TITLE
Recommendation to receive and file the Fiscal Year 2013 Year-End Budget Performance Report. (Citywide)
DISCUSSION
This report reflects the City's Fiscal Year 2013 (FY 13) budget performance. The information provided is subject to change, as the books for FY 13 are not fully closed. However, it is anticipated that these numbers are close to final. While the financial report primarily discusses the General Fund, significant information for other funds is highlighted where applicable.
Summary
The City's total FY 13 Adjusted Budget of $3.8 billion supports 21 departments, including the separately managed Water and Harbor Departments. The City has seven fund types divided into 41 funds that comprise the $3.8 billion Adjusted Budget. Most of these funds are restricted funds, such as the Harbor Fund, Gas Fund and Tidelands Funds, that are designated for specific and limited activities. The majority of core community services provided in the City, such as police and fire services, libraries and parks, are largely supported by the General Fund, which comprises only 11 percent of the Adjusted City budget.
The City ended FY 13 generally consistent with program and budget expectations. Citywide, year-end spending for each fund came in under budgeted appropriation. The largest deviation in the General Fund was an unexpected one-time revenue primarily due to the dissolution of the redevelopment agency. Adding to the one-time revenue was oil revenue over the $70/bbl budgeted levels. This contributed to an increase in funds available, much of which the City Council appropriated for one-time spending in the FY 14 Adopted Budget.
Please see Attachment A for a breakdown of citywide expenditures by fund. The balance of the report summarizes the General Fund and notable performance for selected other funds.
General Fund and Uplands Oil Fund Overview
The General Fund and Uplands Oil Fund ended the fiscal year with an ending funds available of approximately $3.3 million and $4.5 million, respectively. The FY 13 sources and uses are summarized in the table below:
FY 13 General Fund sources totaled $461.5 million, comprised of $458.5 million in revenue and $3.0 million in "other sources" largely made up of the release to funds available of previously assigned reserves that were authorized (budgeted) for expenditure in FY 13. FY 13 uses totaled $458.6 million, comprised of $410.9 million in expenditures and $47.6 million in other uses. The "other uses" are assignments to reservations for future uses, with the funding primarily generated from the unexpected one-time revenue received in FY 13 from the dissolution of the redevelopment agency, higher than expected oil revenue and savings from the PERS pick-up approved by International Association of Machinists and Aerospace Workers (IAM) members. City Council budgeted these funds for one-time projects in the FY 14 budget and, thus, these funds have been assigned (in FY 13) for expenditure in FY 14.
In general, revenues for the year were better than expected and expenditures were lower than expected. Variances from budgeted revenues and expenditures will be further analyzed to determine the degree to which variances are one-time or on-going. On-going variances will be taken into account in the FY 15 proposed budget projections.
Additional information on the General Fund and Uplands Oil Fund sources and uses are described in the sections below.
Recommendations for the Use of Funds Available in the General and Uplands Oil Funds
The FY 13 ending funds available is projected to be $3.3 million for the General Fund and $4.5 million for the Uplands Oil Fund. The proposed uses for the funds available are shown in the chart below. An explanation for each of those uses follows the chart.
The 5 percent for unfunded liabilities is set aside to comply with City Council's recently adopted policy. The City Prosecutor Department surplus carry-over for the Gang Injunction Program is listed at the request of the City Prosecutor. The carry-over for the Legislative Department is for the annual process that uses Council District surpluses to provide one-time support for existing City programs in the next fiscal year. There is also a carry-over into FY 14 from the Police Department FY 13 General Fund surplus to help fund the additional police officers on the street in FY 14 that are a result of lower than anticipated attrition. The last recommendation is to use the remainder of the Police Department FY 13 General Fund surplus to support overtime in FY 14 for priorities set by the Police Chief. This could include sex crimes enforcement, gang enforcement or other priorities.
The recommended use of the Uplands Oil surplus is to provide a partial resolution of a shortfall in funding of Redevelopment Agency (RDA) projects due to the dissolution of the RDA. The RDA project shortfall is associated with 2010 RDA bond projects where the balance of the project funding was intended to come from the project area tax increment revenues. Unfortunately, the tax increment portion of the RDA funding is not available due to the State's termination of the RDA. The $4.26 million would first be used to help complete the funding of the North Library, with any remaining balance used to help fund the remaining 2010 bond projects, including the Atlantic medians and Oregon Park.
The appropriation for these proposed uses of the surplus is included in FY 14 budget adjustment requests.
General Fund - Sources of Funds
Revenues
As of fiscal year-end, $458.5 million of General Fund revenue was received, including $65.5 million in one-time revenue. One-time revenues were comprised of $33.1 million in post-RDA dissolution funds, $13.3 million predominantly from FY 12 oil over $70/bbl which was included in the FY 13 Adopted Budget; $17.2 million budgeted mid-year by the City Council to reflect the $10.8 million of Prop1A repayment from the State, $6.4 million in litigation proceeds related to County property tax administrative fees and the sale of City Hall East, and a $1.8 million tip fee differential from SERRF.
Aside from the large influx of one-time funds in FY 13, the General Fund experienced growth in several revenues, including property tax, transient occupancy tax, and pipeline franchise revenue. These revenues had declined during the economic downturn and are now experiencing some rebound. Payments of property taxes have been made more timely and with fewer delinquencies than in the recent past. Transient Occupancy Tax (TOT) has also experienced growth. Hotel revenue per available room in Long Beach was up by 5.4 percent during the January - September 2013 period compared to the same period in 2012. The General Fund experienced a 2 percent increase in TOT revenue between FY 12 and FY 13. Throughout FY 13, gas pipeline franchise revenue, which is based on both the commodity price and volume sold, experienced a significant rebound from record lows in 2012 as prices increased.
While these revenue sources are experiencing growth, others have not experienced such a turnaround. Neither Telephone Utility Users Tax (UUT) nor Sales and Use Tax achieved projected levels. A 5.3 percent decline in the Telephone UUT revenue from FY 12 levels reflects the impact of constant price declines in the mobile phone industry, as well as the growing trend of prepaid cellular phones by customers which are currently exempt from UUT. Ongoing Sales and Use Tax revenue based on FY 13 activity was flat from FY 12 actuals. FY 13 sales tax revenue reflects a $2.9 million one-time correction of use tax, which offset declines in sales tax revenue.
Attachment C provides a breakdown of the Top 40 General Fund revenue performance by source. Variances are identified in the footnotes to this attachment.
Other Sources
Other Sources of funds totaled $3.0 million in FY 13. These other sources are comprised of the release of reservations established in prior fiscal years. During the course of FY 13, via Council action, $2.4 million was released to repay the Successor Agency for debt service payments which were later determined to be disallowed costs. Additionally, approximately $700,000 of FY 12 one-times and FY 12 Council Office unspent funds which had been reserved at year-end in FY 12 were released for use in FY 13. These funds were designated for various purposes, including Council directed neighborhood services projects, library services technology and books, and technology in police vehicles and police overtime.
General Fund - Uses of Funds
Expenditures by Department
Actual General Fund spending for FY 13 at the department level totaled $410.9 million, or 97 percent of the adjusted budget. Factors contributing to the budget variance included the Police Department ending the year $2.3 million under budget. Other factors impacting the budget variance included declines in expenditures associated with the payment of sales tax rebates, and FY 13 budgeted one-times, which were unspent at year-end. Previously approved unspent FY 12 and FY 13 one-time funds have been reserved in FY 13 and will be presented to the City Council for reappropriation in FY 14.
Additionally, savings were achieved from the agreement with the International Association of Machinists and Aerospace Workers (IAM) to have employees pay their total employee contribution rate to CalPERS. Department budgets were adjusted during FY 13 to reflect these savings. The estimated savings to the City's General Fund of approximately $2.5 million ($6.3 million in All Funds) in FY 13 was reserved as part of the available one-time funds to be used for the purposes approved in the FY 14 Adopted Budget.
All departments ended the fiscal year within their General Fund adjusted budget limits with the exception of the Civil Service and Fire Departments. The Civil Service Department will be submitting a request to the City Council for a FY 13 year-end appropriation adjustment of $122,000 to bring them under budget in the General Fund. As part of the appropriation adjustment request, $80,000 will be requested to be transferred from the Citywide Activities Department to offset the overage. This amount was set aside as part of the FY 13 Adopted Budget to be used for Civil Service-related Police Academy recruitment activities, if needed. The Fire Department also came in over budget in the General Fund due to unbudgeted replacement paramedic equipment costs and a correction to billing and collections charges. The Fire Department is not requesting an appropriation increase, as year-end actuals for All Funds in the Fire Department are under appropriation.
Attachment B provides a breakdown of General Fund expenditure performance by department and includes the adjustment which will be requested by the Civil Service Department. Notable departmental variances are identified in the footnotes to this attachment.
Other Uses
Other Uses of funds totaled $47.6 million in FY 13, and are largely assignments of fund balance of the the significant unexpected one-time revenues received in FY 13 from the dissolution of the Redevelopment Agency and from higher than expected oil revenue. In the FY 14 Adopted Budget, City Council budgeted these one-time funds for various projects and, as such, these funds have been reserved in FY 13 to be released for expenditures in FY 14. Also included in other uses are the assignments to reservations for the unspent FY 12 and FY 13 one-time funds that will be presented to City Council for reappropriation in FY 14.
Additionally, on September 3, 2013, the City Council approved the FY 14 Budget that included $6,227,500 in one-time funds as partial funding for the estimated $10 million General Fund portion to replace the Financial/Human Resource management systems. The City Council also approved the remaining $3,772,500 General Fund portion as an automatic appropriation provided FY 13 closed with available surplus. In accordance with that City Council direction, the $10 million General Fund portion is now funded and appropriated in FY 14 for this critical project.
Other Funds
Gas Fund
The Gas Fund provides full natural gas utility services to residential and business customers in Long Beach and Signal Hill. The vast majority of the Gas Fund's revenues come directly from gas ratepayers through metered sales. These sales are primarily affected by national gas commodity market prices and winter weather conditions. Improved extraction technologies have resulted in increased gas production supply nationwide, resulting in continuing low natural gas commodity prices. These price benefits are passed directly through to the Gas Fund's customers. The Gas Fund began FY 13 with funds available of $7.8 million and ended the year with funds available of approximately $5 million. The sources of funds were approximately $94.9 million and uses of funds were $97.7 million. In FY 13, the Gas Fund made an $11.2 million budgeted transfer to the General Fund and spent $7.9 million on capital improvement to the City's gas pipeline infrastructure.
Police & Fire Public Safety Oil Production Act (Proposition H)
On May 1, 2007, the voters approved the Police and Fire Public Safety Oil Production Tax (Proposition H), a special tax of 25 cents, with an annual CPI increase on every barrel of oil produced, and restricted to fund police and fire services. The tax assessed in FY 13 was $0.28/barrel of oil produced. The fund began FY 13 with funds available of $0.9 million and ended the year with funds available of $0.6 million. Sources of funds were $3.6 million and uses of funds were $4.0 million, which included the appropriation authority for both the Police and Fire Departments to spend a combined $800,000 of higher than normal FY 12 ending funds available.
Tidelands
The primary funding sources to support operations along the beaches and waterways are the annual transfer from the Harbor Revenue Fund and net revenue from oil operations in the Tidelands areas. The FY 13 Harbor transfer increased by 4 percent to $17.3 million, resulting in the largest transfer on record. Oil revenue declined by $3.8 million in FY 13, which reflects a 14 percent drop from FY 12, and illustrates the variable nature of this funding stream. Expenditures closed the fiscal year within budget limits.
Towing
The Towing Fund supports towing operations to clear vehicles involved in accidents, impound vehicles and facilitate the sale of unclaimed vehicles. The Towing Fund began FY 13 with funds available of $1.3 million and ended the year with funds available of $0.9 million. Sources of funds were $6.4 million and uses of funds were $6.8 million. In FY 13, the Towing Fund fulfilled its $1.7 million budgeted transfer to the General Fund. In addition, as anticipated and planned, the Fund made a one-time transfer of $1.0 million to the Capital Projects Fund as determined by City Council. This one-time amount utilized the portion of the FY 11 transfer that was deferred due to improved revenue performance in the General Fund.
Excluding the one-time transfer to the Capital Projects Fund, the FY 13 Towing Fund expenditures decreased by $902,915 from $6.7 million in FY 12 to $5.8 million in FY 13. The primary factor in this decline was the refinancing of the Temple Willow Facility bond, which temporarily lowered the annual payments made by the Towing Fund.
Refuse
The primary source of revenue for the Refuse Fund is from refuse and recycling charges, which account for approximately 90 percent of total revenues. This fund is also supported by grant money from the State for various public outreach efforts (recycling, litter reduction, used motor oil collection, etc), 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 AB939 compliance, and interest income. The Refuse Fund began FY 13 with funds available of $19.3 million and ended the year with funds available of $16.3 million. Sources of funds were $40.5 million and uses of funds were $43.5 million, which included $400,000 to the Capital Projects Fund for street repair and approximately $6 million for City programs which offset refuse related impacts on street and alley maintenance, tree trimming, storm water environmental compliance and litter abatement during Municipal Band concerts. Staff will be evaluating strategies to address the deficit in this fund.
Successor Agency
The Successor Agency fund began FY 13 with funds available of $32.3 million and ended the year with funds available fund of $17.3 million. Sources of funds were $82.8 million and uses of funds were $97.9 million. Sources of funds are primarily comprised of bi-annual distribution from the Redevelopment Property Tax Trust Fund (RPTTF), which are used to make payments against the Successor Agency's Recognized Obligation Payment Schedules (ROPS), which are approved by the State Department of Finance (DOF). As previously approved in FY 13, the General Fund covered costs of $4.7 million disallowed by the DOF. The declining funds available is a product of the dissolution of the Redevelopment Agency and is an expected outcome.
Uplands Oil
The Uplands Oil Fund supports the oil operations outside the Tidelands area and accounts for all costs and revenues for the City's proprietary oil interests. Oil production costs and transfers to the General Fund make up the majority of expenditures. The Uplands Oil Fund began FY 13 with funds available of $4.4 million and ended the year with funds available of $4.5 million. Sources of funds were $39.9 million and uses of funds of were $39.8 million. The fund had a net increase in funds available of approximately $60,000.
The total transferred in FY 13 was $32.7 million, and was comprised of $10.9 million in one-time oil revenue from FY 12 revenue over $70/bbl, $17.4 million of "reliable" base oil revenue budgeted at $70/ bbl for ongoing operations and $4.4 million in funds available transferred to the Capital Projects Fund. As part of the FY 14 Adopted Budget, $13.0 million in projected FY 13 ending funds available was budgeted for one-time expenditures. This $13.0 million has been reserved for the purposes approved in the FY 14 Adopted Budget.
Water
The Long Beach Water Department (LBWD) entered into an in-lieu replenishment agreement with the Water Replenishment District of Southern California (WRD) to purchase additional imported water instead of pumping and treating our full groundwater allocation. The benefit of the agreement is that the groundwater basin is replenished by reduced pumping. As imported water is more expensive than groundwater, WRD agreed to reimburse the additional cost incurred by LBWD (Water Fund) and, therefore, these unbudgeted additional costs are 100 percent revenue offset. The Water Department will be separately requesting an appropriation increase of $250,000, bringing their FY 13 spending under budget. The adjustment which will be requested is included in the financial data provided in Attachment A.
TIMING CONSIDERATIONS
City Council action on this matter is required prior to the closing of the City's books for FY 13 shortly after the completion of the annual audit.
FISCAL IMPACT
There is no fiscal impact or local job impact associated with this recommendation.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER