TITLE
Recommendation to receive and file the Fiscal Year 2015 Year-End Budget Performance Report, and increase appropriations in several funds across several departments for various purposes to reflect final expenditures and carryover clean-up. (Citywide)
DISCUSSION
This report reflects the City’s Fiscal Year 2015 (FY 15) budget performance. The information provided is subject to change, as the books for FY 15 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 15 Adjusted Budget of $3.8 billion, including carryover, supports 22 departments, including the separately managed Water and Harbor Departments. The City has seven fund types divided into 37 funds that comprise the $3.8 billion FY 15 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 12 percent of the City’s Adjusted Budget.
The City ended FY 15 mostly consistent with program and budget expectations. Year-end spending came in under budgeted appropriation for the General Fund and for all other funds after factoring in technical adjustments requested, which are further described later in this report. Please see Attachment A for a breakdown of citywide expenditures by fund. The remainder of this 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 $4.2 million and $0.9 million, respectively. The FY 15 sources and uses of funds available are summarized in Table 1 below:
FY 15 General Fund sources totaled $463.4 million, comprised of $444.3 million in revenue and $19.1 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 15. FY 15 uses totaled $462.5 million, comprised of $436.3 million in expenditures, and also $26.2 million in other uses. The “other uses” are assignments to reservations for future uses, including planned FY 16 budget spending (“carry-over”), City Council-approved non-recurring expenses for FY 16, and for other City liabilities. The 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. Variances from budgeted revenues and expenditures are being analyzed to determine the degree to which variances in FY 15 are one-time or on-going. On-going variances will be taken into account in analyzing the status of FY 16 and the FY 17 proposed budget projections.
Additional information on the General Fund and Uplands Oil Fund sources and uses are described in the next sections.
Recommendations for the Use of Funds Available in the General and Uplands Oil Funds
The FY 15 ending funds available is projected to be $4.2 million for the General Fund and $0.9 million for the Uplands Oil Fund. The General Fund funds available is in addition to operating and emergency reserves for the Fund, which ended the year at 2.4 percent or $10.5 million and 10 percent or $43.5 million, respectively, and is in line with the City’s financial policy for reserves. The proposed uses for the funds available are shown in Table 2 below. Similar to what was recommended as funds available in FY 15, it is recommended to leave a minimum funds available in the General Fund of $0.5 million, and to use essentially all the funds available in the Uplands Oil Fund. A zero funds available in the Uplands Oil Fund is acceptable because the fund has an operating reserve of $500,000.
Currently, the remaining ending funds available for the General Fund after the recommended uses below is approximately $1 million, which is higher than the recommended minimum funds available of $0.5 million. This higher funds available provides the ability to cover the election cost of any potential citywide revenue measure that may be put on a ballot, as discussed during the January 26, 2016 City Council meeting. The cost to place a revenue measure on the ballot is estimated to be $565,000 for the June Statewide Primary Election, and $433,000 for the November Statewide General Election. If no funds are needed for a ballot measure, it is recommended that the excess funds available above $0.5 million go towards offsetting the cost of the second Police Academy, which is currently not fully funded.
An explanation for each of the proposed year-end uses follows the table below.
The recommendations for uses of Funds Available include the following:
• Set-aside 5 percent of funds available for unfunded liabilities to comply with the City Council’s adopted financial policy. This includes $210,251 from the General Fund and $44,593 from the Uplands Oil Fund.
• Carry-over for the Legislative Department savings, which will be automatically allocated to supplement each respective Council District’s Divide by Nine funds, in accordance with the Procedures for Implementation of Divide by Nine document of November 9, 2015. There is $230,599 in General Fund savings from the Legislative Department.
• Carry-over for the City Auditor’s Office savings to provide one-time support for one-time needs into FY 16. Savings of $45,000 from the General Fund was requested by the City Auditor and appropriated by the City Council on December 1, 2015.
• Enhancement for the Police Department’s budget of $3.3 million to help fund the two academies currently planned to take place in calendar year 2016 in order to mitigate sworn vacancies. There is currently a funding shortfall of $3.9 million to cover both of these academies. $2.5 million from the General Fund and $800,000 from the Uplands Oil Fund will offset a large portion of the funding needs for the academies. As discussed later in this report, $308,604 in FY 15 savings in the Police Department Proposition H budget will be requested in the FY 16 First Budget Adjustment Report to support the academy. Additional appropriation will be requested once the remaining funds are identified.
• Enhancement for the Police Department’s budget of $200,000 for additional helicopter flight hours. The Police Department has observed an increase in violent crime occurrences in FY 15 compared to FY 14. Helicopters can help respond to and potentially mitigate these violent crimes by providing visual air support and aid in directing police resources on the ground. The funds will be used to fund a three-month pilot program of increased flight hours.
