Council File No Report of the Budget and Finance Committee Discussing the Mayor's Proposed Budget for

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1 Council File No Report of the Budget and Finance Committee Discussing the Mayor's Proposed Budget for Your Budget and Finance Committee reports as follows: Your COMMITTEE UNANIMOUSLY RECOMMENDS that the City.Council APPROVE the following recommendations of your Budget and Finance Committee, which are submitted as changes to the Mayor's Proposed Budget, for adoption of the City's Budget; with a MINORITY REPORT on one item by a vote of2-3 (Councilmembers Koretz and Huizar voting Yes) to delete funding for bus pads and add funding for alley paving in the Bureau of Street Services. Further, a recommendation to provide for a 7% General Fund increase for the City Attorney, which would reduce the City Attorney's Proposed Budget by $2.01M, was disapproved by a vote of 1-4 (Councilmember Parks voting Yes); and a recommendation to transfer positions and funding in the Bureau of Sanitation for the proposed Multifamily Refuse Collection Franchise Program was approved by a vote of 3-2 (Councilmembers Parks and Smith voting No). Summary of the Mayor's Proposed Budget The Mayor's Proposed Budget for totals $6i904B, which is a $155.23M (2.3 percent) increase from the Adopted Budget. General Fund revenues for are projected to be $4.379B, an increase of$3.8m from the Adopted Budget. The Mayor's Revenue Outlook anticipates flat or minimal revenue growth from current estimated levels in 11 of 18 General Fund revenue categories, with decreases in the remaining seven categories. The primary revenue increases are attributed to an increase in Property Tax; Business Tax; Sales Tax; and Transient Occupancy Tax. The primary revenue decreases are related to a reduction in Licenses, Permits, Fees & Fines; and negative growth in Utility Users Tax; Parking Fines; and Documentary Transfer Tax. The City Administrative Officer's Supporting Information to the Mayor's Proposed Budget contains a shortfall of $336.26M. To close this gap, the following is proposed: $10.6M increase in New/Expanded Revenues, including: Fire - Industrial Building Inspection ($1.00M) Fire- Above Ground Inspection Fee ($0.15M) o Planning- Increase for Full Overhead Costs ($0.50M) o Transportation- Parking Citations ($9.00M) $18.20M in Special Fund Revenue to offset General Fund expenses: Special Parking Revenue Fund Transfer ($18.20M) Net $62.07M decrease in General Fund expenditures from reductions and efficiencies, including: Aging - Administrative Budget Reduction ($-0.20M) Animal Services- Expense Reduction and Deletion ofvacant Positions ($-1.41M) 1

2 Animal Services- Management Realignment ($-0.22M) Animal Services- Northeast Care Center Closure ($-0.06M) Building and Safety- Code Enforcement Reductions ($-0.36M) City Administrative Officer- Reductions and Deletion ofvacant Positions ($-0.93M) City Attorney- Deletion ofvacant Positions ($-0.16M) City Clerk- Account Reductions and Deletion of Vacant Positions ($-0.47M) Controller- Deletion ofvacant Positions ($-1.62M) Council- Budget Reduction ($-2.09M) Disability - Salary and Contract Account Reductions ($-0.12M) Finance- Overtime, Expenses and Administrative Support Reductions ($-0.74M) Fire- LAFD Deployment Plan ($-5.81M) Fire- Staffing Adjustments ($-6.66M) General Services -Fleet Services Reduction ($-1.50M) General Services- Supply Services Reduction ($-0.21M) General Services- Various Reductions and Deletion ofposition ($-1.61M) Information Technology Agency- Deletion of Vacant Position ($-0.67M) Information Technology Agency- Expense Account Reductions ($-0.90M) Information Technology Agency Swing Shift Elimination ($-0.47M) Mayor- Budget Reduction ($-0.94M) Personnel - Deletion of Vacant Positions ($-1.52M) Personnel- One-Time and Other Expense Account Reductions ($-0.82M) Personnel - Public Safety Bureau Staffing ($-0.60M) Planning- Deletion ofvacant Positions ($-1.63M) Police - Accumulated Overtime ($-LOOM) PW/Board of Public Worlcs- Deletion of Vacant Positions ($-0.48M) o PW/Board of Public Works- Graffiti Abatement Services ($-0.50M) PW/Board of Public Works- Project Restore ($-0.12M) PW/Contract Administration- Deletion ofvacant Positions ($-0.18M) PW!Engineering- Deletion ofvacantposition ($-1.22M) PW!Engineering - Overtime and Expense Accounts Reductions ($-0.21M) PW/Street Services- Operational Reductions ($-2.75M) o PW/Street Services- Transfer of Services to Bureau of Sanitation ($-1.28M) Transportation - Change in Crossing Guards Services ($-1.95M) Transportation- Deletion of Vacant Positions ($-1.13M) Transportation- Special Events Permit Office ($0.31M) Treasurer- Consolidation of Treasury and Finance Functions ($-0.75M) Capital Finance Administration Fund- Police Administration Building ($-15.01M) Other ($-4.08M) Other Reductions Through Various Changes and Adjustments ($ M), including: Change in Number of Worldng Days ($-79.67M) Commercial Paper for Early Retirement Incentive Program Payout ($-2l.OOM) Commercial Paper for Working Capital ($-21.62M) Animal Services- Cost Recovery for Spay and Neuter Program ($-0.16M) City Attorney- Consumer Protection Funding ($-1.87M) General Services- Street Resurfacing Program Support ($-9.05M) 2

