TITLE
Recommendation to receive and file the Fiscal Year 2014 Year-End Budget Performance Report, and increase appropriations in several funds across several departments for various purposes to reflect final expenditures. (Citywide)
DISCUSSION
This report reflects the City's Fiscal Year 2014 (FY 14) budget performance. The information provided is subject to change, as the books for FY 14 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.
YEAR-END BUDGET PERFORMANCE REPORT
Summary
The City's total FY 14 Adjusted Budget of $3.3 billion supports 21 departments, including the separately managed Water and Harbor Departments. The City has seven fund types divided into 37 funds that comprise the $3.3 billion FY 14 Adjusted Budget (Attachment A). 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 14 percent of the City's Adjusted Budget.
The City ended FY 14 generally consistent with program and budget expectations. Citywide, year-end spending came in under budgeted appropriation for the General Fund and for all other funds after factoring in technical adjustments for three funds, which are explained later. 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 $3.2 million and $3.5 million, respectively. The FY 14 sources and uses of funds available are summarized in the table below:
Revenues
Other Sources (i.e. release offunds available and reserves) Total Sources
429.6 41.4
36.9 13.0
Table 1: General and Uplands Oil Funds FY 14 Performance
($ in millions)
General Uplands
Beginning Funds Available (10/1) 3.6 4.5
Sources
471.0
49.9
Uses Expenditures
Other Uses (i.e. reserves for carry-over, encumbrances, CalPERS Stabilization and other liabilities)
Total Uses
(447.6) (23.9)
(38.9) (12.0)
(471.5)
(50.9)
Ending Funds Available (9/30)
$
3.2 $
3.5
FY 14 General Fund sources totaled $471.0 million, comprised of $429.6 million in revenue and $41.4 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 14. FY 14 uses totaled $471.5 million, comprised of $447.6 million in expenditures, which included the authorized spending of beginning funds available to draw down funds available to $0.5 million. It also includes $23.9 million in other uses. The "other uses" are assignments to reservations for future uses, including planned FY 15 budget spending ("carry-over"), the CalPERS Stabilization fund, and for other City liabilities. City Council budgeted or designated many of these funds in previous City Council actions.
In general, revenues for the year were better than budgeted and expenditures were lower than budgeted. For FY 15, variances from budgeted revenues and expenditures wil be analyzed to determine the degree to which variances in FY 14 are one-time or on-going. On-going variances will be taken into account in the FY 16 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 14 ending funds available is projected to be $3.2 million for the General Fund and $3.5 million for the Uplands Oil Fund. These funds available are in addition to operating and emergency reserves in both funds. The proposed uses for the funds available are shown in the chart below. Similar to what was recommended as funds available in FY 14, it is recommended to leave a minimum funds available in the General Fund of $0.5 million, and to use all funds available in the Uplands Oil Fund. A zero funds available in the Uplands Oil Fund is acceptable because an operating reserve exists and an increase in the oil fluctuation reserve is being recommended. An explanation for each of the proposed year-end uses follows the chart.
Table 2: Proposed Uses of the General and Uplands Oil Funds Available
($ in millions)
General Fund Uplands
Ending Funds Available (9/30) $ 3.2 $ 3.5
Recommendations for Uses of Funds Available
CouncilPolicy 5%to Unfunded Liability Reserve $ (0.159) $ (0.174)
City Clerk for Elections- District 4 $ (0.200)
Council Districts Request for Office Budget Carry-over $ (0.196)
Attorney Funds for Labor Negotiations $ (0.200)
CPCC Investigator Enhancement $ (0;125)
City Clerk for Election Systems License $ (0.100)
Innovation Team Grant Match $ (DADO)
Innovation & Efficiency Initiatives $ (2.000) $ -
Pavement Management Plan Implementation (street work) $ (1.000)
PD Overtime $ (0.275)
PD Academy Recruitment Costs $ (0.083)
Homeless Services Augmentation s (0.100)
Ci vi I Servi ce Sta ffi ng Needs $ (0.220)
Uplands Reserve for Oil fluctuation - to 2 months reserve ($2.9M) $ (0.882)
Remaining Ending Funds Available (9/30) $ 0.5 $ 0.0 The recommendations for uses of Funds Available include the following:
• Set aside 5 percent for unfunded liabilities to comply with City Council's adopted financial policy. This includes $159,000 from the General Fund and $174,000 from the Uplands Fund.
• Fund City Clerk expenses related to the special election in the Fourth District, which are estimated not to exceed $200,000 from the Uplands Fund.
• Carry-over for the Legislative Department savings, which is for the annual process that uses Council District surpluses to provide one-time support for existing City programs in the next fiscal year (FY 15). There is approximately $197,000 available in savings in the General Fund for this purpose.