Where applicable, the appropriations for these proposed uses of the surplus are included in the FY 16 First Budget Adjustment Report.
General Fund - Sources of Funds
Revenues
As of fiscal year-end, $444.3 million of General Fund revenue was received, including approximately $20 million in one-time revenue, a portion of which was previously included in the FY 15 budget per City Council action. One-time revenues included $14.1 million from Uplands Oil Fund from FY 14 oil revenue over $70/bbl, $1.2 million from the realignment of funds from the ground lease on the land swap in the Pike, $1.6 million from the State for reimbursement and interest for mandate-related costs incurred prior to 2004, and $1.6 million in reimbursement for wild land Fire deployments.
Aside from these one-time funds, the General Fund experienced growth in several other revenue sources, including property tax, transient occupancy tax, electricity-related revenues, and business license tax among others. Analysis of these revenue sources during FY 15 found structural growth, which was incorporated into the FY 16 Adopted Budget. Revised FY 16 revenues were presented to the City Council on November 17, 2015, along with preliminary revenue impacts on FY 17 and beyond. Further analysis is on-going to determine what, if any, portion of the revenue growth should be considered structural in the FY 17 budget process to help mitigate the anticipated deficit.
Attachment B provides a breakdown of the top 40 General Fund revenue performance by source. Significant variances are identified in the footnotes to this attachment.
Other Sources
Other sources of funds totaled $19.1 million in FY 15. These other sources are comprised of the release of reservations established in prior fiscal years, a significant portion of which was budgeted to be released in FY 15 as part of the FY 15 Adopted Budget. In addition, during the course of FY 15, via City Council action, several reservation releases were requested including $2.9 million for required payment of the International Association of Machinists and Aerospace Workers (IAM) employee furlough back payment, and $0.6 million for former employee settlements. Other sources also includes releases of reserves for the City Prosecutor’s Office, the Uptown BID in Council District Nine and other one-times, which were approved as part of the FY 14 Year-End Report, but took place in FY 15.
General Fund - Uses of Funds
Expenditures by Department
Actual General Fund spending totaled $436.3 million, or 99 percent of the adjusted budget. Factors contributing to the budget versus actual expenditure variance included savings from most departments, including the Police Department, which ended the year $1.5 million under budget. The Police Department’s year-end savings was anticipated and included in the FY 16 budget to cover a portion of the academy class scheduled to begin in April 2016. The Legislative Department and City Auditor’s Office also had savings; however, these savings are being recommended as uses of funds available to fund FY 16 appropriation increases for Council District’s Divide by Nine and one-time support for the City Auditor’s Office. Other factors impacting the budget variance included declines in expenditures associated with the payment of sales tax rebates, and some FY 14 and FY 15 budgeted one-times that were unspent at year-end due to the timing of projects being extended. The City Council approved, but unspent FY 15 non-recurring funds were reserved at the end of FY 15 and are part of other uses described further in the Other Uses section. These funds are included for re-appropriation in the FY 16 First Budget Adjustment Report. Also, the City Prosecutor’s Office spending includes a transfer of $236,235 to the General Grants Fund (SR 120), in accordance with City Council approval on September 15, 2015, to allow the City Prosecutor Department’s FY 15 General Fund year-end savings to be used for the PATH Program and other City Prosecutor programs, up to $250,000.
All departments ended the fiscal year within their General Fund adjusted budget limits with the exception of the Health and Human Services and Fire Departments. The Health and Human Services Department went over its General Fund budget due to multiple unbudgeted infrastructure repairs needed at its Central, Multi-Service Center (MSC), and North Health facilities. The Fire Department also came in over budget in the General Fund due to sending a large number of Firefighters to Paramedic school, which was necessary to fill current and future Paramedic vacancies, and higher than anticipated spending on equipment for first responders and medical supplies. Neither Department will need a budget adjustment, as year-end actuals for All Funds are within appropriation limits.
Attachment C provides a breakdown of General Fund expenditure performance by department. Notable departmental variances are identified in the footnotes to this attachment.
Other Uses
Other Uses of funds totaled $26.2 million in FY 15, and are assignments to reservations for future uses, including planned FY 16 non-recurring budget spending (“carry-over”), some FY 14 and FY 15 budgeted non-recurring funds that were unspent at year-end, and other City liabilities. One of the reservations is $1.4 million to cover the increased costs of the Fire Department for Rapid Medic Deployment (RMD) Termination, which will be needed in the case the Fire Department’s adjustments to minimize this FY 16 budget impact and the First Responder Fee revenue is not sufficient to cover the increased cost. If this reserve is not needed for this purpose, it is the staff’s recommendation that these funds be made available to cover a portion of the remaining costs to conduct two Police academies in calendar year 2016, and/or to help mitigate the impact of declining oil prices in the FY 16 budget. If either of these actions is needed, staff will bring the matter to the City Council for consideration.
