That the City Council adopt the Preliminary Budget as proposed and direct staff to return in August with the Final Budget.

Transcription

1 STAFF REPORT DATE: June 13, 2017 SUBJECT: Consideration of the biennial budget for ISSUING DEPARTMENT: Finance and City Manager's Office SUMMARY: Issue: Should the City Council adopt the Preliminary Budget as proposed and direct staff to return in August with the Final Budget? Recommendation: That the City Council adopt the Preliminary Budget as proposed and direct staff to return in August with the Final Budget. Fiscal Impact: The total budget (all funds) for is $130,033,960 and the total budget for is $113,468,030. Total operating expenditures total $60,650,740 for and $61,450,750 for General Fund expenditures total $47,462,620 in and $48,594,440 in Based on these numbers, ending General Fund reserves would be 57.8% and 54.3% of operating expenses in and respectively. These estimates are slightly above the Council's 15% rainy day reserves goal and 25% cash flow reserves goal and slightly above the same levels that were presented to the Council at the Strategic Planning Workshop in March BACKGROUND: This submittal of the Preliminary Budget is the ninth biennial budget for the City of La Mesa. As with prior budgets, adoption of the budget is a two-step process. The first step is presentation and adoption of the Preliminary Budget. The second step is for staff to incorporate any changes requested by Council or recommended by staff into a Final Budget to be discussed and adopted in August. Staff will return in June 2018 with a Mid-Biennium Budget Update and will bring forward any necessary adjustments to the second year of the budget at that time.

2 Report to Mayor and Councilmembers Date: June 13, 2017 Page: 2 of 4 DISCUSSION: The Preliminary Budget document is distributed to the Council under separate cover. An electronic version is available to the public on the City website at: The Preliminary Budget document includes an Executive Summary which will be the focus of staff's presentation to the Council on June 13, For your reference, a copy of the Executive Summary is also included as an attachment to this Staff Report. The Preliminary Budget was prepared in accordance with the City Council's direction provided at the March 2017 workshop and the adopted reserve policies. It reflects the continued economic growth experienced over the past several years. The Preliminary Budget incorporates increases in most revenue sources as property values steadily increase and development within the city continues to occur. On the expenditure side, the Preliminary Budget reflects negotiated salary increases that are effective July 1, 2017 as well as normal merit increases. It also reflects anticipated increases in pension costs as CaiPERS begins implementing the recent changes in the discount rate. The budget reflects the Council's strategic planning process. This process begins with the election cycle. Every February as part of the Council's commitment to community sensing, Town Hall meetings are held to allow the public to interact with the Council. These Town Hall meetings are held in school auditoriums and rotate to every neighborhood in La Mesa. Every other year, a statistically valid survey of residents is completed in order to gauge how the public feels about city services. The result of this public input is considered at the Council's annual strategic planning workshop in March. The workshop provides the Council an opportunity to dialog in depth about current and future directions for La Mesa. The culmination of these efforts results in the Targets for Action, which drives the professional staff's work plans and the biennium budget. The Executive Summary includes the updated Targets for Action. These 27 projects are categorized under the Council's five year goals: safe community, maintaining a financially sound and affordable city government, providing high quality municipal services, revitalizing neighborhoods and corridors, enhanced recreation and quality of life opportunities, effective and efficient traffic circulation and transportation, and the new target added in March, insure safe and affordable housing for all future and current residents. Based on Council direction, following are some examples of the targets that have been updated. Safe community- Implement the recently passed Medical Marijuana (Measure U) Citizen Initiative and implement Council's direction for recreational marijuana (Proposition 64). Maintaining a financial sound and affordable city government- Research property tax information to assess trends and look for opportunities to maximize the potential to increase property tax revenue

3 Report to Mayor and Councilmembers Date: June 13, 2017 Page: 3 of 4 Continue to improve high quality municipal services- Explore the feasibility of the completion of the next phase of the Civic Center Master Plan. Revitalize neighborhoods and corridors - Complete grant funded public improvements on University Avenue; continue to investigate opportunities for economic development, including reviewing the private development permitting process to increase efficiencies. Effective and efficient traffic circulation and transportation -Continue to work with the appropriate Federal and local agencies to complete the design and construction of the High Street under-crossing. Insure Safe and Affordable Homes for All Current and Future Residents (New) Track legislation related to increasing housing for residents, and to the extent feasible, work to improve housing through the processing of private development that meets the City's General Plan goals and consideration of an Affordable Homes Bonus Program ordinance. Additional major ongoing projects in the budget that will require significant staff time and financial resources include: Review the traffic management program and make recommendations for improvements. Explore the feasibility of a ballot measure for the addition of an excise tax for medical marijuana facilities and/or conditional taxes for future recreational marijuana facilities. Explore short term recreational uses and long term opportunities for future park amenities at MacArthur Park. Continue work on various Capital Improvement projects such as North Spring Street project, Vista La Mesa Park and various pedestrian improvement projects throughout the city Secure and complete an appraisal of the former San Diego County Library site and negotiate with the County for the repayment of the site according to the Real Property Agreement and Joint Escrow Instructions Seek ways address the future PERS pension expense increases by contributing to La Mesa's pre-funded retirement trust fund to help offset the future increases, seeking new revenue streams as well as continuing to look for opportunities for continued cost savings. This Preliminary Budget recommends the elimination of an Administrative Analyst 1111 position in the Administrative Services Department and the elimination of the Recreation Supervisor and, upon the retirement of the incumbent, Community Services Manager positions, both in the Community Services Department. Both the Preliminary Budget and the Targets for Action incorporate community input and reflect the Council's direction for the next two years and beyond.