• Fund the City's outside attorney costs for support in this year's labor negotiations, which is estimated not to exceed $200,000 from the Uplands Fund.
• Enhance the Citizen Police Complaint Commission (CPCC) with an Investigator position, which is estimated to cost approximately $125,000 from the Uplands Fund. This will be included structurally in the FY 16 budget to fund this position.
• Address the unbudgeted election system license expense in the City Clerk Department at a cost of approximately $100,000 from the Uplands Fund. This will be included structurally in the FY 16 budget to pay for these ongoing costs.
• Fund a portion of the grant match for the recently awarded Bloomberg Innovation Team grant in the amount of $400,000 from the Uplands Fund.
• Set aside seed money from a portion of departmental savings to fund innovation and efficiency initiatives that will be used to invest in projects that will save ongoing operating costs or generate additional revenues as well as innovative approaches to improve service delivery and address problem areas. The Innovation and Efficiency Initiatives Revolving Fund will start out with $2.0 million from the General Fund. If approved, the mechanics of the Fund will be brought back to the Budget Oversight Committee for review and recommendations.
• Commence implementation of the Pavement Management Plan for critical street work throughout all nine Council Districts, which will supplement the existing street improvement budget by $1 million from the Uplands Fund. A study session on the Pavement Management Plan will be scheduled for City Council in the next few months.
• Carryover the Police Department's additional year-end savings to use for overtime in locations determined by the Police Chief in the amount of $275,000 in the General Fund.
• Increase funding for the Police Department academy recruitment costs to facilitate a more robust and diverse process in the amount of $83,000 from the Uplands Fund.
• Augment homeless services through the use of targeted overtime and other services in hotspots in the amount of $100,000 from the Uplands Fund.
• Enhance Civil Service staffing in order to address the backlog of department requisitions, reduce hiring process cycle time, as well as to modernize testing materials and processes in the amount of $220,000 in the Uplands Fund. The staffing will be included structurally in the FY 16 budget.
• Supplement the reserve for Uplands Oil fluctuation to help offset a drop in oil revenue, which may threaten the $17.5 million structural transfer to the General Fund for operations. The additional $0.9 million will bring the reserve to a two-month funding level in the Uplands Fund. The reserve is intended for emergency use if there is a revenue shortfall while a year is in progress.
The appropriations for these proposed uses of the surplus are included in the first FY 15 budget adjustment requests.
General Fund - Sources of Funds
Revenues
As of fiscal year-end, $430.6 million of General Fund revenue was received, including $23.0 million in one-time revenue, a portion of which was previously included in the FY 14 budget per City Council action. One-time revenues were comprised of $3.8 million in post-RDA dissolution funds, $13.0 million predominantly from FY 13 oil over $70/bbl, $2.8 million in SERRF net facility revenue, $2.8 million in Ground Emergency Medical Transportation reimbursement, and $0.73 million in Asset Seizure funds.
Aside from these one-time funds, the General Fund experienced growth in several other revenue sources, including property tax, transient occupancy tax, electric utility users tax and electric franchise revenue. Analysis of these revenue sources is underway to determine what, if any, portion should be considered structural for consideration in the FY 16 budget process.
Attachment B 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 $41.4 million in FY 14. These other sources are comprised of the release of reservations established in prior fiscal years, the majority of which was comprised of the one-time post-RDA dissolution revenue received in FY 13 and adopted as part of the FY 14 budget. Additionally, during the course of FY 14, via City Council action, $0.3 million was released for required repayment to the Successor Agency for debt service payments. In addition, there were approximately $3.1 million of FY 13 one-times, which had been reserved at year-end in FY 13, for use in FY 14. These funds were designated for various purposes, including Council directed neighborhood services projects, library services and parking citations system technology, police vehicles and police academy.
General Fund - Uses of Funds
Expenditures by Department
Actual General Fund spending, which includes the City Council authorized spending of beginning funds available to $0.5 million for FY 14, totaled $447.6 million, or 98 percent of the adjusted budget. Factors contributing to the budget variance included the Police Department ending the year $2.3 million under budget, of which $2.1 million was planned for the FY 15 portion of the costs of the last PD academy. Other factors impacting the budget variance included declines in expenditures associated with the payment of sales tax rebates, and FY 14 budgeted one-times, which were unspent at year-end. City Council approved, but unspent FY 14 one-time funds have been
reserved in FY 14 and are included for re-appropriation in the first FY 15 budget adjustment requests. Additionally, savings were achieved throughout all other departments with exceptions noted below. A portion of these department savings in the amount of $2.0 million is recommended to be used for the Innovation and Efficiency Initiatives Revolving Fund.
