TITLE
Recommendation to receive and file the Second Budget Performance Report for Fiscal Year 2016. (Citywide)
DISCUSSION
This report includes information on the City’s Fiscal Year 2016 (FY 16) budget performance through May 31, 2016, for all funds.
Summary
As of May 31, 2016, no significant concerns have been identified with any City fund, and any funds that are showing year-end estimates that exceed budgeted appropriations will be resolved with planned budget adjustments that will be presented to the City Council later in FY 16. The General Fund is also on track to end the year with a surplus of $1.1 million, 5 percent of which will be set aside per City Council policy for unfunded liabilities. The balance of the report summarizes the General Fund performance and provides additional details on the status of other funds.
General Fund and Uplands Oil Fund Overview
Based on current estimates as of May 31, 2016, it is anticipated that the General Fund and Uplands Oil Fund will end FY 16 with an ending funds available of approximately $1.1 million and $0.1 million, respectively. The year-end funds available are more than estimated in the March 8, 2016 Financial Outlook as there has been positive growth in select revenues and a mid-year savings target implemented by the City Manager to reduce expenditures. The FY 17 Proposed Budget does not include using this $1.1 million surplus. It is recommended that at least $500,000 be set aside for the unfunded liabilities at year-end and to provide minimum funds available going into FY 17. In addition, the City Manager proposes using the first $500,000 of additional General Fund year-end surplus from FY 16 (above the $1.1 million) for the Belmont Beach and Aquatics Center (BBAC) as a contingent appropriation. This will be determined and calculated at year end FY 16. The estimated FY 16 sources and uses are summarized in the table below and described in further detail in the subsequent sections.
General Fund - Sources of Funds
Revenues
As of May 31, 2016, the overall trend in General Fund revenue actuals has been higher than expected growth. In particular, the City is experiencing growth in Transient Occupancy Taxes, business license taxes and income from interest on the City’s investments. Transient Occupancy Tax projections continue the increase the City has experienced in recent years. Industry reports available as of April 2016 reflect a 9.9 percent increase in Revenue Per Available Room (REVPAR) in Long Beach, as compared to April 2015. Business License Tax revenues have also increased significantly signaling a return on investment from increased enforcement by recent staff additions, as well as the newly implemented collection system, which allows for easier identification of past due accounts. Additionally, the timely maturation of some City investments has contributed additional interest income for the General Fund, as has the depositing of lease revenue from The Pike development into the General Fund. Property Tax is still growing, although as a result of the decline in oil-related assessed valuation, that growth is slower than anticipated. Property Tax revenue related to the dissolution of the Redevelopment Agency (RDA) is also higher than projected.
Although oil revenue has decreased from a projected $55/barrel to $35/barrel, growth in citywide revenues has been able to mitigate the Uplands Oil revenue shortfall in FY 16. The expected net savings in FY 16 have been preliminarily allocated for strategic investments in the FY 17 Proposed Budget, further described in the section on Other Uses. The FY 16 actual revenue performance was taken into account for the structural revenue assumptions in the FY 17 Proposed Budget. These assumptions reduced the need for departmental budget and service reductions in FY 17. It is important to note that although revenues are stronger in many areas, it is difficult to say when, or if, underperforming revenues will rebound, or for how much longer strong revenue performance for some revenues will continue.
Other Sources
A key source of funds for the FY 16 Adopted Budget was revenue received in FY 15 and carried over to be a “release of reserves” in FY 16. These sources were from various revenues above projected levels in FY 15. In addition to these revenues recognized in the FY 16 Adopted Budget for one-time uses, FY 15 year-end surplus was also reserved and programmed by the City Council as part of the Budget Adjustments on February 16, 2016. The total of these two actions comprises the Other Sources category. These previously set-aside funds were released in FY 16 and used for their previously approved purposes, which includes funds for a Police Academy, the FY 16 elections, the carryover of FY 15 one-time investments that were not completed, police overtime, demolition of the State courthouse and transfers to the Capital Improvement Project for City Council District priorities, among others.
General Fund - Uses of Funds
Expenditures by Department
As of May 31, 2016, citywide estimates are currently projecting the General Fund expenditures to come in under the FY 16 Adjusted Budget by $2.8 million mainly due to planned savings in the Police Department as described below and the projected savings from the City Manager’s request that all General Fund departments save 0.5 percent of their budgeted appropriation. Currently, a few departments are showing year-end estimates to be over budget but some solutions have been identified below. After accounting for future budget adjustments as indicated below and with the Police Department planned savings, the General Fund is on track to collectively exceed the mid-year savings target amount and end the year under appropriation.
The Police Department is currently estimating to be under budget by $3.8 million. A budget enhancement was given to the Department in the beginning of FY 16 to fund two police academies in calendar year 2016. With the first academy underway, it is estimated that the Department will need to carry forward all the projected savings and an additional $200,000 to have sufficient appropriations to cover the FY 17 portion of the costs of the two academies. The Department is on track to meet the total estimated savings. The anticipated costs of the academies being incurred in FY 17 is $4.0 million ($3.8 million plus $200,000), and will be reserved in FY 16 and appropriated as part of the FY 17 Proposed Budget.
