussions from these meetings, Staff prepared an initial
report and the related presentation for the City Budget Workshop originally scheduled
for March 25, 2020.
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On March 17, 2020, the City Council adopted Resolution No. 2020-11 declaring a Local
Emergency in response to the COVID-19 health crisis. One of the many effects of the
COVID-19 health crisis and the implementation of those orders, is the economic
distress that may be experienced. Although it is premature to develop any detailed
assumptions on the financial impact to the City at this point in time, Staff has identified
potential impacts on revenues and are working to review the expenditures to determine
what adjustments are needed for FY 2019-20 and FY 2020-21.
Staff will continue to monitor the changes to revenues and expenditures and will provide
more in-depth projections to both the year-end estimates and FY 2020-21 projections
during the Preliminary Budget meeting on May 19, 2020.
FY 2019-20 Estimated Year-end Summary
General Fund
Table 1 displays the estimated fund balance for the General Fund at the end of FY
2019-20, as reported in the mid-year staff report presented to the City Council under the
consent calendar on tonight’s agenda. This estimate is based on year-end projections at
mid-year and will be updated after the close of our third-quarter. As of December 31,
2019, the estimated unrestricted excess reserve included in the mid-year staff report
was approximately $7.6 million, net of the required 50% Policy Reserve. More details on
the mid-year review can be found in that staff report.
Table 1: FY 19-20 General Fund Estimated Fund Balance Summary
19-20 Adopted Additional 19-20 Revised Year-end
Budget Appropriation Budget Estimates
at Mid-Year
Beginning Fund Balance - 7/1/19 20,788,547 - 20,788,547 20,788,547
Add: Revenues 31,423,400 - 31,423,400 31,621,100
Add: Transfers In 275,000 - 275,000 275,000
Total Revenues 31,698,400 - 31,698,400 31,896,100
Less: Expenditures (26,592,900) (2,045,509) (28,638,409) (27,278,669)
Less: Transfers Out CIP (3,976,900) - (3,976,900) (3,976,900)
Less: Transfers Out Misc.(140,000) - (140,000) (140,000)
Total Expenditures (30,709,800) (2,045,509) (32,755,309) (31,395,569)
Estimated Ending Fund Balance - 6/30/20 21,777,147 - 19,731,638 21,289,078
Reserve Policy (50% of budgeted
expenditures)13,296,450 - 14,319,205 13,639,335
Unrestricted Excess/(Deficit) Reserve 8,480,697 - 5,412,433 7,649,743
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Other Funds
Table 2 provides an estimated fund balance for the Capital Improvement Fund,
Equipment Replacement Fund, and Special Revenue Funds. These funds are either
legally restricted or Council restricted. The Capital Improvement Fund has a restricted
fund balance requirement of $3 million, after accounting for the restricted balance there
is an excess reserve of roughly $22.3 million.
The Equipment Replacement Fund has a restricted fund balance equal to the total value
of equipment eligible to be replaced in the following fiscal year. The total equipment
eligible to be replaced in FY 2020-21 is slightly over $2 million giving the Equipment
Replacement fund an excess restricted reserve of almost $600,000.
The Special Revenue Funds include LA County voter approved measures, grants, the
City’s two Improvement Authorities, and restricted donations. The restricted fund
balance at June 30, 2020 is estimated to be approximately $15 million. Of this amount,
almost $2 million is further restricted by endowment leaving the excess restricted
reserve of approximately $13 million.
At this time, Staff only have information on the fiscal impact to Capital Improvement
Program (CIP) Fund and Gas Tax due to the COVID-19 health crisis. CIP Fund
revenues will be reduced with the projected decrease in Transient Occupancy Tax
(TOT) from Terranea. Although it is still too early to have an estimate for Gas Tax, we
can expect a decrease of approximately 15% to 30% in FY 2019-20 due to the
decrease in fuel consumption from the Safer at Home order. Staff will continue to
monitor these special funds and will report any updates in the Preliminary Budget staff
report in May.
