Meeting Date: February 17, 2015
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9. Resolution of the City Council of the City of Livingston Approving the Recommended 2014-15 City of Livingston Mid-Year Budget Revisions.
AGENDA ITEM: Resolution of the City Council of the City of Livingston Approving the Recommended 2014-15 City of Livingston Mid-Year Budget Revisions.
MEETING DATE: February 17, 2015
PREPARED BY: Odi Ortiz, Interim City Manager/Finance Director
REVIEWED BY: Odi Ortiz, Interim City Manager/Finance Director
Adopt Resolution No. 2015-_, approving the City of Livingston recommended 2014-15 Mid-Year Budget Revisions.
The City’s financial records show that the City has depleted its General Fund balance (reserves) over the last 10 years. A decade of continuous deficit impacts has resulted in low levels of General Fund/Reserves & cash balances through the end of 2012-2013.
The City had over 100% of fund balance in 2002 to cover its annual operating costs of over $3.5 million. This fund balance (reserves) was reduced to approximately 60% of annual operating expenditures by 2007 as expenditures materially increased to over $5.6 million.
Five years later, the fund balance for fiscal year 2012-13, as of June 30, 2013, decreased to $843,000 which was below 20% of the City’s projected annual expenditures. Decreased fund balance in 2013 reflects the write-off of the Outstanding Notes Receivable (Loan) from the former RDA in the amount of $511,000. The State Department of Finance declared this loan to be an un-enforceable obligation.
The State Office further declared in 2014 that the City RDA loan payments made in 2010-2011 in the amount of $700,000 were not allowable and, therefore, the City must pay back these funds. After nine (9) years of continuous general fund operating deficits, the City was able to realize an operating surplus in fiscal year 2013-14 of over half a million dollars.
Despite the realized surplus the general fund balance/reserves decreased by over $116,000 due to recording/recognizing the $700,000 State demand as a liability on the City books.
A similar scenario is reflected on the City’s cash balance in the general fund. These are the results of the continuous economic challenges Livingston, along with many other agencies, faced since 2007.
A thirteen (13) year cash review reflects that Livingston’s general fund balance was at its highest at fiscal year-end June 30, 2003, with a balance of $2.2 million or 59% of annual operating expenditures which is equivalent to nearly seven (7) months of annual operating expenditures.
This balance dropped to 24% or 2.88 months of annual operating expenditures by the end of 2011 and further decreased in 2013 to 13% or 1.56 months of annual expenditures.
The surplus achieved in 2013-14 increased the cash balance to 30% or 3.6 months of annual operating expenditures and a June 30, 2014 cash balance of $1.3 million.
Replenishing City’s fund balances & cash balances is critical in order to address liabilities in the near future. These unfunded liabilities include, but not limited to; the $700,000 City to RDA loan demand, OPEB (Other Post-Employment Benefits) at over $3.8 million as of June 30, 2013 and Calpers (retirement) unfunded liabilities on Safety and Miscellaneous members totaling over $3.5 million reflected on the June 30, 2013 actuarial valuation reports.
These unfunded liabilities are currently being amortized over a 30- year term for cities to pay-off (Smoothing method adopted by Calpersin 2014). Cities have an option to pay these sooner by selecting a 10 or 15 year amortization or pay extra annual payments. Changes approved by Calpers in 2014 will have cost impacts to employers (cities) in the near future starting in 2015-16.
All bargaining units have contributed towards the final operating results between 2013 to 2015 through pay cuts, furloughs, and contributions towards medical premium costs. We thank all units, City management, Council and residents for their support at improving the City’s financial conditions.
The City adopted the 2014-15 in mid-August, 2014. Revenue and expenditure projections were made based on available and known information at that point in-time. In general, data for property tax & sales tax revenue activity normally lags 3-6 months; therefore, we rely on the best estimates possible from our consultants involved in the budget process, trend and market activities, etc.
Original budget projection reflected modest/conservative general fund revenue projections for property tax, sales tax and construction fees. These three types of revenues were impacted significantly right after the economy collapsed in 2007. The assessed values of over 1800 Livingston parcels were impacted, construction development came to a freeze through 2013 and sales tax area has been volatile (fluctuating) over the last fiscal years.
The City generates more than half of sales tax revenues from gas and diesel sales. The City achieved a good level of recovery in 2013-14, property assessed values were modified on about 450 parcels which resulted in a property tax revenue increase.
Management approached the County on several occasions requesting them to consider a more aggressive approach in modifying assessed property values on those Prop 8 parcels. Management and City team were able to begin development construction on a few projects and partial fees were collected at the end of 2014. Sales tax revenues in 2013-2014 decreased compared to the prior two fiscal years.
Adopted general fund operating revenues were projected at $4.6 million based on readily available data when the budget was prepared. A mid-year budget review has been performed by the finance department. This process included, but not limited to; internal general ledger analysis, discussions with staff/management/consultants for updated data/operating changes, market analysis, and analyzing possible impacts on employee benefits.
2014-15 General Fund Revenue Revisions:
Latest revised projections received at the end of December and early January from HDL Companies on property tax and sales tax revenues are positive. These revised projections show an increase in property tax revenues in the amount of $201,000, including property tax in-lieu of sales tax and vehicle license fees. Report shows an increase in Prop 8 parcel assessed valuations, with over 775 properties being modified on the 2014 tax rolls.
This is almost twice as many parcels being modified compared to prior year. Sales tax revenue projections also show a potential increase of $75,000 by the end of fiscal year.
Several development projects like Auto Zone, CVS, and Rancho San Miguel are reflected on the revised projections as we anticipate opening for business during fiscal year 2014-15. The increase in sales tax is also due to modest gas & diesel prices throughout 2014. If gas/diesel prices continue to drop, this could lead to a minor drop in sales tax revenues in 2015-16 per HDL Companies. More than half of City’s sales tax revenues are derived from gas and diesel sales.
Construction fees including encroachment fees need to be modified to reflect the completion of Rancho San Miguel, CVS and other possible projects through end of June 2015. A $73,000 increase in those areas is suggested.
Other miscellaneous revenue areas reflect an increase of approximately $54,000. These areas include Sweet Potato Festival in 2014, State Mandated Cost Reimbursements, refunds and RDA Residual Tax Revenues.
Recommended revised general fund revenues are projected at $5.0 million with a $400,000 increase from adopted projections (please see Exhibit A Section 1 for details).
General Fund Expenditure Revisions:
Per budgetary concession reached with several units after budget was adopted, anticipated savings from these concessions are estimated at $52,000. The following contract service cost adjustments are suggested to complete fiscal year 2014-15; increase in admin contract cost of $4,800 to cover a claim from Maximus Financial Services on possible amounts due for fiscal year 2002-2008 related to SB90 State Mandated Cost Claims.
An increase of $7,000 on Police contract cost for same claims from Maximus Financial Services, and $25,000 increase to Building contract cost to cover services for our building official/inspector/code enforcement officer and permit technician through June 30, 2015.
Due to recent development projects, their level of services increased. The City is currently reviewing a proposed rate increase from our WC3 consultant covering these service areas. The proposed fee increase is significant and, therefore, the City may go out for an RFP as early as March 2015. Management will seek input and Council direction during this mid-year budget discussion.
Expenditure revisions also reflect an $8,000 addition for a much needed Housing Element study.
Total anticipated general fund expenditure revisions for 2014-15 are $ (7,300). Assumptions include, continue to hold vacant several positions within the City through June 30, 2015 and no extraordinary activities will transpire by end of fiscal year.
Recommended revised general fund expenditures are projected at $4.638 million with a $7,300 decrease from adopted projections (please see Exhibit A Section 1 for details).
Revised General Fund net operating results for 2014-15 are estimated at a surplus of $365,000 with a Fund Balance of $1.1 million at year-end.
Special Revenue Funds:
Expenditures for COPS/Law Enforcement Fund, Community Facilities District, Police Development Impact Fees, and Street and Bridges Impact Fee Funds are being increased by a net of $107,000 to fund a vehicle for Public Works Streets, safety equipment for Police and Fire. The funding of these purchases will come from reserves. Revisions also include$6,700 grant revenue to pay half the cost of bullet proof vests for our police department. Please refer to Exhibit A Section 2 of attached report.
Enterprise Funds (Water, Sewer, and Sanitation):
Water Operations Fund:
Original user fee revenue projections of $2.605 million need to be adjusted by 2% or $(52,000) to $2.553 million to account for decline in residential water usage from July 2014 through January 2015 compared to prior year.
Decrease in water consumption will assist in supporting water conservation measures being enforced at the State level. This decrease in water consumption may also assist the City in qualifying for grant funding.
Professional services and depreciation costs will increase by $66,000. Operating expenditures are being modified to offset the non-anticipated decrease in water revenues. Transfers Out-to Capital fund was decreased by $74,000. Personnel cost savings are estimated at $35,000 based on budgetary concessions reached plus vacant position(s) through June 30, 2015.
Net expenditures are modified down by $43,000 from $2.381 million to $2.338 million.
Anticipated operating net results for 2014-15 is a $372,000 surplus.
Water Capital Fund:
Net adjustments to capital revenues are ($59,000) primarily due to less transfer of funds from the Water Operations fund as a measure to offset a slight drop in operating revenues.
Capital fund revenues are being adjusted from $4.99 million to $4.93 million. Minor capital expenditures are postponed to next fiscal year 2015- 16 (Scada system upgrades & minor equipment purchase).
An additional $175,000 is needed from the TCP pool to complete improvements to Well #8 project (treatment for TCP). Expenditures are modified from $6.258 million to $6.367 million.
Anticipated operating net results for 2014-15 is a ($1.44 million) deficit or use of reserves to fund the following capital projects; completion of Well #8 improvements, connecting Well #14 to Well #8 project and partially fund Well #17 project. These capital expenditures should improve water quality and water supply in the City of Livingston by the end of 2015.
Domestic Wastewater Fund:
The original $2.09 million in user fee revenues projected needs to be modified by ($78,000) down to $2.01 million.
Adjustment is necessary due to material impact from closure of a commercial customer and projected customer growth rate of 1.2% in rate study will not be met by June 30, 2015.
Other revenue categories will increase by $48,000 due to sale of facility dirt bringing our total anticipated revenues to $2.09 million. Original Operating Expenditures of $2.181 million will increase by $15,000 to $2.197 million. Please see Exhibit B Section 3 of detail report attached for expenditure adjustments.
The wastewater treatment plant has been managed/overseen by a part-time consultant since January 2014 to assist in complying with State certification requirements.
One of our sewer operators has successfully achieved a Grade III in both water and sewer. This individual has been the chief operator of several wells that have been enhanced with water treatment systems. Management will entertain the possibility to transfer/promote this individual to a level III position to meet the State certification requirements internally.
Anticipated operating net results for 2014-15 is a small $39,000 surplus.
Domestic Wastewater Capital Fund:
Transfer-in Revenues from Operating Fund will be increased by $55,000 from $210,000 to $265,000 bringing total annual revenues up to $290,000 to fund Capital Improvement projects like the Scada System upgrades on our sewer treatment facility and lift stations. The Sewer Scada version in place is obsolete and must be upgraded this year to avoid cancellation of support services. The Scada System upgrade project is highly recommended to be addressed in one-phase in 2015 at a cost of $208,000. Capital expenditures will be adjusted from $235,000 to $290,000.
Anticipated net results for 2014-15 are $0 (break-even) and no impact to fund balance/reserves.
Sanitation Enterprise Fund:
The original projections of $1.17 million in User Fee Revenues will increase by $110,000 to $1.28 million primarily due to findings (corrections) as a result of a 2014 internal and field audit of customer accounts.
Operating expenditures are expected to increase by $58,000 from $988,000 to $1.04 million. Increase in operating expenditures is due to vehicle repairs, service rate increase to Gilton Solid Waste approved in 2014, along with other miscellaneous areas which need attention in 2015.
Anticipated net results for 2014-15 is a $250,000 operating surplus. The cash deficit of nearly $430,000 from 2012 has been eliminated as of January 2015. A positive $21,000 cash balance remained as of O 1/31/15. The negative $382,000 fund balance as of 2012 will also be eliminated by end of 2014-15 with an anticipated fund balance of $147,000 by June 30, 2015.
Approve the FY14-15 recommended mid-year budget revisions and/or provide direction to management.
The fiscal impact of the mid-year revisions is contained in the budget reports attached Exhibits A & B. Management will continue to review & discuss the pay-out of the $700,000 City to RDA loan amounts due to the Successor Agency (State), future Calpers (retirement) costs along with addressing the City’s Unfunded Liabilities currently totaling over $7.3 million.