3 Information Technology- Government Access Funding ($-1.43M) Police - Increase in Special Fund Revenue ($-6.16M) Police - Sworn Salary Savings ($-20.00M) Transportation - Funding Source Adjustment ($ M) Transportation- Implementation of MeasureR Projects ($-0.92M) Capital Improvement Expenditure Program ($-37.78M) General City Purposes- Council District Community Services ($-0.12M) General City Purposes- Homeless Shelter Program ($-1.02M) General City Purposes- L.A.'s BEST ($-0.21M) General City Purposes - Learn and Earn Program ($-0.03M) General City Purposes- Pensions Savings Plans ($-0.23M) General City Purposes- Solid Waste Fee Lifeline Rate Program ($-8.61M) General City Purposes- Solid Waste Fee Reimbursement ($-3.70M) General City Purposes- Special Events Fee Subsidy- Citywide ($-0.23M) General City Purposes- Youth Employment Program ($-0.03M) General City Purposes - Other ($-1.24M) Human Resources Benefits- Unemployment Insurance ($-14.00M) Other Special Purpose Funds - Arts and Cultural Fac. and Services Trust Fund ($1.04M) o Other Special Purpose Funds- Attorney Conflicts Panel Fund ($-0.23M). Other Special Purpose Funds - Los Angeles Zoo Enterprise Trust Fund ($-1.17M) Other Special Purpose Funds -Neighborhood Empowerment Fund ($0.16M) Other Special Purpose Funds- Matching Campaign Funds ($0.07M) Other Special Purpose Funds- Other ($0.31M) o Water & Electricity- Direct Payment by Recreation and Parks ($-15.91M) Other- ($-4.76M) Obligatory Changes The Proposed Budget includes $204.19M for obligatory changes. Costs are projected to increase for the following obligatory items: Employee Compensation Adjustment ($11.39M) Full Funding for Partially Financed Positions ($84.02M) Salary Step Plan and Turnover Effect ($10.04M) 2011 Tax & Revenue Anticipation Notes ($152.80M) Capital Improvement Expenditure Program ($37.78M) Human Resources Benefits ($24.21M) Water and Electricity ($1.46M) Unappropriated Balance- Water and Electricity ($LOOM) Unappropriated Balance- Petroleum Products ($4.00M) Library - Charter Required Change from to ($13.45M) These cost increases are projected to be offset by the following obligatory reductions: Deletion of Equipment ($-0.05M) Deletion of Funding for Resolution Authorities ($-39.49M) Deletion of One-Time Expense Funding (includes municipal election funding) ($-24.58M) Deletion of One-Time Unappropriated Balance ($-63.96M) 3

4 Capital Finance Administration Fund ($-2.39M) Judgment Obligation Bonds Debt Service Fund ($-1.73M) Recreation & Parks- Charter,Required Change from to ($-3.75M) Within the Proposed Budget, the Mayor recommended funding for the following new, expanded or continuing initiatives: Continuation of Existing Services and Savings Early Retirement Incentive Program- Payout ($2l.OOM) General City Purposes- Annual City Audit/Single Audit ($0.02M) General City Purposes - Medicare Contributions ($1.60M) General City Purposes- Retirement Contributions ($-3.38M) General City Purposes- Financial Management System Replacement ($9.75M) Unappropriated Balance- Outside Counsel incl. Workers' Compensation ($2.25M) Animal Services- Shelter Operations Staffing ($0.88M) City Attorney- Tobacco Enforcement Program ($0.94M) City Attorney- Community Law Enforcement and Recovery (CLEAR) ($0.13M) City Attorney- Neighborhood Prosecutor Program ($1.67M) City Attorney- Gang Prosecution Program ($0.43M) City Attorney - Pitchess Motions ($1.18M) City Attorney- Police-Related Litigation ($1.99M) City Attorney- Workers' Compensation Outside Counsel Support ($1.13M) City Attorney- Legal Support to Proprietary Departments ($2.60M) Controller- Payroll System Replacement ($0.8QM) Finance - Audit Penetration Rate ($0.98M) Finance - Banlc Service Fees ($4.28M) Fire- Homeland Security Enhancements ($0.96M) Fire - Professional Standards Division ($1. 04 M) General Services & New Facilities ($1.29M) Information Technology Agency- Public Safety Systems Project ($0.50M) Information Technology Agency- Payroll System Replacement Support ($1.44M) Information Technology Agency - Supply Management System Support ($2.1 OM) Information Technology Agency - Los Angeles Business Tax Support ($0.54M) Personnel- Metropolitan Detention Center ($0.65M) Personnel - Public Safety Bureau Staffing ($1.44M) Police- Digital In-Car Video System ($0.39M) Police - Handheld Radio Maintenance ($0.23M) Police- Jail Division ($0.46M) Police - Groupwise Software Licenses ($0.26M) Police- Sworn Hiring Plan/Attrition ($-7.13M) Police - Sworn Overtime ($7. 70M) Police Management Systems Re-Engineering ($1.68M) Police- Consent Decree Systems Support ($0.75M) Police- Constitutional Policing ($0.70M) Police - Internal Audit and Inspection Division ($1.11 M) PW/Contract Administration- Public Right of Way Program ($0.58M) 4

5 PW/Contract Administration- Port of LA Inspection and Compliance Program ($I.25M) PW/Contract Administration- Compliance Services to Other Departments ($0.67M) PW/Street Services- Public Right of Way Construction Enforcement ($0.35M) Transportation - Enforcement and Traffic Control ($1.16M) Transportation- Water Trunk Line Construction Program Support ($0.53M) Other ($9.12M) Increased Services Finance - Financial Management System Centralization ($0.16M) Fire- Brush Clearance Expense Account ($LOOM) Fire - Paramedic Medical Equipment ($0.40M) Planning -Northeast LA New Community Plan ($0.26M) Police - Technology Related Contracts ($2.55M) PW/Contract Administration- Los Angeles Airport Inspection Program ($3.05M) New Services/New Facility Expenses City Administrative Officer- Asset Management Study ($0.30M) Fire- Urban Search and Rescue Team ($LOOM) Unappropriated Balance- City Disaster Planning Group ($0.50M) Unappropriated Balance - Deferred Entry of Judgment Program ($0.52M) Unappropriated Balance- IT Infrastructure Outsourcing ($0.25M) Unappropriated Balance- Merchant Card Convenience Fee Program ($0.50M) Unappropriated Balance- Neighborhood Council Funding ($0.08M) o Unappropriated Balance- Redistricting Costs for Council and LAUSD ($L50M) Other ($0.02M) Other Changes or Adjustments Police- Uniform Allowance and Excess Sick Time Payout ($14.61M) Salary. Savings Rate Adjustments ($8.97M) o Other ($5.40M) Discussion and Overall Issues in the Proposed Budget From April 27, 2011 through May 10, 2011, nearly 49 hours of public hearings were held by the Budget and Finance Committee to discuss the details of the Mayor's Proposed Budget. Throughout the proceedings, the Chair and Members of your Budget and Finance Committee posed a series of questions to staff and requested more detailed reports on numerous items. The CAO responded in writing with over 120 memos to the Committee, and the CAO, Mayor, CLA, and department staff provided verbal responses where appropriate. Chairman Parks began the hearings by asking the Mayor's Office to present an overview of the Proposed Budget. The Mayor's Office discussed the efforts implemented during FY 201 O Il to reduce expenses and find savings, most notably in civilian staffing reductions. The Mayor's Office noted the most significant ongoing expenditure burdens are pension and health care costs. The Mayor's Office indicated that maintaining essential services, and finding operational efficiencies were the top priorities in formulating the budget. 5

6 The City Administrative Officer (CAO) also noted the considerable efforts to find savings and make reductions during the course of FY The CAO discussed the importance of maintaining a healthy Reserve Fund since this impacts the City's credit rating. The CAO's analysis of the City's deficit for FY does not factor savings previously realized through implementing the Modified Coverage Plan in the Fire Department and reducing the Police Department's Sworn Overtime account. The CAO emphasized that there needs to be a consistent message to the City's bond rating agencies on the extent of the City's deficit. The CAO also noted the impacts of the tentative ratification of labor agreements with the Coalition of City Union and importance of factoring the accurate savings into the budget. Neighborhood Council Budget Advocates were also given an opportunity to present their comments on the Proposed Budget to the Committee. TheCLA submitted to the Committee a comprehensive Overview ofthe Proposed Budget. The CLA notes that the Mayor's Proposed Budget begins with a projected deficit of $336.26M in Further, the CAO projects a $281.0M deficit in , with projected shortfalls continuing through TheCLA states that while these projections are better than they were a year ago, they still indicate that the structural deficit lingers and has not yet been fully addressed. This is a result of not only increased salaries, but from a combined increase in payments for sworn and civilian pensions, and health care costs. The shortfalls projected for and highlight the urgent and critical need for permanent, ongoing labor cost reductions. The CLA summarized the following major components of the Proposed Budget for closing the deficit: Listed as "Change in the Number of Working Days," civilian employee furloughs are applied in two categories, with some exceptions: 36 days furlough for positions which receive cost of living adjustments on or after July 1, 2011, or 26 days furlough for all other positions. General Fund savings are estimated to be $79.67M. Labor negotiations are continuing and efforts are being made to find solutions which will eliminate the need for civilian furloughs in A tentative agreement has been reached with the Coalition of LA City Unions, some of which have been ratified. In the absence of ratified agreements with the Coalition and other labor unions, furloughs must be implemented in order to balance the budget. Departmental Efficiencies and Reductions in Public Services are applied in nearly all departmental budgets and result in $62.07M in General Fund savings. Deletions in these categories include the elimination of vacant position authorities; management realignment; expense reductions; savings in the capital improvement program; and, functional transfers or departmental consolidations. The Mayor's Proposed Budget includes the issuance of $42.62M in Commercial Paper for working capital. Commercial paper is a debt instrument typically used for capital expenditures. Annual payments for the commercial paper issuance are approximately $8.8M for five years, with interest estimated to be just under $1.0M. This is the first time the City has issued Commercial Paper for working capital. 6

