2010-2012 Fiscal Year Honorable Mayor and Members of La Verne City Council:
Recognizing that even with substantial cuts to programs and services, last year’s budget required the use of almost $1 million in reserves to meet expenses, the department heads and I began this year’s budget process with a feeling of apprehension. Fortunately, as a result of careful spending and a slight increase in retail sales and building activity, there will be savings from the 2010-11 appropriations that will be used to fund a portion of the coming year’s activities. However, there is still a shortfall of $200,000. I expect to compensate for the remainder through the additional use of reserves. Even with this use, the Reserve fund balance will still be above the Council’s established policy of 15% of expenditures. Indicators show that, at least at the local level, we are beginning to experience a recovery as the decline in revenues has slowed. While this will not translate into significant revenue increases, it is promising as it suggests we have reached the bottom. As a result, while additional cuts were still needed, none resulted in the elimination of any currently filled positions or drastic reductions in services. Additionally, continued and new concessions made by employee groups were integral in helping to combat increases in insurance and pension premiums while early retirement offered over the previous two budget cycles continue to provide savings. This is all good news and gives promise for the future. However, it is important to note that since it was necessary to employ many one time fixes and use reserves to avoid substantial cuts to services, our fiscal challenges are not over. We will still need to be careful about our spending and determining when and if to restore programs and services as we move ahead.
Projected revenues from all General Fund sources are expected to be $22.4 million which collectively is no change to last year’s adopted budgeted amounts. However the projections reflect positive signs as several major revenue sources are anticipated to be above their previous year’s amounts. (Property Tax - $30,000, Sales Tax – $200,000, and Building Permits – $670,000.) The only exceptions being revenues from the Utility Users’ Tax which is down $75,000 and attributed mostly to reduced consumption as well as refuse fees which were lowered by $300,000 as changes in the billing of commercial accounts were instituted. While a majority of the increases can be attributed to the overall improvement of the economy, building permit revenues, which have nearly tripled, is more a reflection of our growth locally. The projections for next year anticipate several major projects will be underway in the next 12 months. Hutton’s La Verne Village Mixed Use Project; the University’s Residence Hall, and improvements at Metropolitan Water District’s Weymouth filtration plant will provide a significant amount of one time revenues in permit and impact fees. This year also includes several new revenue sources. $50,000 from the large building CFD which was recently authorized by Council and will be used to fund a portion of the three firefighters that are expected to be hired this Fall. Also, as an ongoing revenue source the CFD is expected to grow as more large development occurs in the coming years. Additionally, in conjunction with the refuse contract last year, the City’s waste hauler will begin paying a franchise fee on commercial accounts which is anticipated to generate $60,000 annually. EXPENDITURES
It has been noted before that our current budget challenges are not due to uncontrolled expenses but the drastic drop in revenues. This is again evident as current requests for General Fund activities are almost $300,000 less than prior year’s. Even more telling is these requests also include $500,000 of increases related to personnel benefits, and $200,000 being shifted back to the General Fund from the Redevelopment Agency, meaning this year’s expenditures were cut by more than $1 million. The City has been able to effectively manage the loss in revenue without severe cuts because of the multiple cost saving approaches that have been instituted over the past several years. These include: downsizing of staff through attrition and early retirement incentives, the current budget anticipates 159 full time employees, which is down from 178 four years ago; negotiated concessions with employee groups, as of this year all groups are paying a portion of their pension costs as well as new hires being required to pay their full share, and the consolidation of programs and services for cost effectiveness. Last year’s budget avoided layoffs, however, it was necessary to eliminate the funding for numerous vacant positions while most vacancies created by retirements went unfilled. As a result, little room remained in this budget for significant savings in personnel. In anticipation of this, department heads began making changes to expenditures during the 2010-11 fiscal year to help counteract some of the unavoidable increases in expenses. Through this effort, it is anticipated that the draw of reserves for 2010-11 will be reduced from $900,000 to less than $100,000. It is anticipated that a majority of this savings will be used to help balance this year’s budget. In addition to specific reductions listed below, the following changes were initiated in the current year and are not reflected in the requests, but were helpful in achieving savings. Through the continuation of the deferred retirement program several management positions that are critical to their respective department’s operations have been filled by contract. This practice allows the continued employment of these former employees at a discounted expense to the City. It is anticipated that four individuals will be working under this arrangement. Also, the City received a grant to upgrade one of the Fire Department’s engines. Doing this extended its service life, which eliminated the need to purchase a new unit, saving the cost of future annual lease payments. Aggregately, these resulted in requests being lowered by $500,000. Last year, the Fire Department reduced the number of Firefighter/Paramedic positions by three. Initially, it was expected to be temporary with the rehiring scheduled for January 2011. However, realizing further savings were needed, this was extended and operational changes were made to accommodate this reduction to a more long-term basis. Fortunately, with the large building CFD being formed, salaries for the added positions can be partially funded from this source, which will allow the department to bring back those lost positions in October of 2011. Additionally, beginning this year the department will phase out the practice of “assigning” all firefighters as paramedics. Although newly hired personnel will have the necessary certifications, only those “assigned” to ambulances providing patient transport will be receiving the full assignment bonus. The Police Department continues to operate patrol at the minimum acceptable staffing level on most shifts which consists of a three beat system. Fortunately, the department has a strong reserve officer program which has helped to augment staffing during busier times. Additionally, it was necessary to eliminate a part time communication officer position which has been vacant since last year. The department also continues to fund three officers on special assignment out of asset forfeiture funds in the amount of $400,000. Unfortunately, these funds are a finite resource and may not be available for much longer, leaving some concern as to whether these positions can be funded going forward. Moving parks and street tree maintenance to Public Works continues to yield favorable results in both operational efficiencies and improved delivery of services. As an example, they are restructuring the tree trimming program from need based to a grid based system which will shorten the time period that all City owned trees are trimmed and was accomplished without increasing requests. Further changes being instituted include the fleet division increasing the lifespan of patrol vehicles from three to four years which will reduce the General Fund’s annual deprecation charges.
Community Services also took several steps at reducing their dependency on the General Fund. In restructuring their budgets and adjusting revenues, they will capture more of the direct costs associated to providing services. Additionally, several activities funded from restricted funding sources have been shifted under their control, allowing for some personnel expenses previously funded by the General Fund to be allocated to these special funds. Although these cost saving changes were used to prevent the further use of reserves they were also instrumental in enabling the continuation or restoration of the following programs. School Resource Officer – Initially, it was feared this program would be cut, however the City’s portion of the funding has been included enabling it to be continued, provided the school district is able to continue their share of the cost. Recreational Swimming – Last year it was necessary to eliminate all open swim from budget. This year, it is proposed that it be reinstituted on Friday afternoons throughout the summer.
PROPOSED CAPITAL EQUIPMENT PURCHASES AND CAPITAL PROJECTS
Capital requests were again kept to only those deemed absolutely necessary and most were funded from sources outside the General Fund. In summary, requests total $690,000 with major purchases including: the last lease payment for engine 61 ($101,000), new skip loader ($77,000); three maintenance vehicles ($73,000); five replacement vehicles for the Police department ($135,000); and partial funding for replacement of mobile computers in patrol cars ($30,000). Additionally, approximately $2.4 million of capital improvement projects is also included in this year’s budget. While the chart below lists the major projects expected to be initiated, the following warrant a more detailed explanation. Traffic Signal Cameras – Through the Office of Homeland Security, the Police Department has secured a grant that will fund placement of 15 video cameras on main arterials throughout the City. The primary purpose of the cameras is to provide a buffer zone protection for Metropolitan Water District’s Weymouth Treatment plant but since the cameras will be linked to the Dispatch center, the department will be able to monitor for all types of suspicious activity as well as track pursuits in real time. Upgrade to Park Play Equipment – Replacement of the play equipment at Emerald, Wheeler, and Los Encinos parks have all been funded from Park Development funds. However, at this time that account does not have a sufficient balance to complete all budgeted projects. As a result, initiating this work will be predicated on whether new development projects that is anticipated for the coming year comes to fruition.
