HomeMy WebLinkAbout60A - BUDGET STABILIZATION PLANREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
SEPTEMBER 19, 2011
TITLE:
BUDGET STABILIZATION REPORT
i I
CITY MANAGER
RECOMMENDED ACTION
CLERK OF COUNCIL USE ONLY:
APPROVED
? As Recommended
? As Amended
? Ordinance on 151 Reading
? Ordinance on 2nd Reading
? Implementing Resolution
? Set Public Hearing For_
CONTINUED TO
FILE NUMBER
Direct the City Manager to implement a budget stabilization plan based on the framework of a
four-pronged approach that includes:
1. Negotiated compensation reductions
2. Outsourcing services
3. Restructuring and service reductions
4. Revenue increases
DISCUSSION
Like many cities, Santa Ana has been severely affected by the economic recession. Major city
revenues, including sales tax, property tax and the utility users' tax have declined. In addition,
the State has balanced its budget by taking local government monies causing further decreases
in the City's ongoing revenues. Further, the nationwide financial collapse has severely affected
the City's PERS rates which have increased significantly over the last few years.
To respond to these revenue losses, the City has made reductions in its staffing levels and in
employee compensation. Since 2009, the City reduced its staff by 390 positions through attrition,
outsourcing, reorganizing and layoffs. The City also renegotiated its compensation agreements
with its employees to eliminate or defer raises, and to increase employee contributions toward
benefits and retirement. Work furloughs were also implemented. Despite these reductions,
expenditures have continued to far exceed revenues.
Management Partners was hired earlier this year to review the City's budget and to make
recommendations for a budget stabilization plan. The purpose of the consulting firm's review was
to identify ways to reduce costs and increase revenues to align the City's expenditures with its
recurring revenues. This staff report incorporates some of the key findings of the study and
presents staff's recommendations for implementation of a budget stabilization plan.
60A-1
Budget Stabilization Plan
September 19, 2011
Page 2
In June, the City adopted the FY 2011-12 budget that included a structural deficit of $13.6 million
between expected revenues and planned expenditures. This budget gap will be filled through a
combination of: 1) projected savings from anticipated retirements, 2) departmental reductions and
reduced purchases, and 3) the use of internal service funds that were above required levels in
the City's liability and workers compensation funds. However, most of these strategies do not
address the inherent structural deficit. The chart below shows that while reductions were made
over the past several years, and have been planned for in FY 2011-12, they are not all structural
in nature nor are they deep enough.
The following ten-year financial perspective illustrates the problem that the City has been
experiencing over the past five years and the gap between revenues and expenditures in the
current and coming years. The chart below was developed by Management Partners and was
based on known information at the time the 2011-12 Budget was adopted. Since the adoption of
the budget, new risks have emerged such as the elimination of vehicle license fees and the
decline of utility user tax revenues.
Ten-Year Financial Perspective
(Based on FY2011-12 Adopted Budget Showing a $13.61VI Deficit)
Million
$240.0
$230.0
$220.0
$210.0
$200.0
$190.0
$180.0
$170.0
$232.0
$223.0 $223.0 $223.0
$218.1
1 .s
$220. $210.0
$218.2
$21z.s
$209.4 $201. $210.8
203.5
$199.2 $199.8
Actual Actual Actual Actual Estimated Adopted FY 12/13 FY 13/14 FY 14/15 FY 15/16
FY 06/07 FY 07/08 FY 08/09 FY 09/10 FY 10/11 FY 11/12
-A-Total General Fund Revenues & Transfers - In (Total General Fund Expenditures and Transfers - Out
To bridge the structural deficit, the City's unrestricted fund balance was used to maintain
services. Currently it is estimated that there is only $5 million in unrestricted funds remaining. The
recommended reserve level by the Governmental Finance Officers Association is two months of
operating expenses which for Santa Ana would be approximately $35 million. The following chart
illustrates the use of the City's unrestricted funds over the past five years.
60A-2
Budget Stabilization Plan
September 19, 2011
Page 3
General Fund Unrestricted Balances
(Savings were used to maintain operations)
Millions
500
450
40.0
350
300
250
20.0
150
100
50
00
FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY10-11'
'Estimated
Note: Economic recession began in late 2007
Looking to the FY 12/13 year, the deficit is projected to grow to an estimated $30 million. This is
due to ongoing declines in revenue associated with the economic recession, further takeaways
from the State, increased costs from pre-negotiated compensation changes and increased
pension costs.
FY2012-13 Budget Forecast
Base 2012-13 Forecast:
Revenues* $188.5M
Expenditure $218.1M
Base Structural Deficit $29.6M**
*Includes loss of Vehicle License Fees and $10M loss of UUT revenues.
**Excludes additional potential revenue declines. Excludes impacts associated with the elimination of
RDA estimated at $0.5M to $6M to the GF.
60A-3
Budget Stabilization Plan
September 19, 2011
Page 4
Recommended Approach
To balance the City's budget, approximately $30 million in structural changes must be in place by
July 1, 2012. Budget adjustments need to begin by January 2012 to preserve the City's fund
balance. The City's internal service funds need to be reserved for their intended purposes and
not utilized to balance the budget.
Thus, over the past several months City staff has worked to create an action plan to stabilize the
budget. A four-pronged approach is recommended to ensure that the City reduces its costs to
match recurring revenues. The recommended four-pronged approach includes:
1. Negotiated compensation reductions: City needs to reduce salary and benefits provided to
the workforce through a negotiated process. With closed contracts in place, this will require
the collaboration of our bargaining units.
2. Outsourcing: City is obtaining requests for proposals from other service providers to
preserve services to the community while obtaining them at a lower cost. Only through
obtaining proposals will the City know what level of savings, if any, can be achieved.
¦ Fire department services
¦ Fire dispatch services
¦ EMS ambulance service
¦ Jail services
¦ Police department services
¦ Parking control and meter services
¦ Animal control services
¦ Fleet maintenance
¦ Library services
¦ Workers' comp administration
¦ Zoo
¦ Central stores
¦ Street sweeping (sanitation fund)
¦ Bowers Museum contract
Each proposal will need to be analyzed for its cost effectiveness and submitted to the Council
for consideration. Implementation dates will be based on the complexity of the program, but
are expected to begin in January 2012. In addition, when it makes economic and business
sense the City will look at in-source opportunities.
3. Restructuring and Service Reductions: Departmental budget reductions including
reorganizations and service reductions must be implemented. These reductions in services
will depend on the dollars saved through negotiated compensation reductions and
outsourcing.
60A-4
Budget Stabilization Plan
September 19, 2011
Page 5
4. Revenue increases: City will gather information to possibly seek voter approval for new
and/or enhanced taxes. Staff is also working on full cost recovery for all City programs
including the paramedic subscription and false alarm programs where opportunities exist to
increase revenues.
Also, the City is looking into generating additional revenue from the utility franchise fee as well
as from the marketing of City assets and potential sponsorships.
In addition to these four areas, I have implemented a series of expenditure control measures.
These include: eliminating overtime unless pre-approved or warranted by contract, defer all
major capital purchases that are not mission critical and maintain all vacancies and initiate a soft
hiring freeze.
It is equally important to note that underlying this four-pronged approach are prudent fiscal
principles, which not only stabilize the budget, but are critical as the City begins to build its
financial health. These fundamental fiscal principles are:
1. Fund ongoing expenditures with recurring revenues.
2. Preserve remaining unrestricted fund balance and build a general fund reserve.
3. Utilize internal service fund for intended uses, emergencies, contingencies, cash flow, and
transition costs in service delivery.
4. Negotiate future compensation agreements that can be sustainable and affordable based on
City's financial capacity.
To begin to implement these principles I have asked for the assistance of an outside financial
consultant to review our budget and expenditure/revenue plan and have requested that bond
counsel review our current portfolios. These actions are to ensure that Santa Ana proceeds forth
in a prudent and responsible manner.
Throughout this process the City is committed to providing timely and relevant information to the
public and to its employees. A new electronic newsletter to residents will be operational in
October and the City's website and water bill inserts will be used to communicate to the public.
An internal web page with budget updates has been made available for our employees with a
portal site to gather their suggestions.
FISCAL IMPACT
The four-pronged approach identified above is designed to, enhance City revenues, reduce
expenditures in the general fund by $30 million, to bring expenditures in line with available revenues
and to stabilize the City's budget.
f f `
Paul M. Walters
Interim City Manager
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