Table 2: FY 19-20 Other Funds Estimated Fund Balance Summary
Capital
Improvement
Equipment
Replacement Special Revenues
Beginning Fund Balance - 7/1/19 27,017,191 3,071,262 14,253,242
Add: Revenues 525,360 136,950 7,900,287
Add: Transfers In 3,976,900 - 595,000
Total Revenues 4,502,260 136,950 8,495,287
Less: Expenditures (5,726,278) (586,743) (7,467,965)
Less: Transfers Out (455,000) - (275,000)
Total Expenditures (6,181,278) (586,743) (7,742,965)
Estimated Ending Fund Balance - 6/30/20 25,338,173 2,621,469 15,005,564
Reserve Policy 3,000,000 2,029,500 1,952,180
Excess Reserve 22,338,173 591,969 13,053,384
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Five-Year Model
To prepare the FY 2020-21 budget, the Finance Department works closely with
Department Heads and the City Manager to review the City’s current financial position
and to prepare assumptions for revenue and expenditure projections. Staff utilizes the
5-year model to forecast the City’s future financial position.
The FY 2019-20 Finance Advisory Committee (FAC) Work Plan assigned the FAC the
duty to review and provide feedback/recommendations to the City Council regarding the
City’s Budget and the Five-Year Model.
On April 6, Staff presented the Five-Year Model, midyear review for FY2019-20 and the
budget assumptions and proposed budget for FY2019-20 to the FAC. The presentation
and budget assumptions were unanimously approved and all FAC Members provided
positive feedback to Staff. Additionally, the FAC provided the following comments and
recommendations:
1. Approved the budget assumptions and the possible financial impact of COVID-
19;
2. Supported the conservative approach in forecasting revenues and agreed Staff
should continue to review expenditures for possible savings;
3. Asked Staff to explore a financial strategy related to a larger fiscal impact from
loss of revenues in Transient Occupancy Taxes; and,
4. Possible financial relief for Terranea.
Based on economic conditions in January (pre-COVID-19), Table 3 on the next page
summarizes the assumptions that were used to create the current Five-Year Model.
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Table 3: Five-year Model Budget Assumptions
Chart 1 on the following page illustrates the ten-year trend for the General Fund
revenues and expenditures, excluding transfers. For FY 2021-22 and beyond, the
figures are based on the assumptions from Table 3 above. Revenues are estimated to
grow on an average of 2.1% per year compared to expenditure growth estimated at an
average of 6.2% per year.
ECONOMIC MODEL INPUT FACTORS 2022F 2023F 2024F 2025F
REVENUES
PROPERTY TAX-NET GF ESTIMATE 3.0% 3.0% 3.0% 3.0%
PROPERTY TAX-IN LIEU OF VLF (VLFAA) 3.0% 3.0% 3.0% 3.0%
TRANSIENT OCCUPANCY TAXES 1.0% 1.0% 1.0% 1.0%
SALES TAX 2.1% 2.1% 2.1% 2.1%
FRANCHISE TAX 0.5% 0.5% 0.5% 0.5%
UTILITY USERS TAX 0.5% 0.5% 0.5% 0.5%
PERMIT REVENUES 0.0% 0.0% 0.0% 0.0%
INVESTMENT INTEREST 1.8% 1.8% 1.8% 1.8%
EXPENDITURES
CONSUMER PRICE INDEX 2.5% 2.5% 2.4% 2.3%
PERSONNEL EXPENDITURES 4.8% 4.8% 4.8% 4.8%
HEALTH INSURANCE 9.0% 10.0% 11.0% 12.0%
PERS NORMAL COSTS 8.0% 8.0% 8.0% 8.0%
PERS UNFUNDED LIABILITY 13.3% 10.0% 5.4% 5.6%
SHERIFF CONTRACT 6.0% 6.0% 6.0% 6.0%
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Chart 1: General Fund 10-year Trend, Excluding Transfers
As shown above, the operating revenues continue to support operating expenditures
through to FY 2024-25; however, when the transfer of Transient Occupancy Tax (TOT)
revenue to the Capital Improvement Fund is applied, revenues and expenditures cross
in FY 2020-21, as depicted in Chart 2 below.
Chart 2: General Fund 10-year Trend, Including Transfers
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The impact of revenues and expenditures, including transfers, on the General Fund
balance can be seen in Chart 3 below. The General Fund excess reserve (red bar) will
continue to decline each fiscal year until FY 2023-24 at which point the City’s fund
balance will not meet the 50% reserve policy. The total fund balance (black line) is
expected to decline to $10.6 million by FY 2024-25, if there are no changes in revenues
and/or expenditures.
