TITLE
Recommendation to receive and file the Fiscal Year 2009 Third 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 June 30, 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 June 30, 2009 is $3.5 billion. With 75 percent of the year complete, expenditure performance in all funds is at approximately 43.2 percent year-to-date. The total adjusted General Fund expenditure budget was $401.9 million, reflecting a $4 million reduction for a 40-hour employee furlough. After the first nine months of the fiscal year, based on current appropriation authority, it is anticipated the budget will close in balance.
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 third quarter of the year at $310.1 million, or approximately 76.3 percent of total budget. However, as previously reported, 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 below budget due to the impact of the current recession.
Foreclosure activities, delinquent payments, and reassessment appeals were expected to negatively impact Secured Property Tax receipts later in the fiscal year or in FY 10.
However, current Secured Property Tax receipts are trending higher than expected, while all property tax categories combined appear to be trending close to budget. The analysis of year-to-date collections reveal that the FY 09 budget, with its conservative growth projection over the FY 08 estimated performance, may have compensated for the impact of the initial declines in the real estate market for this fiscal year, with greater losses in property tax revenue likely to hit in FY 10 due to a historic lag between performance and actual receipts.
An increase in the payment of outstanding property tax bills by banks taking ownership of foreclosed homes appears to be partially mitigating the negative impact of foreclosure related delinquencies in the current fiscal year.
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 June 30,2009 for selected General Fund revenues:
A summary of the top 40 General Fund revenues is included in Attachment A. Exhibit 1 below shows the City's top 10 General Fund revenue sources in FY 09 as a percentage of total year-to-date General Fund revenue.
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 Public Works Department realized the highest level of General Fund revenue to date of all operating departments at $17.7 million, followed by the Department of Financial Management at $16 million, and the Police Department at $10.6 million. As noted earlier, 76 percent of revenue was collected by the end of the third quarter, due mostly to one-time payments and interdepartmental transfers. Many actual revenues continue to trail under budget.
FY 09 General Fund Expenditures
The Adopted General Fund expenditure budget for FY 09 is $403.9 million. As of June 30, 2009, the total adjusted General Fund budget is $401.9 million, due mainly to the budget decrease related to the employee furlough (more detail is provided below). The overall year-to-date General Fund spending is $287.5 million, or 71.5 percent of adjusted budget, with 75 percent of the Fiscal Year complete. This is a result of cost savings measures implemented by the City Manager early in Fiscal Year 2009, including department-specific savings targets, a freeze on hiring, reduced limits on Department contracting authority and other measures to ensure the City ends the fiscal year in balance.
FY 09 General Fund Expenditures by Department
Police Department
The Long Beach Police Department has worked extensively to stay on budget for the year and generate savings for the General Fund. The department's largest savings have come from salaries due to vacancies. June Estimates to Close (ETCs) are $1,793,918 under budget, despite having to absorb the furlough budget reduction within its operations, placing them among the top General Fund savers citywide.
Moreover, the department continues to stay on target regarding overtime spending, with 82 percent of the department's overtime budget expended to date versus exceeding the budget by 29 percent in FY 08. Overall, third quarter FY 09 overtime spending is significantly less than the same period in FY 08. The month of May reflects the most significant reductions, with the second and third pay periods of the month coming in 7.3 percent and 21 percent lower than May of 2008.
Health and Human Services Department
In March 2009, the Health and Human Services Department initiated operating reductions in response to continued revenue contractions from the state, which resulted in an annualized savings of $1.8 million and a loss of 30 FTEs. As third quarter revenues continued to decline, the Department initiated a second round of reductions that resulted in an annualized savings of $2.7 million and a loss of 41 FTEs, for a total of $4.5 million in annual savings and 71 FTEs reduced.
Furthermore, recent reductions in funding from the State's FY 10 Adopted Budget will require the Department to make additional reductions in FY 10, currently estimated at $2.5 million. The impacts of these reductions will be communicated under separate cover when a plan is finalized.
Year-to-Date General Fund Expenditures
Exhibit 2 shows the City's top 8 General Fund year-to-date expenditures by department. In aggregate the Top 8 represents $265.3 million or 92.3 percent of year-to-date General Fund expenditures. The majority of General Fund expenditures comprise public safety services.
Of the $287.5 million expended to date, the Police Department (49 percent) and Fire Department (19 percent) comprise 68 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 $370.4 million, and City Council approved budget amendments of $41.6 million. Combined, the total Adjusted City Budget as of June 30, 2009 is $3.5 billion. Please see Attachment 0 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 75 percent of the year complete, expenditure performance in all funds is at approximately 43.2 percent year-to-date. This includes the Harbor and Redevelopment Funds currently performing at 30 percent and 35.2 percent, respectively.
Other Significant Issues
Emplovee Furlouqh or Equivalent Savinqs
City management entered into discussions with the City's nine labor unions regarding employee generated cost savings options in FY 09, including a mandatory 40-hour work furlough or equivalent savings. While various cost savings strategies were discussed, immediate action was necessary to help address the projected FY 09 budget shortfall by the end of the fiscal year. Beginning May 29, 2009, City management implemented a business closure and mandatory 40-hour work furlough or equivalent savings for permanent
employees on the last Friday of each month to continue through the end of the fiscal year.
By generating cost savings through an employee furlough, city management seeks to provide for the continuation of critical programs and services for the public while mitigating service impacts and the need for significant workforce reductions. In order to continue certain critical business functions, alternative approaches to employee-generated savings including floating furlough days are also being utilized. The employee 40-hour work furlough is expected to generate $4 million in General Fund and approximately $7 million in All Funds savings.
Current-Year General Fund Operatinq Savinqs
In light of current economic challenges and the State's budget crisis, the City is projecting a current-year revenue shortfall. Given the negative budgetary outlook for FY 10 and beyond, the City Manager implemented an aggressive current year budget balancing approach.
Please note budget appropriations were not reduced to reflect all of these operating changes. Thus, expenditure ETCs are projected to come in significantly under budget for FY 09.
Conclusion
It is currently anticipated that all of the actions taken since the first quarter of 2009 will result in a balanced budget for FY 09 and, more importantly, will help to place the General Fund in a stronger financial position entering FY 10. Revenues impacted by the slowing national and regional economy 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 unfunded liabilities including retiree health care commitments, ongoing labor negotiations, pending litigation 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 |