4 r - Report to Mayor and Councilmembers Date: June 13, 2017 Page: 4 of 4 CONCLUSION: Staff recommends that the City Council move to adopt the Preliminary Biennial Budget as proposed and direct staff to return in August with the Final Budget. Reviewed by: City M nager Respectfully submitted by: G r~ Assistant City Manager Sarah Waller-Bullock Director of Finance Attachments: Preliminary Budget Executive Summary and Schedule 1

5 Executive Summary INTRODUCTION The City of La Mesa has been utilizing a two-year budget process since the biennium. This document presents the City's ninth biennial budget. It covers fiscal years and and is referred to as the Preliminary Budget throughout this document. As we have done during each of the past bienniums, staff will complete a comprehensive mid-biennium review at the end of and recommend any amendments to the budget as needed. This section presents a brief introduction to the two-year budget and the major influences on it. Additional details on key points are provided in separate sections in this chapter. The Preliminary Budget reflects the ongoing economic growth that followed the slow economic recovery from the recession that began in late The more accelerated growth that has occurred since the November 2016 election is also included. Despite rumblings of a potential recession in the future, positive signs of economic recovery such as increasing economic indicators, increases in tax revenues and a stabilizing housing market continue to dominate the economic news. These positive indicators, however, are tempered by rapidly increasing pensions costs that threaten to overshadow all else. Preliminary General Fund revenue estimates for the current fiscal year and the upcoming Preliminary Budget are expected at levels shown in the Financial Forecast presented to the City Council in March. Recent preliminary assessed valuations received from the County Assessor's office are encouraging as the housing market maintains the momentum as seen for the past several years. Current year property tax revenues continue to exceed budgetary expectations as do other taxes such as property transfer tax and transient occupancy tax. Sales tax and Proposition L sales tax revenues for both the current fiscal year and the Preliminary Budget are expected to slightly increase, although there are some signs that sales tax revenues may be slowing statewide. The City's base sales tax and the Proposition L sales tax revenues are critical in maintaining essential city service levels. Revenue received from development related licenses and permits and service charges, while not received at the levels experienced during , are still higher than what might be considered normal levels. All Other General Fund revenues are expected at previously forecasted amounts. On the expenditure side, the Preliminary Budget reflects the salary increases for all bargaining groups effective July 1, 2017, anticipated increases in retirement costs, continued reliance on temporary salaries in several divisions, and increases in communications, technology support services, and other professional and specialized services. Further details on expenditures and staffing levels are contained in a separate section later in this chapter. As we have done during each budget review period, city staff has gone through each of the detailed department/division budgets assuring that the budgets are lean but still sufficient to maintain service levels and meet Council expectations. Of particular importance is the City's commitment that was made to voters during the Proposition L 1-1

6 campaign in As will be shown later in this chapter, Proposition L Sales Tax revenues continue to meet the goals of the measure which are to maintain city services and build healthy General Fund reserves. The Preliminary Budget for the General Fund as presented requires the use of reserves for both fiscal years ($1,066,110 in and $1,046,600 in ). While considerably less than what was presented in the Financial Forecast to the Council at the March workshop, it still represents an ongoing structural budgetary deficit. This structural deficit and use of reserves is the result of increases in ongoing revenues that are not keeping pace with rapidly increasing expenses, primarily in pension obligations and operating expenses. While the use of reserves to balance the Preliminary Budget is consistent with the General Fund Financial Forecast presented to the City Council in March 2017, the beginning estimated reserves at June 30, 2017 is projected to be slightly higher than originally anticipated in the forecast, ending at $28.4 million or 61 percent of expenditures. In addition, the Preliminary Budget includes previously negotiated salary increases effective for , but does not include any additional salary or benefit adjustments that may result from future negotiations with the City's employee groups. City staff is continuing to explore long-term solutions for both revenue enhancements and expenditure reductions to address the ongoing structural budget deficit. ORGANIZATION OF THIS BUDGET DOCUMENT The focus of this budget is on allocating limited resources to address the City's Goals with specific Targets for Action during the next two years. The two-year plan allows staff to focus on longer term planning of Council's established goals and priorities and continue the level of services provided by all City Departments. For clarification purposes, during the course of this discussion, each year of the two-year budget will be referred to separately. The first year is the Preliminary Budget and the second year is the Preliminary Budget. As we have done during the previous eight bienniums, any adjustments to the second year of the two-year budget will be made as part of a Mid-Biennium Budget Update process that will occur in late The summary schedules listed below and included in this Preliminary Budget provide a complete financial picture and supporting information for both and These schedules include: Schedule 1 (Budget Summary- All Funds) Schedule 2 (Revenues- General Fund) Schedule 3 (Revenues- All Funds) Schedule 4 (Expenditures- General Fund) Schedule 5 (Expenditures- All Funds) Schedule 6 (Expenditures by Object Account- General Fund) Schedule 7 (Expenditures by Object Account- All Funds) Schedule 8 (Comparison of Costs - General Fund) Schedule 9 (lnterfund Transfers) Schedule 10 (Regular Positions) Schedule 11 (City Organizational Chart) Schedule 12 (Equipment Replacement Fund) 1-2