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 went over its General Fund budget due to unbudgeted recruitment and testing for the FY 14 Police and Fire academies. The Civil Service Department does not need an appropriation increase, as year-end actuals for All Funds in Civil Service are under appropriation. The Fire Department also came in over budget in the General Fund due to providing staff assistance to the California wild land fire events. An appropriation increase is being requested and is fully offset by reimbursement revenue from the State of California.
Attachment C provides a breakdown of General Fund expenditure performance by department and includes the adjustment which is being requested by the Fire Department. Notable departmental variances are identified in the footnotes to this attachment.
Other Uses
Other Uses of funds totaled $23.9 million in FY 14, and are assignments to reservations for future uses, including planned FY 15 budget spending ("carry-over"), the CalPERS Stabilization fund, and for other City liabilities. City Council budgeted or designated many of these funds in previous City Council actions.
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 Gas Fund spent $13.2 million on capital improvement to the City's gas pipeline infrastructure and made a $10.2 million budgeted transfer to the General Fund. The net revenue transfer to the General Fund was $1 million less than originally budgeted. This reduced transfer builds working capital in the Gas Fund to support operations and needed capital investment. The Budget Office will continue to monitor the health of the Gas Fund.
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 14 was $0.28/barrel of oil produced. Revenues were $3.7 million and expenses were $3.1 million for FY 14. This fund will be closely monitored in FY 15 since oil
production is impacted by the price of oil and will, therefore, impact Proposition H revenue.
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. In FY 14, the Harbor transfer increased by 3 percent to $17.8 million. Oil revenue declined by $1.4 million in FY 14, which reflects a 6 percent drop from FY 13, and illustrates the variable nature of this funding stream. Expenditures closed the fiscal year within budget limits. As detailed in separate memos, staff is closely monitoring FY 15 oil revenue in the Tidelands area and is in the process of reviewing the impact on both the capital and operating budgets.
General Services
The primary revenue source for the General Services Fund are internal charges to City Departments, which account for over 80 percent of total revenues. This cost recovery model is intended to allocate 100 percent of eligible costs to provide services to City departments. The fund is used to account for the operation, maintenance and replacement of the City's information and communications systems. This includes the cost for systems' hardware and software, as well as support services provided by the Technology and Innovation Department. The estimated funds available, which was previously considered higher than necessary, is declining due to expenses being higher than revenue. As a result, staff is closely monitoring the fund, reviewing the cost recovery model and identifying strategies to address the declining funds available.
Health Fund
The Health Fund accounts for revenues and expenditures associated with federal, State and local grants, health permits, and other fees. After experiencing cash flow issues with grant reimbursements in FY 09 and FY 10, the Fund is on a more secure fiscal footing. With a write-off of an uncollectable General Fund loan in FY 14, which dated back to the establishment of the Fund, the Fund should be in a better position to address capital repair and infrastructure needs, particularly at the main Health Department facility. Staff is closely monitoring the Fund, reviewing cash flow, and identifying strategies to meet ongoing needs.
Towing
The Towing Fund supports towing operations to clear vehicles involved in accidents, impound vehicles, operate a storage facility, operate a payment center, and facilitate the sale of unclaimed vehicles. In FY 14, revenues in the Towing Fund were $5.6 million and expenditures were $5.3 million, which included a $1.3 million budgeted transfer to the General Fund. Revenues in the Towing Fund dropped by $0.8 million in FY 14 compared to FY 13, primarily due to a 6.6 percent reduction in revenue generating tow volume. On January 1, 2012, California Vehicle Code 2814.2 was adopted. This code put restrictions on how unlicensed driver vehicles were to be impounded at DUl/License
checkpoints. This change resulted in a decrease of towing service and lot storage fees collected, and the number of vehicles sold at lien sales. Excluding a one-time transfer of $1 million made to the Capital Projects Fund in FY 13, Towing Fund expenditures decreased by $0.5 million from $5.8 million in FY 13 to $5.3 million in FY 14. The primary factor in this decline was a reduction in the General Fund transfer, which was lowered to maintain an appropriate level of fund balance in the Towing Fund. The Budget Office will continue to monitor the health of the Towing Fund, and consider recommending a permanent reduction to the General Fund transfer beginning in FY 16.
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 AB 939 compliance, and interest income. The fund previously had a substantial funds available, which has been declining over the last few years due to annual operating shortfalls. The fund has relied on funds available to offset the operating shortfalls and has not increased fees to match increasing costs. Staff will be evaluating strategies to address the structural deficit in this fund as the funds available appears to be reaching undesirable levels.