Staff will continue to monitor the economy and the impact of COVID-19. Any changes,
which will be likely, to the budget assumptions for the five-year model will be updated
when the draft model is presented to the City Council in June.
Chart 3: General Fund – Fund Balance
General Fund — FY 2020-21 Revenue Assumptions
For the development of the FY 2020-21 proposed budget, Staff has factored in several
revenue and expenditure assumptions to the FY 2019-20 base budget, as well as
targeted several cost saving actions. In January, Staff was estimating General Fund
revenues to increase by approximately 2.7%, or $852,600, compared to the FY 2019 -20
current budget and 2.1%, or $654,900, to the FY 2019-20 year-end estimates, excluding
transfers in. However, the COVID-19 health crisis has impacted the economy. What
Staff projected and the revenue assumptions that were used will most likely have to be
modified. Although it is still too early for Staff to provide detailed revenue assumptions,
we can provide the City Council with our best estimates given the current temporary
closure of City facilities and non-essential local businesses, and modified operations of
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open businesses. Staff will continue to monitor economic conditions and work with our
consultants to update revenue projections and assumptions, as more information
become available, for the City Council review.
Property Tax
Prior to the outbreak of COVID-19, staff projected property tax revenue to increase by
3.2%, or $442,900, over the FY 2019-20 year-end estimate. Property Tax continues to
be the largest and historically most stable revenue source in the City. Revenue growth
primarily comes from growth in assessed property values which is capped at 2%
annually. Additional growth can come from home sales which trigger property
reassessments and Proposition 8 value recaptures.
Although Staff is not anticipating a significant decrease in Property Tax revenue, there
is a possibility that the City will see no growth in property value assessments next fiscal
year and perhaps the following fiscal year as well. The slight decrease in year-end
estimate is due to a reduction in Property Tax Transfer revenue which is generated
when a property is sold. This particular type of property tax revenue is difficult to predict,
however, given current economic conditions it is likely that we may see a decrease in
single family home sales. The year-end estimate and assumptions are subject to
change once more information becomes available.
Property Taxes Pre-COVID-19 Post COVID-19
FY 18-19 Actual Revenue: $13,567,136
FY 19-20 Year-end Estimate: $13,991,100 $13,841,700
FY 20-21 Proposed Budget: $14,434,000 $13,841,700
Transient Occupancy Tax (TOT)
Staff’s original analysis estimated TOT revenue increasing by 2.9% or $163,100 from
FY 2019-20 year-end estimates. This revenue forecast is based on revenue projections
received from Terranea’s Finance Department (Terranea is responsible for over 96% of
TOT revenue) and a multi-year trend analysis completed by staff.
In mid-March Terranea announced the temporary closure of their resort and all
amenities beginning March 19 through May 10, 2020. Due to this temporary closure,
Staff has made reductions to TOT revenue estimates for FY 2019-20 and FY 2020-21.
The Tables 4.1 and 4.2 on the next page provide a breakdown of the methodology used
to calculate revised revenue estimates.
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Table 4.1: Methodology Used to Revised FY 2019-20 Year-end Estimates
Table 4.2: Methodology Used to Revised FY 2020-21 Proposed Budget
During FY 2019-20, February was the last month that Terranea was open for business
for the entire month. The resort was only open for roughly 66% of the time in March and
is expected to remain closed for the entire month of April. Although Terranea is
scheduled to resume business on May 11, it is still too soon to know if the Safer at
Home orders will be lifted in time. Thus, Staff elected for a more conservative estimate
by projecting Terranea to remain closed throughout the month of May and to re-open by
June 1. Staff expects that it will take time for Terrenea to return to normal operations
and the lingering impacts on the travel, tourism, hospitality, and conference industries
are still to be expected for some time. In summary, Staff projects that that the slowdown
in TOT revenue would most likely continue through to the first half of FY 2020-21 and
anticipates returning to normal operations in third quarter of FY 2020-21. Staff will
continue to monitor the closure of the resort and will provide updates accordingly.
Transient Occupancy Tax Pre-COVID-19 Post COVID-19
FY 18-19 Actual Revenue: $5,645,497
FY 19-20 Year-end Estimate: $5,541,300 $4,181,700
FY 20-21 Proposed Budget: $5,704,400 $3,762,500
Sales and Use Tax
Prior to Covid-19, preliminary analysis projected revenue to increase by 2.7% or
$69,000 in FY 2020-21 from the FY 2019-20 year-end estimate. This growth was
expected in revenue from the state & county pools, food & drugs, and restaurants &
hotels. These projection were provided by the City's sales tax consultant, HdL, and
compared to past trends in sales tax revenue. FY 2019 -20 revenue estimates showed
a slight decrease of 5% from the previous year. This decrease is primarily due to
reductions in projected revenue from fuel & service stations, food & drugs, and autos &
transportation.
The COVID-19 health crisis has caused the closure of Terranea, as mentioned above.
Feb Mar Apr May Jun
% of FY 18-19 Revenue 100% 66% 0% 0% 30%
FY 2019-20
Q1 Q2 Q3 Q4
% of Original FY 19-20 Estimated Revenue 30% 50% 100% 100%
FY 2020-21
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Restaurants and the City’s two hotels comprise of nearly half of all City sales tax
revenue with Terranea making up a significant portion. Sales tax revenue has been
reduced to reflect the temporary closure of Terranea along with several other non-
essential businesses within the City and a projected prolonged recovery. Staff will
continue to work with HdL to monitor the market and provide updates when it is
available.
Sales and Use Tax Pre-COVID-19 Post COVID-19
FY 18-19 Actual Revenue: $2,661,180
FY 19-20 Year-end Estimate: $2,529,000 $2,260,300
FY 20-21 Proposed Budget: $2,597,900 $2,312,100
Permits and Fees
This revenue source can vary from year-to-year; however, it has seen an upward trend
in the last few years. Prior to COVID-19, the Community Development Department,
which brings in over 93% of all permit and fee revenue, estimated that this revenue
source will see a slight increase of 1.6% or $35,200 over FY 2019-20 year-end
estimates. However, permit activity and related services have significantly declined as a
result of the COVID-19 health crisis. The revised Department estimates expect a
decrease of $279,000 or 12.4% in permits and fee revenue in FY 2019-20 as a result of
the health crisis.
There is still not enough data at this time for Staff to estimate what FY 2020-21 revenue
will be for permits and fees, but it is expected that these numbers will be at the post
COVID-19 year-end estimates. It may return to normal as social distancing
requirements are loosened, however, the economic impacts to households may delay
the full rebound for several months. Staff will continue to monitor the situation and will
work with the Community Development Department and other departments at City Hall
to provide updates to the year-end estimate and next budget as they become available.
Permits and Fees Pre-COVID-19 Post COVID-19
FY 18-19 Actual Revenue: $2,204,606
FY 19-20 Year-end Estimate: $2,243,100 $1,963,900
FY 20-21 Proposed Budget: $2,278,300 $1,963,900
Franchise Tax
The City receives payments from franchisees for the use of municipal rights-of-way.
This revenue source is primarily received from Southern California Edison and Southern
California Gas Company. The main drivers for this revenue are the consumption and
price of natural gas. Staff uses historical data and industry projections for this revenue
estimate. FY 2020-21 revenue is projected to remain relatively flat and Staff is not
anticipating any significant impact to this revenue as a result of the COVID-19 health
crisis.
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Franchise Taxes
FY 18-19 Actual Revenue: $2,149,743
FY 19-20 Year-end Estimate: $2,150,000
FY 20-21 Proposed Budget: $2,151,800
Utility Users Tax (UUT)
UUT is dependent on outside factors including weather conditions, consumption of
utilities, natural gas prices, and rate increases. It is difficult to predict the impact of these
factors over the long term. Staff used 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) in the
calculation of this projection. A slight decrease of 0.2% or $4,400 when compared to
FY 2019-20 year-end estimates is projected, however staff will continue to monitor this
revenue source for changes. Staff is also projecting no change to UUT revenue as a
result of this pandemic.
UUT
FY 18-19 Actual Revenue: $1,917,107
FY 19-20 Year-end Estimate: $1,942,300
FY 20-21 Proposed Budget: $1,937,900
Other Taxes and Miscellaneous Revenues
This revenue category consists of business license tax, golf tax, interest earnings,
rental/lease revenues, and several other smaller revenue sources. Prior to the COVID-
19 health crisis an overall decrease of 1.6% or $52,600 was expected in FY 2020-21
when compared to FY 2019-20. This is another revenue source that can be difficult to
predict due to the wide variety of revenue sources that are included in this category.
