HomeMy WebLinkAboutStaff Report 478-09TO: HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE:
SUBJECT:
DECEMBER 15, 2009 CMR: 478:09
Additional Information Provided in Response to Finance Committee
Questions on the 2009 Year -End Close
RECOMMENDATION
Staff recommends that the Finance Committee review and provide input on the additional
information and responses requested on December 1, 2009 when the Committee reviewed the
General Fund financial results for FY 2009 and FY 2010.
BACKGROUND
On December 1 staff presented to the Finance Committee the financial results for Fiscal Year
2009 and Fiscal Year 2010 as of November 20, 2009 (CMR:434:09, Attachment A). The
presentation focused on the deficit that occurred at the end of Fiscal Year 2009 along with
information provided on the local economy, the financial forecast through 2012, and budget
reduction strategies for FY 2009 and FY 2010. After the presentation, Finance Committee
discussion centered on important issues surrounding financial results for FY 2009, the financial
condition of other municipalities, and the plans for addressing deficits FY 2010. The committee
requested that staff return on December 15, 2009 with additional information and responses to
their questions.
DISCUSSION
The Finance Committee wanted additional information for FY 2009 concerning the General
Benefits and Insurance fund. This fund consists of three sub -funds. They are benefits including
PERS payments, workmen's and liability. compensation other issues raised by the Finance
Committee included deficits in other cities, public safety overtime and for FY 2010 revenue
projections for property documentary transfer taxes.
CMR:478:09 Page 1 of 7
Benefits
As stated in CMR 434:09, staff maintained the General Fund benefit and insurance budget
allocations for FY 2009 at the same levels as for FY 2008. The General Fund's benefit and
insurance expenses at year-end, however, ended at approximately $1.8 million over budget.
With such an overage, and in any other year, staff would look to the General Benefit and
Insurance Fund (an Internal Service Fund) to cover this excess expense. As of June 30, 2008,
unrestricted reserves in the General Benefit and Insurance Fund were $3.2 million (page 124 of
the 2008 Comprehensive Annual Financial Report — CAFR) which should have been sufficient
to cover the $1.8 million overage.
As background, many but not all benefits expenses and liabilities are centralized in the General
Benefits and Insurance Fund (GBIF) and are then allocated to all City funds based on actual
salary expense. Examples of these GBIF expenses include: pension, health care premiums for
current employees and retirees, life insurance, disability insurance, paid leave, dental, and
general and workers compensation liabilities. As a consequence of some of these expenses being
higher than expected, the GBIF's reserves were reduced to $0.5 million at year end. These
overages primarily were in the areas of unpaid leave liability and dental care premium expense.
Since the GBIF balance was reduced to such a marginal balance, and to have some cushion to
absorb unanticipated expenses for FY 2010, the GBIF was unable to absorb the General Fund's
$1.8 million excess expense as it would have and did in prior years. While there were very small
increases in general liability and workers compensation expenses, it must be clarified that they
did not cause the reduction in the GBIF fund balance. In other words, the general and workers
compensation liabilities were funded appropriately and there were no significant expense
variances as previously thought.
The GBIF balance of $0.5 million at the end of FY 2008 will be replenished somewhat by health
care premium savings in FY 2010 of $0.6 million dollars. This is a consequence of CALPERS
reducing the charges for the Preferred Provider Organization (PPO) health care premiums for
two months due to one-time adjustments. Staff is analyzing the current budget to actual trends to
identify any additional funding requirements and could make a recommended revision to the
budget that could result in an increasing budget deficit for 2010.
Deficits in Other Cities
Based on the Finance Committee's request, the following table provides information on deficits
faced by surrounding cities:
($ millions)
City
Fiscal Year
Budget
Deficit
% of Budget
Palo Alto
2010
$143
$5.4
3.78%
2011
$145
$5.6
3.86%
San Francisco (citywide)
2010
$6,600
$53
0.80%
2011
$6,600
$522
7.91%
Livermore
2010
$86
$3.2
3.72%
CMR:478:09
Page 2 of 7
Oakland
2010
$430
$19
4.42%
San Jose
2010
$984
$96.4
9.80%
Mountain View
2011
$90
$4.1
4.56%
Santa Clara
2011
$158
$9
5.70%
Redwood City
2009
$85
$5.8
6.82%
2010
$86.6
$8.2
9.47%
Walnut Creek
2011, 2012
$143
$20
13.99%
San Carlos
2010
$29
$2.7
9.41%
As the data above indicates, Palo Alto is not alone in facing budget shortfalls.
Overtime
The Finance Committee requested data on overtime by quarter for the past several years. This
information is provided in Attachment C.
Salary Savings
The Finance Committee requested confirmation that the salary savings projections in 2010 will
be realized. The City Manager has placed a hold on the hiring non -critical positions. With this
freeze in place, it is expected that salary savings in the amount of $1.5 million will be achieved.
This includes covering the cost of overtime as well as temporary salaries.
Staff reported on December 1, 2009 that the General Fund's has 622.51 Full -Time Equivalents
(FTE) of which there are currently 45 vacant FTE. Should the City maintain this vacancy rate,
an estimated $4.1 million in savings can be realized by year end. Of the 45 FTE, however, 10
positions are considered critical for public health and safety and operations will be filled. This
will reduce the vacancy savings by approximately $1.0 million. In addition, and because of
overtime costs annually exceeding budget, anticipated salary savings must be further reduced by
$1.6 million. The net anticipated vacancy or salary savings at year end is anticipated to equal
$1.5 million at year end. The Table below shows these savings by department.
City Attorney
City Auditor
City Clerk
City Council
in Thousands
1,374
487
593
65
124
25
67
5
124
25
67
5
CMR:478:09
Page 3 of 7
City Manager
1,302
151
-
151
Administrative Services
3,709
147
-
147
Community Services
8,707
276
(137)
139
Library
3,297
156
-
156
Fire
14,182
1,539
(679)
860
Human Resources
1,544
193
-
193
Planning and Community
Environment
4,531
390
(37)
353
Police
16,706
1,891
(691)
1,200
Public Works
4,831
337
(51)
286
Non -departmental
(1,313)
(2,206)
-
(2,206)
Total
60,015
3,095
(1,595)
1,500
Revenue Information
Documentary Transfer Tax
During the December 1, 2009 Finance Committee meeting, the Committee requested trend
analysis of the documentary transfer tax results for FY 2010 that incorporated different
assumptions for growth in the remainder of the year.
In the report delivered to the Committee (CMR: 434:09), staff stated that that this revenue source
may have reached its trough and that revenues at year end were likely to equal $2.9 million. This
conservative estimate assumed that revenues through the remainder of this fiscal year would not
be materially different from December through June of the prior year. This assumption was
based primarily on a persistently weak economy, poor credit availability, and data (through mid -
October) that indicated transactions were running nearly 22 percent below the prior year levels
for the same period.
In addition, staff stated that transfer taxes from July through November 30, 2009 equaled $1.5
million, similar in amount for the same period in the prior fiscal year. Since revenues began to
decline considerably from December of 2009 through June of 2009, performance through the
first four months of this fiscal year would appear to indicate a strengthening in transfer taxes. A
straight annualizing of year to date revenues (based on 9 of 24 remittances) would result in
revenues of $4.0 million at year end, an amount that does not appear achievable given prior year
results and the economy. On December 9, staff received a remittance of $170,104 (#10 for the
FY). This remittance exceeds that of the prior year period by $36,000 or 26.8 percent indicating
further stabilization and possible growth in this revenue source compared to the prior year
Before providing a reasonable range for year end revenues, the following factors affecting this
revenue category should be considered:
CMR:478:09 Page 4 of 7
o Documentary transfer taxes ($3.30 per $1,000 of value) are dependent on the volume of
transactions in any given year
o These taxes are based on the mix of transactions between commercial and residential
properties where one large commercial transaction can be the equivalent of numerous
residential transactions
o Seasonality plays a role in projections since there are a higher number of transactions
during the period March through August than during the remaining months
o One or two large commercial property transactions, which may or may not occur in any
given year, can skew trend analysis
The graph below plots remittances and available transaction data and depicts the affect the above
factors can have on under or over estimating revenues.
140
Documentary_ Transfer Tax vs Number of Transactions
5713
5695
582
t~ r— r— r— r— 0 co 0? 07 0 0 07 CO 0s CO CO 0 CO 07 07 a7 0 07 07 a7 a7 07 07 CO CO 00
O O O O O 0 O O O O O 0 0 0 O 07 O 07 O 0 O C1 0 0 0 0 0 0 0 0 ,-
1 1 1 1 1 1 1 1 1 1 1 1 I I 1 1 1 1 I 1 1 1 1 1 I 1 L. 1 1 I I
a° 0 a a° a m m 0 v m d a A> O. o a M a
a N O z 0 u- E d E -D"" a 0 O z n -D u. E 4 E 4 07 o z rz
0
10
E
0 0 0
E
5750
5650
$550
5450
C
N
0
5350 0.
14
5250
5150
550
Keeping in mind these factors, as well as data indicating a possible firming of transactions, staff
now believes a $2.90 million projection represents the lower end of a reasonable projection.
Assuming that revenues will grow by 10 percent for the remainder of the year, a projection of
$3.25 million is attainable. A 15 percent increase would result in $3.32 million in revenue.
Should the City realize another large, commercial transaction during the remainder of this year,
an additional $0.1 to $.2 million may be realized.
Another approach to determining a reasonable range of transfer tax outcomes is to use the
historical percentages (ratios) of July through mid -December revenues to total fiscal year
revenues for prior years (note that revenues from July through mid -December, 2009 equal $1.66
million). The graph below shows these percentages, which range from a low of 31 percent in FY
2002 (dot.com boom period) to a high of 53 percent {Great Recession period) in FY 2009.
Remittance data dating back to FY 2001 and the percentages cited in this text can be found in
Attachment D.
CMR:478:09 Page 5 of 7
2004
2005
2006
Fiscal Year
2007
2008
2009
2010
Doc. Transfer Tax Receipts Thru Mid -Dec. and Annual
ra co
2002
2003
o Receipts to Mid -Dec.
D Annual Receipts
With the first remittance of December, it now appears that higher year-end revenue could be
realized. For example, a lower percentage, such as 50 percent or 48 percent (a 48 percent ratio is
similar to that experienced in FY 2004 when the City was recovering from dot.com bust) would
result in revenues of $3.3 million or $3.4 million, respectively.
Based on the analysis above and respecting the fragility and potential surprises from a still weak
economy, staff believes transfer tax revenues could reach the $3.2 to $3.3 million levels by year
end.
Property Tax Revenues
The Finance Committee requested additional analysis of property tax projections for FY 2010-11
and wanted information on the assessed value added to the roll by new developments and
property transactions or turnovers/sales. The table below shows the secured property tax roll
percentage changes for the City of Palo Alto dating back to FY 2005
Fiscal
Year
Secured Property
Valuation
Percentage
Change
2010
$20.24 billion
4.4%
2009
19.38 billion
11.5%
2008
17.39 billion
7.2%
2007
16.22 billion
8.9%
2006
14.89 billion
9.3%
2005
13.62 billion
Although the county does provide statistics on growth due to change in ownership and new
construction, it is on a countywide basis. There are several variables affecting growth, but based
on the maximum 2 percent increase permitted by law and realized from 2006-2010, the City's
growth rate to new ownership and construction is close to a low of 2.4 percent in 2010 to a high
of 9.4 percent in 2009. A 1 percent increase in secured property value translates into
approximately $175,000 in additional secured property tax revenue.
CMR:478:09 Page 6 of 7
At this time, the County is projecting that 2011 property values will have a negative .23 percent
adjustment factor based on the California CPI. This means that assessed values for City
properties will decline by .23 percent and offset growth due to property transactions and
development. Given the precipitous decline in the secured property assessed value from 2009 to
2010, growth is likely to be minimal for FY 2011. It is important to note that property tax
movements lag behind the increases and decreases in the more immediately economically
sensitive sales and transient occupancy tax revenues. The long range forecast attached to the
December 1, 2009 CMR projected an increase of 2.3 percent increase for 2011. At this time, and
given the most recent information that a negative CPI adjustment is likely, staff believes a 1
percent increase over the 2010 projection would be more prudent.
RESOURCE IMPACT
The discussion in this report and the financial results depicted in the LRFF indicate impacts to
the City's General Fund.
ENVIRONMENTAL REVIEW
This is not a project for the purposes of the California Environmental Quality Act.
PREPARED BY:
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
DAVID RAMBEG
Assistant Director of Administrative Services
JOE S
Deput Jt irect1 of Administrative Services
LALO PEREZ
Director of Administrative Services
ATTACHMENTS
Attachment A: CMR:434:09 Fiscal Year 2009 General Fund Discussion and Fiscal Year 2010
Financial Results as of November 20, 2009
Attachment B: Excerpt from the Finance Committee Minutes of December 1, 2009
Attachment C: General Fund Overtime Trends
Attachment D: Documentary Transfer Tax Performance
CMR:478:09 Page 7 of 7
ATTACHMENT A
TO: HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: DECEMBER 1, 2009 CMR: 434:09
SUBJECT: Fiscal Year 2009 General Fund Discussion and Fiscal Year 2010
Financial Results as of November 20, 2009
RECOMMENDATION
Staff recommends:
1. That the Finance Committee review and provide input on the General Fund financial
results for FY 2009 and preliminary results for FY 2010, including staff's proposed
financial plans for each of the two fiscal years.
2. After Finance Committee review, direct staff to present this report to the full Council in
January 2010.
BACKGROUND
Staff is providing the 2009 fiscal year-end financial results for the General Fund (GF) earlier
than usual due to the severe downturn in the economy and the impacts it has caused to the City's
financial position. Because of a higher than anticipated budget gap in Fiscal Year (FY) 2009,
staff is presenting year-end results in this report and will provide the final audited financial
statements to the Finance Committee December 15.
Looking at the current fiscal year, the continuing economic downturn requires revisiting revenue
and expense performance and potential options to close a higher than expected year-end budget
gap. In the FY 2010 budget process, a $10 million General Fund deficit was identified. This gap
was closed with a three pronged approach that relied on one-time reductions, program cuts, and
reductions in employee benefits and salaries. The latter was achieved through reductions in
benefits to SEIU and management employees and a postponement of a police union salary
increase. Unfortunately, these reductions of approximately $10 million have proven insufficient
to stem the tide of declining revenues and the City is facing an additional $5.4 million deficit.
This deficit could continue to grow if revenues do not remain stable in the second half of this
fiscal year.
CMR:434:09 Page 1 of 13
The City of Palo Alto is not alone in facing this disturbing situation. The cities of San Francisco
and Oakland have already pared their budget several times and are likely to face additional future
drops in property taxes. Jurisdictions up and down the Peninsula are facing fluid, if disruptive
revenue environments in which multiple budget adjustments are needed. Moreover, the size and
nature of the revenue shortfalls, such as shifts in consumer spending patterns, likely require long-
term structural expense changes. An updated Long Range Financial Forecast (Attachment A) is
provided to show the projected deficits the City faces in FY 2010 and beyond.
DISCUSSION
Fiscal Year 2009 General Fund Results
The drop in key revenue sources in FY 2009 required midyear budget adjustments to GF
revenues and expenditures. Early in the year, staff estimated the FY 2009 budget deficit to be $8
million and a plan was implemented to close this gap. The adjustments made to revenues at
midyear were close to projections. Unfortunately, however, the adjusted expense budget
underestimated expenditures at year end and resulted in a GF deficit of $4.8 million (in addition
to the $8 million projection). This additional shortfall was mentioned briefly during the October
5, 2009 Council meeting, but since staff did not have the specific data reviewed by the outside
auditor at that time, it has not been discussed in detail until this report. The components of the
shortfall are outlined in the following table and explained below.
Table 1
FY 2009 General Fund Deficit Summary
Salaries
($2,100,000)
Overtime
Police
Fire
($ 650,000)
($ 250,000)
Benefits
($1,800,000)
Total
($4,800,000)
Salaries
The salary line item was over budget due to a miscalculation in the amount of expected salary
savings. The adopted operating budget includes an annual factor for salary savings. These
savings result from 1) an expected vacancy rate or the number of positions that are not filled at
any given time throughout the fiscal year; and 2) a salary expense "cushion" resulting from
salaries being budgeted at the top step compared to actual salaries that are, for many employees
lower (e.g., new hires). During the midyear budget process, staff included a second round of
salary savings that did not materialize. The miscalculation was not recognized in time to make
additional expense adjustments. Staff has implemented monthly variance reports, as well as other
controls, to avoid such occurrences in the future.
CMR:434:09 Page 2 of 13
Overtime
Overtime costs in the Police and Fire departments exceed the budget every year due to vacancies,
disabilities, minimum staffing requirements, and staffing of Station 8 for fire protection in the
summer and emergencies. In a typical year, these overages are covered by salary savings
citywide or in the public safety departments. With the salary savings factor overestimated,
however, the savings were not there to absorb the overtime excess. Therefore, the $900,000 in
excess overtime for these two departments contributed to the FY 2009 deficit. It should be noted
that Stanford University reimburses 30.3 percent of all operating expenditures including
overtime and the State of California provided reimbursements for Fire Strike Team activities.
The $900,000 is not offset by these reimbursements. The City will receive these reimbursements
in FY 2011.
Benefits
The City has a General Benefit Fund (GBF) from which it pays its benefit expenses such as
medical and workers compensation costs. This fund, like other Internal Service Funds (e.g.,
Technology, Vehicle), typically carries a positive balance in the form of retained earnings which
covers operations and project or capital needs. In the past, the balance in retained earnings in the
General Benefits Fund helped cushion against year-end benefit expense adjustments.