Uplands Oil
The Uplands Oil Fund accounts for oil revenue 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 14 with funds available of $4.5 million, which was spent down via Council action early in FY 14, and ended the year with funds available of $3.5 million. The total transferred in FY 14 was $34.6 million, and was comprised of $13.0 million in one-time oil revenue from FY 13 revenue over $70/bbl, $17.4 million of "reliable" base oil revenue budgeted at $70/bbl for ongoing operations, and $4.3 million in funds available transferred to the Capital Projects Fund. As part of the FY 15 Adopted Budget, $12.0 million in projected FY 14 ending funds available was budgeted for one-time expenditures. This $12.0 million was reserved at the end of FY 14 for the purposes approved in the FY 15 Adopted Budget. As described in a separate memo, staff will update the revenue projection for the Uplands Fund in FY 15 to determine the impact of the recent drop in oil prices on the operating budget. The increase of reserves for oil fluctuation described above will help to address any potential revenue loss which occurs mid-year.
Water
The Long Beach Water Department (LBWD) had additional Seawater Barrier operations costs in FY 14. Those costs were 100 percent offset by revenue. Seawater Barrier Operations, operated by LA County Department of Public Works, involve injecting fresh water into the ground to provide a barrier between sea water and the aquifer using
water supplied by LBWD pipes. LBWD buys this water from MWD (Metropolitan Water District) and is reimbursed by WRD (Water Replenishment District). The volume used in FY 14 was larger than budgeted. LBWD is essentially a pass-through agency between MWD and WRD. The Water Department will be separately requesting an appropriation increase of $1,500,000, bringing their FY 14 spending under budget. The adjustment that is being requested is included in the financial data provided in Attachment A.
TECHNICAL FY 14 YEAR-END APPROPRIATION ADJUSTMENTS
On September 3, 2013, the City Council adopted the Appropriations Ordinance governing the City's Adopted Budget for FY 14. Periodically, changes in revenue or operating conditions require appropriation adjustments. For example, in certain cases, these adjustments enable departments to expend recently awarded grant revenue for which there is no existing appropriation. In addition, changes for multi-year grants/projects are necessary to bring appropriations in line with final grant/project award amounts. In accordance with the City's practice, these adjustments are presented periodically to the City Council for consideration.
Support to Wild Land Fires
• Increase appropriations in the General Fund (GF) in the Fire Department (FD) by $193,626 offset by reimbursement revenue for overtime expenses related to staffing assistance for California wild land fires.
The Fire Department provided staffing assistance for California wild land fire events during August and September 2014. As the overtime expense for backfilling the employees who left fire stations to provide staffing at the wild land fires is unbudgeted, an appropriation increase is necessary. The appropriation increase will be offset by reimbursement revenue from the State of California.
Business Improvement Districts (BIDS)
• Increase appropriations in the Parking and Business Area Improvement Fund (SR 132) in the Public Works Department (PW) by $40,703 offset by assessment revenue for payments to the City's Business Improvement Districts (BIDS).
The Public Works Department is requesting an appropriation increase of $40,703 for pass-through payments to the City's Business Improvement Districts (BIDs). The City collects assessment revenue on behalf of each BID. Due to higher than anticipated revenues, pass-through payments exceeded FY 14 appropriation. The increase will be fully offset by additional assessment revenues.
Debt Payment for Health SAVRS Loan
• Increase appropriations in the Debt Service Fund (OS) in the Citywide Activities Department (XC) by $1,275,674 offset by revenue for a pass-through debt payment for the Health SAVRS loan.
In FY 14, the Health Department paid off the remaining principle balance on a 1993 SAVRS loan used to prepare and remodel their existing main facility on Grand Avenue. Accounting standards requires governmental fund debt to funnel through the Debt Service fund. This appropriation reflects a pass-through payment from the Health Fund (SR 130) in the Health Department (HE) to the Debt Service Fund.
This matter was reviewed by Deputy City Attorney Amy. R. Webber on January 27, 2015.
TIMING CONSIDERATIONS
City Council action on this matter is required prior to the closing of the City's books for FY 14.
FISCAL IMPACT
To accurately reflect FY 14 year-end transactions, the following actions are requested:
• Increase appropriations in the General Fund (GF) in the Fire Department (FD) by $193,626 offset by reimbursement revenue for overtime expenses related to staffing assistance for California wild land fires.
• Increase appropriations in the Parking and Business Area Improvement Fund (SR 132) in the Public Works Department (PW) by $40,703 offset by assessment revenue for payments to the City's Business Improvement Districts (BIDS).
• Increase appropriations in the Debt Service Fund (DS) in the Citywide Department (XC) by $1,275,674 offset by revenue for a pass-through debt payment for the Health SAVRS loan.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT
APPROVED:
PATRICK H. WEST
CITY MANAGER