TITLE
Recommendation to receive and file the Fiscal Year 2009 Second Quarter Budget Performance Report. (Citywide)
DISCUSSION
This report provides an update on the City's Fiscal Year 2009 (FY 09) budget and operational performance through March 31, 2009. The report covers a broad spectrum of financial information for all funds and departments with multi-year comparisons, charts and graphs to provide a clear picture of the City's financial situation. While the focus of the financial report is the General Fund, exceptional performance (both positive and negative) in other funds is highlighted where applicable.
Summary
The total Adjusted City Budget for all funds as of March 31, 2009 was $3.52 billion. With 50 percent of the year complete, expenditure performance in all funds is at approximately 28.7 percent year-to-date. The total adjusted General Fund expenditure budget was $405.1 million, with budgeted revenue of $405.4 million. After the first six months of the fiscal year, based on current appropriation authority, overall expenditures are on target but revenues will fall well short of budgeted expectations.
FY 09 General Fund Revenue
Given the receipt of large upfront, one-time installment payments early in the fiscal year, year-to-date General Fund revenue is close to the expected performance after the second quarter of the year at $202.1 million, or approximately 49.8 percent of total budget.
However, as has been reported previously, it is estimated that Upland Oil, Sales and Use Tax, Vehicle License Fees, Transient Occupancy Tax, Interest-Pooled Cash, Real Property Transfer Tax, and other economically sensitive revenues will come in up to $19.2 million below budget due to the impact of the current recession. In factoring out upfront and onetime payments from year-to-date actuals, and pro-rating installment revenues, only $192.6 million in structural revenue has been received, or about 48.1 percent, with 50 percent of the fiscal year complete.
Foreclosure activities, delinquent payments, and reassessment appeals are expected to negatively impact Secured Property receipts later in the fiscal year or in FY 10, though the full impact will not be known until the receipt of future payment distributions from the County.
Current assessments of year-to-date collections reveal that the FY 09 budget, with its conservative growth projection over FY 08 performance, may have compensated for the impact of the initial declines in the real estate market for this fiscal year, with increased impacts likely to be experienced in FY 10. An increase in the payment of outstanding property tax by banks taking ownership of foreclosed homes appears to be partially mitigating the negative impact of foreclosure related delinquencies.
Staff is vigilantly monitoring revenue performance and modifying forecasts based on evolving economic performance data. Current and projected revenue performance is based upon a variety of factors, and includes both structural and one-time revenues. It is important to note the risks inherent in projecting revenue, as the City has limited, if any, authority to affect many of the major General Fund revenue streams. The table below highlights performance through March 31,2009 for selected General Fund revenues.
FY 09 Revenue by Department
Attachment B provides a breakdown of General Fund revenue performance by department.
Many of the departmental variances are captured in the footnotes to this attachment. The Financial Management Department realized the highest level of General Fund revenue to date of all operating departments at $12.1 million, followed by the Department of Public Works at $11.5 million, and the Police Department at $6.1 million. As noted earlier, despite 50 percent of revenue collected, due mostly to one-time payments and interdepartmental transfers received during the first quarter, actual revenues are trailing under budget.
FY 09 General Fund Expenditures
The Adopted General Fund expenditure budget for FY 09 was $403.9 million. As of March 31, 2009, the total adjusted General Fund budget was $405.1 million, due to carry-over for prior year encumbrances. The overall year-to-date General Fund spending is $177.4 million, or 43.8 percent of budget, with 50 percent of the Fiscal Year complete. This is a result of cost savings measures implemented by the City Manager early in fiscal year 2009.
On December 9, 2008, the City Manager issued department-specific savings targets, instituted a hard hiring freeze, reduced limits on Department contracting authority and deferred State-funded Capital projects to ensure the City ends the fiscal year in balance.
FY 09 General Fund Expenditures by Department
FY 09 Savinqs Measures
In light of current economic challenges and the State's budget crisis, and the $19.2 million current year deficit that has resulted, the City has implemented tighter fiscal controls to manage department budgets and ensure that the General Fund remains in balance. On December 9, 2008, the City Manager transmitted FY 09 General Fund operational savings targets to departments including some related funds, ranging from 1-3 percent, to generate $6 million in savings for FY 09. Since those targets were assigned, the General Fund revenue outlook worsened. Given the worsening fiscal condition, and the negative budgetary outlook for FY 10 and beyond, the City Manager implemented a more aggressive budget balancing approach, as discussed with the City Council at the March 3, 2009 Special Meeting on the budget.
Department savings targets were increased and directors were instructed to reduce spending by 2-6 percent. The City Manager provided a governing framework to guide department directors in their deliberations when considering mid-year cost savings measures. Proposals were to be primarily structural in nature and fall into five targeted categories: the elimination of non-core services and duplication of efforts; exploring opportunities to privatize various City operations; decreasing subsidies; increasing revenues; and creating internal efficiencies.
These cost savings measures in City Manager-led departments are expected to have a $12.5 million structural annual savings value. However, given the nature of the recommended reductions and the fact that six months of the fiscal year remain, it is anticipated that the actual value of the FY 09 deficit solutions (both revenue increases and cost reductions) will equal approximately $10.5 million. The following chart highlights the expected deficit solutions by department and the percent of the FY 09 expenditure budget these solutions represent.
Approximately 23.21 FTEs will be impacted by these reductions; of the positions to be eliminated, two are filled full-time FTEs, 3.55 are filled part-time/non-career FTEs, four are vacant management positions and 13.66 are vacant Non-management FTEs. 
Exhibit 2 shows the City's top 8 General Fund year-to-date expenditures by department. In aggregate the Top 8 represents $163.4 million or 92.1 percent of General Fund expenditures. The majority of General Fund expenditures comprise public safety services.
Of the $177.4 million expended to date, the Police Department (48 percent) and Fire Department (18 percent) comprise 66 percent of the total General Fund year-to-date expenditures. Attachment C provides a listing of all departments' year-to-date General Fund expenditure performance.
FY 09 Expenditure Performance - All Funds
The City's Adopted FY 09 Budget for all funds includes $3.5 billion of annual funds, carryover (multi-year grants and capital projects funds) of $399.1 million, prior year encumbrances (goods and services ordered in FY 08 but received in FY 09), and City Council approved budget amendments. Combined, the total Adjusted City Budget as of March 31, 2009 was $3.52 billion. Please see Attachment D for a breakdown of Citywide expenditures by fund.
While it is not expected that department or fund expenditures will occur equally throughout the fiscal year or be fully expended in the current fiscal year due to the inclusion of multiyear projects, monitoring the rate of expenditure is a helpful indicator of resource management. With 50 percent of the year complete, expenditure performance in all funds is at approximately 28.7 percent year-to-date. This includes the Harbor and Redevelopment Funds currently performing at 18.3 percent and 27.2 percent, respectively.
Other Significant Issues
Employee Furlouqh or Equivalent Savinqs
City management entered into discussions with the City's nine labor unions regarding employee generated cost savings options, including a potential mandatory work furlough or equivalent savings.
While various cost savings strategies were discussed, immediate action is necessary to help address the FY 09 budget shortfall by the end of the fiscal year. Implementation of a business closure and a mandatory 40-hour work furlough for all permanent employees, to take place on the last Friday of each month, will provide for the continuation of critical programs and services for the public while mitigating service impacts and mitigating the need for significant workforce reductions at this time. Due to public safety needs, critical business functions and potential revenue loss, alternative approaches to employeegenerated savings including floating furlough days are being considered. The furlough will commence May 29, 2009 and continue through the end of the fiscal year. A furlough may not be implemented if equivalent employee generated savings are negotiated with labor organizations. The employee 40-hour work furlough is expected to generate $4 million in General Fund and approximately $7 million in All Funds savings.
Health Fund
The Health Fund supports vital disease prevention, prenatal care, healthcare services and bio-terrorism prevention to the City's residents. The Health Fund depends extensively on State revenue and reimbursable grants for funding. The Health Fund continues to experience cash flow problems due mainly to delayed grant reimbursements and has experienced an unprecedented cash shortfall for over 191 days without anticipated relief in the short-term due to the delay in the State budget adoption and the State's cash crisis.
Collections of grant reimbursable expenses from the State, a major source of revenues in the Health Fund, are being delayed as the State addresses its persistent deficit. To continue these vital services to residents, the City continues to expend its monies predicated on future reimbursements from its grantors, including the State; however, this is proving to be problematic given the State's current challenges. Should the level and pace of reimbursement not increase during the last six months of the fiscal year, the Health Fund may require a General Fund cash loan.
In addition, as previously reported, State General Fund reductions of 10 percent across the board will significantly impact some grant-funded programs in FY 09; however, because of the State's overlapping fiscal year with the City's last quarter of FY 08, the City will see approximately $100,000 in revenue losses to the Health Fund in current year program budgets. These reductions will be offset with corresponding expenditure reductions to eliminate Health Fund impacts.
To address reductions in State revenue as well as delayed grant reimbursements, the Health Department implemented a plan to cut $2 million in annual spending from its budget ($1 million for half year savings in FY 09). This led to the elimination of 30.76 FTEs from the department. However, given that the Federal, State and County grantors currently owe the City approximately $3 million in grant reimbursements, further reductions may be needed to end the year in balance. The Health Department will likely need to make significant budget reductions in FY 10 to resolve its ongoing cash flow challenges.
Development Services Fund
As the effects of the declining economy continue be felt throughout every sector nationally, regionally, and locally, the Department of Development Services has particularly felt the trickle-down effects of the housing crisis and the slowdown of new housing construction. During the first six months of FY 09, the Department experienced a 25 percent decrease in the number of building permits issued and an 80 percent decline since FY 07. With a beginning fund balance of $544,832, the Development Services Fund is currently expected to end the year with a negative fund balance of approximately $1.7 million.
In April 2009, Long Beach Development Services' management met with the Budget Office to identify short- and long-term solutions that would mitigate the Fund's balance. Given that planning and development activities in Long Beach are experiencing historic lows, the Department is careful about raising fees in a community that is experiencing an unemployment rate of 11.3 percent. However, the Department must bring its expenditures in line with its expected revenue. If a solution cannot be found in the near-term, further reductions will be required.
Conclusion
Numerous financial constraints continue to challenge the City's ability to end the fiscal year in balance, especially in the General Fund. These include revenues impacted by the slowing national and regional economy, forthcoming impacts of the State's current year budget deficit, and certain departmental expenditure trends. These challenges make it imperative that we maintain a firm position of fiscal restraint. Looking to the future, we must not lose sight of the fact that the City must also address its existing retiree health care commitments, ongoing labor negotiations, and critical infrastructure needs including remediating our aging facilities, streets, sidewalks and other infrastructure systems. To realign resources to meet these needs will take much collaboration on the part of the community and workforce, as current year and future service reductions will have a direct impact on City employees as well as the community members accustomed to a certain level of service from the City.
TIMING CONSIDERATIONS
City Council action on this matter is not time critical.
FISCAL IMPACT
There is no fiscal impact associated with the recommended action.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
LORI ANN FARRELL
DIRECTOR OF FINANCIAL MANAGEMENT/CFO
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APPROVED: |
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PATRICK H. WEST |
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CITY MANAGER |