The largest decrease in year over year revenue from FY 2019-20 to FY 2020-21 was
from miscellaneous revenue which is expected to decrease by $90,000 due to the final
payment from the Green Hills settlement agreement being received in FY 2019 -20.
This decrease was expected to be partially offset by an increases in revenue from
program/event fees, traffic tickets, and redevelopment agency loan repayments.
The Recreation and Parks departments is one of the largest contributors to this revenue
source through rentals/leases, programs/event fees, parking lot fees, and PVIC sales.
As with many of the other revenue sources mentioned in this staff report, it is still too
early to know the full impacts the COVID-19 health crisis will have on this revenue
source. However, revenues across the board in this category are projected to decrease
by over 25% as a result of the health crisis. Staff will continue to monitor and update the
year-end estimates and next year budget accordingly.
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Other Revenue Pre-COVID-19 Post COVID-19
FY 18-19 Actual Revenue: $3,545,779
FY 19-20 Year-end Estimate: $3,224,300 $2,703,200
FY 20-21 Proposed Budget: $3,171,700 $2,590,200
In summary, COVID-19 could potentially cost the City over $2.5 million in revenue loss
in FY 2019-20 and nearly $3.7 million in FY 2020-21. Table 5.1 is the updated FY 2019-
20 General Fund revenue year-end estimates and Table 5.2 is the FY 2020-21
Proposed General Fund revenue estimates.
Table 5.1: FY 2019-20 General Fund Revenue Year-end Estimates
Table 5.2: FY 2020-21 Proposed General Fund Revenues
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Chart 4: FY 2020-21 Proposed General Fund Revenues
As shown in Chart 4 above, Property Tax continues to be the largest and historically
most stable revenue source in the City, making up 48% of the total General Fund
revenue. TOT is the next largest revenue source at 13% of total revenues.
The Chart 5 below shows the General Fund Revenues by type and their respective
contribution in percentage (%) terms to the City’s overall total revenue.
Chart 5: FY 2020-21 Proposed General Fund Revenues
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FY 2020-21 General Fund Expenditure Assumptions
Last year, in preparing the FY 2019-20 General Fund budget, staff identified
approximately $2 million in savings (some of which were one-time savings) in the
operating budget to fund future initiatives such as the Fuel Modification program that
was recently approved and the additional School Resource Officer (SRO). Without any
new revenue options or increases, Staff has gone through a similar exercise f or FY
2020-21 and was able to identify one-time cost savings of about $216,500 from not
funding two positions (Assistant Planner and Assistant Engineer) and an additional
$517,000 in savings across all categories from all departments. The pre-COVID-19 total
savings of $733,500 is to, among other things, fund the future City Council goals.
The following are assumptions used to prepare the General Fund proposed
expenditures in FY 2020-21:
Personnel Costs
The City is in the collective bargaining process with the Rancho Palos Verdes Employee
Association (RPVEA). Because an agreement for next fiscal year has not been
finalized, staff estimated personnel costs for FY 2020-21 using the terms from the
agreement currently in place. Additionally, two (Executive Assistant and Deputy Director
of Public Works) of the four frozen positions are assumed to be restored in FY 2020-21
and have been included in the personnel costs for discussion purposes. The projected
budget increase to year-end estimates in personnel costs are as follows:
Salaries on budgeted positions are projected to increase by approximately
$340,000 or 4.75% due to COLA and merit increases combined. Roughly
$167,200 for COLA at 2.5%, and $172,700 for merit/merit bonus at an average of
2.25%. The remaining amount of $793,400 is due to the budgeted vacancies and
from restoring two frozen positions.
Benefits, which include health, dental, and vision, are expected to increase at a
rate of 8%. The total benefits increase for FY 2020-21 is about $212,400 or 29%
to year-end estimates, with the additional increase attributed to the filling
vacant/frozen positions.
The CalPERS normal rate increased by less than 1% for Tier 1 and about 0.7%
for Tiers 2 and 3. The total CalPERS normal cost increase for FY 2020-21 is
about $104,000 or 16% to year-end estimates.
The CalPERS unfunded liability rate increased by about 10.7% for Tier 1 and
less than 0.6% for Tiers 2 and 3. The total unfunded liability increase for FY
2020-21 is approximately $137,000 or 20% to year-end estimates.