Specifically, workers compensation and general liability costs, which reflect yearend actuarial
adjustments (based on incurred but not reported expenditures) can fluctuate considerably but are
not known until year end as they are based on the volume and severity of claims. In most years,
the GBF and the Fund's retained earnings are sufficient to cover unexpected liabilities as well as
any overages in other benefit categories such as medical premium expenses.
Anticipating that retained earnings in the GBF were sufficient to cover benefit expenses in FY
2009, General Fund benefit expenses were held constant from FY 2008 to FY 2009. This
practice has been implemented in past budget years in an effort to keep a reasonable balance
between retained earnings balances in the GBF and what expenses are budgeted in and allocated
to GF departments each year. Disappointingly, benefit expenses at the end of FY 2009 came in
$1.8 million over budget due to higher than anticipated claims.
Establishing an annual budget depends on a number of variables that can be difficult to predict
and are subject to change. In high performing years, the City has enjoyed considerable cushion
in its budget that has allowed midyear adjustments with negligible impact on the bottom line. In
times of sustained economic downturn, cushions such as higher than anticipated revenues, are no
longer present. Margins that are extremely tight due to falling revenues, low Internal Service
Fund reserve balances, and prior expense reductions have become tighter and more difficult to
maintain. Of the $4.8 million FY 2009 deficit shown in Table 1, only the $2.1 million in
underestimated salary expenses could have been foreseen at midyear (midyear report was
presented to the Finance Committee on March 10) and later. The remaining expenditures, on the
other hand, are finalized at year-end and thus sufficient data is not available for earlier
adjustments.
CMR:434:09 Page 3 of I3
Budget Balancing Plan for Fiscal Year 2009
In order to solve the $4.8 million deficit for FY 2009, staff proposes postponing a budgeted $4.8
million transfer to the Technology Fund. This will have the effect of lowering GF expense and
eliminating the General Fund deficit. This one-time deferral will reduce the Technology Fund's
retained earnings to $51,000 net of encumbrances and re -appropriations. The $4.8 million
transfer will result in planned technology projects such as radio infrastructure improvements and
library RFID implementation being delayed. In addition, technology infrastructure replacement
schedules will need to be revisited and adjusted accordingly. As a consequence of this action,
the Technology Fund is at an exceptionally low balance and will need to be replenished via
future transfers from the GF so as to not severely impact technology operations. Currently,
repayment over a four year period is being contemplated. The only other immediately available
option to solve the deficit would be to draw down the General Fund Budget Stabilization
Reserve, but since the City is experiencing extremely volatile economic conditions which have
implications for FY 2010 a reserve drawdown in FY 2009 is not recommended.
Fiscal Year 2010 Financial Results To Date
On September 8 and October 5 (CMR: 394:09 and CMR 358:09 in Attachment B), staff
informed Council of potential further deterioration in General Fund revenues and the possible
need for budget adjustments in excess of the $10 million in reductions already incorporated in
the Adopted FY 2010 Budget. Due to the extended recession, City revenues will fall
significantly below budget in FY 2010. Since FY 2008, sales, transient occupancy,
documentary, and interest income have fallen by a combined $8.2 million. In addition, permit,
golf course fee, and traffic fine revenue also have dropped by $1.1 million since FY 2008 due to
the economic environment. Cumulatively, this represents a $9.3 million downward swing in GF
resources over two years and it has caused an additional budget deficit for FY 2010 which is
estimated now at $5.4 million. Attachment C shows the performance of revenues through
November 20, 2009 relative to the budget. Due to the timing of payments (e.g., sales and
property taxes) and seasonal factors, these results must be viewed cautiously.
Revenue Performance in FY 2010
Sales Tax
Sales Tax revenue is the General Fund's third highest revenue equaling 14 percent of its
resources. In recent years sales tax has become a highly volatile and fragile source of City
income. Whereas FY 2008 actual revenues were $22.6 million; it now appears the City will
realize $17.7 million in FY 2010. This represents a $5 million or 22 percent decline in a very
short period of time. To place it in perspective, this $5 million drop equals 77% of the FY 2010
Library budget.
The projected $17.7 million in sales tax revenue is $2.0 million below the FY 2010 Adopted
Budget. The primary cause for the decline is economic and the secondary cause is a dramatic
decrease in the amount remitted by the State in its semi-annual "triple flip" payments for FY
2010. With the exception of one economic segment (electronic equipment), all sales tax
segments — autos, department stores, miscellaneous retail, furniture/appliance had dreadful
results in the second quarter. In fact, all of these areas had the lowest "benchmark year"
performance in this quarter compared to 8 prior "benchmark year" quarters (a benchmark year is
the current quarter reporting period plus the prior 3 quarters). New auto sales fell to $1.1 million
CMR:434:09 Page 4 of 13
compared to $1.8 million in the second quarter of 2007. For the same periods, department store
sales have fallen from $2.7 million to $2.2 million, while miscellaneous retail sales dropped from
$1.9 million to $1.5 million. Even the normally resilient restaurant sector has turned downward.
The City's outside sales tax consultant believes that sales taxes may fall as much as 15 percent in
the upcoming third quarter compared to the prior third quarter. This would be consistent with
the prior 2 quarters and would not bode well for the critical fourth quarter holiday sales season.
Furthermore, on October 14, the State notified jurisdictions of lower "triple flip" payments.
Whereas the State advanced the City $5.7 million in FY 2009, in FY 2010 its payment dropped
to $4.3 million, a 24.6 percent reduction. While there is a solid rationale for reducing the City's
"triple flip" payment given the economy and statewide sales tax receipts dropping by 20.8% in
the second quarter, the State seems to have underestimated what the City will realize in sales
taxes at year end by around $0.4 million. The State eventually will reconcile its payments to
actual results for FY 2010, but not until the following fiscal year.
In contrast, the State's "triple flip" payment to the City for FY 2009 was higher than justified by
actual results. Since the State reconciles its payments to actual results in the following fiscal
year, consequently the "true up" for FY 2009 will result in a $0.8 million reduction in payment
for FY 2010. By adopting the "triple flip" payment system to solve its budget dilemmas, the
State has further complicated sales tax projections.
Transient Occupancy Tax (TOT)
City TOT revenues have been soft. Revenues from January through June 2009 were 29 percent
below those of the prior year. In July 2009, revenues were below July 2008 by 21.3 percent.
The Senior Games did have a salutary impact in that August revenues were only 8.7 percent
below the previous August; but September's results resumed this sector's weak trend line being
21 percent below September 2008. Based on performance to date, a downward adjustment of
around $0.2 million will be recommended at midyear.
Investment Income
With the Federal Open Market Committee (FOMC) keeping interest rates low for a longer than
expected period, the City's interest income has declined. Although short-term interest rates on
Treasury instruments are close to zero percent, the City is earning nearly 4 percent on its
portfolio. This rate of return is a consequence of earlier, long-term investments that have not yet
matured. This rate will decrease and staff believes a downward adjustment in income of $0.2
million is necessary.
Property and Documentary Transfer Taxes
Property taxes are tracking close to budget and are expected to be on target at year end. Despite
a weak housing market, property values in Palo Alto have remained relatively stable. There are
indications from the County, however, that a large number of commercial properties throughout
the County are filing for reassessments which will lower future property tax receipts. No hard
numbers are available at this time, but an impact on this revenue category can be expected in the
next few years.
Although the transfer tax has fallen from $5.4 million in FY 2008 to $3.1 million in FY 2009,
receipts from July through October are only slightly lower compared to the same period of the
CMR:434:09 Page 5 of 13
prior year. This may indicate that the bottom of this revenue source has been reached and will
hold steady until year end. At this time, the budget of $2.8 million in FY 2010 for the transfer
tax appears realistic and will likely be increased to $2.9 million at midyear.
Utility Users Tax
Results to date indicate the telephone tax will exceed estimates, while utility related revenues
will be lower than anticipated. The net result is that this revenue source will likely be adjusted
upward at midyear by around $0.2 million.
Parking Violation Revenue
The City has collected $0.4 million or 20 percent of the $2.0 million budgeted in Parking
Violations to date. The number of first quarter citations issued is 29 percent lower than previous
first quarter results, while, due to a decline in downtown occupancy and the slowdown of retail
spending, the number of vehicles monitored has decreased 16 percent. Based on the 16 percent
checked for compliance, year end Parking Violation revenue is projected to be $1.5 million, or
$0.5 million short of budget. Staff will be reevaluating the cost recovery levels of the program
and make recommendations to balance revenues and expenses.
Permits
Permit processing has declined approximately 14 percent or $0.6 million. Although the
valuation of projects submitted for permit issuance is higher than the prior year, stricter lending
qualifications and conservative spending practices have lengthened the time applicants require to
finalize their projects. While some permit fees are collected at the beginning, most are
recognized when the permit is finally issued. Projects that do not go to completion do not pay
the costs of processing their permits part way. This collection system should be reevaluated to
ensure that the program is covering its costs throughout the permit process.
Plan Checking Fees
Fees for the processing of applications have declined approximately 14 percent due to the
recession. This line item is expected to be decreased at midyear by $0.3 million.
Golf Course Revenue
The economic environment has affected the number of golf rounds played in Palo Alto and
throughout the industry. The projection for FY 2010 of 76,000 rounds at the course is being
revised downward to 72,000 rounds, thus reducing revenues by an estimated $0.2 million. CSD
is examining ways to keep the golf course competitive with other nearby municipal golf courses.
It will be important to develop a long-term plan for the golf course (which is in need of
additional maintenance and upgrades) given the significant drop in rounds and as the associated
costs of running and maintaining the course continue to increase. It is important to note that the
Golf Course suffered a $0.3 million loss in FY 2009. Staff will return during the fiscal year with
further recommendations on how to address the golf course deficits and a long-term plan.
Class Registration Fees
The Community Services Department (CSD) experienced a 6 percent decline in program and
camp registrations this summer, demonstrating that the recession has had an impact on class and
program activity. CSD fee revenue will be adjusted downward at midyear by approximately
CMR:434:09 Page 6 of 13
$0.4 million. The department is working with class producers to look at new programs and
revamp old ones by using evaluation information from participants. CSD will look at new
methods of marketing (including banners through the city, school flyers and e-mail blasts from
Friends groups).
Cost recovery levels will need to be reviewed and difficult policy decisions made regarding
programs that may not be recovering their costs or are being duplicated by surrounding
competition. The City is likely at a point where it will no longer be able to sustain the number of
Community Services programs offered, and a prioritization of programs will be needed with
input from all stakeholders.
Other Revenues
This revenue source includes facility rentals, special events fees, and other miscellaneous
revenues. It will be decreased by approximately $0.3 million, due to an economy related
decrease in demand for these services.
Attachment D shows, in considerable detail, GF revisions to revenue projections for FY 2010
and FY 2011 based on the discussion above.
Expense Performance in FY 2010
With the exception of overtime, regular salary expenses are in line with their budgeted levels.
This is supported by the discussion below on the salary savings expected in FY 2010 due to
vacancies. These savings represent one of the proposed steps for solving the expected year-end
deficit.
Overtime Expenditures Compared to Adjusted Budget
General Fund Overtime Analysis:
The following chart shows total overtime expenditures reaching 73 percent of the adjusted
budget on a citywide basis while straight line usage would indicate 39 percent usage through
November 20. The table below shows that Fire, Police, and Public Works Departments are the
principal departments exceeding their budget.
CMR:434:09 Page 7 of 13
Table 2: FY 2010 General Fund Overtime As of November 20
CITY OF PALO ALTO
FISCAL YEAR 2010 MIDYEAR FINANCIAL REPORT
AS OF NOVEMBER 20, 2009
GENERAL FUND OVERTIME
(in thousands of dollars)
atego'ie!
Adopted
Budget.
Adjusted
Budget
(as of 11-20-2009)
Actual Adj Budget
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Library
Fire
Human Resources
Planning and Community Environment
Police
Public Works
7
3
45
105
58
1,018
4
67
1,000
113
7
3
45
105
58
1,018
4
67
1,000
113
12 27%
42 40%
22 38%
1,041 102%
18
568
75
27%
57%
66%
Total Overtime 2,420 2,420
1,778
73%
• The Fire Department has used 102 percent of its annual overtime budget through
November 20, 2009. This is due to Station #8 staffing ($0.2 million) and Medic -1
staffing ($0.1 million), with the remaining amount of $0.7 million resulting from backfill
for minimum staffing requirements due to sick leave, vacations, and workers'
compensation light duty assignments.
• The Police Department's has used 57 percent of its annual overtime budget. The
customary work of busy shifts, case writing, investigations, and court appearances on off
days as well as an increase in the 9-1-1 dispatch center as more senior Police Dispatchers
train newer employees are the cause of Police exceeding budget to date. Traffic control
services at Stanford football games and other events are partially offset by
reimbursements from the university and organizations.
• The Public Works department has used 66 percent of its overtime budget. The
department has had limited staffing in custodial and maintenance areas and has used
overtime to maintain minimum service levels. The department is currently using limited
hourly personnel to assist with custodial and maintenance services. Overtime costs are
expected to rise further as the temporary salary budget is exhausted. This department's
OT budget is small in comparison to the Fire and Police departments.
CMR:434:09 Page 8 of 13
For historical and more detailed information on public safety overtime costs see Attachment E.
Budget Balancing Plan for Fiscal Year 2010
Although department expense budgets, as a whole, are within their expected target range, the
dramatic fall in revenues requires immediate action to achieve a balanced budget. The following
table shows the revenue adjustments discussed above and the actions recommended to close the
expected $5.4 million gap. These actions are explained below.
Table 3: FY 2010 Proposed Budget Balancing Plan
Revenue Impacts
-000s-
Sales Taxes
-2,005
Parking Violations
-460
Fees/Permits
-1,551
Return on Investments
-238
Other Revenue
-186
Increases in Specific Revenues
144
Total Revenue Impacts
-4,296
Expense Impact
-1,131
Total GF Impact
-5,427
Expense Offsets — Proposed
Salary savings - hiring freeze
1,500
Public Safety Building
2,700
Budget Stabilization Reserve
1,279
Repayment of the IT Loan
-1,225
Non -Salary Savings
1,000
$3 Million Solution Salary and Benefit
Gap to Offset
173
Total Proposed Offsets
5,427
Net Change
0
Salary Savings
Staff is now monitoring salary savings due to vacant positions on a monthly basis. The General
Fund's has 622.51 Full -Time Equivalents (FTE) of which there are currently 45 vacant FTE.
Should the City maintain this vacancy rate, an estimated $4.1 million in savings can be realized
by year end. Of the 45 FTE, however, 10 positions are considered critical for public health and
safety and operations will be filled. This will reduce the vacancy savings by approximately $1.0
million. In addition and because of overtime costs annually exceeding budget, anticipated salary
CMR:434:09 Page 9 of 13
savings must be further reduced by $1.6 million. The net anticipated vacancy or salary savings
at year end is anticipated to equal $1.5 million at year end. Attachment F shows these savings by
department.
Public Safety Building
It is proposed that the remaining encumbrance for the public safety building capital project be
reduced by $2.7 million. These funds were designated for completing design work and since this
project has been postponed and there is no land currently identified for the building, it is
recommended they be returned to the original source of funding the General Fund's Budget
Stabilization Reserve. This project will then retain $0.3 million to allow for evaluation of
alternative facilities.
Budget Stabilization Reserve
The extraordinary economic conditions, precipitous fall in revenues, and time required for
implementing further expense reductions, cause staff to reluctantly recommend a one-time draw
on the General Fund Budget Stabilization Reserve (BSR) of $1.3 million. With the City's
participation in the California Securitization Program (CMR 413:09), the $2.5 million property
tax "loan" by the State (cited in CMR: 394:09) that would have required a draw on the Budget
Stabilization Reserve has been neutralized. The City will now receive bond proceeds through
the Program at the time property taxes are deducted from the State, thereby keeping the GF
whole.
The one-time $1.3 million drawdown will reduce the BSR to $24.6 million or 17.4 percent of
budgeted expenditures. City policy requires that the BSR remain at a minimum of 15% of
expenditures. If the reserve falls below this level the policy will need to be amended or an
exception will need to be approved by the Council. Having a healthy level of reserves is critical
for emergencies or severe economic dislocations such as the one we are enduring. Therefore, it
is appropriate to use it in FY 2010. In future years, however, additional expenditure reductions
or revenue enhancements will be required to avoid drawing down the BSR below required
minimum levels (see Attachment A - the Long Range Financial Forecast).
Additional FY 2010 Budget Reductions and Expenses
To minimize the draw on the BSR, staff will attempt this fiscal year to find $1.2 million in non -
salary and other savings. Contracts, travel and training, and materials and services will be
scrutinized to achieve this before year end. Staff had hoped to find such savings in FY 2009 (to
offset the $1.131 million expense impact cited in Table 3 above), but was unable to identify
them. Without these reductions, an additional draw on the BSR may be needed. This will be a
challenging but necessary exercise to close the anticipated gap.
Because of the $4.8 million drawdown on the Technology Fund in FY 2009, it is important to
replenish the Technology Fund. To do so requires a $1.2 million annual payback over four
years. This payment is reflected in the Table 3 above.
FY 2010 and Future Fiscal Year Challenges
Although staff believes that if all of the above budget solutions are implemented and revenues do
not further decline, a balanced budget would result at year end, the tenuousness of the economy
and uncontrollable expenses such as general liability losses and workers compensation could
CMR:434:09 Page 10 of 13
further adversely impact the budget. The City has already made repeated and painful expense
reductions to balance its budget beginning with the dot.com bust and earlier and there are only
more painful reductions left. Meanwhile, the City faces sizeable, new expense challenges.
The Long Range Financial Forecast (LRFF) presented to Council on October 5, 2009 (CMR:
394:09) has been updated based on recent revenue and expense data. The Net Operating Surplus
(Deficit) line in the forecast for FY 2010 shows a deficit of $5.4 million in FY 2010. Below this
line are the recommended solutions (discussed above) to solve the projected deficit. Even with
the solutions proposed for FY 2010, the General Fund still shows continuing Net Operating
Deficits in Fiscal Years 2011 through 2020.
Compounding these deficits are additional costs and liabilities the City will face in the near
future. These "below the line" liabilities and costs cause the City's deficit to equal $5.6 million
in FY 2011 and to grow considerably until 2020. These include:
1) Ca1PERS will increase retirement contributions from participating jurisdictions starting in
FY 2012 due to significant losses in its investment portfolio. The City of Palo Alto
estimated increases will rise from an additional $1.0 million in FY 2012 to $5.4 million
in FY 2015.
2) The annual contribution towards the citywide employee retiree medical liability will rise
by $1.4 million per year with the General Fund's share at $0.7 million
3) The new library and community center expansions and rehabilitations require
approximately $1.0 million in incremental annual operating expenses beginning in FY
2013
4) The current rate of funding from the General Fund and Infrastructure Reserve, which is
around $9 million per year, is about $6 million less than what is required to fund the $302
million infrastructure backlog or liability. Moreover, the Infrastructure Reserve balance
currently stands at $6.4 million and is expected to decline to $2.7 million in FY 2011.
New revenues or a reallocation of expenses are necessary to fund needed infrastructure
work.
Offsetting these deficits, but not included in the LRFF, are the savings from certain benefit
changes implemented for SEIU and management employees. These include a second tier
retirement plan (2 percent at 60) for new employees and an employee contribution to medical
expenses that is to take effect in FY 2011. Similarly, the City will need to seek salary and
benefit savings from Fire and Police whose costs represent 39 percent of the GF's budget.
It should be noted that the Ca1PERS Board recently adopted a plan to share excess reserves in the
preferred provider organization health plan with local agencies by providing a two month
"premium holiday." This results in a savings to the General Benefit Fund of approximately $0.7
million citywide in FY 2010. Given the minimal balance in the GBF, staff proposes that these
savings be used to bolster the Fund's balance in preparation for any year end unanticipated
liability expenses.
CMR:434:09 Page 11 of 13
The recommendations to balance the FY 2010 budget primarily consist of one-time adjustments
(e.g. draw on reserves, vacancy savings) to get us through the current fiscal year. During this
time, the Council, community, and staff will need to address the long-term deficits the City
faces. In addition to further contributions by employees, expense reductions will be necessary
and must involve prioritizing City programs. Also, additional revenues must be explored.
During the FY 2010 budgeting process, the Finance Committee discussed what has come to be
known as "Tier Two" reductions (Attachment G). These reductions were placed in abeyance
until such time as a clearer revenue picture emerged in FY 2010 and need now to be revisited. In
addition, and because of the magnitude of the City's financial challenges, a list of near, medium,
and long-term alternatives are presented to foster further discussion of how to balance the
General Fund's budget (Attachment H). It is important to note that many of these options have
significant policy ramifications and/or legal or other obstacles. They are being introduced at this
time, however, as examples of issues to discuss and with the expectation that they will generate
other related solutions. The Executive Leadership Team (ELT) has scheduled a retreat to take a
comprehensive look at these initial recommendations and it is expected that this list will undergo
further refinement before it is presented to the full Council.
ELT will examine the best practices identified in a recent League of California Cities publication
("Municipal Fiscal -Health Contingency Planning," Western City, pp. 18-23) to plan for the
difficult cost reduction process ahead and for proposals to Council. General strategies
recommended include, for example:
o Proposing reductions that reflect the fewest service impacts to the community
o Describe service impacts and make process transparent to all involved parties
o Crafting operating expenditure reductions that are real and feasible
o Reductions must be ongoing and net of any related revenues, fees or grants
o Maintain essential facilities, infrastructure and equipment at reasonable levels
Once ELT develops a process and identifies possible reductions, staff will propose these to
Council.
Conclusion
Critical revenues sources have declined by a total of $9.3 million since FY 2008. The recovery
in these revenues is expected to take multiple years, and it is entirely possible that some revenue
sources never regain the levels reached in peak years. Beginning in FY 2010 the City has taken
proactive measures to begin paring back its expenses. By establishing a two-tier retirement
structure and requiring employees to contribute to medical expenses (still to be negotiated with
Fire and Police unions), the City has taken a major step toward addressing its unsustainable
expense structure. But there is considerable work ahead. Even with the current year deficit
closed, expenses will outpace revenues in each future year. The City must decide how to cut
those expenses back — which programs and services are lowest priority. This is likely a multi-
year process.
CMR:434:09 Page 12 of 13
RESOURCE IMPACT
The discussion in this report and the financial results depicted in the LRFF indicate impacts to
the City's General Fund.
ENVIRONMENTAL REVIEW
This is not a project for the purposes of the California Environmental Quality Act.
PREPARED BY:
tip
JOE S
Deput Pireetor of Administrative Services
DAVID RAMBERG
Assistant Director of Administrative Services
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
LALO PEREZ
Director of Administrative Services
JAMES KEENE
City Manager
ATTACHMENTS
Attachment A: Long Range Financial Forecast
Attachment B: CMR:394:09 Fiscal Year 2010 Budget Update
CMR:358:09 Review of Preliminary FY 2009 Revenue Analysis
Attachment C: Fiscal Year 2010 General Fund Financial Report as of November 20
Attachment D: General Fund Revenue Changes for FY 2010 and 2011
Attachment E: Police and Fire Departments Public Safety Overtime Analysis for Fiscal Years
2005 through 2009, with Fiscal Year 2010 Data through November 20, 2009
Attachment F: FY 2010 Salary Savings by Department
Attachment G: Tier 2 Reductions
Attachment 14: Budget Reduction Options
CMR:434:09 Page 13 of 13
CITY OF PALO ALTO LONG RANGE FINANCIAL FORECAST General Fund ($000)
Attachment A
golowassaiwisari
ECAST X00($
FY 2009 FY 2010 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Adopted Projected
Actual Budget Budget
Revenues
Sales Taxes
Property Taxes
Utility User Tax
Transient Occupancy Tax
Other Taxes, Fines & Penalties
$ 20,089 $ 19,650 $ 17,645 $ 17,982 $ 18,430 $ 18,983 $ 19,647 $ 20,434 $ 21,200 $ 21,941 $ 22,599 $ 23,051 $ 23,588
25,445 25,752 25,778 26,379 27,325 28,379 29,689 31,136 32,735 34,337 35,936 36,804 37,879
11,030 11,250 11,417 12,513 13,156 13,676 13,973 14,703 15,486 16,328 17,200 18,071 18,966
7,111 7,000 6,850 6,987 7,140 7,344 7,656 8,019 8,420 8,799 9,085 9,344 9,631
5,440 5,633 5,274 5,390 5,510 5,656 5,828 6,016 6,187 6,338 6,418 6,484 6,592
Subtotal: Taxes 69,115 69,285
66,964 69,251 71,561 74,038 76,793 80,308 84,028 87,743 91,238 93,754 96,656
Service Fees & Permits 16,210 - 17,437 15,814 16,576 17,800 18,133 18,661 19,397 20,162 20,958 21,784 22,719 23,690
Joint Service Agreements 7,796 7,857 7,857 8,166 8,529 8,940 9,356 9,818 10,306 10,820 11,360 11,932 12,533
(Stanford University)
Interest Earnings
Other revenues
Reimbursements from Other Funds
2,008 1,900 1,662 1,646 1,676 1,724 1,785 1,852 1,923 2,002 2,053 2,095 2,163
17,246 15,352 15,235 15,484 15,764 13,977 14,330 14,695 15,070 15,456 15,854 16,264 16,686
11,483 10,643 10,644 10,799 11,078 11,392 11,785 12,260 12,755 13,274 13,815 14,382 14,930
Total Revenues 123,858
22,474
118 176 121,922 126,408 128,204 132,710 138,330 144,244 150,253 156,104 161,146 166,658
Transfers from Other Funds 17,614 19,664
9,664 18,709 19,192 19,735 20,417 21,239 22,097 22,995 23,933 24,915 25,865
TOTAL SOURCE OF FUNDS
141,472 142,138 137,840 140,631 145,600 147,939 153,127 159,569 166,341 173,248 180,037 186,061 192,523
Expenditures
Base Salaries 62,104 63,512 63,512 64,007 66,074 67,309 69,271 72,002 74,841 77,792 80,860 84,049 87,365
Salary & Benefit Reductions to be Negotiated D1 (3,000)
PAPOA Salary Increase Deferral t`I (794)
Negotiated Savings from SEIU (1,222) (1,222) (1,246) (1,271) (1,310) (1,362) (1,416) (1,473) (1,532) (1,593) (1,657)
Negotiated Savings from Mgmt./Prof. (806) (806) (822) (839) (864) (898) (934) (972) (1,010) (1,051) (1,093)
Benefits 29,477 32,205 32,205 32,935 34,713 36,772 38,715 40,769 42,943 45,243 47,668 50,245 52,963
Subtotal: Salaries and Benefits 91,581 92,717 92,895 94,914 98,718 101,971 105,813 110,511 115,433 120,590 125,986 131,650 137,578
Contract Services 10,100 9,076 10,076 9,804 9,951 10,120 10,373 10,684 11,005 11,335 11,675 12,025 12,386
Supplies & Materials 3,023 3,547 3,547 3,480 3,532 3,592 3,682 3,793 3,906 4,023 4,144 4,269 4,397
General Expense 9,008 10,193 10,193 9,870 10,121 10,385 10,681 11,002 11,330 11,670 12,020 12,381 12,665
Rents, Leases, & Equipment 1,014 1,212 1,212 1,213 1,231 1,252 1,283 1,322 1,362 1,402 1,445 1,488 1,532
Allocated Expenses 10,287 14,316 14,316 14,613 14,832 15,084 15,462 15,925 16,403 16,895 17,402 17,924 18,462
Total Expenditures 125,013 131,061 132,239 133,894 138,386 142,405 147,294 153,237 159,440 165,917 172,672 179,737 187,020
Transfers to Other Funds
OF transfer for Infrastructure GIP 10,397
GF transfer for other capital projects 4,251
Debt Service 1,082
Other 84
6,180 8,501 8,844 9,211 9,604 10,024 10,474 10,955 11,470 12,021 12,610
3,720 1,747 1,636 1,685 1,735 1,786 1,838 1,892 1,947 2,003 2,063
1,086 1,080 929 752 749 754 751 753 752 754 234
42 42 44 45 47 49 51 51 51 51 51
TOTAL USE OF FUNDS 140,827 142,089 143,267 145,263 149,839 154,098 159,429 165,850 172,554 179,568 186,892 194,566 201,979
Net Operating Surplus/(Deficit)
645 49 (5,427) (4,632) (4,239) (6,159) (6,302) (6,281) (6,213) (6,320) (6,855) (8,505) (9,456)
Other Activities
Additional Retirement Contribution Increase PI
Retiree Medical Cost Increase
Library Operating Cost Increase
Infrastructure Contribution Increase
Technology Fund Repayment
Public Safety Bldg. Budget Savings
Non -salary Reductions to be Determined
Salary & Benefit Reductions to be Negotiated
Vacant Positions Salary Savings
Drawdown on Budget Stabilization Reserve
Subtotal - Other Activities
(1,031) (2,774) (4,963) (5,389) (5,756) (6,140) (6,542) (6,963) (6,963)
(735) (735) (735) (735) (735) (735) (735) (735) (735) (735)
(250) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)
(1,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)
(1,225) (1,225) (1,225) (1,225)
2,700
1,000
173 967 986 1,006 1,036 1,078 1,121 1,166 1,212 1,261 1,311
1,500
1,279
5,427 (993) (3,255) (6,728) (7,662) (8,046) (8,370) (8,709) (9,065) (9,437) (9,387)
GRAND NET SURPLUS (DEFICIT) $ 645
49 $ 0
(5,625) $ (7,493) $ (12,887) $ (13,964) $ (14,327) $ (14,583) $ (15,029) $ (15,919) $ (17,942) $ (18,842)
(1) In FY 2010, $2.8 million in budgeted salary savings realized, an additional $185 thousand in savings still needs to be achieved
(2) Police union (PAPOA) deferred their FY 2010 negotiated salary increase of $0.8 million to FY 2011
(3) Based on current 2.7% @ 55 formula
Note: Assumption of no salary increase for SEIU and Mgmt./Prof. in FY 2010 and FY 2011 and no salary increase for Firefighters (IAFF) in FY 2011
LRFP 2009xis Exhibits 1-3 with IR 11/25/2009 8:21 AM
Attachment A
CITY OF PALO ALTO LONG RANGE FINANCIAL PLAN
General Fund ($000)
Revenues
Sales Taxes
PERCENTAGEWHANGfal
iiissounigionitissignigionailliseishomeis
FY 2009 FY 2010 AB FY 2010 PB FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
% % % % % % % % %
% Change % Change % Change Change Change Change Change Change Change Change Change Change % Change
(11.20%) (2.19%) (12.17%) 1.91% 2.49% 3.00% 3.50% 4.01% 3.75% 3.50% 3.00% 2.00% 2.33%
Property Taxes 10.23% 1.21% 1.31% 2.33% 3.59% 3.86% 4.62% 4,87% 5.14% 4.89% 4.66% 2.42% 2.92%
Utility User Tax 7.24% 1.99% 3.51% 9.60% 5.14% 3.95% 2.17% 5.22% 5.33% 5.44% 5.34% 5.06% 4.95%
Transient Occupancy Tax (10.85%) (1.56%) (3.67%) 2.00% 2.19% 2.86% 4.25% 4.74% 5.00% 4.50% 3.25% 2.85% 3.07%
Other Taxes, Fines & Penalties (30.88%) 3.55% (3.05%) 2.20% 2.23% 2.65% 3.04% 3.23% 2.84% 2.44% 1.26% 1.03% 1.67%
Subtotal: Taxes (3.79%) 0.25% (3.11%) 3.42% 3.34% 3.46% 3.72% 4.58% 4.63% 4.42% 3.98% 2.76% 3.10%
Service Fees & Permits (5.43%) 7.57% (2.44%) 4.82% 7.38% 1.87% 2.91% 3.94% 3.94% 3.95% 3.94% 4.29% 4.27%
Joint Service Agreements 12.40% 0.78% 0.78% 3.93% 4.45% 4.82% 4.65% 4.94% 4.97% 4.99% 4.99% 5.04% 5.04%
(Stanford University)
Interest Earnings
Other revenues
Reimbursements from Other Funds
(10.04%) (5.38%) (17.23%) (0.96%) 1.82% 2.86% 3.54% 3.75% 3.83% 4.11% 2.55% 2.05% 3.25%
(4.36%) (10.98%) (11.66%) 1.63% 1.81% (11.34%) 2.53% 2.55% 2.55% 2.56% 2.58% 2.59% 2.59%
1.32% (7.32%) (7.31%) 1.46% 2.58% 2.83% 3.45% 4.03% 4.04% 4.07% 4.08% 4.10% 3.81%
Total Revenues (2.86%) (1.12%) (4.59%) 3.17% 3.68% 1.42% 3.51% 4.23% 4.28% 4.17% 3.89% 3.23% 3.42%
Transfers from Other Funds 2.24% 11.64% 11.64% (4.86%) 2.58% 2.83% 3.46% 4.03% 4.04% 4.06% 4.08% 4.10% 3.81%
TOTAL SOURCE OF FUNDS (2.26%) 0.47% (2.57%) 2.02% 3.53% 1.61% 3.51% 4.21% 4.24% 4.15% 3.92% 3.35% 3.47%
Expenditures
Base Salaries 2.77% 2.27% 0.99% 2.06% 3.23% 1.87% 2.91% 3.94% 3.94% 3.94% 3.94% 3.94% 3.95%
Salary & Benefit Reductions to Negotiated (1) N/A N/A
PAPOA Salary Increase Deferral 2) NIA
Negotiated Savings from SEIU N/A
Negotiated Savings from Mgmt./Prof. N/A
Benefits (4.54%) 9.25% 9.25% 2.27% 5.40% 5.93% 5.28% 5.31% 5.33% 5.36% 5.36% 5.41% 5.41%
Subtotal: Salaries and Benefits 0.30% 1.24% 1.43% 2.17% 4.01% 3.29% 3.77% 4.44% 4.45% 4.47% 4.47% 4.50% 4.50%
Contract Services 7.37% (10.14%) (0.24%) (2.70%) 1.50% 1.70% 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Supplies & Materials (0.10%) 17.33% 17.33% (1.89%) 1.50% 1.70% 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
General Expense (1.83%) 13.15% 13.15% (3.17%) 2.55% 2.61% 2.85% 3.00% 2.99% 3.00% 3.00% 3.00% 2.30%
Rents, Leases, & Equipment (10.58%) 19.53% 19.49% 0.12% 1.50% 1.70% 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Allocated Expenses (30.39%) 39.17% 39.17% 2.07% 1.50% 1.70% 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Total Expenditures (43.21%) 4.84% 5.78% 1.25% 3.36% 2.90% 3.43% 4.03% 4.05% 4.06% 4.07% 4.09% 4.05%
Transfers to Other Funds
GF transfer for Infrastructure GIP 46.73% (40.56%) (40.56%) 37.55% 4.04% 4.15% 4.26% 4.38% 4.48% 4.60% 4.70% 4.80% 4.90%
projects (9.96%) (12.49%) (12.49%) (53.04%) (6.35%) 3.00% 2.97% 2.94% 2.91% 2.94% 2,91% 2.88% 3.00%
Debt Service (0.01%) 0,38% 0.36% (0.54%) (13.99%) (19.07%) (0.40%) 0.68% (0.31%) 0.15% (0.10%) 0.31% (69.04%)
Other 115.38% (50.00%) (50.00%) 0.00% 4.00% 4.00% 4.00% 4.00% 4.00% 0.00% 0.00% 0.00% 0.00%
TOTAL USE OF FUNDS (39.58%) 0.90% 1.73% 1.39% 3.15% 2.84% 3.46% 4.03% 4.04% 4.06% 4.08% 4.11% 3.81%
LRFP 2009.xis Exhibits 1-3 with IR
11/25/2009 10:16 AM
Attachment A
CITY OF PALO ALTO LONG RANGE FINANCIAL PLAN
General Fund ($000)
ZNERALEFUNDRESERVESUMNIARYI
Adopted Projected
FY 2009 FY 2010 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Budget Stabilization Reserve
Beginning Balance $ 26,102 $ 24,637 $ 24,637 $ 24,637 $ 19,012 $ 11,519 $ (1,369) $ (15,333) $ (29,660) $ (44,243) $ (59,272) $ (75,192) $ (93,134)
To/(From) Reserves 645 49 0 (5,625) (7,493) (12,887) (13,964) (14,327) (14,583) (15,029) (15,919) (17,942) (18,842)
CAFR adjustments 1,581 0 0 0 0 0 0 0 0 0 0 0 0
One-time Only Increases/(Decreases) (3,691) 0 0 0 0 0 0 0 0 0 0 0 0
Ending Balance
% of Total Expenditures
$ 24,637 $ 24,686 $ 24,637 5 19,012 $ 11,519 $ (1,369) $ (15,333) $ (29,660) $ (44,243) $ (59,272) $ (75,192) $ (93,134) $(111,976)
17.5% 17.4% 17.2% 13.1% 7.7% (0.9%) (9.6%) (17.9%) (25.6%) (33.0%) (40.2%) (47.9%) (55.4%)
LRFP 2009.xis Exhibits 1-3 with IR 11/25/2009 10:16 AM
ATTACHMENT B
TO: CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: OCTOBER 5, 2009 CMR: 394:09
SUBJECT: Fiscal Year 2010 Budget Update
RECOMMENDATION
Staff recommends that Council review and provide input on the FY 2010 1st Quarter Update and
structural budget issues identified in this City Manager Report (CMR).
BACKGROUND
As a consequence of the "Great Recession" and the decline in economically sensitive revenues
such as sales and transient occupancy taxes (TOT), budget deficits were identified for FY 2009
and FY 2010. In the FY 2010 Operating Budget process, the City identified a General Fund $10
million budget gap. This projected deficit would have risen to $12 million had the City
incorporated a pay raise for management and SEIU employees. Hence, the budget proposal
assumed zero increases for these groups. To solve the $10 million deficit, the City implemented
$3.7 million in savings from department and service reductions (this included the elimination of
20.3 Full Time Equivalents based on vacancies and retirements); a $1.4 million revenue
enhancement; $2.2 million in temporary reductions in transfers to the Capital Improvement and
Retiree Medical Liability Funds; and $3.0 million in employee compensation and benefit
reductions. The latter category savings was dependent on the City negotiating compensation
and/or benefit concessions from management and City unions.
The City is still in the process of negotiating with SEIU,
management, and finalizing a salary deferral with the Police
The Fire union has decided to take its contracted salary
Management and Professional Group has already made
management compensation program (VMC) totaling $657,000
latest proposal to SEIU is available on
htto://www.cityofpaioalto.org/labornegotiations
discussing benefit changes with
union (approximately $800,000).
increase this fiscal year. The
a contribution in the variable
for the General Fund. The City's
the City's website at
In the City Manager's FY 2010 Operating Budget transmittal letter, the possible need to revisit
deeper service cuts and savings strategies was discussed. These deeper service cuts were
described as the "Tier 2" list .(Attachment C) and they included, for example: eliminating the
disaster preparedness program; eliminating the Police traffic team; and contracting out golf and
parks maintenance work. Layoffs could result with these recommendations, which the City has
CMR:394:09 Page 1 of 7
sectors, a permanent change in consumer spending would have a substantial effect on the City's
General Fund finances.
Results to date for the transient occupancy and documentary transfer taxes have not changed
since the September 8 report. TOT receipts from January to June in FY 2009 were -30 percent
lower compared to the prior year period and July 2009 revenues were -21.3 percent under those
in July 2008. As with sales tax, if receipts do not improve, midyear adjustments of between $0.2
and $0.5 million may be needed. Documentary transfer taxes, which fell from $5,4 million in
FY 2008 to $3.1 million in FY 2009, continue to show weakness. Revenues through September
2009 were -36 percent below the same prior year period. At this time, however, staff does not
foresee adjustments to the $2.8 million to be collected in this category for FY 2010.
Attachment B shows actual revenue receipts through the middle of September in comparison to
the FY 2010 Adopted Budget. As mentioned, it is too early to draw firm conclusions from this
information, but in addition to the areas cited above, those that bear further scrutiny and close
monitoring are parking violations, plan checking fees, and building permits. These areas had
especially weak results in FY 2009 which may continue into FY 2010. Property taxes, the
General .Funds' highest single revenue source, is expected to be close to budget at year end based
on recent County projections.
FY 2010 Expenses
As with revenues, it is too early in the year to detect important expense variances. With the
exception of overtime in the Police and Fire departments, which typically exceed their budgets
due to minimal staffing requirements, there is no discernable expense trend causing concern at
this time. Tf the City cannot achieve the $3 million in salary and benefit savings discussed above
and incorporated into the FY 2010 budget, a deficit would result.
"Tier 2" Items and Action
Should revenues not perform as forecast or salary or benefit concessions by the unions and
management not be realized, the City will be forced to utilize "Tier 2" expenditure reductions.
During the FY 2010 Finance Committee budget hearings, these reductions were discussed at
length and they were called to the attention of the full Council at budget adoption, Again,
Attachment C lists these items and provides a description of the potential cuts. These include,
for example:
o Eliminating the current Disaster Preparedness program
o Eliminating the City's shuttle service
o Contracting out parks and golf maintenance work
o Eliminating Police traffic control services
Tier 2 reductions will impact services to the community and will result in position reductions.
Structural or Systemic Budget Issues
To substantiate the position that the City faces structural budget issues, staff has modified the
Long Range Financial Forecast (LRFF) presented in the FY 2010 Adopted Budget. Based on
new data and known liabilities, the Net Surplus (Deficit) line in the forecast has been adjusted
CMR:394:09 Page 3 of 7
The current rate of funding from the General Fund and Infrastructure Reserve, which is
around $9 million per year, is inadequate to meet the annual $15 million needed to offset
the $302 million liability in any predictable or reliable way. The Infrastructure Reserve
balance currently stands at $5.2 million and is expected to decline to $1.6 million next
fiscal year. Without replenishment from General Fund surpluses over the next few years,
which will not occur, the ability to sustain $9-$10 million of annual General Fund
,infrastructure work is unlikely. New revenues are necessary.
5. Although one-time in nature and supposedly to be repaid in 3 years, the City faces a $2.5
million property tax takeaway by the State to solve its budget deficit. This cut will
decrease the General Fund's Budget Stabilization Reserve, impact the City's cash flow
and interest earnings (the City currently earns around 4 percent on its investments and
the State has proposed repaying the principal with a 2 percent interest rate), and reduce
flexibility in dealing with unforeseen needs. The City, with the League of California
Cities is exploring our options. Even with statutory protections against State takeaways
of local revenues, the State can withhold revenues in fiscal emergencies and the State's
record on coping with such emergencies is well -documented. Having solid and
substantial reserves protects the City from the State risk.
In addition to the structural issues cited above, the City faces additional threats on the revenue
side. Outlined each year in the Long Range Financial Forecast, City revenues and the services
they fund face an array of risks. These can include, for example, risks to sales tax and the TOT
through: community opposition to new business and hotel development (e.g., the loss of Hyatt
Rickey's); the potential exodus of automobile dealerships; surrounding big box stores that cause
leakage of local spending and sales tax to surrounding jurisdictions; loss of sales tax to Internet
sales; and, most recently, the threat of consumers spending less in retail areas such as the
downtown and. Stanford Shopping Center. It is important to note that nearly 50 percent of the
General Fund's roughly $20 million in annual sales tax is generated by 25 businesses. The loss
of one of these enterprises can have a substantial impact on continuing services as we know them
today.
Additionally, the impact of Statewide initiatives and legislation such as Proposition 13 (property
tax); Proposition 218 (revenue thresholds); and required super majority (2/3) approval for
General Obligation bond funding limit the City's revenue raising options. And of course, the
financial markets crisis and impact on lending as well as the dysfunction of State government all
impact the City.
Conclusions
Actual revenue and expenditure data to date do not definitively indicate new downward budget
adjustments at this moment. As additional revenue and expenditure data materializes, however,
further adjustments at midyear may be necessary.
As indicated in a prior report (October 2007) on maintaining a Sustainable Budget (CMR:
387:07), the City may be faced with determining its long-term service priorities. It must be
recognized that the City provides a wide and high level of service and dedicates sizeable annual
resources in such areas as the school district ($6.6 million in FY 2009 for the Covenant Not to
Develop as well as additional expenditures on field maintenance and outreach programs) and to
CMR:394:09 Page 5 of 7
PREPARED BY:
JO
0
Deity Director of Administrative Services
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
Director of Administrative Services
JAME I EENE
City ger
CMR:394:09 Page 7 of 7
ATTACHMENT A City of Palo Alto
City Manager's Report
TO: FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
DATE: SEPTEMBER 8, 2009 CMR: 358:09
SUBJECT: Review of Preliminary FY 2009 Revenue Analysis
RECOMMENDATION
Staff recommends that the Finance Committee review and discuss preliminary General Fund
revenue performance for FY 2009.
BACKGROUND
As a result of the current recession and consequent decline of key General Fund revenue sources,
the Finance Committee requested a late summer assessment of FY 2009 revenue performance.
This assessment was to include a comparison of actual revenue receipts to the FY 2009 Adjusted
Budget and to prior year results. The variance analysis could lead to necessary mid year budget
adjustments and allow the City to be proactive in resolving unforeseen budget gaps.
It is critical to note that the FY 2009 numbers presented in this report are unaudited and that
there are potential accruals that may result in subsequent changes. Staff is not presenting a year
end expense analysis at this time. Since accruals and incurred, but not reported, expenses in such
areas as workers' compensation and general liability have not been fully booked and allocated to
departments, staff believes an expense report is premature and could be potentially misleading.
In addition, the Committee requested an earlier review of FY 2010 quarterly revenue and
expense results. Staff anticipates presenting a full analysis in late October 2009, but offers the
following insights into preliminary trends in this report.
DISCUSSION
The crucial backdrop to the results in this report is the dismal state of the economy. In what has
come to be called the "Great Recession," the City's key and economically sensitive revenue
sources have declined significantly since FY 2007-08. Rising unemployment rates, tightening
credit markets, deteriorating residential and commercial property markets, and diving consumer
confidence have driven down public revenue streams across the country. The City of Palo Alto
has not been immune from the recession.
CMR:358:09 Page 1 of 5
Documentary Transfer Tax
This important revenue source, which is based on the number and value of commercial and
residential property sales, has moved down sharply during the recession. Rising to the mid $5
million level for the past 5 years, it retreated to $3.1 million in FY 2009. While close to the
adjusted budget, this result was 42.5 percent or $2.3 million below FY 2008 results. The poor
performance is a consequence of the commercial and residential markets coming to a virtual
standstill. Commercial transactions decreased due to low occupancy rates and residential
transactions were minimal due to sellers holding onto their homes during a period of market
softness. In addition, credit conditions were abysmal due to the collapsing credit markets for
commercial and jumbo home loans.
As with sales tax and TOT, documentary transfer tax revenue estimates for 2010 may require a
midyear adjustment. Results for the month of July 2009 were nearly 40 percent under those for
July 2008. Currently, the adopted budget for FY 2010 projects $2.8 million in transfer taxes,
$0.3 million below actual FY 2009 revenues. With credit markets slowly returning to more
normal activity, staff hopes this revenue source will rebound and obviate the need for a midyear
adjustment.
Fines & Penalties
This revenue category consists primarily of parking violations and library fines. Revenues are'
below the FY 2009 Adjusted Budget by 16.6 percent or $0.5 million, and 4.7 percent or $0.1
million below prior year results. The negative variance is primarily due to parking violations,
which came in 28 percent or $0.6 million below the adjusted budget. The combination of
industrial injuries to Community Service Officers and fewer cars in violation of parking
regulations have led to this drop. Should vacancies continue, an adjustment to adopted budget
revenues may be necessary.
Permits & Licenses
The downturn in the economy has heavily and negatively impacted building related fees. Permit
and license fees were 16.5 percent or $0.9 million below the adjusted budget and 17.4 percent or
$0.9 million below the prior year. Compared to the budget, new construction permit fees are
down 13.7 percent or $0.4 million while plan check fees were down $0.1 million.
In the new fiscal year, July 2009 building fee revenues are up by $0.1 million in comparison to
July 2008. This may signal an upturn in this revenue category, which would preclude a midyear
adjustment.
Return on Investment
Interest income came in higher than the adjusted budget for 2009, but was under prior year
results by 6.9 percent or $0.2 million. With the Federal Reserve keeping interest rates low to
stimulate the economy, the City's portfolio yield has declined to the low 4 percent range over the
past two years. It is expected that yields will continue to decline as higher yielding instruments
mature and the City continues to buy securities in the 3 to 4 percent range. An adjustment at
midyear may be necessary if interest rates do not trend upward.
CMR:358:09 Page 3 of 5
PREPARED BY:
Depu Director, Administrative Services
CIO
(:4 --- SHARON BOZMA
Budget Manager, Administrative S
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
LAL
Director of Administrative Services
ices
CMR:358:09 Page 5 of 5
Attachment B
CITY OF PALO ALTO
REVENUE AND EXPENSE RESULTS THROUGH MID -SEPTEMBER
COMPARED TO THE ADOPTED FY 2009 BUDGET
GENERAL FUND
(In thousands of dollars)
BUDGET
Adopted
Adjusted
Categories
Budget
Budget
Revenues & Other Sources
Sales Tax
19,650 19,650
Property Tax 25,752 25,752
Transient Occupancy Tax 7,000 7,000
Utility Users Tax 11,250 11,250
Other Taxes and Fines 5,633 5,633
Charges for Services 20,238 20,238
Permits & Licenses 5,056 5,056
Return on Investment 1,900 1,900
Rental Income 13,655 13,655
From Other Agencies 92 92
Charges To Other Funds 10,643 10,643
Other Revenues 1,605 1,605
Total Revenues 122,474 122,474
Operating Transfers -In 19,664 19,664
Encumbrances and Reappropriation - 6,564
Total Sources of Funds , 142,1.38. 148,702;
Expenditures & Other Uses
City Attorney
2,569 3,343
City Auditor 999 1,143.
City Clerk 1,512 1,524
City Council 296 309
City Manager 2,395 2,646
Administrative Services 6,761 6,910
Community Services 21,876 22,770
Fire 25,166 25,546
Human Resources 2,837 2,970
Library 6,385 6,668
Planning and Community Environment 9,858 10,603
Police 29,998 30,239.
Public Works 13,484 14,177
Non -Departmental 6,925 8,778
Total Expenditures 131,061 137,624.
Operating Transfers -Out 11,028 11,028
Total Uses of Funds 142,089 . 148,653
Net Surplus (Deficit) 49 49
Beginning Deserves 22,176 22,176
Projected Ending Reserves 22,225 22,225
* Excludes encumbrances, reappropriation and Infrastructure reserve
ACTUALS
Pre
Encumbr
Encumbr
(as of 9-76-09)
Actual
% of
Adjusted
Budget
- - 1,682 9%
- - 77 0%
- - 578 8%
- - 2,357 21%
- - 1,204 21%
- - 2,613 13%
- - 943 19%
- - 5 0%
- - 2,450 18%
- - 15 16%
- - 1,781 17%
- - 935 58%
- - 14,640 . ' 12%
- 3,808 19%
18,448 12%
21 667 539 37%
- 246 152 35%
- 17 486 33%
- 35 70 34%
33 61 487 22%
5 187 1,296 22%
203 2,839 4,173 32%
99 495 4,800 21%
- 126 501 21%
- 164 1,169 20%
581 658 1,940 30%
18 385 5,433 19%
56 934 2,443 24%
2,000 - 1,953 45%
3,016 J 6,81.4. I ,, - :.25,442 j 26%
- - 1,831 17%
3,016. .- . `6,814. 27,273 25%
Attachment C
City of Palo Alto
Internal Budget Hearings - FY 2010 Summary
Tier 2 Items
G eneral Fund
Department Other Options R evenue Expense FTE
FIR Eliminate Dis aster Preparedn ess Di v (33,400) (442,826) (1.00) Occupied
CSD Park Mainten ance - Contract out net expense (122,957) (5 .00) Oc cupied
CSD Golf Course Maint - Contr act out net expense (176,352) (7.00) 7 Occupied
PLA Eliminate Shuttle (256,000)
POL Tra ffic Team (100,000) (626,433) (4.00) Occupied
POL School Res Officer Prg (161,772) (1.00) Occupied
POL Pol Record Specialist - Front Desk Records (82,773) (1.00) Occupied
POL Pro gram Asst I - Crime Analysis (94,037) (1 .00) Occupied
PWD Eliminate Tree Trimming Contract (379,000)
PWD Contract out Tree Trimming (46,737) (1.00) Vacant
Subtotal (133,400) (2,388,887) (21.00)
Additional Finance Committee "Parking Lot" Recommendations
FIR Evaluate future o rga nization of OES Consolidation/Coordination
FIR Regio naliza tio n options for Fire Services
Police Regionaliza tion options for Police Services
Po lice Reduce the Police Department Budget by $500,000 - Police Chief to identify reductions
Police Reduce the Police Department Budget by $492,000 - Finance Committee recommended reductions
Add back 0.5 Fte Vo lunteer Coordinator (Salary & Benefits) $ 52,000
Reduce the Tra ffic Team by one-half (instead of elimination)
1. 0 FTE Police Officer (sala ry & benefits) (154,000)
1.0 FTE Police Agent (salary & benefits) (158,000)
Add ba ck revenue 50,000
Re duce positions listed below by one-half instead of elimination
School Resource Officer (0. 5 FTE Police Agent) (79,000)
Crime Analyst Program (0.5 FTE Crime Analyst) (56,000)
Police O utreach (0. 5 1- I t Pro gram Assistant I) (47,000)
Planning & Community Environment - $ 256,000
Eliminate the City's shuttle service. There are not City FTE associated with this program
and its termination would result in $256,000 in annual savings. Eliminating the shuttle
program would reduce mobility and transportation alternatives within the City.