Other Funds
Gas Fund
The Gas Fund provides full natural gas utility services to residential and business customers in Long Beach and Signal Hill. In 2015, the Gas Fund spent $12.4 million on capital improvements, including $10.0 million on the City’s gas pipeline infrastructure and $2.4 million on the initial phase of the Advanced Metering Infrastructure (AMI) project which, once fully implemented, will result in the replacement of over 150,000 customer meters. In addition, the Gas Fund contributed a $10.7 million budgeted transfer to the General Fund. Revenue from gas operations is down 5.5 percent compared to FY 14. This decline is attributed to decreased usage due to warmer than usual weather. Staff is closely monitoring this fund in FY 16.
Police and 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 15 was $0.28/barrel of oil produced. Revenues were $3.8 million and expenses were $3.7 million for FY 15. Market fluctuations impact the production of oil, which impact Proposition H revenues. Declines in production in FY 15 did not materialize at the pace expected, but production declines are anticipated to be realized in FY 16. At the end of FY 15, there was $1.2 million funds available of which $400,000 came from one-times appropriated, but not spent for the Fire Department in FY 15. These funds will help to mitigate an anticipated Proposition H structural shortfall of $380,000 in the Fire Department in FY 16. Additionally, $308,604 of the ending funds available came from Police Department savings and will be appropriated to the Police Department in the FY 16 First Budget Adjustment Report to augment the cost of conducting two police academies in calendar year 2016. Staff is closely monitoring this fund in FY 16, since oil production is anticipated to be impacted by the price of oil and will, therefore, impact Proposition H revenue. For instance, in any month the average price per barrel of oil falls below $20, per the City Charter, the City will suspend collecting the Proposition H funds for that month.
Gas Tax Street Improvement Fund
The Gas Tax Street Improvement Fund is used to account for the receipt and expenditure of gasoline tax funds apportioned under the State Streets and Highways code, as well as other sources dedicated to street improvements. In FY 15, the City received $13.1 million in gasoline tax revenue, a decline of $1.6 million compared to FY 14. This decline is attributed to decreased gas prices and the increased use of fuel efficient and alternative fuel vehicles. This loss was offset by an increase in grant funding through the Moving Ahead in the 21st Century (MAP-21) program. However, the City’s gasoline tax apportionment is expected to continue to decline for the foreseeable future. Staff is closely monitoring this fund in FY 16.
Tidelands Funds
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. Oil revenue declined by $24.6 million in FY 15, which reflects a 57 percent drop from FY 14, and illustrates the variable nature of this funding stream. Expenditures closed the fiscal year within budget appropriations. Staff is closely monitoring Tidelands revenue projections throughout FY 16 to determine the impact of the recent drop in oil prices on the operating budget.
On June 16, 2015, in response to the decline in oil revenue, the City Council approved the prioritization of Tidelands capital projects. Originally, the Aquarium of the Pacific FY 15 capital improvement campaign in the amount of $1.5 million was not funded in the prioritization. On the floor of City Council, there was a motion to restore $1.3 million of the original $1.5 million amount by reallocating $1.3 million from Tidelands capital projects to provide City matching funds for the Aquarium of the Pacific FY 15 capital improvement campaign. The projects to be reallocated included $250,000 from Critical Infrastructure Funding, $400,000 from the Marina Vista Special Events Bathroom, and $400,000 from the Cherry Beach Playground capital funds, as well as $250,000 from closed out projects at year-end (which did occur). However, since the Aquarium funds were already appropriated in the FY 15 operating budget at $1.5 million, the practical impact of this reallocation was to reduce the operating budget funding from $1.5 million to $1.3 million with no reallocation of capital funding to the Aquarium being required. The projects listed above were instead allocated to other prioritized capital projects. The motion also indicated that the non-closed out projects needed to be repaid. This will need to occur in the future when funds are available. The fiscal impact section clarifies the net impact of the City Council action in June 2015.
Health Fund
The Health Fund accounts for revenues and expenditures associated with federal, State and local grants, health permits, and other fees. Due to unforeseen repayment of funds to the State and multiple capital and infrastructure repair costs, the fund experienced budget challenges in FY 15. Other challenges facing the fund include: growing capital and infrastructure needs; increased restrictions placed on grants; anticipated return of funds to the State due to these policy changes; and a repayment of a General Fund loan, all of which are funded with either the same or a declining level of resources. Staff is closely monitoring the fund, reviewing cash flow and identifying strategies to address these ongoing needs, to ensure levels of services are maintained.
Towing Fund
The Towing Fund supports towing operations to clear vehicles involved in accidents, impound vehicles, operate a storage facility and a payment center, and facilitate the sale of unclaimed vehicles. In FY 15, revenues in the Towing Fund were $5.3 million and expenditures were $5.6 million, which included a $1.0 million transfer to the General Fund, $675,000 less than the original budget of $1.7 million. Revenues in the Towing Fund dropped by $0.39 million in FY 15 compared to FY 14. Although tow volume increased by 4.3 percent in FY 15, revenues generated from the sale of unclaimed vehicles and storage fees declined due in part to reduced scrap metal pricing, used vehicles resale values, and the length of on-site vehicle storage. Staff is closely monitoring this fund in FY 16 to determine if additional reductions to the General Fund transfer are needed.
Refuse Fund
The Refuse Fund receives approximately 93 percent of its total revenues from refuse and recycling charges. The remaining funds come from the State grants 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 has relied on funds available to offset operating shortfalls over the past few years, yet has not increased fees to match increasing costs. Staff will continue to evaluate strategies to address the structural deficit in this fund in the FY 17 budget process as the funds available appear to be reaching undesirable levels.
Uplands Oil Fund
The Uplands Oil Fund accounts for oil revenue outside the Tidelands area, and 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 in the fund. The Uplands Oil Fund began FY 15 with funds available of $0.1 million. The total amount transferred in FY 15 was $28.4 million and it was comprised of $14.1 million in one-time oil revenue from FY 14 revenue over $70/bbl transferred to the General Fund; $13.9 million of “reliable” base oil revenue budgeted at $70/bbl for ongoing operations, also transferred to the General Fund; $0.2 million to the General Services Fund for its share of the Enterprise Resource Planning (ERP) system; and, $0.2 million to the Employee Benefits Fund for unfunded liabilities. As of this date, oil prices and production have declined sharply from the FY 16 budgeted level of $55 dollars a barrel. Staff is closely monitoring this fund and will review the revenue projection for the Uplands Oil Fund throughout FY 16 to determine the impact of the recent drop in oil prices on the operating budget.
Water Fund
In addition to its normal expenditures, the Long Beach Water Department (LBWD) had additional Seawater Barrier operations costs in FY 15 that were 100 percent offset by revenue. Seawater Barrier Operations, operated by Los Angeles 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 the Metropolitan Water District (MWD) and is reimbursed by the Water Replenishment District of Southern California (WRD). LBWD is essentially a pass-through agency between MWD and WRD and the volume used in FY 15 was larger than budgeted.
LBWD also entered into an in-lieu replenishment agreement with the 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 and, therefore, these additional costs are a 100 percent revenue offset.
LBWD will be separately requesting an appropriation increase of $6,500,000, bringing their FY 15 spending under budget. The adjustment that is being requested is included in the financial data provided in Attachment A.
Technical FY 15 Year-End Appropriation Adjustments
On September 2, 2014, the City Council adopted the Appropriations Ordinance governing the City’s Adopted Budget for FY 15. 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. The requested appropriation adjustments for FY 15 year-end are noted in the Fiscal Impact section.
This matter was reviewed by Deputy City Attorney Amy. R. Webber on January 28, 2016.
TIMING CONSIDERATIONS
City Council action on this matter is required prior to the closing of the City’s books for FY 15.
FISCAL IMPACT
To accurately reflect FY 15 year-end transactions, the following actions are requested:
• Increase FY 15 appropriations in the Parking and Business Area Improvement Fund (SR 132) in the Public Works Department (PW) by $650,990, offset by assessment revenue received by the City for payments to the City’s Business Improvement Districts (BIDs).
• Increase FY 15 appropriations in the Community Development Grants Fund (SR 150) in the Development Services Department (DV) by $19,225 as a technical correction to align budget with actual revenue, including a fix to a negative entry made when the Community Development Department was transferred to DV.
• Increase FY 15 appropriations in the Community Development Grants Fund (SR 150) in the Development Services Department (DV) by $7,246, offset by a decrease of appropriations in the Community Development Grants Fund (SR 150) in the Financial Management Department (FM) by $7,246 to align budget with actuals.
• Decrease the FY 15 budget for the Aquarium of the Pacific from $1,500,000 to $1,300,000 in accordance with June 16, 2015 action of the City Council for Tidelands capital projects.
Additionally, in an effort to align carry-over revenue budgets with actual revenue received, budgeted revenue amounts will be increased in the Successor Agency (SA 270), Civic Center (IS 380), and Housing Development (SR 150) Funds.
SUGGESTED ACTION
Approve recommendation.
Respectfully Submitted,
JOHN GROSS
DIRECTOR OF FINANCIAL MANAGEMENT