Overall, increases in personnel costs over year-end estimates are anticipated to be
almost $1.6 million.
As mentioned earlier on this report, during the budget process prior to COVID -19, Staff
identified savings of $733,500. Since there are projected decrease in revenues
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resulting from COVID-19, it is only prudent for Staff to take the necessary steps to
review spending in FY 2020-21 to identify any additional reductions while maintaining
the current service level to the community. At this time, staff was able to identify
additional one-time savings from salaries and benefits of $338,600:
$223,600 is from the staggering recruitment of vacant positions and to not fund
one additional position.
$40,000 is from the estimated saving in over-time.
$75,000 is from freezing vacation leave buy-out for Management/Confidential
group, non-RPVEA employees.
Non-Personnel Costs
For FY 2020-21, total non-personnel expenditures decreased from the current FY 2019-
20 budget by about $1.2 million or 6.8% and decreased from FY 2019-20 year-end
estimates by approximately $401,000 or 2.3%. Although we continue to see an increase
in public safety and the new fuel modification program, all departments have worked to
tighten up their contract expenses. This budget has also been adjusted for one-time
expenditures such as claim settlements and carry-over items from FY 2018-19 to FY
2019-20. Below are the increases or decreases in the major categories to FY 2019-20
year-end estimates that are used to frame the FY 2020-21 budget.
Sheriff’s Contract
Staff estimates the increase for FY 2020-21 is 6% or $101,000 compared to the
FY 2019-20 contract. The Sheriff’s Department will finalize the numbers in
April/May and Staff will update the preliminary budget accordingly. It should be
noted that Contract Cities and the City have submitted letters to the County
Board of Supervisors requesting to suspend increasing the S heriff’s contract at
this time because of the financial impacts incurred by cities due to current health
crisis.
Sheriff Preserve
The City began the transition from Sheriff patrolling the Preserve to the Park
Rangers in an effort to reduce the ongoing operational costs. Only half of the
Sheriff Preserve’s contract, $309,500, was budgeted in FY 2019 -20. This budget
item for the Sheriff Preserve is completely eliminated in the FY 2020-21 budget.
Preserve Park Rangers
FY 2020-21 is the first year that the Preserve Park Rangers program will be fully
operational under the Recreation and Parks Department. The proposed budget
for the Preserve Park Rangers is estimated to increase by almost $150,000 to
year-end estimates. The reason for the increase is that the year-end estimates
only included six months of operation in FY 2019-20.
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Legal Services:
Legal services for FY 2020-21 are estimated to decrease by approximately
$112,000 or 10% from the FY 2019-20 year-end estimates. The decrease from
year-end estimates is attributed to unanticipated litigations in FY 2020-21.
Supplies:
For FY 2020-21, supplies are estimated to show a net decrease from the FY
2019-20 year-end estimates by about $103,000 or 14%. The decrease from year-
end estimates is from one-time purchases carried over from FY 2018-19.
Professional/Technical Services:
For FY 2020-21, a total net decrease from the FY 2019-20 year-end estimate of
approximately $438,000 or 12.4% is expected based on the following:
a. City Clerk – election costs are estimated to decrease for FY 2020-21 by
$225,000 from the FY 2019-20 year-end estimates due to decreased
needs during the November 2020 election compared to the November
2019 election.
b. Public Works – professional services are expected to have a net decrease
for FY 2020-21 from FY 2019-20 year-end estimates of roughly $102,600.
The reduction is attributed to the augmenting of engineering services in
FY 2019-20 due to the number of vacancies in the department.
c. Community Development – professional services are expected to have a
net decrease for FY 2020-21 from FY 2019-20 year-end estimates of
about $27,000. The reduction is attributed to the augmentation of planning
and building safety services in FY 2019-20 due to the number of
vacancies in the department.
d. The remaining $83,400 decrease for FY 2020-21 is in professional
services from various divisions within the City Administration Department.
The decrease to FY 2019-20 year-end estimates are from services that
were budgeted but will not be needed during FY 2020-21.
Repairs & Maintenance:
For FY 2020-21, there will be an expected net decrease from the FY 2019-20
year-end estimates of about $477,000 or 14.6%. The decrease from year-end
estimates is primarily due to the one-time grant to Palos Verdes Peninsula Land
Conservancy (PVPLC) for the Fuel Modification program approved in FY 2019 -
20.
The FY 2020-21 expenditure assumptions detailed above result in a preliminary net
decrease of approximately $1 million or 3.8% to the FY 2019-20 current budget, and a
net increase of over $220,300 or .8% from the year-end estimate, excluding transfers
out.
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Transfers Out
In FY 2017-18, the City Council directed staff to reduce the TOT transfer out to the
Capital Improvement Plan Fund by the same amount as the increase in Public Safety.
For FY 2020-21, staff is estimating receiving approximately $3.4 million in TOT revenue
from Terranea. Based on this (reduced) estimate, the TOT transfer to the Capital
Improvement Plan Fund will be just under $2 million based on the scheduled below.
The General Fund also supports other funds such as the City’s two Improvement
Authorities and Sub-region One with transfers to cover the annual maintenance charges
and to maintain the endowment requirements. The estimated interest earned in FY
2020-21 is not enough to cover the operating costs incurred in these Funds. Therefore,
the General Fund will need to transfer funds to subsidize Sub-region One in the amount
of $35,000 and the Improvement Authority Portuguese Bend for $55,000, totaling
$90,000 for FY 2020-21.
The expenditure assumptions listed above have been incorporated in Chart 6 on the
next page. It compares FY 2020-21 post COVID-19 proposed budget to FY 2019-20
current budget and FY 2019-20 year-end estimates at mid-year.
Projected TOT Revenue from Terranea 3,389,300$
Less FY 17-18 Public Safety Increase (893,000)
Less FY 18-19 Public Safety Increase (200,500)
Less FY 19-20 Public Safety Increase (260,800)
Less FY 20-21 Public Safety Increase (101,000)
Proposed TOT Transfer to CIP 1,934,000$
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Chart 6: FY 2020-21 Proposed General Fund Expenditures
Tables 6.1 and 6.2 below compares the pre- and post-COVID-19 General Fund
revenues and expenditures for FY 2020-21. As illustrated, the operating revenues
continue to support operating expenditures with an excess of about $1 million post
COVID-19. However, when the transfers are applied, mainly from the TOT Revenues
transfers to CIP for capital, the General Fund will have a deficit of over $730,000 in FY
2020-21. The unprecedented projected loss in revenue of over $3.7 million due to
COVID-19 eroded the identified reductions in expenditures of $2.9 million as
summarized below:
Reductions of over $700,000 prior to the COVID-19 health crisis;
Additional reductions of over $300,000 post the COVID-19 health crisis, and;
Reduction of $1.9 million in transfer out to CIP.
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Table 6.1: FY 2020-21 General Fund Revenues and Expenditures
Table 6.2: General Fund – Fund Balance
Pre-COVID-19
FY 2020-21
Proposed
Budget
Post COVID-19
FY 2020-21
Proposed
Budget Variances
Operating Revenues 32,276,000 28,560,300 (3,715,700)
Operating Expenditures (27,837,000) (27,498,400) 338,600
Excess/(Deficit) Operating Revenues over
Operating Expenditures 4,439,000 1,061,900 (3,377,100)
Transfers In 230,000 230,000 -
Transfers Out to CIP (3,875,900) (1,934,000) 1,941,900
Other Transfers Out (90,000) (90,000) -
Net Change to Fund Balance 703,100 (732,100) (1,435,200)
Estimated Beginning Fund Balance - 7/1/20 21,289,078 20,070,678 (1,218,400)
Estimated Ending Fund Balance - 6/20/21 21,992,178 19,338,578 (2,653,600)
Pre-COVID-19
FY 20-21
Proposed
Budget
Post COVID-19
FY 20-21
Proposed
Budget
FY 20-21
Variances
Beginning Fund Balance - 7/1/2020 21,289,078 20,070,678 (1,218,400)
Add: Revenues 32,276,000 28,560,300 (3,715,700)
Add: Transfers In 230,000 230,000 -
Total Revenues 32,506,000 28,790,300 (3,715,700)
Less: Expenditures (27,837,000) (27,498,400) (338,600)
Less: Transfers to CIP (3,875,900) (1,934,000) (1,941,900)
Less: Other Transfers Out (90,000) (90,000) -
Total Expenditures (31,802,900) (29,522,400) (2,280,500)
Ending Fund Balance - 6/30/2021 21,992,178 19,338,578 (2,653,600)
50% Reserve Policy 13,918,500 13,749,200 (169,300)
Unrestricted Excess/(Deficit) Reserve 8,073,678 5,589,378 (2,484,300)
*Updated based on the Covid-19 Pandemic
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For FY 2020-21, the estimated fund balance at June 30, 2021 for the General Fund is
approximately $19.3 million, a decrease of over $2.6 million due to the COVID-19 health
crisis. Accordingly, the unrestricted excess reserve at the end of FY 2020-21 post-
COVID-19 is almost $5.6 million, a decrease of almost $2.5 million when compared to
pre-COVID-19.