7 Schedule 13 (City Employees per 1,000 Population) Schedule 14 (Comparison of Municipal Services) The main section of the budget document provides detailed budget information for each department and division. This information includes: Organizational Chart Budget Narrative- Provides the mission statement, program description, and goals and objectives for the biennium. Budget Summary- Includes a table showing actual expenditures, budgeted and estimated actual expenditures for , and the City Manager's recommended budgets for and A second table displays the authorized positions for , , and , along with the City Manager's recommended number of positions for and Also included are sections describing major changes between budget years. Expenditure Budget Summary- Budget report showing actual and budgeted numbers at the account level. The final two chapters of this budget document contain the City's Capital Improvement Plan and a description of the City's reserve policies. SIGNIFICANT CHANGES/PROJECTS FOR La Mesa's budget is developed through a process that begins with the election cycle, annual community sensing at Town Hall meetings and community surveys every two years. This data is synthesized and presented with financial data at the Council's Strategic Planning Workshop. The workshop allows the Council to provide policy directions to staff, dialog about new and continued work efforts, and discuss significant changes and projects that will impact the City's budget and staff work plans. This section of the budget document summarizes the direction staff received from the Council at the March 2017 workshop or at recent Council meetings. During the workshop, as part of the annual review of the City's Strategic Direction and the Targets for Action (implementation of the 5 year goal action items), Council directed staff to add a new goal to reflect the challenges of a diminishing, affordable and safe housing stock. As reported by staff at the workshop, the City is seeing heavy development activity in the City, both with infill and mixed use developments. The Council directed staff to continue to investigate opportunities for economic development, including reviewing the private development permitting process to increase efficiencies. Several new initiatives are on the horizon during this budget biennium. With the advent of the voter approved ballot initiative to allow medical marijuana dispensaries, manufacturers, and cultivators under a Conditional Use Permit (CUP), the City will continue processing CUP applications for those businesses that meet the requirements. Additionally, the City will explore the feasibility of a ballot measure for the addition of an excise tax for medical marijuana facilities and/or conditional taxes for future recreational marijuana facilities. 1-3

8 The operators of Sun Valley Golf Course have given the City notice of termination of their lease for golf operations. The City will be exploring both short term recreational uses for this site and will release a Request for Proposals to study the opportunities and constraints for future park amenities at MacArthur Park. During the next budget biennium, Vista La Mesa Park will be upgraded with a new entry, new playground and picnic facilities. The City will secure and complete an appraisal of the former San Diego County Library site in order to repay the County fair market value for the site as per the Real Property Agreement and Joint Escrow Instructions. Given the upcoming changes approved by the CaiPERS Board of Directors to modify the methodology for paying down unfunded liability and the approval to reduce the discount rate from 7.5 percent to 7 percent over the next three years, the Council gave direction to staff to seek ways to continue contributions to La Mesa's pre-funded retirement trust fund to help offset the future increases in pension costs. In addition, staff should continue to seek new revenue streams as well as continue to look for opportunities for continued cost savings. Both of these efforts will allow the City to better withstand the impacts of the CaiPERS changes that will begin in earnest in FY Staff continues to monitor Federal, State and Local initiatives that impact our ability to provide vital city services. As in previous years, City staff continues to look for creative ways to accomplish major projects without using limited General Fund resources. The City was awarded several grants, allowing some long term Targets for Action projects to move to the implementation phase. Sidewalk improvement projects at various locations funded through Safe Routes to Schools grants are underway or will proceed during this budget biennium. These include completion of the King Street walkability improvements, bike lanes added along University Avenue between Harbinson and Allison Avenue, and improved pedestrian access on Junior High Drive near Helix Charter High School and La Mesa Arts Academy. The phase one North Spring Street 1-8 bike and pedestrian crossing will begin construction during this budget biennium. This improvement will create a pedestrian friendly pathway from the Civic Center to the industrial park. State of California Budget Status In May 2017, the Governor submitted his May Revision budget proposal. The "May Revise" included funding for the rising state minimum wage (scheduled to increase to $11 per hour in 2018 and ultimately rise to $15 per hour), expanded funding for K-12 education, maintaining funding for county health and child care, and a one-time additional contribution towards the State's unfunded pension liabilities. The state does include a cautionary note about slowing revenues. The revenues are projected to be below what was originally shown one year ago. The May Revise assumes continued economic expansion and the continuation of existing federal policy and funding through However, the proposal warned of budget concerns given that the current economic expansion is approaching its eighth year, and future federal policy changes could have a significant impact on the State's budget. These priorities include substantial changes to Medicaid, trade and immigration, and taxes. One of the more controversial proposals in the Governor's May Revise is the one-time additional contribution of funds to the State's unfunded pension obligation. The Governor proposes to borrow $6 billion from the Surplus Money Investment Fund 1-4

9 (currently earning less than one percent) and make a one-time contribution to the State's CaiPERS Retirement Benefit Plan. The intent of this contribution is to reduce the State's future payments towards its pension obligations. This proposal is generating skepticism of its eventual success and concern about committing a large amount of resources for a solution that is largely unproven. One bright spot in the State's financial picture is the passage of SB 1 - The Road Repair and Accountability Act of 2017 (RMRA). Passed by the Legislature and signed by the Governor on April 28, 2017, this agreement will provide significant funding for local streets and roads, providing an estimated $15 billion statewide over the next ten years. Funds generated as a result of this Act will be split evenly between the State Highway system and local streets and roads and provide much needed investment into roads, freeways, and bridges. While the use of these funds is legally restricted for street-related expenditures, it provides funding that would not otherwise be available. REVENUES Citywide Revenues Revenues for all City funds for are projected to total $82,069,500, an increase of approximately 2.9 percent over the $79,756,300 budgeted in the Mid-Biennium Budget. Overall increases of revenues in the General Fund and Wastewater Fund are offset by decreases in funds received by the Successor Agency to cover enforceable obligations as the operations of the former Redevelopment Agency wind down. Revenues for all City funds for are projected to total $67,010,440, a 18.4 percent decrease from This large decrease is due to the capital improvement project funding sources that are only included in the budget. Revenue projections for are reviewed at the end of and revised as appropriate. General Fund Revenues Total General Fund revenue is projected to be $44,943,740, an increase of $2,851,540 or approximately 6.8 percent higher than the Amended Budget. Broad increases are projected over most General Fund categories, including Property Tax, Sales Tax, Proposition L Sales Tax, licenses and permits, use of money and property, and service charges. Other Taxes 7% Service Charges 5% Prop lsales 19% City of La Mesa General Fund Revenue Sources Property taxes are projected to increase approximately 5 percent as assessed values throughout the city increase. New revenues in include the Briercrest Tax- Tax Inc 1% 1-5

10 City of La Mesa Preliminary Budget ground-lease revenues. Also contributing to the increased revenues are expected additional revenues received as a result of changes to the City's fee schedule. Total General Fund revenues are projected to be $46,055,670, an increase of $1,111,930 or approximately 2.5 percent higher than the budget. Projected increases in property tax, sales and Proposition L sales taxes, and use of money & property all contribute to this increase. agencies 2% 5% Licenses and Permits 4% Other Taxes 7% City of La Mesa General Fund Revenue Sources Taxes 29% Prop Tax - Tax Inc 1% The composition of the General Fund revenues continues to be consistent from year to year. The top three revenue sources, property tax, base sales tax, and Prop L sales tax, account for roughly 77 percent of total General Fund revenues in both and respectively. It should be noted that 48 percent of the General Fund's revenues are generated from sales taxes, with 19 percent generated from the Proposition L sales tax measure alone. As was seen between late 2007 and 2010, dramatic fluctuations in sales tax revenues have a dramatic impact on the City's ability to balance its budget. Property tax revenues, while increasing to a similar proportion as Sales Tax revenues, are generally more stable. Because these revenues constitute a large percentage of the total General Fund revenues, they are discussed in greater detail below. Base and Proposition L Sales Taxes As noted above, base sales tax revenues are highly sensitive to economic downturns and have fluctuated widely over the past several years. Since 2012, sales tax revenues have steadily increased as the economy has recovered. The actual revenues include the estimated one time true-up payment for the end of the "Triple Flip" sales tax swap. On November 5, 2008, voters passed Proposition L, the La Mesa Vital City Services Measure. This authorized the additional 0.75% (3/4 cent) transactions and use tax (commonly referred to as a sales tax) effective on April 1, As was stated in the City Council Resolution and promised to the voters, Proposition L sales tax revenues would provide the $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 so General Fund Sales Tax Revenue through (Projected) BASE SALES TAX I PROP l SAlES TAX revenues necessary to maintain essential city services at levels prior to the economic

11 City of La Mesa Preliminary Budget recession and to replenish and maintain reserves consistent with the City Council policies and at levels expected based on fiscally sound practices. Proposition L has a twenty year sunset clause and expires in The Proposition L sales tax was originally estimated to generate $7.2 million in its first full year. Bigger than expected declines in retail sales and the collapse of the automobile industry lowered both actual and anticipated revenues to $6.5 million and $7.0 million in and respectively. Since then, Proposition L revenues have generated more than $7 million each year and are budgeted at $8.5 million and $8.7 million in the Preliminary Budget. In each budget year, Proposition L sales tax revenues represent 19 percent of total General Fund revenues. When considering both the base sales tax and the Proposition L sales tax, revenues are projected to generate 48 percent of total General Fund revenues in each of the and budgets respectively. This represents a slight decrease over the percentages in the budget (53 percent and 51 percent respectively) and the budget (50 percent and 51 percent respectively). This progressively smaller percentage of total revenues is due to the increases in other General Fund revenues, including property tax. Property Taxes Based on preliminary projections by the County Tax Assessor, property tax revenues are expected to increase by approximately 5 percent in The projected increase for i$ approximately 4 percent. As a percentage of total General Fund revenues, property taxes make up 29 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 ' ~ General Fund Property Tax Revenue through (Projected) Percent of the total revenues in ""' "".,~ ""'.,o,..,., ,., ~..,.,..,., ~ 6~ 6~ '\\!' 'S~ "S{, each of the budget years. " ""'..,o, Contributing to the increase in property taxes are the strengthening of the housing market, development of new and existing parcels, and the gradual eliminations of the Proposition 8 reductions in assessed valuation. Property tax collections for and are expected to total $13,357,420 and $13,884,280 respectively. These amounts include the "Property Tax in lieu of VLF" portion. The in lieu revenue swap was enacted in 2004 as part of Proposition 1A to offset the permanent reduction in the VLF rate. This portion is now trending in line with our property tax growth rate as opposed to the VLF growth rate. These amounts also include property tax payments that were previously distributed to the former redevelopment agency as tax increment. The estimated Tax Increment Property Tax collections for and are budgeted at $333,100 and $340,400 respectively. t- t- 1-7

12 r Other General Fund Revenues All other revenues make up the remaining 23 percent of total General Fund revenues. The biggest budgetary increases in all other revenues are in use of money & property, licenses and permits, and service charges. Use of money & property is budgeted to increase $642,770 in mainly due to the Briercrest long-term ground lease. Licenses and permits and service charges are budgeted to increase $462,330 and $128,500 respectively in as development related activity continues to increase. All other General Fund revenues are projected to remain at or slightly above the budget amounts in the fiscal year. New to is a contribution towards the Briercrest Park maintenance as a result of the long-term ground lease. EXPENDITURES Total Citywide expenditure budgets are projected at $83,576,370 in and. $69,183,870 in The significant increase in expenditure budgets is attributed to the Capital Improvement Program. Excluding Capital Improvement budgets, Citywide operating expenditure budgets are projected to total $65,030,440 for and $65,063,370 for General Fund Expenditures Total General Fund expenditures for are projected at $47,462,620, a decrease of $1.1 million or 2.4 percent from The decrease reflects the budgeted one-time expenditures in When excluding these one-time budgeted items, General Fund expenditures increased by $1.9 million or 4 percent. Salaries, fringe benefits, and materials, services, & supplies are the drivers of this expansion. Increases in salaries of $552,200 (2.6 percent) are attributed to previously approved salary increases effective July 1, 2017 and routine employee merit increases and are net of the elimination of three positions. Fringe benefits increased $631,030 (excluding the one- Personal Expenses 2% Materials, Services and Supplies 24% Fringe 29% General Fund Expenditures by Object FY General Fund Expenditures by Object FY Salaries 46% Salaries 45% 1-8

13 time contribution to the Section 115 Retirement Trust Fund budgeted in ) and are due to the increases in retirement costs. For , total General Fund expenditures projected to be $48,594,440, an increase of $1.1 million or 2.4 percent. The biggest contributor during this fiscal year are pension costs, increasing $875,100 over Routine employee merit increases also contribute to the rise in expenses. Other increases are budgeted in professional and specialized services. Overall, salaries and benefits comprise 74 percent in each year of the total budgeted General Fund expenditures. This is consistent with previous years, although Fringe Benefits are becoming a larger component of this percentage as pension costs increase due to policy changes made by CaiPERS. As in previous years, the allocation of General Fund expenditures by department remains very constant. Public Safety (combined Police and Fire) continues to be the largest portion of the General Fund operating budget, constituting. approximately 61 percent of the total budgeted expenditures in both and The allocations for all other departments remain about the same as in previous years. Capital Equipment Purchases Public Works 18% 23% General Fund Expenditures by Department The City funds replacement of non-wastewater capital equipment through a separate Equipment Replacement Fund. Annual charges based on the purchase price and expected life of the equipment to divisions that operate and maintain the equipment result in fairly level expenditures in the operating budgets as opposed to large spikes that would otherwise normally occur with a pay as you go system. Wastewater equipment is purchased directly from the Wastewater Fund. A total of $3.5 million is recommended for funding capital equipment purchases including computer technology over the two budget years. This includes ongoing replacement of Public Safety equipment and vehicles, replacement of various heavyduty equipment items for Public Works, and the replacement of the permitting system in Community Development. Of the $3.5 million requested, $897,890 is funding for Wastewater-related vehicles and equipment, $805,160 is for General Fund equipment, $1,463,990 is for vehicles, and $1,242,050 million is for technology and computer related equipment. Also included in these requests is an upgrade to the broadcast production system of public meetings. 1-9

14 City of La Mesa Preliminary Budget Below is a listing of the major equipment replacement requests that are included in the recommended equipment replacement budget: Equipment Police Patrol vehicle replacements (total 6 vehicles) Police Investigations/Staff vehicle replacements (total 3 vehicles) Evidence Transport van replacement (1 vehicle) Fire Safety Equipment (ongoing replacement) Public Works backhoe replacement Public Works skidsteer loader Public Works aerial lift truck Public Works chemical spray truck Public Works Wastewater Vactor replacement Public Works Wastewater 10 wheel dump truck Public Works Wastewater mini excavator Permitting software Virtual desktop and enterprise mobile management system Total Funding Request $319, ,020 27, , ,290 65, ,190 50, , , , , ,390 Staffing Levels The Preliminary Budget includes a decrease in staffing from positions to positions in and then a further decrease to positions These staffing levels are significantly lower than the highs of positions in but slightly higher than the Mid Biennium Budget staffing of positions. Staffing Levels through ,00,-----~~~~~~~~~~~~~~~~~ !-~~~~~~~~~~~~~~~~~ ~ M ~ ~ ~ ~ M ~ W ll ll U M U U D U U FY Ending June 30 Decreases in staffing from to the years are due to the following: Elimination of the Assistant City Manager/Director of Community Services position (split between the City Manager's Office and Community Services) and creation of the Assistant City Manager position in the City Manager's office and the Director of Community Services in the Community Services department. These additions are offset by the elimination of the Community Services Manager position and a Recreation Supervisor position in the Community Services department in

15 Elimination of an Administrative Analyst 1/11 position in the City Manager's office. This position was recently vacated and, upon review by the City Manager, determined not to fill. Restoration of the Facilities Specialist position in Community Services that was upgraded to Recreation Supervisor during the Mid-Biennium Budget update. The reallocation of several administrative positions between the Rides4Neighbors and Safe Routes Grants and the General Fund - Community Services department. Not reflected in these authorized full time staffing levels is the City's use of temporary salaries to help fill critical service needs on a part-time basis. Departments requesting temporary salary funding include City Clerk, Finance, Community Development, Police Services, Public Works, Fire Prevention and Community Services. Retirement Costs Retirement costs continue to be the biggest factor in expenditure increases as CaiPERS enacts legislative and policy changes to the retirement contribution rates. In addition, the rates reflect the extraordinary investment loss of more than 25 percent that occurred following the housing collapse in On top of these changes, the CaiPERS Board approved a reduction to the Discount Rate from 7.50 CaiPERS Retirement Contributions (citywide) FY thru (proj) 16,000,000,-- ~ ~ 14,000,000 +-~ ,000 I _ ~ ,000 _ 1 ~--- 12,000,000. f ,000, ~ _ Misce llaneous 6,000,000 ~ Safety 2,000,000 T- I I- I - fts. t6a~6-17 e5t b~8-19 b~g.zop ~QiT20-2 1p~ll - 22p ~Ojf22-23p~ Miscellaneous 2,830,500 3,138,300 ] 3,614,567_! 3,673,400 J 4,230,680 l 4,924,020 J 5,387,490 J 5,797,830 J Safety 3,080, ,830 3,934, 213 5,548,010 6,423, 180 7,438,360 8,093,400 8,685,500 percent to 7.0 percent to reflect the new investment asset allocation policy and the current investment return environment. The Board will be reviewing the Discount Rate again in 2018 and has indicated that it may reduce it further. All of these factors translate into rapidly increasing mandatory contribution rates over the next several years where they will stay for many years to come. The following is a summary of the contribution amounts for each coverage group: CalPERS Employer Retirement Contributions Prior Year Current Yea r Budget Projected by Ca ipers Co verage Group bud bud bud bud proj proj proj proj Safety 3,080,810 3,415,830 3,934,213 5,548,020 6,423,180 7,438,360 8,093,400 8,685,500 Misce llane ous 2,830,500 3,138,300 3,614,567 3,673,400 4,230,680 4,924,020 5,387,490 5,797,830 Est Citywid e Expe nse 5,911,310 6,554,130 7,548,780 9,221,420 10,653,860 12,362,380 13,480,890 14,483,330 GENERAL FUND RESERVES In 2009, the Council revised the General Fund Reserve Policy to include two separate reserves: a Rainy Day Reserve and a Cash Flow Reserve. The Rainy Day Reserve was previously set at 15 percent of operating expenditures and established 1-11

16 -, - City of La Mesa Preliminary Budget to act as a buffer against one-time and extraordinary expenditures that would otherwise reduce service levels. The Cash Flow Reserve target was set at 25 percent of operating expenditures and was established to offset the fluctuating cash balances that normally occur through.out the budget period. The Preliminary Budget requires the use of General Fund Reserves in both of the two budget years, although at slightly less amounts than was presented at the Strategic Planning Workshop in March In each of the two proposed budget years, estimated ending reserves are projected to end at 57.8 percent and 54.3 percent respectively. In both years, the Council's General Fund Reserve goals for the Rainy Day Reserve and Cash Flow Reserve are met. Revised Est. Proposed Proposed FY FY FY FY FY FY FY Ending Reserves 14,495,701 20,531,305 24,345,022 29,395,841 28,487,025 27,420,920 26,374,320 Reserves as % of Operating Expenditures 31.9% 29.4% 36.0% 53.3% 58.6% 57.8% 54.3% Reserves: Property Sale (Police Station) 3,050,000 3,050,000 3,050,000 3,050,000 3,050,000 3,050,000 3,050,000 Property Sale (Other Land) 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 Proposition L Revenues 7,445,701 7,982,194 7,891,852 8,298,939 8,306,583 8,550,300 8,764,100 Reserves from Operations. 5,499,111 9,403,171 14,046,901 13,130,442 11,820,620 10,560,220 E "'' neral Fund Reserves The proposed budget includes improved estimated ending General Fund reserve balances for the current and upcoming fiscal years to the balances that were projected in the 6-year Financial Forecast. The estimated ending General Fund Reserves for the current fiscal year have been further refined since March The financial forecast projected the ending reserve balance at June 30, 2017 to be $27.1 million whereas the current estimated ending reserve balance is $28.4 million. Additionally, through a combination of refined revenue projections as well as expenditure savings, the budgeted ending reserves for the and fiscal years are slightly higher than what was projected in the financial forecast. Financial Forecast Proposed Budget Estimated Projected Projected Revised Est. Proposed Proposed FY FY FY FY FY FY Beginning Reserves $ 29,395,841 $ 27,165,890 $ 25,677,780 $ 29,395,841 $ 28,487,025 $ 27,420,920 Revenues/lnterfund Transfers 45,558,545 46,053,900 47,162,490 45,717,539 46,396,510 47,547,840 Expenditures (47, 788,496) (47,542,010) (48,769,210) ( 46, 626, 355) (47,462,620) (48,594,440) Ending Reserves 27,165,890 25,677,780 24,345,022 28,487,025 27,420,920 26,374,320 Reserves as % of Operating Expenditures 56.8% 54.0% 49.9% 61.1 % 57.8% 54.3% 1-12

17 As was discussed at the Strategic Planning Workshop, the use of reserves is anticipated to continue absent vastly increased or new revenue sources or drastic expenditure reductions. Historic department underspending typically at 2-3 percent will reduce the amount needed from reserves. The proposed budget allows the Council and staff the time to address the ongoing use of reserves and implement long-term solutions. OTHER FUNDS While the General Fund provides for the majority of the City's services, the City has many other funds that comprise the total City Budget. Most of these funds account for special activities legally restricted by Council or outside agencies. Other funds are set up for administrative convenience. Taken in total, these funds comprise a little less than half of the City's total budget, with the General Fund accounting for about 57 percent in and 70 percent in (large capital improvement projects programmed into the first budget year are largely responsible for the variation in these numbers between years). Other funds include: Wastewater, Housing/CDBG, Gas Tax/TransNet, Downtown Parking, Environmental Services, Public Safety Augmentation (Prop 172), Successor Agency, Capital Improvements, Employee Benefits, Equipment Replacement, Workers' Compensation, and Liability Risk Financing. The Wastewater Fund has the second largest operating expenditure budget after the General Fund. This fund tracks the costs of maintaining the City's sewer collection system as well as payments to the City of San Diego for sewer treatment. Other activities include administration of sewer operations as well as management and technical support for capital improvements, financial analysis for rate setting, and coordination with other San Diego area agencies. The Housing Rehab/CDBG Funds are used to account for housing rehabilitation programs using Housing Rehabilitation funds and to account for the administration of the City's Community Development Block Grant programs. Combined, approximately $206,910 of Housing Rehab/CDBG funds are anticipated being spent on administrative programs over the period. An additional $384,570 in CDBG funds is budgeted directly in the Capital Improvement Funds to fund various park improvements. Gas Tax (Highway User's) Fund revenues come from taxes paid at the gas pump. Included in the Gas Tax Fund are the new SB 1 -Road Rehabilitation and Maintenance Account funds that are expected to eventually generate an additional $1 million in gas tax revenues to the City. All Gas Tax revenues combined are expected to generate about $1.7 million in and $2.4 million in for street maintenance activities and capital improvement projects. Gas Tax funds are transferred to the General Fund and the Streets Capital Improvement Fund for street purposes. TransNet Fund revenues are generated by a Yz cent sales tax approved by voters in 1988 with a 40 year extension approved by voters in These funds are earmarked for street related construction projects. The Downtown Parking Fund accounts for revenue and expenditures pertaining to the Downtown Parking District. Funds to help maintain the completed Downtown Streetscape project are transferred to the General Fund to help offset the cost of a new 1-13