|Pavement Management Program||$781,000||Proposition C/Gas Tax/Measure R|
|Fuel Modification||$125,000||Fire Equipment|
|Meter Replacement Program||$100,000||Water|
|Water Rehabilitation (Two Sites)||$275,000||Water|
|Ammonia Injector System||$160,000||Water|
|Replace Roll Up Doors @ Stations 1 & 2||$92,000||General|
|Replace Play Equipment - Various Parks||$137,000||Parks Development|
|Park Restroom Remodel - Various Parks||$25,000||Parks Development|
The use of reserves to balance a budget is never a pleasing solution. However, I am comfortable in submitting this proposal to Council as there are several factors that put this use in context and demonstrates the level of effort and consideration the department heads and management team put into evaluating their requests. These include: the transfer of $200,000 in salaries out of the Redevelopment Agency, the loss of $100,000 in COPS funding, $75,000 reduction of UUT revenue and $500,000 of increased pension and health insurance related expenses. Collectively, these caused the budget process to begin $900,000 behind last year’s. So, bringing that down to $200,000 without further cuts in services makes such a request tolerable. During these difficult times, we have been successful at bringing the budget together through a variety of solutions. Unfortunately, one of these strategies has been the use of short term fixes which include one time revenues and temporary expenditure reductions. While this approach is good at bridging gaps it is not a sustainable practice. The current budget again includes over $1.6 million of temporary fixes and is a concern I have as we move forward. As such, it is my goal to work with Council in the coming year to develop a fiscal strategy to address how to reduce our use of these year to year fixes. Equally concerning is the State’s budget situation. Although voter approved protections reduce the ways local revenues can be taken away, since the Governor and Legislators have not fully addressed their financial problems, it is still possible they will look to city and county revenues as one of their fixes. While several independent reviews have determined the elimination of redevelopment agencies is illegal, we have initiated several steps to help mitigate the effects in the event the concept is approved nonetheless. These include the Council’s authorization of cooperative agreements that will obligate future funding for capital projects and the reallocation of salaries. However, if such a measure is authorized it will be necessary to cut or reallocate more than $500,000 of general agency activities that would no longer have a funding source. Additionally, there are several signs that better financial times are ahead. While recovery will be slow, it seems the worst of this recession is behind us, and economic vitality for the City and our business community appears strong. With the addition of several new retailers along the Foothill corridor and potential restaurants throughout the City, sales tax in general will begin to rebound as will our ability to generate more. Hutton Development Company’s mixed use project will not only be an added revenue stream for the Agency and General Fund, but is expected to bring a new group of residents with a greater proportion of disposable income. Another unexpected development that will provide long term financial benefits is the MWD parcel at the Wheeler Avenue terminus that was recently declared surplus. As of this writing, its sale appears imminent and the developer is anxious to move forward with a project that would expand the San Polo Business Park that is part of the 90-1 CFD, increasing this crucial revenue source. Lastly, a project that is further out on the horizon is the potential for transit oriented development that will complement the Gold Line. While the rail line is not expected to reach La Verne until after 2017, with the amendment to the Old Town Specific Plan, the City will have a roadmap for development that will maximize the area’s productivity and help to redefine Old Town and the Arrow corridor. Developing a budget of this magnitude is difficult and could not be done without the hard work of the entire management team. The effort of this group was even greater this year as we worked through the challenges and limitations knowing most of the “tricks in the bag” used and they responded exceptionally. Appreciation is also extended to the employee groups who have taken on part of the burden and understand everyone needs to be part of the solution during these difficult times. I have participated in the development of City budgets for a number of years, but this being my first as City Manager, it was very important for me to start off on the right foot. I cannot thank the department heads enough for their work to that end. While each focused on their particular area, it was their collective effort that allowed me to complete this task. Not only were we able to significantly limit the use of reserves but it was done without further erosion to the services provided to the community. In closing I would like to thank the Council for their support and trust in the management team and myself to serve this organization and community. This is a great organization and team. As a collective group, I know we will continue to be good fiscal stewards and strive to provide the community with the level of services they have come expect. Respectfully submitted,