CC 2018-02-13_12b Budget Priorities
MEMORANDUM
TO: CITY COUNCIL
FROM: JIM BERGMAN, CITY MANAGER
DEBBIE MALICOAT, DIRECTOR OF ADMINISTRATIVE SERVICES
SUBJECT: CONSIDERATION OF BUDGET PRIORITIES
DATE: FEBRUARY 13, 2018
SUMMARY OF ACTION:
Provide direction on City Council priorities for the FY 2018-20 Biennial Budget.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
There is no direct financial impact of the action other than the staff time required to
prepare the report, however based on the General Fund 10 Year Fiscal Forecast,
significant financial impacts are projected to the City’s budget.
RECOMMENDATION:
It is recommended the City Council provide direction on priorities for the FY 2018-20
Biennial Budget.
BACKGROUND:
The City’s budget provides funding for all City services, infrastructure investments and
activities performed during each fiscal year. The City Council discussed the results of
the General Fund 10-Year Fiscal Forecast on January 23, 2018, which indicated that
the City’s expenditures are expected to exceed revenues and without intervention, all
Fund Balance would be depleted within five years.
Most of the projected funding gap between expenditures and revenues comes from two
external sources, a budget request from the Five Cities Fire Authority (FCFA) and
pension cost increases from the California Public Employees Retirement System
(CalPERS). The CalPERS situation that has resulted in unfunded liabilities due to the
decisions by the State and by most cities to enhance pension benefits decades ago,
poor market performance especially during the dotcom bust and great recession, and
the inability to modify the statewide pension system is predicted to change local
governments in California dramatically (see Attachment 1 for a range of recent articles
and reports).
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The FCFA request is discretionary, however, the CalPERS payment is essentially a
requirement that will be significant, long lasting, and more than likely require major
changes to the way the City conducts business in the future. The length of the impact
can be best summed up by the words of high level representatives from CalPERS and
the Department of Finance at a recent conference – “You (the cities) just have to hang
on for a decade…or two.” The needed changes to operations due to rising pension
costs will occur even though the City to this point has worked to place itself in a positive
financial position. This was accomplished through a fiscally conservative approach to
policies that continues to this day - mainly a reduction in staff throughout the
organization to allow requisite service levels to remain.
DISCUSSION:
Proposed Budget Concepts
Based on the information presented in the 10-Year General Fund Forecast, the next
step in the budget development process is to identify priorities that essentially inform
staff of the boundaries of opportunities for increasing revenues, decreasing
expenditures or, some combination of the two.
Staff proposes the following concepts for developing a draft 2018-2020 budget:
1. Correct and reverse the expenditure/revenue gap within two years by making
services more efficient, more effectively recovering the true cost of services,
and/or reducing non-core and non-essential services and attempting to shift the
provision of these wanted and needed public services to entities that are better
able to perform them.
2. Increase revenues through strategic economic development efforts that
encourage development of numerous vacant and underutilized parcels to not
only fulfill desired retail and service needs of the community but also to ensure
wise fiscal benefits to the City to fund inevitable cost increases of providing core
and essential services.
3. Reduce exposure to volatility of pension payments from potential future actions
by CalPERS such as further reduction of the discount rate or re-amortization of
unfunded liabilities.
4. Once long-term economic and fiscal sustainability is achieved, start to build a
community vision of future wants (i.e. long-term use of Camp Arroyo Grande,
better sports facilities and fields, etc.) and identify new revenue sources to build
and support these efforts such as increased taxes or bond measures.
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ANALYSIS OF ISSUES:
Core and Essential Services vs Non-Core and Non-Essential Service
There are two methods that are frequently used to correct budget deficits by decreasing
expenditures – across-the-board cuts to all departments and operations or strategically
reducing services by differentiating between core and essential services and those that
are not core and not essential. Staff proposes the second option due to several
advantages of setting priorities based upon the concept of core and essential services
including:
Setting a rational framework for decision-making that reaches beyond mere
popularity of specific programs and ultimately aligning what services citizens
expect with what their city can afford
Gaining a better understanding of what services local governments are legally
obligated to provide
Fully understanding what services and to what extent residents expect specific
services
Defining specific direct and indirect impacts to residents from specific services
Staff suggests the following as core and essential services and looks for direction from
the Council to validate or modify these assumptions:
BUSINESS OF GOVERNMENT
High level of stewardship of Public resources and money
Transparency of Government (Open government practices, meetings,
decision-making)
Professional management of personnel
Fair and open elections
PUBLIC HEALTH
Provision of safe drinking water in amounts and sources that allows for
reliable quantities during droughts
Provision of a fire hydrant system to allow for adequate fire suppression
Provision of sanitary sewer system and treatment of wastewater
PUBLIC SAFETY
First Preventers
o Engineering services to prevent flooding, landslides, and
uncontrolled traffic and to limit future city expenses caused by
development proposals
o Maintenance of drainage basins and storm water conveyances
o Building permits and inspections to ensure structures meet basic
life safety standards
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o Reasonable planning and zoning regulations and enforcement to
avoid decreases in property values due to incompatible uses and
substandard development
o Upkeep of public property to avoid injuries and cost from claims
and lawsuits
First Responders
o Police
Police Administration
24/7 Patrol Services with 3 officers on patrol during most
hours
Records and Property and Evidence
Traffic and parking enforcement during peak times and in
key areas such as schools and highly traveled commercial
areas
Detective services
School Resource Officer
Fleet management
o Fire
24/7 Fire and emergency response services within 6 minutes
of a call
Fire prevention services (commercial safety inspections,
weed and vegetation abatement and enforcement)
Fire investigations
Fleet management
o Public Works
Maintenance and emergency repair of previous investments
in vital public infrastructure
Fleet management
GENERAL WELFARE
Transportation Systems
o Maintenance of
Roads at the Pavement Condition Index adopted by the
Council
Bike lanes
Sidewalks
Signals and striping
Street lights
Medians
Parks and Open Space
o Upkeep and maintenance (fire/fuel hazard reduction) of current
passive parklands and open space
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Community Appearance
o General cleanliness
Street sweeping
Litter removal
Public trashcans
Graffiti removal and enforcement
Street trees
Mandated responsibilities from the State and other Governments
Important but not Necessarily Essential Services
The following are services currently provided by the City through property, sales and
other taxes and fees. These services are considered important but not necessarily
essential.
Parks
o Playgrounds
o Sport Facilities
Baseball and softball fields
Soccer fields
Football fields
Pickleball courts
Tennis courts
Basketball courts
Horse shoes
o Sport Facilities Support Services
Scheduling of field use for sports leagues
Arrangement for referees for sports leagues
Lighting of fields for night use by sports leagues
o Specialty Parks
Community garden
Dog park
o Community Facilities
Woman’s Center
BBQ and picnic areas
Recreation
o Child Care and Development Services
Daycare
Pre-school
Summer camps
o Community Events
Father Daughter Date Night
Family Egg Hunt and Festival
Halloween Maze
Etc.
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Issues of Statewide or County Concern
o Human Services
Sheltering of people
Food service programs
Mental health
Legal services
If the approach is used, staff is prepared to seek community input on these service
categories through a survey in order to give feedback to staff and the Council of these
assumptions.
Existing and Proposed Additional Priorities
The last priorities adopted by the Council can be summarized as:
Improve financial sustainability through economic development
Support City infrastructure
Improve cost-recovery on services
Retain and attract employees
Make decision about Brisco Interchange project
Increase water security
Enhance parking
Maintain cost-effective fire service
Due to the very real and significant increase in pension costs and in order to implement
the proposed budget development framework, it is recommended that priorities for the
upcoming budget include goals that are more sharply defined and linked to quantifiable
objectives. Staff suggests:
1. Within two years, reverse the expense/revenue gap by doing the following:
a. Within the first year of the budget, reverse the gap between expenditures
and revenues to result in approximately $157,000 surplus to be added to
the reserves. This equates to reducing expenses by $450,000.
b. By the end of the second year of the budget, reverse the gap between
expenditures and revenues to result in a $1,386,000 surplus to be added
to the reserves. This equates to further reducing expenses by $450,000.
c. Goals a and b shall be accomplished by:
i. Focusing City resources first to services identified as “Core and
Essential” and fund these services to fully meet adopted City
policies.
ii. Ensuring that Core and Essential services are “Right Sized” based
upon accepted metrics of service outcomes.
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iii. Analyzing “non-core and non-essential” services and make budget
recommendations of how the City can more efficiently provide the
service, find another entity to provide the service, or find additional
revenues to support the service.
2. Increase revenues by:
a. Analyzing City costs to provide services and consider achieving full cost
recovery for a wider range of services
b. Encouraging economic development in order to achieve identified service
outcomes for core and essential services (This will require the addition of
$180,000 in revenue above and beyond normal assumptions starting in
year three growing to total new revenue of $390,000 by year 10).
Achieving Goals 1 and 2 above would result in closing the revenue/expenditure gap in a
sustainable manner, as depicted below.
3. Reduce exposure to volatility of pension payments by the end of year two by:
a. Analyzing and making recommendations on tools such as pension
prepayments and Section 115 Trusts.
4. Begin to study options to develop new revenue sources such as a future tax
measure for new or expanded services.
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ALTERNATIVES:
- Provide direction on City Council priorities for the FY 2018-20 Biennial Budget
- Do not provide direction on City Council priorities for the FY 2018-20 Biennial
Budget
ADVANTAGES:
Providing direction will assist staff in developing a Biennial Budget that is responsive to
the City Council and community priorities, while maintaining economic feasibility.
DISADVANTAGES:
There are no disadvantages to providing information for the community, City Council
and staff regarding the City Council’s budget priorities.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachment:
1. Internet links to an assortment of recent articles and studies related to CalPERS
pension costs
Item 12.b. - Page 8
ATTACHMENT 1
Assortment of recent articles and studies related to CalPERS pension costs
http://www.sacbee.com/news/politics-government/the-state-
worker/article198062129.html
http://www.cacities.org/Resources-Documents/Policy-Advocacy-Section/Hot-
Issues/Retirement-System-Sustainability/League-Pension-Survey-(web)-FINAL.aspx
https://californiapolicycenter.org/much-will-cities-counties-pay-calpers/
https://siepr.stanford.edu/sites/default/files/publications/17-023.pdf
https://calmatters.org/articles/commentary-surging-pension-costs-push-california-cities-
toward-bankruptcy/
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