7 Police Salary Savings ($20.0M) are included in the Proposed Budget and are anticipated to be realized through a combination of reduced sworn salary costs and management of personnel. One-time savings of $18.2M are transferred from the Special Parking Revenue Fund to balance the Proposed Budget. Use of these funds will impact parldng projects intended to be funded in the Department of Transportation Five-Year Plan. New or expanded revenue ($10.65M) is proposed for The main component ofthis is a plan to increase the revenue from parldng citations ($9.0M) through implementation of a part-time traffic officer program. Additionally, modest increases in revenue are projected over the revised estimates. Overall, however, revenues are lower than those projected one year ago. The Proposed Budget deletes 67 5 net positions, consisting of the deletion of 697 regular authorities and the addition of22 resolution authorities. Of the 697 positions, 82 are currently filled. Resolution authorities are typically assigned to positions that are limited-term or temporary positions, generally associated with a limited duration project or funding source. The Proposed Budget projects a i$177.2m Reserve Fund, consisting of a $120.4M Emergency Reserve and a $56.8M Contingency Reserve. This equates to 4.05 percent of General Fund revenues on July 1, The Adopted Budget Reserve Fund was $127.19M, which equated to 2.91 percent of General Fund revenues. However, the actual Reserve Fund on July 1 was $171.3M or 3.91 percent of the General Fund. The projected Reserve Fund at the end of fiscal year is $149.2M or approximately 3.4 percent ofgeneral Fund Revenues. In March 2011, voters approved Charter Amendment P which requires the establishment of two accounts within the Reserve Fund. The Emergency Reserve Account must be no less than 2.75% of General Fund receipts. Expenditures from this Account have limits detailed in Charter Amendment P. A separate Contingency Reserve Account must also be created as part of the Reserve Fund, with funding in this Account used to cover shortfalls in City revenue or pay for unexpected expenses. The Emergency Reserve Account in the Proposed Budget is $120.4M, which equates to 2.75% of General Fund Revenues and, therefore, complies with the requirements of Charter Amendment P. Separate from Charter Amendment P, the City's Reserve Fund Policy provides for a phase-in of increasingly larger percentages of the General Fund to be deposited into the Reserve Fund, to reach a goal of five percent of General Fund revenues within ten years. A Budget Stabilization Fund has also been created as a means to prevent overspending during prosperous years and provide resources to help maintain services during lean years. The Budget Stabilization Fund contains $500,000 in

8 Budget & Finance Committee Departmental Hearings On April 27, 2011, City departments and members of the public began testifying before the Committee on all aspects of the FY Proposed Budget. The Fire Chief discussed how the Proposed Budget includes savings of $53.7M based on the New Deployment Plan in the Los Angeles Fire Department (LAFD). The Chief detailed how significant structural changes will be implemented over the next three years as LAFD implements the New Deployment Plan. The Chief reviewed how the new Plan will bring greater stability to the Department than the Modified Coverage Plan, which has been in place since The Department clarified that no fire stations would be closed. This issue was of significant importance to the Chair of the Public Safety Committee, who emphasized the need to clarify for the public that no stations would be closed. The Chief indicated that 83 percent of the calls for service are for Emergency Medical Services (EMS) calls, and that the new Plan includes the addition of ten paramedic assessment resources. The Committee also discussed the Department's fees, including ambulance billing, and the status of the implementation of the Electronic Field Data Capture System and Emergency Services Billing System. In discussing the Professional Standards Division, the Chief emphasized the need for resources and tools to manage the Department, and the necessity for continuing the Special Investigator positions. The Chief ofpolice indicated a general satisfaction with the Police Department's budget and indicated that the budget will provide adequate public safety. The hiring plan will maintain sufficient hiring of police officers to offset projected attrition in FY The Chief discussed the recent elimination of the historical bacldog of untested DNA samples, with improved analysis capabilities for DNA evidence and reductions in crime helping in managing the testing caseload. The Committee discussed monitoring the ongoing workload demands for Criminalists to ensure these efforts can be maintained. The Committee also focused on the cost of Public Service Representatives in the communications division and impacts from furloughs and vacancies. The Committee also discussed the Department's efforts to reduce its vehicle fleet, and the types of take-home privileges granted by the Department. In presenting to the Committee, the Controller reiterated the importance of a healthy Reserve Fund, with a preferred rate of five percent of the General Fund. The Controller indicated that a healthy Reserve Fund will help the City maintain its high bond ratings and enable the City to borrow money at low interest rates. The Controller also suggested that the City look into placing all proceeds from sales of surplus property into the General Fund. The Controller discussed the proposed four percent salary savings rate for the Department which is the same rate as the current fiscal year. According to the Controller, the required savings target will be difficultto meet due to the deletion of 19 vacant positions in the Proposed Budget. The Committee subsequently explored the possibility oflowering the Controller's salary savings rate from the proposed four percent. The Controller also expressed concern about the Mayor's proposal to issue commercial paper. The City Attorney's Office expressed support for the Proposed Budget by describing it as a restorative budget, but expressed some concerns regarding the proposed 36 furlough days for City Attorney staff. In response to Committee Members' questions, the City Attorney's Office noted the need to hire additional investigators, and described continued efforts to bring Workers' Compensation 8

9 legal services in-house. The Committee discussed the City Attorney's efforts to improve collection of outstanding City debt, increase in code enforcement, and implement the Administrative Citation Enforcement (ACE) program. The Committee reiterated a request from prior years regarding efforts to reduce risk or otherwise reduce litigation expenses in those departments with the highest liability payouts. The Director offinance and City Treasurer testified together regarding the Proposed Budget, and discussed the proposal to consolidate the City Treasurer's Office into the Office of Finance. The Committee asked staff to submit an operational plan to the Council detailing how that consolidation will be implemented. The Director of Finance also asked for additional staff and technology to replace antiquated equipment for the LAT AX system. The Treasurer described the City's investment portfolio, and the impact of furloughs on the City's investment returns. The Treasurer suggested that a study be conducted to determine the most appropriate location to move the Treasurer's debt management function. The Chair asked the CAO to develop a plan for creating a special fund, based on a percentage of revenues collected, to create a dedicated and stable funding source for Office of Finance operations. The General Manager of Los Angeles City Employees' Retirement System (LACERS) discussed recent policy changes that the Board of LACERS has implemented to manage the City's, such as extending the smoothing period and clarifying the appropriate LACERS contribution. The General Manager also described investment returns in the LACERS investment portfolio that are currently exceeding projections. The Chair asked for the status of pending cost containment actions that would affect civilian retirement health subsidies. The General Manager of the Fire & Police Pensions System (Pensions) described the systems' investment portfolio, noting that the rate of return to date on their portfolio has exceeded projections. The Chair asked for an actuarial analysis of the Deferred Retirement Option Program (DROP) to determine if it is cost neutral, and if certain restrictions should be placed on participation in the program. The Committee asked about the anticipated financial impact of a voter-approved Tier 6 for future Pensions participants. The Pensions Department suggested various changes in the Administrative Code that could generate additional savings in pension and health benefit costs. The Department ofrecreation and Parks' discussion focused on the City's Sign Ordinance and how it applies in various circumstances. The Department indicated that this limits the ability to acknowledge donors who have given financial support to the Department. The Committee agreed that a new sign policy regarding Recreation and Parks land needs to be created to aclmowledge any publicprivate partnerships. The Department reported that utility bills continue to burden the Department's budget while the Proposed Budget requires the Department to be responsible for an additional $3. 7M in sanitation charges and $4.3M for the second installment of Early Retirement Incentive Program (ERIP) costs. The Department stressed that funds dedicated to services for City residents will continue to decrease as the Department becomes increasingly responsible for its related costs. The Committee also discussed ways to increase revenue, including changes to filming fees on Department-owned property and Quimby fees. Regarding increases of various program fees, the Board ofrecreation and Parks Commission President urged the Council to support achieving full-cost recovery for programs and services throughout the City. 9

10 The Library Department explained how the passage of Measure L would increase its General Fund allocation while also requiring that the Department become increasingly responsible for its related costs. The Department reported that part-time staff will be utilized to restore six-day service. The General Manager stated that at the end of the next four years, additional funding from Measure L will enable the Library to meet optimal staff levels which last existed in FY In addition, the General Manager stated the need for a Volunteer Coordinator position, which could potentially be funded by a private foundation, to enhance the Library's volunteer program. The Committee discussed the requirement in the Proposed Budget that the Library pay the second installment of the ERIP payment. The CAO reported that requiring this payment is in accordance with the goal to reduce the Department's reliance on the General Fund since it receives a Charter-mandated General Fund amount equal to a specific percentage of the City's assessed property values. In presenting to the Committee, the Board of Public Works stated that the Proposed Budget is satisfactory. However, the Board noted two issues of concern: reduced funding for graffiti removal and the Clean and Green Program. According to the Board, the Proposed Budget includes a $500,000 reduction to the Graffiti Abatement Program and a $120,000 reduction to the Clean and Green Program. The Committee subsequently requested a report back on options to restore funding to the Graffiti Abatement Program and to confirm that the reduction to the Clean and Green Program does not result in a double reduction. The Bureau of Sanitation requested three budget modifications: restoration of two positions, retaining unfunded positions in the Clean Water Program, and exempting the watershed protection program staff from furloughs. The Bureau assured the Committee that the functional transfers from the Bureau of Street Services will be smoothly integrated. The Committee discussed removing positions associated with the proposed Multifamily Refuse Collection Franchise Program, which has not been approved by the Council and will not likely be implemented in The Bureau of Street Services stated that its Proposed Budget includes a reduction of approximately $4.6M that was achieved through the elimination of vacant positions and functional transfers. The Bureau reported that the Proposed Budget provides a total of $94.86M to continue the City's Pavement Preservation Plan at current service levels which will complete 23 5 miles of resurfacing. It was reported that tree trimming activities will continue to be limited to emergency response, and the Committee discussed potential liability issues associated with deferring tree trimming. The Bureau provided a short summary of the functional transfers to the Bureau of Sanitation and Department of Transportation. The Bureau requested additional funding for median island landscaping to keep the current service level through The Committee discussed possible funding sources for paving alleys, replacing additional bus pads, and providing additional funding for median island landscaping. During its presentation to the Committee, the Bureau of Engineering (BOE) expressed concern with the proposed furloughs. BOE reported that it lost approximately 9,500 work days due to furloughs which is the equivalent of approximately 41 full-time staff. The Bureau added that the furloughs contained in the Proposed Budget may result in a loss of approximately 19,000 work days which is the equivalent of 81 full-time staff. According to BOE, the proposed furloughs will result in some project delivery schedules being lengthened. Regarding BOE' s Privately Financed Program, all four Engineering District offices have been maintained. However, with the proposed increase in 10

11 furloughs, the Bureau's Engineering District offices, which closed 26 days in FY , will need. to be closed for additional days in FY The Bureau of Street Lighting provided a sulll.jjiary of the five-year LED retrofit program for the City's street lights, including the completion of 42,000 conversions in FY and an anticipated 50,000 conversions in FY The Committee discussed the Bureau's priority to focus the street light conversions in high crime areas. The Bureau reported that energy savings for FY is $1.5M, which will be used to reimburse DWP for installation costs that were fronted by the department. The Bureau also reported on measures taken to reduce the ongoing problem with copper wire theft. During its presentation to the Committee, the Bureau of Contract Administration acknowledged the severity of the City's financial condition. According to the Bureau, the Proposed Budget includes a four percent reduction in staff from FY Since FY , the Bureau's total reduction in staff totals approximately 20 percent. This staffing decrease may impact inspection and compliance services in the City's Capital Improvement Program. The Bureau reported that the full impact of staff reductions will not be known until the fmal Capital Improvement Program is established. The Bureau indicated that it may return to Council to discuss staffing needs for inspection and compliance efforts in the event workload does not decrease. The Department of Transportation (DOT) reported that there is sufficient staffing for ongoing and upcoming capital projects and maintaining parking enforcement service levels. The Committee discussed the pilot program for part-time traffic officers and the cost comparison of employing fulltime and part:-time traffic officers. DOT stated that district office staffing has experienced a 70 percent reduction over the past few years but that current service levels will be sustained in FY through a department reorganization. For Proposition A funding, the Committee discussed the significant improvement in the Fund's structural deficit that was achieved due to the elimination of some transit services and routes, as well as increased fares, that were implemented in The Department reported that the second phase of approved fare increases will be effective July 1, The Depruiment stated that the Proposition A structural deficit is expected to re-emerge in the near future, however, this may be mitigated by upcoming new transit contracts. For Measure R funding, DOT reported that 13 positions have been transferred to implement Measure R projects and discussion focused on whether this action is consistent with the Council's policy to limit the use of MeasureR funds for ongoing programs. The Committee reviewed the projects included in the MeasureR schedule, including funding for bike and pedestrian projects, the work necessary to update the City's transportation element, and the need to front-fund three ATSAC projects. The CAO reported that the $3.OM identified for the Sepulveda Grade Separation project is not needed and the funding is available for reprogramming. 11

12 For the Special Parking Revenue Fund (SPRF), the Committee reviewed the DOT's Five Year Operations and Maintenance Plan for the City's off-street parking facilities and parking meter system, and discussed the replacement of parldng meters and other elements that were not included in the Proposed Budget. The Committee also discussed details related to the surplus transfer of $18.2M to the Reserve Fund. The Planning Department reviewed the efforts made during FY to make operational reductions, while creating efficiencies and adopting innovative strategies. The Planning Department indicated that the Proposed Budget will not negatively impact the implementation of the Department's Community Plan program for FY which aims to update seven community plans, with one plan currently in the adoption phase. Committee Members requested information on programs which were not funded in the Proposed Budget such as the Sign Ordinance program and the proposed ' Sustainable Transit Communities program. The Committee explored details of specific budgets for various Department programs and requested reports for follow-up, including a report on potential revenue opportunities related to digital billboards. The Department of General Services (GSD) discussed cuts to its budget and reduction staffing. The Committee inquired about fleet reduction and the fleet utilization study. The Committee also discussed reductions to custodial services and requested GSD to report back on the potential to obtain full cost recovery from the Department of Cultural Affairs (DCA) for custodial and maintenance services provided at DCA facilities. The Committee discussed petroleum costs and requested GSD to report on the potential to obtain reduced pricing on fuel by purchasing with the Department of Water and Power and the Harbor Department. For the Information Technology Agency (ITA), the Committee heard public comment on public access programming and the reduction in funding to Channel36. The Committee discussed ITA's 5-Year Strategic Telecommunications Development Account (TDA) Budget Plan for Channel 35's Strategic Plan and the legal uses ofthe TDA five percent franchise fee revenues. The Committee also discussed the possibility of restoring funding for operating expenditures to Channel 36. ITA expressed support for the CAO's white paper recommendation to evaluate alternative options for outsourcing the City's information technology infrastructure. For the Personnel Department, the Committee discussed the citywide impact ofstafflosses from the ERIP. The Department noted that the Proposed Budget sweeps vacant positions throughout the City, which will provide few placement opportunities for future displaced employees. The Department also noted that ratification of the coalition agreement would result in a reduction in the civilian flex program. The Committee discussed recommendations to reduce risk and workers compensation claims throughout the City. 12

13 The Department ofbuilding and Safety reviewed the differences in funding in the Mayor's Proposed Budget and adopted budgets in prior years. In discussing these differences, the Department distinguished between the Building and Safety Building Permit Enterprise Fund and the Code Enforcement Program, which is funded by the General Fund. Additionally, Building and Safety estimated that there will be an increase in workload during FY Committee Members discussed specific building inspection programs and the code enforcement program, and the Department discussed alternatives for continuing to provide an appropriate level of service to the public. The Animal Services Department (ASD) discussed the continuing impact of furlough on the Department's workforce. The Committee asked for the status of ASD' s efforts to increase dog license registrations, and ASD indicated that it is beginning to use more field staff to conduct license efforts while also exploring potential partnerships with volunteer and non-profit organizations. The Department also updated the Committee on efforts to enable dog licenses to be renewed online and enabling the online system to capture all dog license registrations. ASD discussed the proposal for partnering with an outside organization to operate the Northeast Animal Shelter, and the Committee also discussed whether the South LA shelter could be considered as well. The Emergency Management Department (EMD) gave an overview of the emergency preparedness activities conducted during , including various training and exercises it coordinated for City departments. The Committee discussed the proposed reduction to the Emergency Operations Fund, which would not provide for any training in FY , and indicated support for additional funding. The Committee also briefly discussed with EMD the lessons learned from the catastrophic earthquake and tsunami in Japan. El Pueblo described the impact that the Proposed Budget would have on departmental operations. El Pueblo reported that it took great strides in meeting all its financial obligations in FY The Department indicated it has paid back the Reserve Fund loan issued in FY and has covered all direct costs and related costs for FY According to El Pueblo, revenues increased and expenditures decreased in FY such that the Department did not require a General Fund transfer for the first time since FY El Pueblo also reported that additional revenue opportunities from Pico House, as well as energy efficiencies, have been identified to help the Department stay within budget and not require General Fund support. The Zoo Department reported that in FY , it will be almost fully self-sufficient as it will rely on the General Fund for approximately 22 percent of its operating costs. The General Manager stated that the pending proposal to establish a public-private partnership to run the LA Zoo should remain a priority for Council consideration. In addition, the Department explained that individuals and corporations would be more likely to donate funds to an outside entity or non-profit organization that is operating at the LA Zoo than to the City directly. After reviewing a proposal to implement parldng fees at the Zoo, the Department found that it would not be feasible due its lack of infrastructure to collect fees. To realize additional revenue, the Department reported that a two-dollar increase in admission fees would be the better option. The Department highlighted that online ticket sales have begun and are very successful. 13