Table 7: General Fund Excess Reserve
The table above shows a five-year trend of General Fund unrestricted excess reserve
balances. While the City continues to maintain funding of core services and reserves at
50% of expenditures, the unrestricted excess reserves for FY 2020-21 will decrease by
over $2.7 million from FY 18-19 due to COVID-19.
Options to Balance the FY 2020-21 Budget
Despite Staff effort in identifying savings of approximately $3 million in the FY 2020-21
expenditures, the City will still need to identify an additional $730,000 in savings in order
to achieve a balanced budget for FY 2021-20. As a reminder, the $730,000 shortfall is
an estimate based on the most current information and based on the outcome of the
next few months due to COVID-19, and the estimated amount may increase or
decrease. Therefore, below are some additional one-time potential savings options for
the City Council’s consideration:
Review the current list of vacant positions to determine staggering the
recruitments and/or not filling the positions.
Defer projects that have minimal to no impact to services and to the community.
Defer the transfer out to CIP for FY 2020-21.
Post COVID-19
FY 2020-21
Proposed
Budget
Post COVID-19
FY 2019-20
Estimates
FY 2018-19
Actuals
FY 2017-18
Actuals
FY 2016-17
Actuals
Beginning Fund Balance - 7/1 20,070,678 20,788,547 18,078,960 16,825,403 15,068,099
Add: Revenues 28,560,300 29,043,100 31,691,048 30,452,619 29,259,666
Add: Transfers In 230,000 275,000 220,000 230,000 190,000
Total Revenues 28,790,300 29,318,100 31,911,048 30,682,619 29,449,666
Less: Expenditures (27,498,400) (27,278,669) (24,854,609) (24,615,562)(23,304,965)
Less: Transfers to CIP (1,934,000) (2,617,300) (4,301,852) (4,526,000)(4,141,397)
Less: Other Transfers Out (90,000) (140,000) (45,000) (287,500)(246,000)
Total Expenditures (29,522,400) (30,035,969) (29,201,461) (29,429,062) (27,692,362)
Ending Fund Balance - 6/30 19,338,578 20,070,678 20,788,547 18,078,960 16,825,403
50% Reserve Policy 13,749,200 13,639,335 12,427,305 12,307,781 11,652,483
Unrestricted Excess/(Deficit) Reserve 5,589,378 6,431,343 8,361,242 5,771,179 5,172,920
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Use the excess unrestricted reserve to offset any shortfall between revenues and
expenditures
Staff seeks the City Council’s direction on the above or other potential savings options.
Due to the degree of uncertainty related to COVID-19, if the projections in the FY2020-
21 budget improve, the City Council will have an opportunity to make appropriate
modifications to the budget during the mid-year review.
CONCLUSION:
In light of COVID-19, Staff is taking a more conservative approach by estimating a
reduction to the General Fund revenues by almost $2.6 million in FY 2019-20 and $3.7
million in FY 2020-21. Due to the loss of revenues, Staff estimates a negative net
impact to the General Fund of over $700,000 to the fund balance in both FY 2019-20
and FY 2020-21.
Currently, Staff is working closely with consultants and Department Heads to monitor
revenues and contain expenditures for the remainder of FY 2019-20. Staff will have
better estimates for FY 2019-20 at the end of the third quarter, and will provide those
estimates at the Preliminary Budget Meeting tentatively scheduled for May 19. Staff will
also monitor the impacts of COVID-19 and continue to work on revising the current set
of budget assumptions for FY 2020-21 and the Five-Year Model. The FY 2020-21
General Fund Preliminary Budget will be prepared with updates, as it becomes
available, and any modifications or changes directed by the City Council. The
Preliminary Budget will also include all funds and will be presented at the regularly
scheduled City Council meeting on May 19, 2020.
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