Police Department - $ 865,015
Eliminating the Traffic Team would result in the reduction of $626,000 in expenditures
and $100,000 in revenue. Included is the reduction of four 1i'1E. The duties normally
assigned to the Traffic Team would be assumed by patrol units.
Eliminating the School Resource Officer (SRO) Program: During the FY 2010 budget
hearings, one vacant SRO position was eliminated. The Tier 2 reduction would eliminate
the remaining SRO position which is currently filled. The expenditure reduction is
estimated at $ 162,000.
Elimination of the Crime Analysis Program. This would result in the reduction of one
PIE with an estimated expenditure reduction of $94,000.
Elimination of Community Policing/Outreach program. This would result in the
reduction of one 1i'1'E with an estimated expenditure reduction of $83,000.
The Finance Committee also discussed the possibility of evaluating the future of
regionalization options for the Police Department. Staff has not reviewed the cost/benefit
strips to property owners. It would require a change to policy and to the Municipal Code.
It would not impact Utilities line or emergency tree trimming clearing.
The other alternative for the Public Works Department is the contracting out of Tree
Trimming. This would result in the elimination of 1 1~'I E and a net expenditure reduction
of $46,000.
The Public Works Department is recommending either/or for these options, not both.
Attachment C
CITY OF PALO ALTO
FY 2010 FINANCIAL REPORT as of 11-20-09
GENERAL FUND
(in thousands of dollars)
BUDGET
Revenues & Other Sources
Sales Tax
Property Tax
Transient Occupancy Tax
Utility Users Tax
Other Taxes and Fines
Charges for Services
Permits & Licenses
Return on Investment
Rental Income
From Other Agencies
Charges To Other Funds
Other Revenues
19,650 19,650
25,752 25,752
7,000 7,000
11,250 11,250
5,633 5,633
20,238 20,238
5,056 5,056
1,900 1,900
13,655 13,655
92 92
10,643 10,643
1,605 1,605
Total Revenues 122,474 122,474
Operating Transfers -In
Encumbrances and Reappropriation
Total Sources of Funds
19,664
19,664
6,564
142,138 148,702
Expenditures & Other Uses
City Attorney 2,569 3,343
City Auditor 999 1,143
City Clerk 1,512 1,524
City Council 296 309
City Manager 2,395 2,646
Administrative Services 6,761 6,910
Community Services 21,876 22,770
Fire 25,166 25,546
Human Resources 2,837 2,970
Library 6,385 6,668
Planning and Community Environment 9,858 10,603
Police 29,998 30,239
Public Works 13,484 14,177
Non -Departmental 6,925 8,778
Total Expenditures 131,061 137,624
Operating Transfers -Out
11,028 11,028
Total Uses of Funds
142,089 148,653
Net Surplus (Deficit)
49
49
Beginning Reserves
Projected Ending Reserves
22,176 22,176
22,225 22,225
Excludes encumbrances, reappropriation and infrastructure reserve
ACTUALS
(as of 11-19-09)
Pre
Encumbr
%a
Adjusted°
Budget
5,510 28%
3,140 12%
1,781 25%
4,360 39%
2,092 37%
6,209 31%
1,455 29%
633 33%
4,780 35%
62 67%
3,540 33%
959 60%
34,521 28%
6,969
35%
1.1
41,490 28%
8 601
229
1 16
31
6 62
156
86 2,308
10 648
5 104
48 145
158 953
337 319
104 936
19
9,877
4,510
2,772
970 47%
296 46%
655 44%
107 45%
814 33%
2,267 35%
7,993 46%
9,156 38%
911 34%
2,110 35%
3,331 42%
35%
39%
32%
763
6,527
45,769
39%
3,646
33%
763
6,527
49,415 1
38%
Attachment D
City of Palo Alto
General Fund Revenue Changes for FY 2010 and FY 2011 - Detail
($000)
2009
Actual
Detail
Sales Taxes
Property Taxes
Transient Occupancy Tax
Utility User's Tax
City Utilities
Telephone
Sub -total - Utility User's Tax
Other Taxes and Fines
Vehicle In -Lieu
Documentary Transfer
Parking Violations
General (Fines, Forfeitures & Penalties)
Sub -total - Other Taxes and Fines
Total Taxes and Fines
Charges for Services
Stanford Fire/Police Service Reimbursement
Golf Related Fees
Class Program Fees
Paramedic Fees
Plan Checking Fees
Cable Franchise
Other Fees
Sub -total - Charges for Services
Permits and Licenses
Street Cut Fee
Permits
Licenses
Sub -total - Permits and Licenses
Charges to Other Funds
Cost Plan - Admin. Support to Other Funds
Communication - Utility Reimb. for 911 Support
Public Works Admin. Support to Ent. Funds
Other Reimbursements
Sub -total - Charges to Other Funds
Rental Income
Utilities Facility Charges
Property Rental - Cubberley Tenants
Use of City Facilities
Other
Sub -total - Rental Income
From Other Agencies
Return on Investments (Interest Income)
Unrealized Gain/Loss on Investment
Other Revenue
Total Revenues (Prior to Oper. T'fers-In)
Operating Transfers -In
Equity & Utility Transfers
Parking Districts
Other
Sub -total - Operating Transfers -In
$ 20,089
25,445
7,111
7,718
,312
2010
Adopted Revised Proposed
Budget Forecast Change
$ 19,650
25,752
7,000
$ 17,645 $ (2,005)
25,778 26
6,850 (150)
8,180 7,966 (214)
3,070 3,451
381
2011
Adopted Revised Budget
In -Concept Forecast Change
$ 20,050
26,102
7,300
$ 17,982 $ (2,068)
26,379 277
6,987 (313)
9,218 8,993 (225)
3,086 3,520 434
030
69„
7,783
2,917
2,786
,966
1,530
541
2,013
9,536 20,238 19,134 (1,105)
11,250 11,417
200
2,800
2,020
613
200
2,900
1,560
614
167
100
(460)
1
12,304 12,513 209
208
2,900
2,020
609
205
2,956
1,599
629
(3)
56
(421)
21
5,633 5,274 (359)
5,737 5,390 (347)
69,285 66,963 (2,322)
71,493 69,250 (2,243)
7,832
3,153
3,087
1,754
1,763
600
2,050
7,832
2,919
2,727
1,754
1,460
600
1,841
(234)
(360)
(303)
(209)
8,166
3,153
3,087
1,753
1,788
600
2,050
8,166
2,900
2,800
1,678
1,600
600
2,050
(253)
(287)
(75)
(188)
553
4,431
73
703
3,835
73
150
(596)
20,596 19,794 (803)
553
4,506
73
703
4,100 (406)
73
150
5,056 4,611 (446)
8,233 8,233
512 512
563 563
12 ' 1,335 1,252 (83)
168
,860---
2,280
'1,425
82_
5,131 4,876
8,404
512
569
1,472
8,404
512
569
1,472
150
10,643 10,560 (83)
10,311
1,719
1,518
106
10,311
1,801
1,440
81
82
(78)
(25)
10,957 10,957
10,311
1,719
1,518
106
10,462
1,719
1,518
106
3,647 13,655 13,633 (21)
158
92
92
2,008 1,900 1,662 (238)
1,605 1,523 (82)
13,655 13,805 150
92
92
1,900 1,646 (254)
1,502 1,502
$123,858 $122,474 $118,176 $ (4,296)
$ 125,326 $ 121,922 $ (3,405)
15,798
8
928
17,040
1,044
1,580
17,040
1,044
1,580
16,502
1,069
1,138
18,709 18,709
16,502
1,069
1,138
17,614 19,664 19,664 -
Total Source of Funds $141,472 $142,138 $ 137,840 $ (4,296)
$ 144,035 $140,631 $ (3,405)
Attachment E
Police and Fire Departments
Overtime Analysis for Fiscal Years 2005 through 2009
With Fiscal Year 2010 Data Through November 20, 2009
Fiscal Year Ending June 30
POLICE DEPARTMENT
Overtime Expense
Original Budget
unaudited
2005 2006 2007 2008 2009
thru 11/20
2010
$974,426 $981,862 $1,015,620 $1,036,815 $999,900
$999,900
Current Budget 1,028,337 1,009,705 1,074,399 1,071,005 1,016,900 999,900
Net Overtime Cost - see below 1,096,077 780,647 1,025,718 1,096,894 886,568 215,550
Remaining Budget ($67,740) $229,058 $48,681 ($25,889) $130,332 $784,350
Overtime Net Cost
Actual Expense $1,229,851 $1,405,155 $1,785,657 $2,009,542 $1,665,842 $567,870
Less Reimbursements
Stanford Communications 30,941 30,937 39,342 65,079 42,160 17,468
Utilities Communications Reimbursement 17,404 17,402 22,130 36,607 23,715 9,826
Local Agencies (A) 32,617 34,565 36,457 41,770 37,413 13,413
Federal Grants -
State Grants (B) 8,135 65,835 63,344 4,672 10,998 -
Police Service Fees 37,188 49,185 43,218 67,390 53,812 48,035
Other 7,489 12,447 18,157 15,982
Total Reimbursements 133,774 197,924 216,938 233,675 184,080 88,742
Less Department Vacancies 375,515 426,584 543,001 678,973 595,194 263,578
Net Overtime Cost $1,096,077 $780,647 $1,025,718 $1,096,894 $886,568 $215,550
Department Vacancies (number of days) 1,642 1,733 2,280 2,766 2,402 508
FIRE DEPARTMENT
Overtime Expense
Original Budget
$982,674 $959,389 $1,032,674 $892,674 $1,017,674 $1,017,674
Current Budget 982,674 959,389 1,032,674 996,674 1,353,058 1,017,674
Net Overtime Cost - see below 877,892 637,310 737,768 863,442 416,610 513,685
Remaining Budget $104,782 $322,079 $294,906 $133,232 $936,448 $503,989
Overtime Net Cost
Actual Expense $1,956,529 $1,582,858 $1,860,757 $1,744,076 $1,591,261 $1,040,777
Less Reimbursements
Stanford Fire Services (D) 592,828 479,606 563,809 528,455 482,152 315,355
Cal-Fire/FEMA (Strike Teams) 66,269 85,531 140,224 453,619 43,000
State Homeland Security
Grant Program (SHSGP) (C) 17,203 72,254 40,897 10,164 4,342
Urban Area Security Initiative (UASI) 26,782 1,150
Department of Homeland Security (E) 5,800
Total Reimbursements 610,031 644,911 690,237 679,993 940,113 358,355
Less Department Vacancies 468,606 300,637 432,752 200,641 234,538 168,737
Net Overtime Cost
Department Vacancies (number of days)
$877,892 $637,310 $737,768 $863,442 $416,610 $513,685
1,980 1,230 1,740 810 780 636
NOTES:
(A) Includes Animal Services contract with Los Altos, Mountain View and Los Altos Hills.
(B) State Office of Traffic Safety and ABC grants.
(C) Included in the SHSGP and UASI reimbursements is a small amount of per diem reimbursement.
(D) Stanford reimburses 30.3% of Fire expenditures.
(E) Reimbursement from U.S. Department of Homeland Security for HazMat Continuing Challenge Training Conference (Sep 2009)
11/25/2009
Attachment F
FY 2010 Salary Savings by Department
In Thousands
City Attorney
City Auditor
City Clerk
City Council
City Manager
Administrative Services
Community Services
Library
Fire
Human Resources
Planning and Community Environment
Police
Public Works
Non -departmental
Total 60,015 3,095 (1,595) 1,500
,374
487
593
65
1,302
3,709
8,707
3,297
14,182
1,544
4,531
16,706
4,831
(1,313)
Projected Year End
Overtim
Salary Exceeding v Net Salar
Savings Budget Savings
124
25
67
5
151
147
276
156
1,539
193
390
1,891
337
(2,206)
124
25
67
5
151
147
(137) 139
156
(679) 860
193
(37) 353
(691) 1,200
(51) 286
(2,206)
ATTACHMENT G
"Tier Two" Reductions
Dept.
Other Options
Revenue
Expense
FTE
FIR
Eliminate Disaster Preparedness
Div
(33,400)
(442,826)
(1.00)
CSD
Park Maintenance - Contract
out net expense
(122,957)
(5.00)
CSD
Golf Course Maint - Contract out
net expense
(176,352)
(256,000)
(7.00)
PLA
Eliminate Shuttle
POL
Traffic Team
(100,000)
(626,433)
(4.00)
POL
School Resource Officer
Program
(161,772)
(1.00)
POL
Program Asst I - Police Outreach
Program
(94,037)
(1.00)
POL
Crime Analyst - Crime Analysis
Program
(111,353)
(1.00)
PWD
Eliminate Tree Trimming
Contract
(379,000)
PWD
Contract out Tree Trimming
(46,737)
(2,417,467)
(1.00)
(21.00)
Subtotal
(133,400)
Attachment H
Budget Reduction Options
Near -Term Cost Savings
1. Institute a hiring freeze except for positions absolutely required for public health
and safety. The City will look at reorganization around vacant positions (short-
term within departments and long-term among departments), but it must be noted
that significant staff reductions and efficiencies have been implemented since the
"dot-com" bust
2. Freeze or cut all travel and meeting budgets unless critical to immediate public
health and safety issues
3. Institute furloughs
4. Review all consultant contracts, particularly those just starting, to determine if
needed
5. Defer any Capital Improvement Projects (CIPs) that are not absolutely essential
6. Close public safety building design CIP and return funds to reserves
7. Evaluate need for temporary positions including retirees who have been hired
back to work
8. Review staffing levels in departments where fee, fine or permit revenue has
dropped, e.g., CSD classes, parking violations, and in development center.
Design flexible budgets for these areas
9. Consider instituting a 2.5% reduction for small departments and 5% for remaining
departments
10. Institute full cost recovery for programs that provide unique and limited service to
small populations
11. Institute full cost recovery for adult classes. Revisit the non-resident fees and
examine all programs where non-residents are not paying fees for use of City
facilities.
12. Use the Budget Stabilization Reserve to balance the budget along with other
initiatives in 2010. The goal would be to make longer term decisions during the
fiscal year 2010 timeframe. The drawdown should not take the reserve lower than
15 percent of General Fund adopted budget expenditures
Medium Term
1. Institute a 5.0-7.5% equity transfer on dark fiber fund
2. Enhance and expand the Economic Develop Plan
3. Negotiate away minimum staffing levels in Fire Department
4. Have fire department use newest employees for OT work rather than most senior
staff; same for police (i.e., staff according to reverse seniority)
5. Have Fire department complete an evaluation (funds have been budgeted) on need
for current levels and configurations of fire service based on predominant number
of calls for paramedic service
6. Institute a two-tier retirement plan for public safety personnel
7. Contracting out services such as parks and golf
8. Decrease rental subsidies at Cubberley or restart negotiations with Foothill
College
9. Review all support to PAUSD to determine what the City can continue to provide
10. Review the Cubberley Lease and the Covenant Not To Develop agreement with
PAUSD to determine affordability and course of action going forward.
11. Revisit all HSRAP services to non -Palo Alto institutions with new budget cycle
and focus resources on needy seniors, children, and teens in trouble.
12. Revisit residents and businesses paying for cost for sidewalk work at 10% per
year and cap at 50% in year 5
13. Revisit policy on property rental rates to be at or close to cost recovery as
agreements come up for renewal.
14. Move all employee groups toward assuming greater share of PERs "employee"
contribution and all groups contribute towards the cost of health care.
15. Consider assessment districts — parks, sidewalks, fire and/or public safety.
16. Begin GF service priority setting process with Council and community
Long -Term
17. Revisit new conference hotel in Palo Alto
18. Develop LATP site as a source of rent or sell the land to Enterprise Funds
19. Negotiate away no minimum staffing requirement for Police
20. Review all police services for efficiencies and potential reduction in least
essential services
21. Contract out, with reasonable response time specifications, paramedic service to
outside agencies e.g., AMR
22. Begin discussion with neighboring cities e.g., Mountain View on sharing public
safety services e.g. dispatch center, SWAT, white collar units, border fire
response
23. Explore and implement new revenue opportunities
24. Revisit land use policies to provide the most benefit to the community
ATTACHMENT B
ORDINANCE NO.XXXX
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR FISCAL YEAR 2010 TO REINSTATE A
$809,000 TRANSFER FROM THE GENERAL FUND BUDGET
STABILIZATION RESERVE TO THE TECHNOLOGY FUND.
The Council of the City of Palo Alto does ORDAIN as follows:
SECTION 1. The Council of the City of Palo Alto finds and
determines as follows:
A. Pursuant to the provisions of Section 12 of Article III
of the Charter of the City of Palo Alto, the Council on June 15,
2009 did adopt a budget for Fiscal Year 2010; and
B. On December 1, 2009, staff reported to the Finance
Committee a one-time budget change to solve a $4.8 million
deficit for the Fiscal Year 2009; and
C. The one-time budget change deferred a $4.8 million cost
allocation transfer from the General Fund to the Internal Service
Fund -Technology Fund in FY 2009; and
D. Pursuant to discussions with the Finance Committee, a
motion was passed to approve staff's recommendation to close out
the 2009 Fiscal Year by deferring the $4.8 million transfer to
the Technology Fund; and
E. The Finance Committee also passed a motion recommending
staff submit a Budget Amendment Ordinance to Council amending the
FY 2010 Technology Fund Budget in the amount of $800,000, which
was the excess from FY 2009 year end close, plus any amount
necessary to fund all of the Tech expenditures that had been
planned for FY 2010; and
F. City Council authorization is needed to transfer
$809,000 from the General Fund to the Internal Service Fund -
Technology Fund.
SECTION 2.
A. The Budget Stabilization Reserve is hereby decreased by
the sum of Eight Hundred Nine Thousand ($809,000). As a result of
this change the Budget Stabilization Reserve will be reduced from
Twenty Two Million Twenty Two Thousand Three Hundred Sixty
One($22,022,361) to Twenty One Million Two Hundred Thirteen Thousand
Three Hundred Sixty One ($21,213,361).
B. The Internal Service -Technology Fund is hereby increased
by the sum of Eight Hundred Nine Thousand ($809,000). As a result
of this change the Internal Service -Technology Fund Reserve will be
increased from Fifty One Thousand Four Hundred ($51,400) to Eight
Hundred Sixty Thousand Four Hundred ($860,400).
SECTION 3.
As specified in Section 2.28.080(a) of the Palo Alto Municipal
Code, a two-thirds vote of the City Council is required to adopt
this ordinance
SECTION 4. The Council of the City of Palo Alto hereby finds
that this is not a project under the California Environmental
Quality Act and, therefore, no environmental impact assessment is
necessary.
SECTION 5. As provided in Section 2.04.350 of the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST: APPROVED:
City Clerk Mayor
APPROVED AS TO FORM: City Manager
City Attorney Director of Administrative
Services
ATTACHMENT B
FINANCE COMMITTEE
EXCERPT FROM THE REGULAR MEETING
DECEMBER 1, 2009
2. Fiscal Year 2009 General Fund Discussion and Fiscal Year 2010
Financial Results as of November 20, 2009.
City Manager, James Keene stated due to a higher than anticipated
budget gap in Fiscal Year (FY) 2009, Staff will be presenting the year-
end budget review earlier than usual, and would provide the final
audited financial statements on another date. The intent was to call
attention to the upcoming challenges in the forthcoming fiscal years.
He spoke on the continuing economic downturn and declining revenues
projected in the next four years, and beyond. In the FY 2010 budget,
a $10 million General Fund deficit was identified by Staff. This gap
was initially closed with a three pronged approach, but had proven
insufficient to stem the tide of declining revenues. The City was facing
an additional deficit. Staff would discuss in detail the shortfalls and
issues in the closing of the FY 2009 Budget. In the wake of the FY
2009 issues, the City's Budget Manager voluntarily left, and the
Administrative Services Department (ASD) had restructured creating
an Office of Management and Budget within the ASD Department. The
ASD Department was currently recruiting for a Budget and
Management Officer. He spoke on the recommendation to balance the
FY 2010 with one-time adjustments to get the City through the current
fiscal year, and systemic adjustments would be required for future
drop-offs in revenues.
Director of Administrative Services, Lalo Perez stated the purpose of
the report was a follow-up to discussions with the Finance Committee
on September 8, 2009 and October 5, 2009, to provide new
information depicting a worsening financial condition, and to lay out
plans for addressing the current projections and future deficits. He
gave a PowerPoint presentation that highlighted the following topics:
1) background on Palo Alto's financial position; 2) four-year view on
the challenges that lay ahead; 3) FY 2009 General Fund results; 4) FY
2010 General Fund results to date; 5) long range financial forecast; 6)
future challenges; and 7) budget reduction options. He stated that
Palo Alto has lost $9.3 million in revenues since the end of FY 2008.
FIN: 091201 EXERPT 1
FINANCE COMMITTEE
He stated that the net deficit for 2008 was $4 million. He projected
that in 2010 the deficit will be $5.4 million, driven by a decline in
revenues. Staff recommended one-time adjustments for 2010. A
$5.6 million structural adjustment to the General Fund Budget will be
required and was subject to change. He stated the City would face an
additional deficit of $1.9 million in 2012.
Mr. Keene added that the additional $1.9 million in 2012 was
predicated on the $5.6 million in 2011 being systemic and ongoing.
Council Member Klein inquired whether the deficit projections in the
four-year view were in addition to the $10 million deficit when the FY
2010 budget was prepared.
Mr. Perez stated that was correct. He spoke on FY 2009 General Fund
results. The drop in key revenue sources in FY 2009 required midyear
budget adjustments to the General Fund revenues and expenditures.
The salary line item was over budget due to a miscalculation in the
amount of expected salary savings. The General Fund deficit consisted
of $2.1 million in employee salaries, $0.9 million in overtime, and $1.8
million in employee benefits. The miscalculations were not recognized
in time to make additional expense adjustments. Staff had
implemented enhanced monthly variance reports, a department
restructuring, as well as other controls, to avoid such occurrences in
the future. He stated that Staff's recommended solution was a one-
time adjustment to the FY 2009 General Fund by eliminating the $4.8
million transfer to the Technology Fund. He said that given the
downturn in revenues it was important to not draw on the Budget
Stabilization Fund first. The result of the error was an overage of $2.1
million in salaries, a $900,000 overage in overtime, and a $1.8 million
overage in benefits. He stated that the Fire Department and Police
Department covered their overtime through vacancies and
reimbursements. Regarding the benefits overage, he stated that in
previous years the City was able to rely on the Benefit Fund Balance to
cover overages. In recent years the balance has dried up as the City
had used it to balance the budget and can not absorb the overage any
longer. After the close of the year Staff realized that there was not
going to be sufficient budget to cover the overages in the General
Fund. The impacts of not transferring the $4.8 million to the
Technology Fund will be delayed projects. This may be acceptable in
the short term, but this was not a fund that could forego these
FIN: 091201 EXERPT 2
FINANCE COMMITTEE
projects. The money will need to be put back in order to support the
organizations technology needs. Staff was recommending a pay back
over a four year period. The projects being considered for deferral
were the Radio Infrastructure Improvements, the Library Radio
Frequency Identification, the replacement schedule for on -going items,
and restrictions on any future technological initiatives until the funds
were put back. After accounting for encumbrances and
reappropriations there will only be $51,000 left in the Technology
Fund.
Mr. Keene iterated that Staff was proposing an approach to close the
books on FY 2009. And how to replenish, over a four-year period, the
Technology Fund, if the City Council chooses that alternative to close
the FY 2009 General Fund gap. He stated the FY 2010 deficit
challenge contained $1.2 million from FY 2009, totaling a FY 2010
projected deficit that totaled $5.4 million. He spoke on the impact on
the Technology Fund.
Chair Burt spoke on how the City Council should proceed with the
subsequent discussions regarding this Agenda Item.
Council Member Klein stated the City Council Member's questions
should be answered thoroughly before moving forward.
Vice Mayor Morton stated $4.8 million from the Technology Fund was a
transfer, and not an expenditure that had been made. He inquired
whether the City Council was asked to solve a booking in payroll
savings error in FY 2009 by deferring to the Technology Fund.
Mr. Perez stated that was correct.
Vice Mayor Morton stated a draw of $800,000 from the Budget
Stabilization Fund could be transferred to the Technology Fund to
minimize the future impact on said fund.
Mr. Perez stated that was the intent of Staffs recommendation.
Vice Mayor Morton stated his preference to transfer $800,000 from the
Budget Stabilization Fund this Fiscal Year. He requested clarification
on how employee vacancy savings became a misidentification in
General Fund deficit.
FIN: 091201 EXERPT 3
FINANCE COMMITTEE
Mr. Perez spoke on the process leading up to the miscalculation. He
spoke on the line item that was over budget, due to a miscalculation
made on the expected vacancy salary savings.
Vice Mayor Morton inquired whether there was an option to not
transfer funds from the General Fund to the Technology Fund to solve
the FY 2009 Budget problem.
Mr. Perez stated yes and that the miscalculation was not a system
error.
Vice Mayor Morton left the meeting at 7:54 p.m.
Council Member Schmid inquired whether the miscalculation in salary
savings from vacancy rates was $2.1 million, and whether the error
accounted for the overtime and benefit shortfall.
Mr. Perez stated the FY 2009 General Fund deficit consisted of $2.1
million, plus $900,000 for overtime costs.
Council Member Schmid inquired whether the benefits were a separate
issue.
Mr. Perez stated this was correct because they were not covered under
the General Fund. He indicated there were a number of variables that
could be difficult to predict.
Council Member Schmid stated there were a growing number of
vacancies during the time period contributed to the miscalculation.
Mr. Perez stated that was correct.
Council Member Schmid stated the vacancies should have created a
budget positive. He inquired whether the issue was an overestimate.
Mr. Perez stated that was correct. He spoke on the three components
that contributed to the miscalculation.
Council Member Schmid stated the miscalculation was not what was
owed to the retired employees.
FIN: 091201 EXERPT 4
FINANCE COMMITTEE
Mr. Perez stated the payroll was correct, and the amount that should
have been paid out was in line with the adopted budget, with the
exception of benefits.
Council Member Schmid stated the benefits showed a $1.8 million
shortfall due to workers compensation and general liability costs. He
requested clarification for the underestimation of funds to cover
benefits.
Mr. Perez stated the City's actuarial consultant analyzed the existing
and new claims and made a determination on what the payout would
likely be. He stated the consultant's amount was booked against the
General Benefits Fund. The benefit expenses at the end of FY 2009
came in at $1.8 million over budget due to a higher than anticipated
cost of the claims.
Council Member Schmid stated Mr. Perez was implying there was an
underestimation in the funding to cover benefits.
Mr. Perez stated that was correct.
Council Member Schmid stated $1.8 million was a sizable amount. He
inquired on the total amount booked in a given year for workers
compensation claims.
Mr. Perez stated $15 million.
Council Member Schmid stated the error was roughly 10%.
Mr. Perez stated the shortage was in benefits. He stated assumptions
were made at the beginning of the Fiscal Year to book the liability in
the General Benefits Fund, and that amount was not sufficient to cover
the unanticipated expenses.
Council Member Schmid stated the amount requested at the beginning
of the Fiscal Year was deemed as reasonable at the time. In addition,
there was a sizable and growing vacancy in the City's workforce. He
questioned whether something happened inside the workers
compensation area that created larger payouts.
FIN: 091201 EXERPT 5
FINANCE COMMITTEE
Mr. Perez stated the deficit in benefits included many factors, including
workers compensation claims, cost of employee pensions, and general
liability. He indicted the majority of the increases came from general
liability costs.
Council Member Schmid spoke on the General Benefit Fund. He stated
with every payroll, the City was putting away funds for pension
liability, medical liability, vacation, and standard workers
compensation.
Mr. Perez stated the general liability and workers compensation were
difficult to predict, and were subject to change.
Council Member Schmid inquired whether more employees were not
working or on workers compensation than in prior years.
Mr. Keene stated general liabilities cover minor accidents, such as
slips, trips or falls.
Council Member Schmid stated the City Council should have received a
leading indicator in regards to general liabilities from the City Attorney
on expenditures outside the City's boundary.
Mr. Perez stated that was not necessarily the case. He iterated the
process involving the City's actuarial consultant. He stated the process
was regulated by governmental accounting practices.
Mr. Keene stated the General Fund benefit expenses were held
constant from FY 2008 to FY 2009. This practice had been
implemented in past budget years in an effort to keep a reasonable
balance between retained earnings balances in the General Benefit
Fund and what expenses were budgeted in and allocated in General
Fund departments each year. In times of sustained economic
downturn, cushions such as higher than anticipated revenues, were no
longer present and resulted in a deficit.
Council Member Schmid stated his concern was that Staff did not pick
up and catch leading indicators in planning the FY 2009 budget.
Mr. Perez stated it was difficult to determine the General Fund Budget.
He stated the importance of establishing retained earnings to help
FIN: 091201 EXERPT 6
FINANCE COMMITTEE
cushion against year-end benefit expense adjustments. In most
years, the General Benefit Fund and the Fund's retained earnings were
sufficient to cover unexpected liabilities. Given the difficult times, the
reserves have been used and not replenished to resolve the deficit.
He stated there would be a concern in ongoing Fiscal Years if funds
were built backup.
Council Member Schmid stated there was an expense impact of $1.1
million in the Fiscal Year 2010 budget. Staff had hoped to achieve
savings, which was unsuccessful, implying that no savings were
achieved in Fiscal Year 2009.
Mr. Perez stated these savings were intended to be achieved in Fiscal
Year 2010. He stated difficult decisions would need to be made in
order to achieve these savings.
Council Member Schmid inquired why Staff did not recommend solving
the deficit by drawing funds out of the Budget Stabilization Fund and
not the Technology Fund.
Mr. Perez stated this option was available. He stated the City was
experiencing extremely volatile economic conditions which had
implications for FY 2010, and a reserve drawdown in FY 2009 was not
recommended. Not making adjustments in the Budget Stabilization
Fund in FY 2009 was recommended to maintain the level of reserves to
assist in significant challenges in future years, and demonstrate to the
rating agency that the City can maintain a certain level of reserves.
Mr. Keene stated the 2010 budget balancing plan included repaying
the Technology Fund $1.2 million by drawing it down from the Budget
Stabilization Reserve.
Mr. Perez added that it's important to maintain a ratings agency
review as the City has a goal to get reaffirmed for a AAA credit rating.
The general obligation and assessments have gone by a vote and been
secured, there was a strong backing and Staff was trying to add to
that.
Council Member Klein said he was very unhappy with the report. He
was disappointed that the Staff used a passive voice, "errors were
FIN: 091201 EXERPT 7
FINANCE COMMITTEE
made" to get out of responsibility. Regarding the General Benefits
Fund, he didn't understand how liabilities were a benefit.
Mr. Perez agreed the title may be wrong. He confirmed all liabilities
were included.
Council Member Klein said the Council and public have been misled.
When compensation claims were made by third parties it's very
different than employee claims. He said it doesn't make sense for the
City to say they were on track. Benefit expenses were Worker's
compensation claims not third party claims, he asked how there could
be a variable.
Mr. Perez said there was an increased cost in Worker's compensation
claims. He said the actual name was General Benefits and Insurance
Fund. It was listed incorrectly on the report.
Council Member Klein requested a breakdown of the $1.8 million of
insurance type claims from third parties and any other categories.
Mr. Perez said they can get the exact numbers, but he believed the
majority were general liability claims.
Council Member Klein requested more detail and reconciliation. An
actuary with regard to trying to calculate claims made against the City.
He stated there were a significant number of additional claims, and the
City was only responsible for the first million dollars in claims.
Mr. Perez said Staff would follow up at the Finance Committee Meeting
on December 15, 2009 with more information.
Council Member Klein asked why the problem wasn't brought to
Council's attention in September or October when it was first
discovered.
Mr. Perez said it was on October 5th
Mr. Keene said it was mentioned to the Council that there was a year-
end closing problem and a deficit. Staff wanted to make sure it was
accurate and the information was clear prior to bringing the full report
FIN: 091201 EXERPT 8
FINANCE COMMITTEE
to the Council. They also needed to develop recommendations which
required having a better estimate on the 2010 budget.
Council Member Klein said this might have impacted the election; the
Council and public would have liked to have known the facts.
Mr. Perez said he did not yet understand the magnitude of the
problem. He lost confidence in the reporting system and had to do a
complete analysis. He also wanted the Auditors to validate what he
found prior to bringing it to Council.
Council Member Klein asked if any of this would continue into the 2010
fiscal year.
Mr. Perez said that it would due to the repayment of the $4.8 million
over a four year period.
Council Member Klein said what he meant to ask was if the errors the
former budget director made were continuing into 2010.
Mr. Perez said they were not; the process has been revised. The
process has changed to a biweekly, multi position system that has
some "out of the system" components to validate findings.
Council Member Klein asked if the numbers being used to track 2010
can be considered accurate.
Mr. Perez said they were accurate.
Council Member Klein asked for clarification on the errors regarding
the $2.1 million with the salaries. He said the number in the budget
for savings was on vacancies not being filled. To determine if the
budget was being met, the Budget Director was providing the
Administrative Services Director a report. Due to errors in the reports
the City was not on track.
Mr. Perez said that in May he received a report saying the City was
$600,000 ahead. It wasn't until the books were closed and actuarials
came in that it was found to be negative.
FIN: 091201 EXERPT 9
FINANCE COMMITTEE
Council Member Klein asked if positions were filled that might not have
been if the numbers had been accurate.
Mr. Perez said it was possible that some positions were, but 20.5
positions had to be carried forward with the plan. Some were allowed
to go forward as they were essential to the operations. If this budget
shortfall had been noticed Staff may have come to Council with
recommendations on service level cuts or furloughs. Staff would have
been able to see something in March and come to Council with a
different plan knowing the savings was not going to be realized.
Council Member Klein asked if the budget goal for achieving savings
through not filling vacancies was ever achievable.
Mr. Perez said there would have been some level of achievement.
Council Member Klein said he agreed.
Mr. Keene said that some of it would have been achieved by not filling
the positions but it probably wouldn't have been enough. Other
service cuts would have been considered.
Council Member Klein said the higher level economists tend to be more
optimistic about the direction of the economy than Staff is. He asked
if Mr. Perez had compared Palo Alto's numbers to what other officials
were doing.
Mr. Perez said there were some reports that were questioning whether
or not the GDP was even being tracked correctly. He said that since
the closing of 2008 Palo Alto had lost $9.3 million in revenues. Not all
of the neighboring cities were responding the same way Palo Alto is,
there were different circumstances for each city. San Francisco had a
deficit of $53 million in addition to what they had to begin with.
Livermore, since 2008, lost $8.7 million in revenue and was cutting
11.5 positions out of 482 and was reducing library hours. Their total
budget was $86 million and their deficit was an additional $3.2 million.
This information, he said, indicates that California in general was not
normal. Tax revenues were declining and that was why those
assumptions were being made.
FIN: 091201 EXERPT 10
FINANCE COMMITTEE
Mr. Keene said that there were other reports that claimed recovery
now. Some experts were saying employment needed to come back
before any real recovery could happen.
Council Member Klein said that it would be helpful to have a report on
what other cities were doing by percentage of their general fund.
Mr. Perez said they would pull those numbers together for the
December 15th meeting.
Chair Burt asked if the Stanford reimbursement for the Fire
Department expenditures was 30.3% of overall operating expenses,
and not recovered until the following fiscal year.
Mr. Perez said that the adopted budget was used to formulate the
amount of fees, and then it was reconciled with the actual data at year
end. That occurs after the fiscal year closes. The revenue was
collected in the current year and then adjusted the following fiscal
year.
Chair Burt said the Staff Report said 2011.
Mr. Perez said it should say 2010.
Chair Burt said that page four of the Staff Report said sales tax
segments had dreadful results in the second quarter. He asked if that
was referring to the fiscal or calendar quarter.
Deputy Director of Administrative Services, Joe Saccio said that it was
referring to calendar quarters.
Chair Burt requested that they identify that going forward. The Staff
Report said based on incurred but not reported expenditures he asked
if they were reported or expended.
Mr. Perez said they were recorded as part of the actuarial process.
The actuarial makes assumptions based on projected valuations that
must be budgeted for. It may not materialize that way. It's
recognized based on that valuation.
FIN: 091201 EXERPT 11
FINANCE COMMITTEE
Chair Burt asked why it was stated as being incurred but not reported.
He asked if that was the term for when an incurred expenditure was
not spent.
Mr. Perez said the acronym was IBNR, it was an accounting term
meaning incurred but not recorded.
Chair Burt said there was a difference between recorded and reported.
Council Member Klein said page six said a decline in number of rounds
being played on the golf course resulted in the deficit. He asked how
that deficit was being accounted for.
Mr. Perez said the golf course operation was under the general fund
and it was covered by that. $326,000 was lost last fiscal year
attributing to part of the budget deficit problem.
Council Member Klein asked if there was a profit in previous years.
Vice Mayor Morton arrived 8:37
Mr. Perez said specific amounts will show on the Staff Report on
December 7, 2009. He stated that last year and this year it had
shortfalls.
Council Member Klein asked if the profit, when there was one, was put
back into the golf course operations.
Mr. Perez said that in previous years it would go back to the general
fund. Recently it was invested back into the golf course.
Chair Burt said according to the Staff Report, Documentary Transfer
Tax receipts from July through October were only slightly lower
compared to the same period last year. He said this didn't indicate the
annual run rate and asked, based on recent revenue per quarter, what
the current annualized run rate was.
Mr. Saccio said that in Fiscal Year 2010 there was $2.8 million and
Staff predicted that to be on target, it may even be $2.9 million. It
was 1.5% below July through October of the prior year.
FIN: 091201 EXERPT 12
FINANCE COMMITTEE
Chair Burt asked what it would be annually based on the current run
rate.
Mr. Saccio said it was $2.9 million.
Chair Burt asked what the revenue was for the July through October
period.
Mr. Saccio said that the data was for July through November and it
was $1.5 million. At the same time last year it was $1.514 million
Chair Burt said Staff's conclusion was based on something other than
the current run rate. The current run rate was $300,000 per month
for the last five months which would be $3.6 million. One of the things
discussed in the past, was during periods when there was rapidly
changing economic trends, if something was trending sharply
downward one year, and marginally trending upward the next, the
same year over year numbers didn't necessarily imply the same
outcome for the fiscal year. He requested trend lines to be examined
on that basis.
Mr. Saccio said they do look at a trend line based on performance year
to year. To extrapolate this category on a straight line basis has some
issues. The volume and mix of transactions differs quite a bit.
Chair Burt said he didn't mean it was a straight line. His disagreement
was that it was presenting a one dimensional interpretation of the
data. If this time last year the trend was downward and now it was
upward, the extrapolation for the balance of the fiscal year would not
be the same conclusion as a year over year with no net change. He
said the Committee was not being presented with the pertinent data to
understand the projections.
Mr. Keene said Staff will add that information as a recommendation of
what will be done at mid year.
Vice Mayor Morton asked if they need to make a recommendation on
2009.
Chair Burt he said it was currently the question period and then they
would come back.
FIN: 091201 EXERPT 13
FINANCE COMMITTEE
Vice Mayor Morton said they had not seen the presentation on 2010 so
they will do presentation, then questions and then come back.
Chair Burt said that was correct; first the Committee would ask
questions on 2009, and then wrap that up, and then presentation on
2010 and questions on 2010.
Vice Mayor Morton asked if the deficit of $4.8 million, including the
technology transfer and the current proposal, was to bring that to zero
by reversing the technology transfer.
Mr. Perez said that was correct.
Vice Mayor Morton asked if a portion of the technology transfer should
be pulled out of the Budget Stabilization Reserve.
Mr. Keene said that was one idea.
Mr. Saccio said that due to revenue performance the adopted budget
must be adjusted down by $4.3 million. The main category being
reduced was sales tax. In two years during the 1997 dot com bust it
dropped over $2 million to 17.6%. The level in nominal dollars was
projected almost to 1997 revenue levels. There was a precipitous
drop. In two years time it dropped $2 million compared to the
adopted budget, but $5 million over the last two years. Almost every
category has dropped. Auto and department store sales being the
worst. Calendar quarter to quarter drops of 15-30% were being
experienced. California overall was down 20%. Neighboring
communities were down 20%. Third quarter receipts will come in mid -
December and will likely be in the double digit range. The Transient
Occupancy Tax hit came last year going down considerably. So far
this year will be relatively close to what we experienced in terms of
actuals. Revenues were down 29%. July & Sept were 21% below.
Staff viewed this as a potential bottoming out. Staff was taking a
conservative approach. $2 million of the $4.3 million were explained
by the sales tax decrease. The remainder was also economically
induced as it's affected the miscellaneous fees and fines. One area of
concern was property taxes. The County recently notified Staff that
there were many commercial properties appealing their valuations.
The county was collecting them and projected more coming. There
FIN: 091201 EXERPT 14
FINANCE COMMITTEE
isn't information yet as it takes about a year to process, it may not hit
until 2011-2012. Vacancy rates on the peninsula were at 20% and
Palo Alto was estimated 10.3%.
Vice Mayor Morton asked if the Transit Occupancy Tax was as delayed
as Sales Tax was until late December
Mr. Saccio said there would be a report coming out shortly about that,
but July & September were down 21% compared to prior, in August it
was only 8.7% attributed to the Senior Games.
Vice Mayor Morton asked if that was adjusted or if Staff was waiting
for the real numbers in December.
Mr. Saccio said the Transient Occupancy Tax information doesn't come
out until a month and half after the month closes.
Vice Mayor Morton confirmed Staff doesn't have it for August.
Mr. Saccio said that was correct.
Vice Mayor Morton asked if Staff was confident in the 8%.
Mr. Saccio said they were, but the question was how to extrapolate
beyond the month of September.
Vice Mayor Morton asked if January and February were hard to predict.
Mr. Saccio said the first quarter was traditionally the weakest.
Council Member Klein asked what VLF stood for on the property tax
line of the presentation.
Mr. Saccio stated it was the Vehicle License Fee. Staff wanted to show
that the only reason the Property Tax went up was because the VLF
was embedded into the property tax payments.
Council Member Klein said he thought Palo Alto didn't get anything
from VLF.
Mr. Saccio said that we do.
FIN: 091201 EXERPT 15
FINANCE COMMITTEE
Council Member Klein asked how much the City gets from VLF.
Mr. Saccio said about $4,000-500,000.
Mr. Keene said the City gets $25.8 million in revenues but the property
tax base growth was the amount without it.
Chair Burt clarified the top line on the graph was with VLF and the
bottom line was property tax alone.
Council Member Klein said that Chop Keenan and Jim Baer said there
will be very little appeals of commercial property tax assessments in
Palo Alto because of the long tenure of commercial properties
downtown. Staff can determine how many appeals there were in Palo
Alto as the records were public and available at the County Assessors
Office.
Mr. Saccio said that Staff was attempting to gather that information.
Palo Alto has few foreclosures compared to other cities. When the
county experiences a hit on these assessed values for one year they
distribute that hit across all jurisdictions. They do not calculate each
city's percentage until the next year.
Council Member Klein said this was a multi year projection so it isn't
necessary to use county wide data. Staff could get a good idea on
Palo Alto reassements.
Mr. Saccio said Staff will take a look at that.
Chair Burt said there were three factors on the property taxes; one
where there was a reassessment downward, second was a gradual 2%
increase should normal appreciation occur, third was when a property
was flipped and reassessed at the current valuation. Most of the
increases have been because of property transfers. He asked if Staff
was looking at the property tax projections of the assessed valuations
with an overlay of property transfers and the assessment that goes
along with that.
Mr. Saccio said the report included one year worth of projections.
Staff had been using the County's projections for the past few years.
FIN: 091201 EXERPT 16
FINANCE COMMITTEE
For the following fiscal year, the school district was projecting a
negative CPI adjustment which will negate the 2% adjustment for all
jurisdictions. Because of this it was possible there will be no increase
in 2010-2011.
Chair Burt asked if that meant there was no increase from CPI or no
increase including the Property Transfer Tax.
Mr. Saccio said Staff will clarify that.
Chair Burt said that the amount that was attributable to reassements
from transfer and the amount attributable to CPI increase were
important. He asked for that information to be included on the list for
the December 15th follow up items.
Mr. Perez said that for the 2010 fiscal year Staff was projecting a $5.4
million deficit in addition to the $10 million originally identified. Staff
felt that a review with all Stakeholders was needed to determine how
to approach the situation. Combine that with the pending Council
transition, time was needed for these conversations, so Staff
recommended one time adjustments. Recommended areas for savings
include salary savings from open positions. Another recommendation
was to close down the public Safety Building Design CIP as the City no
longer had the ability to acquire a property. The funds that were used
to create the design funding for the CIP came from the Budget
Stabilization Reserve bringing down from 18.5% to 15%. The
recommendation was to defund the project and put the money back in
the General Fund, a total of $2.7 million. A further proposal was to
draw down $1.2 million from the Budget Stabilization Reserve. The
$800,000 mentioned by Council Member Morton was embedded in this
amount, delayed from one year to the next, leaving a projected
balance of $20.3 million or 14.3% of the adopted budget expenditures.
The $1.2 million deferment to the Technology Fund will be repaid over
four years. An additional million dollars in non salary savings will need
to be achieved. Lastly, the original $10 million plan called for $3
million in contributions from employee compensation, only $2.8 was
achieved, so the balance will need to be made up.
Mr. Keene added that there was still potential risk exposure with the
PPOA issue. The $800,000 in 2010 was still being counted on from
that contract roll over.
FIN: 091201 EXERPT 17
FINANCE COMMITTEE
Council Member Klein asked for clarification regarding the technology
acquisitions that would be deferred under the proposal. He said that
$1.2 million would be paid back into the fund this year for
expenditures, and previously $1.5 million was planned.
Mr. Perez said the expenditure was higher than before. The $1.2
million will be available for the Technology Fund operations.
Council Member Klein said this plan meant that only $300,000 would
be deferred from the Technology Fund.
Mr. Keene clarified that was correct for 2010.
Mr. Perez said Staff was committed to putting the money back in the
fund to avoid the potential vulnerability of an underfunded Technology
Fund.
Council Member Klein said he was concerned that the Technology Fund
was kept up. He then asked if savings on the Utility costs could be
factored in.
Mr. Perez said that for the first quarter there was a savings of $40,176
across the department. The target was $133,000 for the year. So far
the savings were on target.
Chair Burt said that one quarter isn't enough for a trend line. He
thought this would be a building savings, and savings would increase
as further measures were implemented. He asked if it was expected
to be greater savings each year.
Mr. Keene said he believed it would be.
Chair Burt said he was hopeful that based on the first quarter, the
savings on environmental measures could be better than projected.
Mr. Keene agreed. He reminded Council that he negotiated half of the
savings for the credit.
Council Member Klein said it should offset another issue.
FIN: 091201 EXERPT 18
FINANCE COMMITTEE
Vice Mayor Morton requested that some language change in the
recommendation to reflect that the Technology Fund doesn't have $4
million to loan. He recommended "reinstatement of IT Transfer"
instead. He voiced concern about not knowing the total deficit. He
said the risk wasn't about falling short on a $5 million shortfall; it was
falling short on a $15 million shortfall. He said the total exposure
didn't get defined in each year.
Mr. Perez agreed to do a better job of explaining what had been
accomplished and what was being carried forward. It was about $3.7
million in reductions from staffing and services. If PPOA materializes
it's another $2.8 million in salary concessions.
Vice Mayor Morton said it was important for the new Council Members
to know that assumptions have been built in but the exposure was still
there. It's important to note that these were additional savings on top
of what was already anticipated.
Chair Burt asked what the projected savings from the Fire Department
wage freeze would have been.
Mr. Keene said it would have been approximately $600,000.
Council Member Schmid said the 2010 budget was dependent upon
one-time offsets. He was concerned about a long range string of
imbalances that would go into double digits by mid -decade. He asked
if there were any items in the 2010 budget that would have an impact
on those structural items. He noted that in 2010 there was a high
incidence of overtime, by the last week of November over 73% of the
total calculated had been used. Part of it was due to vacant positions,
but it seemed the City was at a 7.2% vacancy rate, yet the dollar
savings was only 2.5% because of the overtime expenditures. He said
that when an employee leaves they get their regular pay, unpaid -
accrued vacation pay, and unpaid -accrued sick leave pay.
Mr. Perez said that sick days were only paid out to employees hired
prior to 1983.
Council Member Schmid said that employees that leave get their
regular pay, vacation pay, and overtime pay. He asked how much of
that was reportable to Cal Pers as the last years pay.
FIN: 091201 EXERPT 19
FINANCE COMMITTEE
Mr. Perez said that overtime and vacation pay cash outs were not
Persable. The base pay was Persable, when there was a VMC that was
Persable as well.
Council Member Schmid confirmed that while a lot of current salary
savings was being used in overtime, there was no accumulation of
benefit obligations.
Mr. Perez said that was correct. Staff will bring, on December 15th, a
more detailed report on the estimate for achieving the $1.5 million.
The Fire Department had a significant portion of their overtime during
this the part of the year being reviewed.
Council Member Schmid said the wording in the report implied there
was no unusual circumstances involved to cause the overtime and that
the overtime was due to sick leave, vacations, Worker's compensation
and other regularly occurring incidents. Each year by November 20
the Fire Department reaches 100% of overtime. The Police
Department also states their customary overtime work was busy shift
case writing, implying a standard overtime rate applies to them as
well.
Mr. Perez said the Fire Chief would have to speak to the Fire
Department circumstances if there were any specific incidents not
mentioned in the report.
Chair Burt asked if the overtime includes amounts the City will be
compensated for from the State.
Fire Chief, Nick Marinaro stated there had been limited Fire Strike
Team deployments this Fiscal Year and reimbursements from the State
were anticipated in the amount of $50,000 to $60,000. He stated the
reimbursements would be provided after the State's reconciliation, and
were expected early next year.
Council Member Schmid stated the Fire Department's Budget had
reached 102% of its annual overtime. He inquired whether the Fire
Department's budget would need to be reevaluated and changed by
the year end.
FIN: 091201 EXERPT 20
FINANCE COMMITTEE
Mr. Marinaro stated it was not unusual for the Fire Department's
budget to be close or over budget in the first and second quarter of
the Fiscal Year, due to Station No. 8 Staffing, Medic -1 Staffing, and
Staff vacations. He stated the current Fiscal Year had an unusually
high number of Worker's compensation claims which created overtime
due to limited Staffing levels.
Council Member Schmid stated long-term Worker's compensation
claims should be taken into account when creating the Fire
Department's budget for anticipated higher than normal overtime
salaries.
Mr. Perez stated Staff did not typically increase the budget due to
projected long-term Worker's compensation costs, but salary savings
were exercised based on trends seen in vacancies, Fire Strike Team
reimbursements, and reimbursements from Stanford University. He
stated, based on these projections, the budget was on target and
would be monitored.
Council Member Schmid stated with the reimbursements, the Fire
Department covered 39% of the time period, and there was
approximately 60% to 70% of the overtime payments made.
Mr. Keene stated a year -by -year comparison by fiscal year quarters
and year-end numbers could be created and presented on the Finance
Committee Meeting scheduled for December 15, 2009.
Council Member Klein requested an update on the hiring of a
consultant to analyze the standards of coverage structure of the Fire
Department.
Mr. Marinaro spoke on the efforts from the Deputy Chief and the
Assistant to the City Manager on forming the scope of services. He
stated securing the funding for this project was a challenge. He
indicated the Request for Proposal (RFP) was on schedule and would
go out in the middle of December 2009.
Council Member Klein was hopeful the RFP would be out before
December 15, 2009.
FIN: 091201 EXERPT 21
FINANCE COMMITTEE
Mr. Keene stated the results of the study would be completed by April
and incorporated into the budget discussions.
Mr. Marinaro stated that was correct.
Council Member Klein stated it was essential for the chosen vendor to
commit to having the report done in time to include as part of the
budget considerations for FY 2011.
Mr. Marinaro stated a completion date would be stipulated within the
RFP.
Chair Burt inquired whether the stipulation would create a penalty if
the completion date was not achieved by the chosen vendor.
Mr. Marinaro stated in the EMS Master Study, if the vendor could not
meet the timeline, they were not considered a viable candidate for the
project. He stated decisions where made based on past experiences
from the vendor's work performance.
Chair Burt inquired whether Staff would select a vendor whom they felt
would have a high priority in completing the project in the timeframe
set.
Mr. Marinaro stated yes.
Break: 9:34 - 9:46
Director of Administrative Services, Lalo Perez said in addition to
closing a $10 million budget gap in FY 2010, the General Fund faced
systemic financial challenges. There were four factored into the Long
Range Financial Forecast (LRFF) cumulatively causing long-term
deficits that require resolution: 1) Recent and poor CalPers portfolio
performance required general fund to ramp up retirement
contributions from $1.0 million in FY 2012 to $5.4 million by FY 2015;
2) Retiree medical cost increase of $0.74 million annually; 3)
Anticipated and incremental library operating costs of $1 million per
year when new and renovated libraries and community center become
operational; 4) The City's $302 million backlog and the need for an
additional $147 million for facility replacements required more than
the general fund and the Infrastructure Reserve had available; 5)
FIN: 091201 EXERPT 22
FINANCE COMMITTEE
Repayment of the loan from the Technology Fund at $1.2 million per
year for four years. He clarified no recommendations were being
made to the Council this evening regarding "Tier 2 Budget Reductions"
items as noted in his presentation. The City did not anticipate a
growing deficit of $5.4 million. Given such a large amount, the whole
processing system including Tier 2 Items would need to be revisited
and with a focus on all segments of services. Budget Reduction
Options noted in Attachment H of Staff Report CMR:434:09 lists Near -
Term Cost Savings; Medium Term, and Long -Term suggestions were
not concrete. They were conversation starters and needed to be
discussed with the Council and all stakeholders. In summary, critical
revenues had declined to $9.3 million since FY 2008 and the recovery
time would take several years. Expense reductions would be the first
step in FY 2010 and foresee additional cuts beginning in FY 2011 and
beyond, necessary to eliminate deficits.
Vice Mayor Morton said due to no new revenues the LRFF looked grim.
He said a closer review had to be made on how to come back with a
Measure. A good time would be when there was a school Measure on
the ballot since it would have the same population that cared about
services. Core services as well as supplemental services would need
to be reviewed and some were included in Attachment H. He said one
way of solving the deficit, since the Technology Fund was not an
immediate demand, would be to transfer a lesser amount or to forgo a
transfer for a year. He suggested transferring $1 million to the
Technology Fund leaving a lesser burden for the future. Over the next
four years, the $1.2 million would be 20% of the budget deficit.
Council Member Klein said there had been no discussion about an
increased revenue source. The Business License Tax was going to be
one revenue source. He said the Honda Dealership issue needs to be
revisited, if the owner wasn't interested it should be opened to other
organizations. He asked if Staff had recent contacts with the Honda
Dealership.
Planning Director, Curtis Williams said they had not had any contact
with Mr. Anderson at the Honda Dealership in two months. Mr.
Anderson's last indication was that he wanted to wait for the situation
to develop. The animal shelter site and signage were possible items to
look into. He said he was not ready to move forward with his sales
being down.
FIN: 091201 EXERPT 23
FINANCE COMMITTEE
Council Member Klein said that in effect the City was giving him a no
cost option. He should be nudged or other options should be sought.
The dealership was on a valuable piece of property. If he wants an
option he should pay for it. He wanted to know if Staff was thinking
about options out side of the box.
City Manager, James Keene said that the Leadership Team Retreat will
have that issue on the agenda. After the start of the year he was
going to launch a forum for ideas and options from front line people.
Community partnerships were going to have to get a lot more
inventive. The City also needed to look at every service provided, and
if there were outside providers, they should be considered. Internally
the Staff will have to get less bureaucratic and will need to be faster to
change.
Council Member Klein said his goal would be no reductions in the
amount being spent on technology in the current year. He said his
motion would be to approve a transfer to the Technology Fund of that
amount which would be necessary to fund all the technology plans for
FY 2010, getting down to about $4 million, with the remainder to come
from the Budget Stabilization Reserve and the repayment to be in the
four increments suggested by Staff. He asked Staff what the amount
transferred to the Technology Fund, in his plan, would be.
Mr. Keene said it would be $323,000 in order to meet the existing
schedule for 2010, assuming the $1.2 million that was programmed in
the 2010 deficit was maintained.
Mr. Perez said it was $1.8 million in future CIPs deferred: $800,000
for radio infrastructure, $800,000 for the library RFID, $100,000 for
telephone replacement, $66,000 for city wide GIS data, $25,000 for
enterprise application infrastructure and $16,000 for collection
software.
Council Member Klein said to reduce the amount of transfer to
Technology Fund, instead of zero as proposed by Staff, to that amount
when taking into consideration the repayment, will allow all of the
technology purchases currently scheduled for FY 2010.
FIN: 091201 EXERPT 24
FINANCE COMMITTEE
MOTION: Council Member Klein moved, seconded by Vice Mayor
Morton to reduce the amount transferred to the technology fund to
compensate for technology purchases and improvements scheduled for
Fiscal Year 2010, with the remainder to come from the Budget
Stabilization Reserve and the repayment to be made in increments
suggested by Staff.
Mr. Keene said it's in the ballpark of the amount they were discussing.
Vice Mayor Morton asked if they were anticipating an $800,000 profit,
if the Technology Fund was not funded, that would have gone into the
Budget Stabilization Reserve anyway. So the net number was zero.
The technology transfer would be around $3 million.
Council Member Klein added that it's important to keep the technology
fund going.
Vice Mayor Morton agreed with Council Member Klein. If this isn't
fixed this year it pushes into what will be worse deficit years. He said
they should fund in this fiscal year the balance of the proposal.
Chair Burt said that he was looking forward to receiving some
additional information at the next meeting. He's not sure if that will
have an impact on his decision to support the motion or not.
Mr. Keene suggested the Staff bring back two alternatives. One was
as proposed and the second would be with Council Member Klein's
changes showing how the trade offs turn around.
Vice Mayor Morton said this decision impacts how FY 09 was closed.
He said if the issues weren't resolved at the current meeting the audit
wouldn't be able to be closed.
Mr. Perez said it would be less costly to close it the way Staff was
recommending with the lack of $4.8 million transfer to the Technology
Fund. It could be changed by drawing down on the Budget
Stabilization Fund. The books have to be closed.
Vice Mayor Morton agreed the books must be closed. He voiced
concern over waiting two more weeks.
FIN: 091201 EXERPT 25
FINANCE COMMITTEE
Chair Burt disagreed, saying Staff was making a different point.
Mr. Perez said the books will close with not making the $4.8 million
transfer and Staff would reimburse whatever amount the Committee
wanted in this fiscal year out of the Budget Stabilization Fund.
Chair Burt clarified that 2009 would close as Staff proposed, tonight.
The motion made tonight or in two weeks would not make a difference
on the transfer with the Technology Fund.
Mr. Perez said the City must close the Financials before the end of the
month.
Mr. Keene recommended that course of action. The expenditures in
2010 were what were at stake.
Vice Mayor Morton voiced a reservation that Staffs proposal left a
phantom profit of $800,000. He stated it seems misleading. He didn't
want to end up not making the transfer to the Technology Fund as it
would seem that there was almost $1 million dollars of free money.
Mr. Perez said the Auditor would have to come in and reopen the audit
and make an adjusting entry for the $800,000.
Vice Mayor Morton asked if the Auditor would close the books with an
$800,000 sign of profit.
Council Member Klein said the budget amendment process was
troublesome as it will be a new Council. He was concerned about the
timing. He said it was possible that the approval for the proposed
amendment will come too late in the Fiscal Year for the expenditures
to be made.
Mr. Perez said it would be on December 15th with the amendment that
increases the Budget Stabilization Reserve. The motion now or then
would decrease those dollars out.
Council Member Klein asked for clarification from Mr. Perez about
which meeting.
Mr. Perez said the December 15th Finance Committee Meeting.
FIN: 091201 EXERPT 26
FINANCE COMMITTEE
Council Member Klein stated that if it comes before the Committee on
December 15th, it won't go before the Council until January 11, 2010.
Mr. Perez said that was correct.
Council Member Klein stated that the new Council, on January 11th, will
need more information. A vote wouldn't take place until sometime in
February.
Mr. Keene agreed that it would be an issue to have this Council make
a decision about this.
Mr. Perez said Staff could draw from the Budget Deficit Reserve as it
was right now, by bringing an item affecting that amount. It would
have to be done on December 14th
Mr. Keene stated that was possible but the Finance Committee might
want to know the exact dollar amount so they can direct Staff to come
back to Council. He clarified that the current Council wants to make a
decision regarding the full funding for the Technology fund 2010 out of
an additional draw on the Budget Stabilization Reserve which would be
best accounted for by a Council action on December 14, 2009.
Vice Mayor Morton said if the recommendation was approved at the
current meeting the Auditor would still be able to make the
adjustment. He asked if the audit has been printed.
Mr. Keene said it was printing currently.
Vice Mayor Morton said he didn't see a way to fix the audit unless they
reprinted it. He reiterated that $1.8 million of the Technology
improvements could not be made because it had to come from the
next year's budget.
Mr. Keene said he didn't see it the same way. He said the only issue
was the $800,000 not the entire amount. The budget must be zeroed
out.
Chair Burt said his focus had not been the timing for getting this to
Council, but he did agree now and thought it should be approved.
FIN: 091201 EXERPT 27
FINANCE COMMITTEE
Council Member Klein said he supported the motion but could not
approve what Staff had done. The understanding was that Staff would
bring this to the Council on December 14th, a budget amendment
funding the Technology Fund to the extent of $800,000 plus the
amount needed to insure all planning purchases in technology will be
made in FY 2010.
Mr. Keene agreed Staff could accommodate that request.
Vice Mayor Morton agreed with Council Member Klein.
Council Member Schmid said that was exactly what was being done.
The 2010 budget included the repayment of the IT loan for $1.2
million.
Council Member Morton said the expenditure was $1.8 million.
MOTION RESTATED: Council Member Klein moved, seconded by
Vice Mayor Morton to approve the Staff recommendation for closing
the Fiscal Year 2009 budget by eliminating the transfer to the
Technology Fund, and the Finance Committee recommends to the City
Council a budget amendment for the Fiscal Year 2010 budget to fund
the Technology Fund with the approximately $800,000 excess from
Fiscal Year 2009, plus the amount needed to fund all scheduled
technology expenses for Fiscal Year 2010 with funds from the Budget
Stabilization reserve.
MOTION PASSED: 4-0
Chair Burt said this item would be carried forward to December 15th
with the open items.
FIN: 091201 EXERPT 28
ATTACHMENT C
Total
General Fund Overtime Trends
Fiscal Years 2007 through 2010
As of November 20, 2009
2007
2008
2009
2010
Quarter 2 -Oct -Dec
2007
2008
2009
2010
Pend 3 -Jan -Mar
2007
2008
2
2
2010'
Total
Adjusted Budget
Police Planning Public Works CSD Other Depts Adj Budget
1,026,674 1,074,399 66,554 112,564 207,129 119,286 2,606,606
1,004,174 1,296,050 73,033 94,564 189,628 110,288 2,767,737
1,353,058 1,016,900 66,553 112,564 137,928 109,288 2,796,291
1,017,674 999,900 66,553 112,564 104,590 116,287 2,417,568
4% 100%
Fire
42%
41%
3%
4%
6%
2007
2008
2009
Fire
Police
Actuals
Planning Public Works
X5;009'
28,810;
31,315 4
399,339 398,039 24,740
403,639 402,324 -25,007. ..-
426,952 - 425,562 26,451
415,975 414,621 - 25,771
9,118
3,522
274,402 273,509
316,413 315,383
39,217
39,639
41,929
40,851
21,078 33,412
20,730 32,860
9,603 31,073
CSD
2,098,306
2,330,294
2,145,692
2,216,563
52%
55%
58%
55%
24%
23%
28%
25%
80%
84%
77%
92%
57,999
58,624
62,010
60,415
Other Depts
Total
Actual
41,294 960,628
41,739
44,149
43,014
970,971
1,027,053
1,000,648
49,414 35,181 818,429_.
48,698 34,601 804,922
39,854 28,375 660,087
45,955 - 32,719 761,146'
1,681,562 1,676,087 104,179 165,137 244,226 173,883 4,045,074
1,754,180 1,748,469 108,677 172,269 254,773 181,392 4,219,760
1,538,733 1,533,723 95,330 151,111 223,482 159,114 3,701,492
1,668,606 1,663,173 103,376 163,865 242,344 172,544 4,013,908
Numbers in bold are calculated as a percentage of actual, based on percentage of department's adjusted overtime budget.
Cumulative % actual % budget
Total spent % change spent
2,916,735
,135216
2,805;779
2,977,709 ; ;
7724;A: 20%
19%
76% = 18% 100%
19%
74%
123%
Attachment D
Documentary Transfer Tax Performance
Tax Collection Tax Receipt
Period I Timeframe
FY 2001
FY 2002
FY2003 FY2004 FY 2005 ! FY 2006 FY2007 FY 2008F Y 2009 FY 2010
1)
2) July
3)
4) Au gust
5)
6)
7)
8) October
9)
10) November
Late July
Mid August
Late August
M id September
Late September
Se ptembe r Mid Oc tobe r
Late October
Mid November
Late November
M id December
98,567 $ 66,079
419,927 , 150,471
158,075
203,394
99,497
203,336
163,785
184,797
111,796
74,527
57,074
141,665
38,213
93,723
57,358
110,672
65,372
122,822
$ 153,386
119,830
48,795
155,559
142,582
131,561
189,529
154,384
69,891
168,048
$ 155,778
225,016 $ 221,987
157,061 190,091
1,275,269 193.212
90,553 299,076
172,834 'i 139,041 ,
114,681 227,061
193,214 251.410
149,023 187,193
158,585 221,560
190,941 $ 126,927
198,299 251,356
192,862 240,094
489,885 - 513,583
239,467 136,354
388,511 114,263
154,956 106,199
225,472 191,635
99,349 209,670
219,192 174,773
$ 149,867 $ 295,462 $ 135,089
203,087 ! 286,904 209,049
270,469 192,971 93,166
424,244 'i 126,041 363,082`
203,331 127,699 81,835
231,227 150,978 160,011
273,762 62,030 122;196'
254,656 189,680 171,229
112,244 82,147 156,066
197,214 134,184 170,104
11) Late December
12) December Mid, January
13) Late January
14) January Mid Fe brua ry
15) Late February
16) February M id March
17) Late March
18) March Mid April
19) Late April
20) April Mid May
21) Late M ay
22) May Mid June
23) Late June
24) June Mid July
1Refunds
Total Documenta ry Tax ce ipts
Receipts from July through mid -December)
Total Annual Receipts
% of Re ceipt (July thru mid -Dec.
Total Receipts)
Divided by
275. 961
217,065
128,626
96,584
78,624
238,448 I
96,148
197,227 I
134,517
82,677
38,303
144,327
69,435 I
214,417
56,886
134,305
34,398
156,895
93,920
178,950
99,398
205,231
148,157
182,494
137,985
158,352
169,115
214,467
97,299
162,729
43,979
82,387
35,780
165,661
96,803
190,128
93,256
151,696
125,095
180,699
219,553
534,725
5,695 158,430
177,887 361,624
50,049 -
165,734 287,096
38,535 168,586
154,227 187,357
211,007 267,702
292,715 218,212
239,260 194,559
263,683 305,647
168,021 179,412
405,882 160,077
204,092 ! 405,540
424,537 258,558
(4,950) (3,412)1
39,355
172,159
97,809
107,385
217,625
169,854
122,584
306,926
237,713
206,601
238,695
764,774
72,458
573.657
(776)
110,839
98,579
131,434
328,734
108,364
196,844
224,634
259,561
248,824
306,161
534,476
331,332
246,610
652,082
76,525
636,936
93,768
286,526
76,522
172,406
143,069
260,256
210,130
176,116
195,682
167,093
301,980
272,593
87,763
77,474
40,826
62,965
65,912
109,889
73,337
90,119
87,170
98,715
136,982
164,531
155,902
192,581
96,539
85,222
44,908
69,262
72.503
120,878
80,671
99,131
95,888
108;587
150,681
180,984
171.492
211.840
$ 3,730,063
1,717, 702
3,730,063
46%
$ 2,874,000 $ 3,513,355 $ 5,598,389 $ 5,080,017 $ 5,725,754 $ 5,843,329 % $ 5,389,706 $ 3,092,264 $ 3,250,408
$ 903,449
$ 2,874,000
oho "
$ 1,333,565 $
$ 3,513,355 $
2,692,014 930,630
5,598,389 $ 5,080,017
2,398,934 $ 2,064,854
5,725,754 $ 5,843,329
38% 48% 38% 42%
35%
$ 2,320,103 $ 1,648,098
$ 5,389,706 $ 3,092,264
43%
1,661,825,
53%
$ 3,250,408
51%
Actual
FY 2010
$ 1,661,825
F orecast
FY 2010
(10%
Increase
Over
FY 2009)
$ 1,588,583