14 The Department of Cultural Affairs reported that in FY , it will be fully funded by the Transient Occupancy Tax (TOT). The Proposed Budget includes funding to restore staff at the Barnsdall Art Park and William Grant Still Theater while continuing funding through December 31, 2011 for the four facilities that will be partnered out starting in January The Department stated that the Request for Proposals, which will include six currently partnered facilities and four new facilities, will be released in June In discussing the attempt to end the Department's reliance on the General Fund, the General Manager explained that although donations and grants are good sources of revenue, it is difficult to obtain donations that can be used for administration costs. The Department explained its need to fill accounting positions, and the CLA reported that ERIP has left the City with a shortage of accounting personnel. Discussions of the City Clerk's budget focused on reduced personnel over past years, and the potential challenges for maintaining operations and services. Further, the City Clerk indicated that such limitations are expected to reduce the response time with regard to the administration of the Council's portion of General City Purposes funds, and that increases in demand for services, such as the addition of two ad hoc committees, will create a higher worldoad with limited staff. The Committee asked the City Clerk to report with a proposal to identify additional funding options to aid in administering services for FY The City Ethics Commission began with an overview of functions and responsibilities, and elaborated on a new focus on broader, more significant ethics issues for FY The Ethics Commission also reported that the passage of Proposition H will add to the Commission's worldoad. The Committee discussed how anticipated increases in worldoad might impact the Commission given that two positions are deleted in the Proposed Budget. For the City Administrative Officer (CAO), the Committee reviewed the CAO's staffing reductions. The Committee discussed the status of improving oversight of departments' grant activity and the ongoing need to analyze grant impacts on the General Fund, the Managed Hiring Process and associated issues, and the proposed Asset Management Study. The CAO requested an additional $300,000 for the Asset Management Study. The CAO indicated that the discretionary items of the General City Purposes (GCP) fund were reduced by 10 percent due to City budget constraints. Committee Members expressed concerns with the shift in funds under GCP, such as reductions to the Los Angeles Homeless Services Authority (LAHSA) and the Clean and Green Program. Committee Members asked for various reports related to these concerns. The CAO provided summary information on each item in the Unappropriated Balance, explaining the purpose and the proposed funding to be set aside. The CAO also explained the components of the City's Reserve Fund, noting that a transfer from the Reserve Fund will be proposed in a future Financial Status Report. The Committee's discussions regarding the Capital Finance Administration Fund focused on the proposed issuance of$42.6m in MICLA Commercial Paper to provide General Fund working capital. The Chair noted the need to uphold certain budget principles when considering the issuance of debt to finance certain operational costs. The Committee asked for options to consider as alternatives to 14

15 this proposed funding mechanism. Committee members expressed concerns regarding the use of MICLA to finance vehicles, equipment, and technology, expressing support for restricting the use of MICLA funds to 'concrete and mortar' type expenditures. The Chair also instructed staff to move forward with the completion of the South LA Animal Shelter Annex, with the operation of this facility by a non-profit organization, and confirm the need for upgrades at the neighboring facility in CD 10. Committee members requested more detail about the proposed expenditure of MICLA funding on old 800 Mhz technology that may be phased out. The Committee briefly discussed the Capital Improvement Expenditure Program. Staff provided an overview of the Municipal Facilities, Physical Plant and Wastewater Facilities categories. The Committee emphasized the critical need for the City to set aside one percent in funding to plan for infrastructure improvements at City-owned facilities. Staff stated that this matter would be referred to the Municipal Facilities Committee as a policy discussion item. The City proposes to issue up to $1.4B in Tax and Revenue Anticipation Notes (TRANS) to pay the City's full cost oflacers and Pension obligations, as well as for cash flow purposes, to allow the City to take advantage of a discount on those obligations. The Committee instructed staff to resolve timing issues related to the amount of the proposed TRANS and the provisions in the Coalition Agreements that affect the payment amount. The Committee discussed the difficulties experienced last year with the City's TRANS issuances and the possibility of similar difficulties with this year's TRANS. The Chair also asked for clarification in the budget as to the need to do business with certain financial institutions, including some with which the City has ongoing litigation. The Department of Aging explained that it relies on Federal, State and City funds for operation. Federal funding for senior employment programs has been reduced, but the upcoming Affordable Care Act could prove to be beneficial for funding senior care programs. The Department did not anticipate any further reductions from State funding. The Department was able to find a sponsor for legislation (AB 533- Yamada) which will guarantee that local Aging providers receive their share of Federal funds even if the State legislature is at a budget impasse. The Department reported that the General City Purpose funding for Adult Day Programs was reduced in the Proposed Budget. The Department explained that the transition of the Adult Day Program to evidence-based models is due to an increase in available funding for the evidence-based programs, which have proven to be highly successful in the senior population and are less costly for providers to operate. The Department on Disability discussed its AIDS Coordination Program, including funding and contracts for HIV I AIDS testing. The Department also discussed the City's outstanding compliance issues associated with the Americans with Disabilities Act (ADA) and the cost associated with bringing the City into compliance. The General Manager from the Department ofneighborhood Empowerment (DONE) provided an overview ofthe Department's mission. Discussion focused on the reduction in staff when DONE was restored as a stand-alone department after the Budget consolidated DONE into the Community Development Department (CDD). The Department discussed its restructuring and the work it has done with the Chair of the Education and Neighborhoods Committee, who will be providing recommendations to the Council on this issue. 15