18 Public Works Maintenance Worker 1/11 position. Reserves in this fund are available to program future downtown enhancements. The Environmental Services Fund is used to manage funds for the City's integrated waste management activities including solid waste administration and recycling activities in connection with the State's requirements to reduce waste being added to landfills. The Public Safety Augmentation (Prop 172) Fund is used to collect the City's allocation of Prop 172 funds. These funds are expected to generate approximately $612,700 over the next two fiscal years and will be transferred to the General Fund for support services. Capital Improvement Program (CIP) Funds are used to track spending on the City's major sewer, street, storm drain, parks, and building projects. Funding for these projects is provided by various internal sources such as the General Fund and the Wastewater Fund as well as State and Federal agencies and other outside sources, when available. The City's engineering staff maintains a list of needed infrastructure improvements which are programmed based on priority and funding. This program is updated every two years. Capital Improvement Program project details are included in a separate chapter later in this document. The Capital Asset Management Plan (CAMP) Fund was established with the Budget and is included in the Capital Improvement Program Funds. This fund is established to provide a funding mechanism for future maintenance and replacement of the City's facilities including public buildings and parks. In the Preliminary Budget, funding is primarily provided by contributions from the General Fund. The Employee Benefit Fund accounts for employee benefit costs including health, dental, and life insurance. Funding is derived from charges made to City departments based upon their employee count and from employee contributions. The Worker's Compensation Fund is similar to the Employee Benefit Fund except that there is variation in rates charged for each employee depending upon the employee's job classification and our loss experience for that job classification. For example, a public safety employee is charged out at a higher worker's compensation rate than an administrative employee because of the nature of the job. The Liability Risk Financing Fund accounts for the City's self-insured general, automobile, and employment practices liability program. Funding comes from operating transfers from the General and Wastewater Funds based on historical claims experience. The Equipment Replacement Fund is used to account for large dollar equipment purchases as well as lease payments for equipment purchased by this financing method. City departments are charged a replacement cost to fund equipment. Additional transfers are made from the General Fund to pay for lease purchase acquisitions of the fire apparatus and ladder truck. Other transfers are budgeted to cover the cost of any new, first-time capital equipment purchases. 1-14

19 CONCLUSION The Preliminary Budget is the City's ninth biennial budget prepared in accordance with the City Council's budget policies and adopted goals for the next five years. On June 13, 2017, the City Council will review and consider the Budget for approval at the regularly schedule 4:00p.m. meeting. Staff will make a presentation on the budget and be available to answer questions. The City Council will be requested to adopt the Preliminary Budget and to direct staff to prepare the Final Budget for the Council's consideration in August. 1-15

20 "Finest Small Town in San Diego County" Vision Statement "The City of La Mesa is a community working together toward a common goal which includes a safe and healthy environment, state-of-the-art resources and technology, unsurpassed quality of life and an efficient and effectively run government organization!" Strategic Directions Partnerships Economic Development Infrastructure Citizen Participation Organizational Development Communications Financial Stability Five Year Goals ~ Safe community ~ Maintain a financially sound and affordable city government ~ Continue to improve high quality municipal services ~ Revitalize neighborhoods and corridors ~ Enhanced recreation and quality of life opportunities ~ Effective and efficient traffic circulation and transportation ~ Safe and Affordable Homes for All Current and Future Residents 1-16

21 A. Safe Community 1. Continue focused traffic enforcement programs to address specific safety issues and locations. (Police Department) 2. Analyze crime issues and trends in order to provide appropriate public safety response. (Police Department) 3. Facilitate training and education for City staff on emergency operations and provide citizen training and education on the importance of emergency preparedness for their families. (Fire Department/Police Department) 4. Review the Neighborhood Traffic Management Program and make recommendations for improvement. (Public Works) 5. Implement Medical Marijuana (Measure U) Citizen Initiative. (City Manager/Community Development) 6. Implementation of Council Direction for Recreational Marijuana (Proposition 64). (City Manager/City Attorney) B. Maintain a Financially Sound and Affordable City Government 1. Actively track regional, state and federal initiatives that impact La Mesa's ability to maintain vital services and develop strategies to mitigate their impact on the City's resources. (City Manager/Finance/Fire Department/Police Department/Public Works) 2. Inventory City (indoor and outdoor) facilities and create a Capital Asset Management Plan (CAMP) fund to ensure the ability to replace public facilities when needed. (Finance/City Manager/Community Services) 3. Explore options for potential consolidation opportunities in public safety and other city services. (Fire Department/Police Department/City Manager) 4. Research property tax information to assess trends and look for opportunities to maximize the potential to increase property tax revenue (City Manager/Finance) 5. Consideration of a Ballot Measure to Tax Legal Medical Marijuana Facilities and Conditional Taxes for Future Marijuana Facilities. (City Manager/City Attorney/Finance) C. Continue to Improve High Quality Municipal Services 1. Continue to provide ongoing opportunities for community input into the City's strategic planning process at City Council meetings, Town Hall meetings and community surveys. (City Manager) 2. Improve effectiveness of City's communication tools (both emergency and nonemergency) to provide City information to existing and potential residents and businesses. (City Manager/Police Department) 3. Evaluate City owned property for potential development opportunities, partnerships and revenue opportunities. (City Manager/Community Development) 4. Explore feasibility of completion of the next phase of the Civic Center Master Plan project. (City Manager) 5. Continue to update the City's technology systems and operations to more effectively deliver services to residents and businesses. (City Manager) 6. Develop methods within existing City projects and programs to implement the City's Sustainable Building and Program Policies. (Community Development/Public Works) 7. Maintain compliance with the Federal Clean Water Act and the California Porter Cologne Water Quality Control Act. (Public Works) 1-17