All other Departments are currently estimating to end the year within their General Fund FY 16 Adjusted Budget, with the exception of the Citywide Activities, Economic and Property Development, Fire, Health and Human Services and Public Works Departments. The Fire Department’s projected overage of $650,000, is attributable to the termination of the Rapid Medical Deployment (RMD) Pilot Project as of October 1, 2015, and will be requesting a budget adjustment utilizing the First Responder Fee revenue received this year. The Economic and Property Development Department overages of $199,318 are due to expenses incurred maintaining Successor Agency properties and other operating needs. A year-end budget adjustment will be made using the 5 percent administration fee collected from the sale of the Successor Agency properties. The Department will continue to monitor its spending levels to minimize the overage by the end of the fiscal year. The Health and Human Services Department is estimating to come in over General Fund budget by $2,695, but will be under budget from an all funds perspective. This projected overage is attributed to repair and maintenance needs at Central, North and Multi-Service Center facilities. The Public Works Department is anticipated to come in over General Fund budget by $196,816, but will be under budget from an all funds perspective. This projected overage is primarily due to unbudgeted emergency repairs to the Stearns Park Community Center roof. Lastly, the Citywide Activities Department is showing year-end estimates higher than the FY 16 Adjusted Budget, but will end under budget pending an upcoming budget adjustment to appropriate a transfer of funds to the Debt Service Fund, a technical correction. Per the agreement with the State, the City will receive Redevelopment Property Tax Trust Fund (RPTTF) funds to make payments for the debt service of the Open Space Lease Revenue Bond, which will be transferred to the Debt Service Fund.
Other Uses
The Other Uses category represents assignments of funds available for future specific purposes. In FY 16, the source of funding for Other Uses is revenue above budgeted levels as well as department savings. These funds are being reserved for appropriation as one-time strategic investments in FY 17. These proposed expenditures include the FY 17 Police overtime to impact violent crime activity and academy expenses, watershed monitoring and compliance, minimum wage enforcement and the study of the Los Angeles River, among others. In addition, funds that were ultimately not needed for the June 2016 election are being reserved for the upcoming November 2016 election in FY 17.
FY 16 Revenues - All Other Funds
Uplands and Tidelands Operating Funds
The City’s oil revenues continue to be impacted by price declines. The current price and production drop has led to a dramatic reduction in both Uplands revenue, which covers General Fund operations and one-time investments, and in Tidelands revenue, which funds both operations and capital investment in the Tidelands area. The Uplands Oil transfer to the General Fund is projected to be under budget by $3.3 million and Tidelands oil revenue is projected to be $1.4 million under budget. Current projections do not include any additional one-times for FY 17. Depending on oil prices and related technical factors, there may be some one-time oil funds available at FY 16 year-end.
There are no other revenue concerns related to all other funds to report at this time.
FY 16 Expenditures - All Other Funds
Tidelands Operating Fund
Tidelands Operating Fund revenues are dependent to a significant degree on oil operations in the Tidelands area. FY 16 is on track to meet the projection of $35 per barrel used in March 2016. Tidelands Operating Fund revenue projections and projects will be reviewed and updated during the annual budget process or more often as appropriate. It is anticipated that one-time capital investments using Tidelands Funds will continue to be very limited as there are no indications that oil prices will return to the $100 level of a few years ago. However, additional funds for capital projects have been identified through anticipated FY 16 ending funds available in the Tidelands Operating Fund. A list of projects being proposed that utilize the FY 16 year-end balance is included in the FY 17 CIP Budget Book.
Police and Fire Public Safety Oil Production Act (Proposition H)
This fund continues to be closely monitored in FY 16 since oil production is impacted by the price of oil and will, therefore, impact Proposition H revenue. Estimated revenue is above budget due to mid-year estimate revisions that reflect a slower pace in production declines than originally anticipated when the FY 16 budget was adopted.
Refuse Fund
This fund receives the majority of its revenue from refuse and recycling charges among other sources such as grant money from the State for various outreach efforts, revenues from the sale of recyclables collected through the City’s residential recycling program, fees paid by the City’s licensed private refuse haulers for AB 939 compliance, and other sources. Over the years operating shortfalls have used funds available to offset the shortfall. After many years of implementing various efficiency measures the fund continues to operate at a structural imbalance. Staff is exploring a rate restructuring based on a study, which is being conducted by an outside consulting firm. Revised rates will better reflect the full cost of service to the ratepayer. It is likely that the rate increases will be spread over the next two fiscal years with the goal of structurally balancing the fund and will be incorporated as part of the FY 17 and FY 18 budget process.
Attachments
Please see the following Attachments for summaries of expenditures by fund and General Fund expense and revenue trends. Notable comments are identified in the footnotes.
Attachment A - Expenditures by Fund
Attachment B - General Fund Expenditures by Department
Attachment C - General Fund Top 40 Revenue
This matter was reviewed by Deputy City Attorney Amy R. Webber on August 2, 2016.
TIMING CONSIDERATIONS
City Council action on this matter is requested on August 16, 2016.
FISCAL IMPACT
[Fiscal Impact]
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER