11 Fiscal Year 2015-2016 Budget Presentation: Workshop #2 – General Fund Operations Update and Review of Enterprise Operating Funds and Successor Agency to Redevelopment Agency.

MEETING DATE: June 02, 2015

AGENDA ITEM #5

Note from TheGardeningSnail. Parts of this page may have been created by running a PDF Image file through a program that converts Image to Text. My apologies for any Textual Gremlins that may have crept in. I’ve also broken up some of the longer paragraphs to make reading easier.

STAFF REPORT

AGENDA ITEM: Fiscal Year 2015-2016 Budget Presentation: Workshop#2-General Fund Operations Update and Review of Enterprise Operating Funds and Successor Agency to Redevelopment Agency.

MEETING DATE: June 2, 2015

PREPARED BY: Odi Ortiz, Interim City Manager/Finance Director

REVIEWED BY: Odi Ortiz, Interim City Manager/Finance Director

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RECOMMENDATION:

City Council to review budget projections for fiscal year 2015-16 and provide staff with recommendations and/or direction.

BACKGROUND:

The City of Livingston held its first 2015-16 budget workshop at the May 5th Council meeting where the focus of presentation and discussion was in the General Fund operating areas.

SECTION ONE: FY15-16 GENERAL FUND FISCAL IMPACT UPDATE

Revised projections do not reflect any possible financial impact associated with pending union negotiations and assumes the City ending furloughs and wage reductions currently in place through June 30, 2015.

Summarv of 2015-16 General Fund Revenue Projections: Our conservative projections reflect total General Fund revenues of $5.l 7 million for 2015-16, a modest increase of $166,000 (over 3%) compared to revised 2014-15 budget.

Expenditures

Preliminary projections include the following assumptions; ending furloughs, pay cuts and vacation cash out freeze as of June 30, 2015 and a minor increase to medical benefit premium costs per plan options selected by the City Council on May 26th. Preliminary projections attached do not reflect any possible financial impacts associated with pending union negotiations.

General Fund projections reflect an overall increase in costs of $164,000 compared to the 2014-15 revised budgets. Increase is primarily in City personnel costs if the City decides to end budgetary measures mentioned above at the end of fiscal year 2015.

Total Revised Projected General Fund Expenditures for 2015-16 are $4.85 million.

Preliminary budget projections reflect an operating surplus in the General Fund area in the amount of $318,000 (Revenues exceeding expenditures).

SECTION TWO: 2014-15 Enterprise Funds: Water Operating Fund:

Per recent utility rate study and Prop 218 hearing process, new water rates were adopted in July 2014 and may remain in effect through 2018. Based on this study, operating costs, capital improvement plans and revenue requirements were outlined through end of 2018. Purpose of rate increases include; improve water quality, generate sufficient levels of revenues to cover ongoing annual operating costs, and eliminate cash deficit.

Based on the adopted new water rate schedule, user revenues were projected to increase to a more reasonable level throughout the five year period permitted on utility rate study. Revenue levels were expected to increase from $1.4 million in 2013-14 to $2.6 million by 2014-15 and to $3.0 million by 2015-16.

The new rate structure is supposed to generate enough revenues to eliminate the current cash deficit in the next two fiscal years. Revised current budget projections for 2014-15 reflect a cash operating surplus in the amount of $570,000 and a $337,000 surplus net of annual depreciation. This is the first significant surplus in last five years.

Anticipated Drought Related impacts to Water Revenue Levels:

The State’s mandate on water conservation measures could have a significant financial impact on agencies’ revenue levels. The drought conditions could also pose a series of water supply challenges and have significant impacts to operational costs on many municipalities including the City of Livingston.

Water user fee revenues were decreased by $52,000 during the 2014-15 mid-year budget review to account for decrease in water consumption by Citywide customers. These impacts will continue through 2015-16 as the State demands compliance with the water conservation measures approved by Governor Brown on April 1, 2015, mandating a 25% water use reduction from water agencies.

City’s 2015-16 projected water sales revenues reflected on recent utility rate study are being modified down by $128,000 as a conservative estimate on drought related financial impacts.

2015-16 preliminary revenue projections include $2.9 million in water sales, and approximately $160,000 in other types  including $147,000 from water meter replacement fees for a total of $3.1 million in water revenues (see page 1).

2015-16 annual operating expenditures in the water enterprise fund are estimated at $2.79 million including depreciation (non-cash expense). Personnel costs are expected to increase by 9% or $46,000, overhead operation costs are increasing by 18% or $212,000 primarily due to recent improvements in water well treatment systems.

The City will continue its efforts to improve the quality of potable water in 2015-16. Approximately $385,000 will be invested in Water Wells Operations and Maintenance to account for media treatment system recently added on several wells. Depreciation is expected to increase as City completes Capital Improvement Projects and begins depreciating such improvements.

Well #8 projects to treat TCP are expected to be completed in April 2015 at a total cost of $2 million. Well #13 project to treat for Arsenic and new well #17 are expected to be completed by November 2015. Several other water projects are expected to be completed in 2015 and will be partially depreciated in 2015-16.

Depreciation expense for 2015-16 is estimated at $328,000 increase from $233,000 in 2014-15. Net water fund projected operations is a modest surplus of $283,000. Some operational areas and expenditures have been modified in efforts to offset and/or minimize the financial impacts from the drought conditions.

Management’s goal is still to eliminate the cash deficits and have reasonable levels of fund balance/reserves as projected in the utility rate study.

Assumptions: City to end furloughs and wage reduction measures by June 30, 2015. Preliminary projections attached do not reflect any possible financial impacts associated with pending union negotiations.

Wastewater Operating Fund:

A new fee schedule was also adopted as a result of the recent utility rate study and Prop 218 hearing process. The new rates were effective on July 15, 2014. Primary purpose of rate increase was to comply with current debt obligations, generate sufficient levels of funding to cover ongoing operations, eliminate current cash deficit, and address minor capital improvements.

Based on the adopted wastewater rate schedule, user revenues were projected to increase by over 40% from $1.5 million in 2013-14 to $2.15 million in 2014-15.

The State’s mandate on water conservation measures could have a significant financial impact on agencies’ revenue levels. Sewer user fee revenues were decreased by $78,000 during the 2014-15 mid­ year budget review to account for decrease in water consumption by Citywide customers which also impacts sewer revenues and loss of a critical customer.

These impacts will continue through 2015-16 as the State demands compliance with the water conservation measures approved by Governor Brown on April 1, 2015, mandating a 25% water use reduction from water agencies.

Preliminary 2015-16 sewer revenues are projected at $2.0 million which reflect a 3% drop from revised 2014-15 projections and approximately $159,000 less than projections reflected on the recent utility rate study.

Modifications were necessary to account for possible revenue impacts associated with these water conservation measures. Preliminary projections are very conservative and further analysis will be performed as we move into the new fiscal year. Any material budget variances will be addressed during the mid-year budget process.

Personnel costs are expected to increase by 6% or $25,000 from 2014-15, overhead operating cost decreasing by 5% or $(31,000), debt service payments and annual depreciation expenses to remain consistent in 2015-16. Projected annual expenditures are estimated at $1.96 million including depreciation.

A net sewer plant operating surplus of $209,000 is expected in 2015-16 (see page 2) Conservative measures have been incorporated into these projections to account for possible financial impacts associated with water conservation measures.

Assumptions: City to end furloughs and wage reduction measures by June 30, 2015. Preliminary projections attached do not reflect any possible financial impacts associated with pending union negotiations.

Sanitation Operating Fund:

The City adopted new garbage/sanitation rates in January 2014. These new rates have increased the level of revenues and have assisted in covering ongoing annual operational costs. Annual revenues have increased from $959,000 in 2013 to $1.29 million by 2015-16. Personnel costs are expected to increase by l% or $2,000 in 2015-16. Overhead operating expenditures are expected to remain the same in 2015- 16 as in 2014-15. Preliminary 2015-16 annual expenditures are projected at $1.05 million with a net operating surplus of $246,000 (see page 4).

Assumptions: City to end furloughs and wage reduction measures by June 30, 2015. Preliminary projections attached do not reflect any possible financial impacts associated with pending union negotiations.

Fiscal Impacts: Outlined on Preliminary 2015-16 Budget Projections.

ATTACHMENTS:

Draft Proposed Enterprise Operating Funds & Successor Agency to Redevelopment Agency FY15-16 Budgets

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