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16-0523_BOYS & GIRLS CLUBS OF CAPISTRANO VALLEY_C1_PowerPoint (Budget Workshop)1 BUDGET WORKSHOP FISCAL YEARS 2016-2017 AND 2017-2018  •Financial trends •Current financial status •Budget challenges •Measures to balance the budget •Overview of the proposed Capital Improvement Program 2 What We Will Cover in this Workshop  •Make changes based on direction of City Council •Finalize budget document •City Council adopts budget on June 21 3 What Happens After This Workshop  Property Taxes (20%) Sales Taxes (16%) Fees & Permits (8%) Debt Assessments (5%) Water Fees (34%) Sewer Fees (6%) Other (11%) 4 Citywide Operating Revenues  Property Taxes (37%) Sales Tax (32%) Franchise Taxes (5%) Fees & Permits (10%) Fines & Interfund Charges (7%) Other (9%) 5 General Fund Revenues  Citywide Operating Expenditures 6 Public Works/Utilities, 59.2% Public Safety, 18.1% Finance , 5.7% Development Services , 4.9% City Manager , 4.6% Community Services , 4.1% City Attorney, 1.9% City Clerk, 1.2% City Council, 0.3%  7 General Fund Expenditures General Government 17.2% Public Safety 37.7% Community Services 8.9% Development Services 9.7% Public Works/Utilities 24.6% Transfers Out 1.9%  8 Property Tax Revenues $7.7 $7.6 $7.9 $8.1 $8.7 $9.3 $9.8 $10.1 $- $2 $4 $6 $8 $10 $12 FY 10/11 Actual FY 11/12 Actual FY 12/13 Actual FY 13/14 Actual FY 14/15 Actual FY 15/16 Projected FY 16/17 Projected FY 17/18 Projected Mi l l i o n s  9 Sales Tax Revenues $5.6 $6.5 $7.5 $7.8 $7.7 $8.4 $8.4 $8.7 $8.9 $9.1 $9.4 $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 FY 10/11 Actual FY 11/12 Actual FY 12/13 Actual FY 13/14 Actual FY 14/15 Actual FY 15/16 Projected FY 16/17 Projected FY 17/18 Projected FY 18/19 Projected FY 19/20 Projected FY 20/21 Projected Mi l l i o n s  Where Does the City’s Sales Tax Come From? 10 Auto & Transportation (29%) Consumer Goods (26%) County Pool (online, etc.) (12%) Restaurants (11%) Other (22%)  11 Building and Development Fees and Permits $3.7 $1.8 $5.2 $4.0 $6.8 $3.4 $6.8 $8.7 $- $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 FY 10/11 Actual FY 11/12 Actual FY 12/13 Actual FY 13/14 Actual FY 14/15 Actual FY 15/16 Projected FY 16/17 Projected FY 17/18 Projected Mi l l i o n s  12 General Fund Contingency Reserve $4.9 $6.3 $8.6 $11.4 $12.2 $11.5 $11.7 $11.8 23.1% 29.8% 38.1% 48.1% 47.1% 44.6% 45.2% 44.5% $- $2 $4 $6 $8 $10 $12 $14 FY 10/11 Actual FY 11/12 Actual FY 12/13 Actual FY 13/14 Actual FY 14/15 Actual FY 15/16 Projected FY 16/17 Projected FY 17/18 Projected Mi l l i o n s  Projected General Fund Results for Fiscal Year 2015/16 13 1. Contingency Reserve – Balance at July 1, 2015 $12,177,118 2. Budgeted revenues 26,268,965 3. Budgeted expenditures (25,181,912) 4. Development fee revenue less than budgeted (1,957,860) 5. Development services expenditures less than budgeted 514,120 6. Sales taxes less than budgeted (674,940) 7. Property taxes more than budgeted 1,128,780 8. Legal fees more than budgeted (492,850) 9. Additional legal expense for SOCRE project (274,640) 10. Other 26,235 11. Contingency Reserve – Balance at June 30, 2016 $11,533,016  •Property taxes – based on information from City’s consultant (Hdl Coren & Cone). Takes into account projected sales in the secondary market. •Sales taxes – based on information from City’s consultant (Hdl Coren & Cone). •Development related fees and permits – based on projections of private development activity. •Franchise taxes – based on 3-year average. 14 Revenue Assumptions  •Department costs– based on projections to provide existing levels of service •Sheriff contract costs – For Fiscal Year 2016-17, based on information from the County of Orange. For Fiscal Year 2017-18, a 5% estimated increase was used. •Salary costs – For Fiscal Year 2016-17, 3% increase due to MOU provisions. 15 Expenditure Assumptions  •Pension costs – 3% increase based on three year average. •Medical insurance premiums – 11% increase per year from the level of actual costs currently being paid (based on two year average) 16 Expenditure Assumptions  Post-recessionary growth of sales tax revenues have been modest due to continued consumer caution Once built out, development related revenues (presently at 10% of General Fund budget) will drop off 30% increase in prevailing wage rate for public works contracts will impact costs for next year 33% of General Fund budget is determined by the County of Orange (Sheriff’s Department) Significant litigation expenses Budgetary Challenges of the City of San Juan Capistrano 17  The City has limited resources and staffing The priorities determined by City Council in the Strategic Planning Workshop guided staff in the resource allocation decisions that are reflected in the proposed budget Limited Resources and Limited Staffing 18  Improve Street Maintenance and Rehabilitation Implement Water Reorganization Renegotiate Riding Park Lease/Increased Public Access Design and Construct Northwest Open Space Park Resolve Water Lawsuits Resolve Land Use Lawsuits Transition to District Elections Actively Oppose SDGE Substation Project 19 Key Priorities  Encourage Quality Commercial Development Expand Recycled Water to Riding Park Process Hotel Projects (2) Sell City-Owned Downtown Parcels and Lower Rosan Negotiate Landfill Host City Cooperative Agreement Process Pacifica San Juan Development Fill Vacancies and Improve Morale Resolve “Ghost Train” Issue Implement Records Management Program 20 Priorities (cont.)  The City successfully negotiated with the County of Orange additional annual revenues of over $600,000 to mitigate impacts associated with location of a County landfill within the city In accordance with the City’s strategic priorities, this money has been dedicated to street rehabilitation projects Application of Landfill Agreement Funds 21  Additional deputies Additional Code Enforcement Officers Any new full-time personnel Reducing unfunded pension liability Building reserves New parks or City facilities (except NWOS) Etc. 22 What’s Not Funded?  The City Manager met with the management team of each department: Every line item in that department was scrutinized Increases in proposed spending were challenged Details and information were provided to the City Manager to support that spending in significant categories reflected a prudent use of City resources Ensuring a Balanced Budget 23  The proposed budget reflects the following considerations to eliminate the $1.5 million excess of General Fund expenditures over revenues that was initially identified at the start of the budget process: Ensuring a Balanced Budget 24 2016/17 2017/18 Removed new positions/reclassifications requested by City Departments (selected part-time positions were approved) $390,000 390,000 Removed funding for building, furniture, and equipment depreciation 410,000 410,000 Use of Gas Tax Funds to reimburse General Fund for street maintenance costs that will be paid by the General Fund each year 470,000 345,000 Delay of IT upgrades 160,000 100,000 Removed Pepperdine PRYDE program from budget $59,000 59,000  Proposed Positions Changes Change in FTEs Change in Part-Time Employees Safety and Emergency Services Manager – Public Safety 0.40 Project Manager – Development Services 0.38 Park Monitor – Community Services 0.29 Total Change in Number of Part-time Employees 1.07 Proposed Added Part-time Positions 25  General Fund Forecast 26 $24.5 $25.0 $25.5 $26.0 $26.5 $27.0 $27.5 $28.0 $28.5 $29.0 $29.5 $30.0 $30.5 $31.0 Mi l l i o n s Fiscal Year General Fund Revenues General Fund Expenditures  Opportunities Ahead… New hotels Commercial development opportunities Property tax Sales tax Mitigation fees/public amenities Downtown redevelopment OC Waste agreement (landfill mitigation) Expiration of judgment obligation bonds 27  Proposed General Fund Reserve Targets 28 Recommended Reserves Target Proposed Reallocation of Current Balance 1. Cash flow reserve (20% of annual budget) $5,000,000 5,000,000 2. Economic uncertainty reserve (40%) 10,000,000 7,500,000 3. Other contingencies reserve (legal/disaster/unexpected) – (10%) 2,500,000 1,000,000 4. Pension contribution reserve (10%) 2,500,000 5. Capital replacement reserve (10%) 2,500,000 Total $22,500,000 13,500,000  First installment of property taxes is not received until December For most California cities, cash outflows exceed inflows for the first five months of each fiscal year This creates the need for a “cash flow” reserve Based on our analysis of this pattern here at SJC, the amount required for this reserve is $5,000,000. 29 Need for Cash Flow Reserve  The economy is cyclical The timing of the next economic downturn is not known The next downturn may not be as deep or last as long as the most recent economic down-turn Some reserve is prudent to mitigate the need for deep cuts in services in the event of an economic downturn Funding for this reserve must be balanced against other needs of the City to which our limited resources must be applied 30 Economic Uncertainty Reserve  There are other situations that can create an unexpected need for resources, including: Litigation Urgent unexpected infrastructure repair and maintenance Natural disasters An urgent initiative identified by City Council 31 Other Contingencies Reserve  The funds in this reserve can be used for the following: Set aside funds to offset possible future increases in OCERS annual contribution requirements Set aside funds to accelerate pay-down of City’s pension obligation 32 Pension Contribution Reserve  Funds for capital replacement are accumulated in various funds of a city Some cities set aside additional funds in the General Fund for capital replacement to augment the funding provided in other funds 33 Capital Replacement Reserve  Legal costs in excess of $800,000 were paid by the Water Fund in the 2015/16 fiscal year The City’s drought ordinance and water conservation programs have reduced water sales Rate increases from the Water Fund’s five-year rate study are being phased in over five years (creating budgetary challenges in earlier years of implementation) Debt coverage requirement Budget Challenges for the Water Fund 34  Fiscal Year 2016/17 – To balance the Water Fund budget in Fiscal Year 2016/17, the proposed budget reflects a one year postponement of the annual installment payments made by the Water Fund to repay money borrowed from the Sewer Fund (which funded rebates to water utility customers). Fiscal Year 2017/18 – The proposed budget for the Water Fund’s Fiscal Year 2017/18 budget reflects the resumption of annual Sewer Fund loan repayments (as a result of the benefits realized from the continued phase-in of rate increases from the Water Fund’s five year rate study). Water Fund 35  Sewer Fund – Sewer service charges are used to pay sewer system operating costs Debt Service Fund – Voter-approved debt assessments collected on the tax rolls are used to pay general obligation bond debt service; transfers from the General Fund are used to pay debt service on the City’s judgment obligation bonds SONGS Fund – Funds from Edison will be used to pay for a safety and emergency services manager, training, and a variety of other safety and disaster preparedness expenses. Other Funds 36  Housing In-lieu Fee Fund – Funds are accumulated for affordable housing projects. Capital Improvement Funds – A number of City funds are used to accumulate resources to fund the City’s capital improvement program. Tab 4 of the Budget Workshop binder sets forth the spending proposed for those projects in accordance with direction provided by City Council at the Strategic Planning Workshop that was held in April 2016. Other Funds 37  Steve May, Director of Public Works and Utilities, will review the portion of the proposed budget that addresses the City’s capital improvement program 38 Capital Improvement Program