CC 2020-04-28_11b Short-term Budget Balancing StrategiesMEMORANDUM
TO: CITY COUNCIL
FROM: MICHAEL STEVENS, ADMINISTRATIVE SERVICES DIRECTOR
SUBJECT: DISCUSSION AND CONSIDERATION OF IMPLEMENTING
STRATEGIES TO ADDRESS THE PROJECTED FY 2019-20 BUDGET
SHORTFALL
DATE: APRIL 28, 2020
SUMMARY OF ACTION:
Review and discuss implementing strategies to address the projected FY 2019-20 budget
shortfall due to impacts from the Coronavirus (COVID-19) pandemic.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The current projected budget deficit due to revenue shortfalls brought on by the
Coronavirus is approximately $1.2 million in FY 2019-20. The following discussion
addresses the budget shortfall by introducing short-term budget balancing strategies that
if implemented will correct the current financial shortfall.
RECOMMENDATION:
It is recommended the City Council discuss and consider implementing strategies to
address the projected FY 2019-20 budget shortfall.
BACKGROUND:
On March 24, 2020, the City Council adopted a Resolution ratifying the existence of a
local emergency in response to the Coronavirus pandemic. In an effort to slow the spread
of the disease, the Centers for Disease Control and Prevention, the California Department
of Health, and County of San Luis Obispo have issued shelter at home directives to
enforce physical distancing, prohibited group events, and taken other precautions to
protect health and prevent transmission of this highly communicable virus. As a result of
the public health emergency and shelter at home directives, many City residents and local
businesses will experience income loss, ultimately impacting the City’s ability to generate
revenue.
On Tuesday, April 14, 2020, staff presented an update on the revenue impacts due to the
Coronavirus (COVID-19) pandemic. The update identified three of the City’s largest
revenue sources, as well as recreation fees, and the projected fiscal impact that various
governmental orders and actions needed to slow the spread of the Coronavirus will
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CITY COUNCIL
DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
ADDRESS THE PROJECTED FY 2019-20 BUDGET SHORTFALL
APRIL 28, 2020
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potentially have on revenue estimates for the final quarter of this current fiscal year, which
is from April 1st and ends June 30th, 2020. The four revenue sources are listed in Table 1
with their projected shortfalls.
Table 1 – Forecasted Revenue Shortfall
Revenue Shortfall
Sales Tax $ 550,000
Transient Occupancy Tax $ 300,000
Property Tax $ 200,000
Recreation Fees $ 183,000
Total $1,233,000
While the previous update to the City Council focused on identifying major revenue
impacts due to the Coronavirus, that update did not attempt to provide solutions to
address these shortfalls. Staff is prepared to discuss short-term strategies that if
implemented will address the forecasted financial shortfall in the current year.
ANALYSIS OF ISSUES:
The national and state response to the Coronavirus, combined with the uncertainty of
how long the presence of the virus will disrupt the local economy, has made forecasting
particularly challenging. So far, California’s Governor has not yet provided a timeframe
for lifting the shelter at home order, which would allow people to return to work and
businesses to reopen. Some estimates are that the statewide shelter at home order will
continue until the end of May 2020 with a potential for the virus to run its course by the
end of September.
Estimating whether revenue short-falls are of a short-term or long-term nature becomes
an important consideration in developing and implementing budget balancing strategies
and bringing about structural balance in the current fiscal year. Since the Coronavirus,
and the fiscal challenges brought on by attempting to control the virus, is believed to be
an isolated event and not a downturn that is likely to continue indefinitely, short-term
budget balancing strategies are being recommended. If we believe that the downturn in
revenues or increase in costs are systemic, then long-term balancing strategies would be
more appropriate. The goal with either approach is to strike a balance between
maintaining fiscal health, while also minimizing the impact of budget reductions which
effect community services and City staff. The benefit of implementing short-term budget
balancing strategies is that they yield a positive return in a short period of time, they are
not complicated to implement, and they can be reversed if the financial climate improves
or the intended fiscal impact has been achieved.
The immediate goal at hand is to address the revenue shortfall in the current fiscal year
with short-term budget balancing strategies. However, it may be necessary to continue to
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CITY COUNCIL
DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
ADDRESS THE PROJECTED FY 2019-20 BUDGET SHORTFALL
APRIL 28, 2020
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implement these strategies as we focus on the preparation of next year’s FY 2020-21
budget. The following are short-term strategies for City Council consideration.
RECOMMENDED SHORT-TERM BUDGET BALANCING STRATEGIES
Hiring Chill
In a hiring chill, City Manager approval would be required to fill vacant positions. The City
Manager will only approve filling vacant positions if the Department Director can
demonstrate that the position is necessary to meet public health, safety or other high
priority needs that cannot be met on an interim basis through contract, overtime or
temporary staffing.
Staff is recommending implementing a hiring chill for the final quarter of this fiscal year.
Excluding part-time staff, there are currently four vacant permanent positons at some
phase in the recruitment process. Two of the vacancies are within the Police Department
and one each in the Community Development and Public Works Departments. The
average salary and benefit cost for each of these four positons is $72,900 per year, or a
total of $11,200 per payroll period (two weeks). With eight payroll periods remaining in
the final quarter of the fiscal year, keeping all four positions vacant would result in
additional savings of $89,600 in the final quarter.
As previously discussed, recreation fees will be significantly impacted in the months of
April through June as staff and City residents adhere to the shelter at home directive. This
has resulted in the temporary closure of recreation programs. There are currently 23 part-
time recreation services staff that are currently being furloughed until recreation programs
can once again begin serving the public. It is anticipated that many of these part-time staff
will file claims for unemployment relief. Since the City is self-funded, the City is billed by
the Employment Development Department (EDD) for approximately two-thirds of the part-
time staff’s regular salary. On average, recreation part-time staff salary costs per payroll
period is $13,200 and the portion paid out through unemployment claims would be
$8,800, leaving potential savings of $4,400 per payroll period, or $35,200 with eight
payroll periods remaining in the final quarter.
Although not a result of implementing a hiring chill, salary and benefit savings for the first
nine months of the year (18 payroll periods) should be included into any discussion on
estimated labor savings this fiscal year. Salary and benefit savings for the first nine
months of the year equated to approximately $295,000.
The current year-to-date salary and benefit savings through the first nine months of the
fiscal year and the additional salary savings for the final quarter, if a hiring chill is
implemented, is reflected in the estimated savings amount below.
Estimated Savings $419,800
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DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
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Travel Chill
The goal of a travel chill is to limit travel and training related costs to achieve short-term
savings. During a travel chill, the City Manager is responsible for authorizing and
approving all travel and training activities. It is estimated that $32,000 in
travel/conference/training cost remains unspent through the end of March. It is realistic to
assume that 80% of travel and training can be suspended or postponed for the remainder
of this current fiscal year, saving approximately $25,600.
Estimated Savings $25,600
Operating Cost Review
One effective short-term budget balancing strategy is to identify special projects,
contractual services, and ongoing expenses in the budget for possible deferral or
elimination. City fiscal staff met with each Department Head over the past week to review
their current budgets with the challenge of identifying unspent expenditures, postponing
non critical expenditures, or eliminating certain expenditures all together. Staff identified
a number of expense reductions for FY 2019-20 that if delayed, postponed, or eliminated
will result in savings within the current fiscal year. The total amount of the identified
savings is $294,000. The detailed analysis of each department’s savings is reflected in
Attachment 1.
Estimated Savings $294,000
Identifying Revenue Options
The City has a separate Local Sales Tax fund to track revenue and costs associated with
the local half-cent sales tax Measure O-06. In 2006, voters of Arroyo Grande approved
Measure O-06, which established a half-cent local sales tax to meet funding needs
identified in the City’s long range financial plan for infrastructure improvements, including
street, drainage and creek systems; transportation projects; public safety needs; and
facility upgrades to meet American with Disabilities Act (ADA) requirements.
In the City’s FY 2019-20 adjusted budget, approximately 91% of the Five Cities Fire
Authority’s (FCFA) budget was funded through the City’s primary operating fund, the
General Fund, and the remaining 9% was funded by the Local Sales Tax Fund. Our
current forecast assumes that more of the FCFA financing will come from the Local Sales
Tax Fund rather that the General Fund. Shifting 11% of FCFA funding from the General
Fund to the Local Sales Tax Fund will generate savings this year of $286,000. The Local
Sales Tax Fund has sufficient fund balance to absorb the additional allocation for the
current year and into the future.
Estimated Savings $286,000
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DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
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Reduce General Fund Contingency
The City has a Contingency Reserve where funds are set aside to protect against
unexpected or unforeseen losses that result in short-term budget gaps. The City’s Fiscal
Policy provides guidance on setting a Contingency Reserve amount and on maintaining
adequate reserve balances. Per the policy, it states that the City should maintain a Fund
Balance reserve goal of 20% of expenditures with a minimum of 15% in General Fund
reserve. In addition, a minimum of 5% of the reserve goal should be set aside and
identified as a Contingency Reserve.
The adjusted FY 2019-20 budget anticipates an ending Fund Balance of $3.8 million or
18% of total expenditures. The fiscal year started with a Fund Balance of $5.7 million, or
31%, but was reduced by $2 million dollars due to the pre-payment of CalPERS retirement
costs. Each 1% of Fund Balance reserve equals approximately $207,000. Reserves are
one-time in nature and the use of reserves to fund operational expenditures should be
limited and not considered to be a long-term operational funding source. Staff recommend
reducing the Contingency Reserve in the current fiscal year from 5% to 4% to address
the shortfall in revenues.
Estimated Savings $207,000
Table 2 summarizes the discussion up to this point. The budget shortfall is addressed
with short-term budget balancing strategies along with actual labor savings to date.
Table 2: Proposed Short-Term Balancing Strategies and Existing Salary Savings
Short-term savings FY 2019-20
Hiring chill permanent staff (4 positions - April – June) $89,600
Hiring chill part-time rec staff (23 positions - April – June) $35,200
Travel chill (April – June) $25,600
Operating cost savings $294,000
Increase local sales tax allocation for FCFA $289,000
Reduce Contingency Reserve to 4% $207,000
Total Short-Term Balancing Strategies $940,400
Existing labor savings
Actual salary savings through March 31 $295,000
Total Forecasted Savings $1,235,400
While staff has recommended the foregoing short-term budget balancing strategies, it in
no ways represents all the short-term balancing strategies available to the City. The
following are additional short-term budget balancing strategies that can be considered,
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DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
ADDRESS THE PROJECTED FY 2019-20 BUDGET SHORTFALL
APRIL 28, 2020
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yet are not recommended at this time. If the current strategies recommended are not
effective or do not achieve the intended fiscal impact, then some of these additional
strategies may be implemented.
ALTERNATIVE SHORT-TERM BALANCING STRATEGIES
Voluntary Time Off (VTO)
City staff may take up to a given amount of VTO hours within a given year with appropriate
Supervisor and Department Head approval. One of the most powerful uses of a voluntary
time-off policy is as a cost-cutting measure. While the City would still have to bear the
employer share of benefit costs for staff utilizing VTO, the savings comes from staff
foregoing their normal pay for those days taken. Instituting a voluntary time-off policy can
in some instances increase employee satisfaction and also potentially prevent the City
from having to reduce costs through more drastic measures like Mandatory Time Off or
layoffs. While VTO programs are more effective over a full fiscal year, VTO could be
offered for a shorter period, as would be the case for the final quarter of this year. Since
VTO depends on staff volunteering for time off, it is difficult to determine upfront the
enthusiasm and participation of a VTO offering. Without clear estimates on participation,
estimating the financial savings becomes more difficult in the long run.
Mandatory Time Off (MTO)
Otherwise known as an unpaid furlough program, a mandatory time-off program is one
way to avoid layoffs. Typically, City staff is required to take a number of mandatory days
off or the City offices close for a scheduled number of days, usually set to match the
savings targeted by the City. Individuals that are required to take MTO are not paid their
salary but continue to receive benefits and time in service credits for retirement purposes.
Mandatory time off has its disadvantages in that it can lower employee morale and
temporarily reduce services provided to the public. Staff is not recommending MTO as a
short-term budget strategy to address the current financial gap due to the shortened
timeframe this year, but may be considered for the upcoming FY 2020-21 budget if
necessary.
COVID-19 Stimulus Money
The existing CARES Act, and the Coronavirus Relief Fund authorized under the bill, does
not provide for local Cities unless they have a population exceeding 500,000 residents.
The National League of Cities is calling on Congress to advance a fourth emergency
appropriations package to address the immediate need for local relief by making direct
emergency funding available to every city in need, regardless of population. Staff will
continue to monitor the availability of any stimulus monies. If local stimulus monies are
made available, those monies will help mitigate some of the other short-term budget
balancing strategies put in place.
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CITY COUNCIL
DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
ADDRESS THE PROJECTED FY 2019-20 BUDGET SHORTFALL
APRIL 28, 2020
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ALTERNATIVES:
1. Discuss and consider implementing strategies to address the projected FY 2019-
20 budget shortfall;
2. Direct staff to provide more specific information at a later date; or
3. Provide other direction to staff.
ADVANTAGES:
Implementing short-term strategies will address the projected budget short-fall and
establish ongoing financial stability with little impact on service levels.
DISADVANTAGES:
There are no disadvantages.
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.
Item 11.b. - Page 7
Attachment:
1. Operating Cost Review Detail ‐Identified savings
CITY COUNCIL
DISCUSSION AND CONSIDERATION OF IMPLEMENTING STRATEGIES TO
ADDRESS THE PROJECTED FY 2019-20 BUDGET SHORTFALL
APRIL 28, 2020
PAGE 8
Attachment 1
Operating Cost Review detail ‐ Identified savings
Department Savings Comment
Community Development
East Grand Master Plan 42,000$ Delay costs associated with plan
Housing Element update 33,000$ Work on Housing Element was delayed
Reductions in contractual services 12,000$ Various reductions in contractual services provided
Recreation Services
Recreation 30,000$ Recreation savings associated with COVID‐19 shut down
Information Technology
PD data storage device 23,000$ Primary savings due to revision of existing support agreement
from 3 yrs. to 1 yr.
Savings on various project costs 14,000$ Realized price reductions on projects due to decreases in
various equip and licensing costs at the time of purchase
City Clerk
Cablecasting Services 10,000$ Costs savings primarily due to cancellation of Planning
Commission meetings this fiscal year
Public Works
Delay or eliminate various contractual services 30,000$ Savings on traffic signal services and misc. consulting work
Postpone non critical landscaping services 15,000$ Postpone non critical contracted landscaping services
Defer Soto Complex maintenance 5,000$ Defer certain maintenance at Soto Complex until recreation
programs can start back up
Anticipated savings in building maintenance 10,000$ It is expected that building maintenance costs will be below
budget
Police Department
Postpone new leases on police vehicles 50,000$
Previously leased vehicles now owned by City until a lease for
new vehicles can be negotiated
Delay implementation of Canine Program 10,000$ Delay the implementation of Canine Program to save costs
Administrative Services
Identified savings for employee negotiations 10,000$ Delays or shortened labor negotiations resulting in lower
contractual services
Total Savings 294,000$
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