16 The Community Development Department (CDD) discussed the impact of the Federal FY 2011 Budget on the Department from reductions in various grants, including the Community Development Block Grant (CDBG) (37th Program Year), which fund the Department's staff and programs. The Committee expressed concern regarding the need to relocate the Day Laborer site in Council District 11, and reduced funding to the SummerY outh Employment Program, which employed 9,400 youth in The Community Redevelopment Agency (CRA) provided a status oflegislation being considered by the State Senate and Assembly relative to redevelopment agencies statewide, including SB 286, which provides for comprehensive redevelopment reform. This legislation is in response to the Governor's proposal to eliminate redevelopment agencies altogether. The Agency also addressed questions from the Committee regarding litigation involving Agency funds, and the ruling in favor ofthe State which required the Agency to transfer $85M in FY and to the State for the Educational Revenue Augmentation Fund (ERAF). The Housing Department was also asked about the impact of the Federal Budget to its entitlement grant funding, including reductions in CDBG and HOME Investment Partnership, and contingencies to manage these reductions. The Department discussed the increase in Emergency Shelter Grant (ESG) funding for homelessness prevention and rapid re-housing activities, and the minimal change in funding for the Housing Opportunities for Persons with AIDS (HOPW A) program. The Committee also discussed the Rent Stabilization Ordinance (RSO) and the status of the RSO as it relates to mobile home parks. The Los Angeles Homeless Services Authority (LAHSA) responded to Committee questions regarding the reduction in CDBG funding and a reduction in GCP funding for homeless services included in the Proposed Budget. LAHSA discussed the importance that the Federal govenunent is placing on homeless services with the additional ESG funds. When asked about the feasibility of backfilling these funding sources with the additional ESG funds, LAHSA indicated that these additional funds cannot be used for emergency shelters. The Housing Authority of the City of Los Angeles (HACLA) responded to questions from the Committee regarding the impact of the Federal FY 2011 budget on the Housing Authority. HACLA stated that it needs to implement a budget reduction of $7. 7M over the next six months. HAC LA also addressed questions about its current relationship with the Recreation and Parks Department (RAP). RAP is allowed to use some HACLA facilities at no cost, but the funding for expanded programs at these facilities is provided for in the Proposed Budget. HACLA also responded to questions regarding services associated with HACLA's Payment in Lieu of Taxes (PILOT) funds and informed the Committee that the request to use the funds would be transmitted to the Mayor and Council in July. Discussion on the Los Angeles Convention Center was related to details on the Commercial Paper program for Working Capital, as well as revenue projections for the next Fiscal Year regarding Exhibit Hall occupancy rates. Additionally, Committee Members asked questions related to the Convention Center's difficulties in filling vacancies. LA Inc. responded to Committee inquiries relative to marketing strategies to further increase occupancy rates and the potential negative impacts to Los Angeles travel rates given the recent earthquake and tsunami in Japan. 16

17 Los Angeles World Airports (LAWA) discussed the status of the modernization efforts at LAX, including replacement of the central utility plant at LAX, and the modernization of the Tom Bradley Terminal. The Committee discussed LAW A's reported increase in debt service obligations from $40M in the current year to up to $250M in four years. The Committee asked how certain airport costs can be passed onto the airlines. The Committee also explored the level of coordination with LAW A's emergency operations center (EOC) at LAX with the City's EOC downtown, and LAW A was instructed to report back on how the communication and coordination will improve. LAW A was also instructed to report on efforts for local hiring and engaging local businesses. The Department ofwater and Power (DWP) discussed its proposed budget, which includes the Power Revenue Transfer of $254M. The Committee commented on the timing of the transfer, which is impacted by the length of time needed to obtain audited financial statements, which are not formally completed until several months into the next fiscal year. DWP indicated that funding is set aside per the new Charter amendment which established the Office ofpublic Accountability. DWP indicated the need to examine reductions in discretionary expenditures, such as vehicles, equipment, and travel. Additional savings have been achieved through managed attrition and a reduction in capital costs through refinancing. The Committee explored DWP' s long-range planning to meet the City's water supply needs and maintaining appropriate investment in infrastructure. In discussion with the Harbor Depmiment, the Committee focused on the impacts of the earthquake and tsunami in Japan on Port cargo traffic. The Department indicated that the impact has not been significant but there may be impacts specifically with imports of auto parts. The Committee emphasized ensuring the competitiveness of the Port's terminals. The Harbor Department noted the development of the Port's environmental report card and significant reductions in diesel emission, and sulfur oxides. The Committee also asked for the types ongoing security issues being monitored at the Port. Budget and Finance Committee Recommendation On May 10, 2011, the CLA presented to your Budget and Finance Committee a report outlining recommended changes to the Mayor's Proposed Budget for Fiscal Year The changes were in response to specific directions from the Committee and instructions to the CLA' s Office to evaluate areas of concern and provide recommendations to address those issues. TheCLA indicated that the Mayor's Proposed Budget, recognizes a total deficit of$457.sm. This amount is $107.5M higher than the $350M General Fund deficit projection the City Administrative Officer (CAO) reported in March, and $121.2M higher than the CAO's revised estimated deficit of $336.3M. In calculating the $457.5M deficit, the Mayor added to the CAO's revised estimate $80M in cash overtime for the Los Angeles Police Department (LAPD), and $41.2M in restored funding for the Los Angeles Fire Department (LAFD) assuming modified staffing is discontinued. Both of these reductions were integral in balancing the Budget and are actions within control of management. Since these reductions are already in place for the current year, their restoration and subsequent deletion is inconsistent with the City's past budget practices. Accordingly, the CAO's projected General Fund deficit of$336.3m is the correct deficit from which to work. 17