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HomeMy WebLinkAbout2003 06-10 CC ADJ AGENDA PKTWORKSHOP AGENDA OF AN ADJOURNED REGULAR MEETING NATIONAL CITY CITY COUNCIL LARGE CONFERENCE ROOM CIVIC CENTER 1243 NATIONAL CITY BOULEVARD TUESDAY, JUNE 10, 2003 — 9:30 A.M. OPEN TO THE PUBLIC 1. City Council Finance Committee - Review of 2003-04 Preliminary Budget 2. 12:00 — Noon — Time Certain: Closed Sessions Closed Sessions Public Employee Performance Evaluation -Government Code Section 54957 Title: Acting City Manager Public Employment — Government Code Section 54957 Title: City Manager PUBLIC ORAL COMMUNICATIONS (Five -Minute Time Limit) NOTE: Pursuant to State Law, items requiring Council action must be brought back on a subsequent Council agenda unless they are of a demonstrated emergency or urgent nature. ADJOURNMENT Adjourned City Council Workshop — June 17, 2003 — 9:30 a.m. - Large Conference Room, Civic Center Adjourned Regular City Council Meeting - June 17, 2003 - 6:00 P.M. - Council Chambers, Civic Center TAPE RECORDINGS OF EACH CITY COUNCIL MEETING ARE AVAILABLE FOR SALE IN THE CITY CLERK'S OFFICE 6-10-03 Council budget deliberations FY 03-04 A few remarks. Then get right to Council discussion. • My usual suggestion to you: You are the Board of Directors of a Municipal Corporation. You have 59,774 shareholders. • My budgeting approach is to do a lot of listening to the Council • as much as I can, incorporate what I hear in the budget • My goal in the budget message is to give you an abundance of data as background • People made this budget. I didn't. o There was Ryan and Marylou that gave up a month of weekends to make this happen. o There were department heads and mid -managers who worked to implement the necessary changes o There was Marylou and the Finance staff that worked for many nights (sometime 'till 10:30) to get the numbers in o There was Leslie who gave up several weekends to accomplish the publication of the document • These are wonderful and talented resources and you should be proud of what they can accomplish together. • The budget is the single most important policy document you adopt in a year • It allows you to connect policies and vision to resources • In short, the budget we present to you for consideration: o is a $52,213,703 Resource Allocation Plan spread across 48 operating funds, and Page 1 5:41 PM BudgetNotes.doc o is balanced with no layoffs, no new taxes & no service reductions o what started as a roughly $2.2M GF deficit when we bagan, now leaves us with a $545,000 projected ending fund balance in the GF on June 30, 2004 • Much is said in the budget message about the importance Redevelopment Agency. I hope this is the start of getting the two staffs on the same page, working on common goals. • Of the $52M in total spending, most of the City's services come from the General Fund. • For FY 03-04 GF spending is recommended at $27,247,706 • <GRAPH> On the revenue side, National City's tax base is not balanced. We live and die by sales tax. General Fund Revenue FY 03-04 55% • Sales Tax • VLF ❑ Property Tax o Franchise Tax ■ Transient Occupancy Tax e Other • Of the 55% of our GF revenue in sales tax, about 34% or about $4.5M comes from auto related uses. • Revenue in the GF is up 2.19% gross over last year. • This includes a 10.41 % gain in sales tax projections and we are being somewhat aggressive about the projection we are using. Page 2 4:55 PM BudgetNotes.doc • The 2.19% increase also includes a 37.69% decline in investment earnings. • Our biggest worry right now is not the economy but the State and it's $38.2B budget deficit • National City already contributes about $2.1 M of revenue that was once ours and has, over the years, been stolen by the State. Since 1981, we have lost about $31M that could have been used on National City needs. • For FY 03-04 we have not reacted to that which we can't know. We have not made provisions for possible State cuts. • Rather than going thru the individual items, we believe something like $3.9M could be at risk by the State this next year and some of these cuts, the State has already implemented. This is not fear. This is reality. • We anticipate re -opening the City budget after the State adopts their budget. • Much is going on in Sacramento re: sales tax redistribution. There is a feeling in the legislature that cities don't know how to plan and make decisions on what their constituents need. • To address this "wrong" we saw AB 680 last Session which reallocated sales and property tax within the Sacramento Metro area. It failed. • This Session we have AB 1221 which is the "Son of AB 680," only now it's applicable statewide! AB 1221 would cost us $1.9M per year in its 5th year of operation. Hugely toxic legislation for our citizens. We understand it is now a 2-year bill but its still there. • On our expenditure side, one trend I don't like is shown in this graph Page 3 4:55 PM BudgetNotes.doc <GRAPH> Each year, revenue and expense move in lockstep with one another. • What we need desperately is good solid revenue growth at a rate consistently surpassing the rate of growth on the expenditure side. $30,000,000 $25,000,000 $20,000,000 $15,000,000 10 - Year Revenue & Expense History General Fund 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Black = revenue Red = expenditures • The proposed FY 03-04 budget does contain a number of features designed to give us budget flexibility in the future: o hiring freeze for non -safety o submission of zero -growth budgets by departments o what started as a reduction of about $642,000 was lessened to $404,924 or (1.49% of the GF) in reductions to operating spending. Had the reductions not been made, the GF ending balance on 6-30-04 would have been $140,694 o ongoing, individual review of all purchases o already -funded GF capital projects on hold o proposed GF capital projects reduced • In summary, the budget as presented has GF revenues up 5% net and expenditures up 4% over last year. Page 4 4:55 PM BudgetNotes.doc t J <GRAPH> As a public agency, our mission is essentially service delivery. Our chief resource is our employees. Here is how we spend our resources: Employees vs. Paper Clips - Where Does the Budget Go? 15% ND 85% e Personal Services ■ Maintenance & Operations • Employee compensation added $1,949,282 in new costs for FY 03-04 • <GRAPH> The majority of our services are delivered in the public safety area: Where Does the City's Public Safety Investment Go? 50% 19% e Police In Fire I7 All Other City Departments • The Sewer Enterprise Fund is in need of major work. Huge cost increases from Metro, the NPDES storm water permit program and bad debt have conspired to significantly increase costs. • The Sewer Fund is balanced assuming a rate increase which you will first hear at your June 17th City Council meeting. Page 5 4:55 PM BudgetNotes.doc • Finally, on pages 14-19 of the budget message is a discussion of the most significant changes this Office has made to the budget. Please be comfortable with what I am proposing. Page 6 4:55 PM BudgetNotes.doc PRELIMINARY BUDGET WORKSHOP City of National City Fiscal Year 2003-04 June 10, 2003 Presented By: Marylou Matienzo 0 General Assumptions at $38.2 Billion State shortfall impact to local government subventions & grants az National economy is unpredictable & difficult to assess az California's economy is also unpredictable az National City's high dependence on sales tax 82 Maintenance of Contingency Reserves General Fund Revenue Assumptions a� Property Taxes to decrease 0.63% az Sales Taxes to increase 10.41% az transient Occupancy tax to decrease az Investment Earnings to decrease 37.69% a� Other Revenues to decrease 1.49% az Overall Average Increase 2.19% General Fund Expenditure Assumptions az Negotiated compensation adjustments are included in the budget az Maintenance & Operation slightly reduced from FY2003 az Capital Outlay same as FY2003 (Q Changes by City Manager are included az Overall increase of 4% based on various budget adjustments/city manager changes FY 2003-04 GENERAL FUND REVENUES (Ranking by Dollar Amount] aZ (Ten Largest Revenue Categories) aZ Sales & Use Taxes aZ Motor Vehicle in Lieu aZ Property Taxes aZ Franchise Fees-Gas,Cable,Refuse,Electric aZ investment Earnings (CZ Transient Occupancy Tax aZ Parking Citation aZ Business License Tax aZ CDC Contributions aZ Other Revenues al aZ Total Revenues $ 14,912,500 $ 3,120,000 $ 2,280,451 $ 1,377,091 $ 1,000,000 $ 937,766 $ 643,000 $ 520,000 $ 320,000 $ 2,169,087 $ 27,279,895 FY 2003-04 GENERAL FUND REVENUES a CDC Contributions 1% Business License Tax 2% Transient Lodging Tax 3% Investment Earnings 4% Parking Citations Other Re'enues 2% 9% Motor Vehide in Lieu 11% Sales & Use Taxes 55% o Sales & Use Taxes ® Motor Vehide in Lieu o Property Taxes o In estment Earnings ® Franchise Fccs o Transient Lodging Tax ® Business License Tax o Parking Citations s CDC Contributions ▪ Other Re'.enues FY2003-04 ALL FUNDS REVENUES IRanking by Dollar Amounhl (Ten Largest Revenue Categories) Sales & Use Taxes Sewer Service Charges Motor Vehicle in Lieu TDA Grant Funds Property Taxes Gas Taxes Investment Earnings Transient Occupancy Tax Proposition A Other Revenues Total Revenues $ 14,912,500 $ 6,778,914 $ 3,120,000 $ 2,880,467 $ 2,280,451 $ 1,200,000 $ 1,000,000 $ 937,766 $ 925,000 $ 9,505,372 $ 43,540,470 FY 2003-04 All FUNDS REVENUES Other Reenues 22% Transient Occu Tax 2% Inestment Eamings 2% Gas Taxes 3% Property TaxesSewer Seruce Charges 5% 16% TDA Grant Funds 7% Sales & Use Taxes 34% Motor Vehicle in Lieu 7% oSales &Use Taxes Sewer Seruce Charges o Motor Vehicle in Lieu o TDA Grant Funds ® Property Taxes ® Gas Taxes ® In estment Eamings o Transient Occupancy Tax • Proposition A ▪ Other Re'.enues FY2003-04 GENERAL FUND EKPENDITURES (Ranking by Dollar Amounhl (Ten Largest Expenditures Categories) Police $ 13,599,233 Fire Operations $ 5,065,936 Streets $ 1,670,648 PW-Engineering $ 1,325,597 Recreation $ 1,176,989 Non Departmental $ 1,007,671 Planning $ 758,361 City Manager $ 558,279 Building & Safety $ 475,276 Other $ 1,609,716 Total Expenditures $ 27,247,706 FY 2003-04 GENERAL FUND EXPENDITURES City Manager 2% Non Departmental 4% Recreation 4% PW -Engineering Building & Safety 1% Fire Operations 19% O Police ® Fire Operations ❑ Streets O PW-Engineering ■ Recreation O Non Departmental ® Planning O City Manager • Building & Safety ® Other 0 FY 2003-04 ALL FUNDS EXPENDITURES (Ranking by Dollar Amountl (Ten Largest Expenditures Categories) Police Sewer Service Fire Operations Local Transit Risk Management Facilities Maintenance Streets Vehicle Services Proposition A Other Expenditures Total Expenditures $ 13,599,233 $ 6,819,365 $ 5,065,936 $ 2,489,886 $ 2,281,435 $ 1,786,936 $ 1,670,648 $ 1,186,583 $ 1,144,330 $ 16,169,351 $ 52,213,703 FY 2003-04 All FUNDS EXPENDITURES Other 6cpenditLres 31% Proposition A 2% Vehicle Services 2% Streets 3% Facilities Maintenance 3% Disk Management 5% Police 26% Sewer Service 13% Fire Operations 10% Local Transit 5% o Police ® Sewer Service ❑ Fire Operations o Local Transit ▪ Risk Management o Facilities Maintenance ® Streets o Vehicle Services • Proposition A ® Other Expenditures BUDGET ANALYSIS, BY FUNDS, PRELIMINARY BUDGET FISCAL YEAR 2003-04 Fund Fund Title 001 General Fund 103 General Capital Outlay Fund 104 Library Fund 105 Parks Maintenance Fund 108 Library Capital Outlay 109 Gas Taxes Fund 110 Emergency Preparedness Fund 111 POST Fund 113 Cultural Arts Fund 115 Park & Rec Capital Outlay 125 Sewer Service Fund 131 Asset Forfeiture Fund 157 SLESF Grant 169 Local Law Enf. Grant 172 Refuse Fund 175 Petroleum Violators Fund 176 Police Reimbursed Overtime 185 COPS More Grant 189 Civic Center Refurbishing 195 Landscape Reserve Fund 196 Capital Project Reserve Fund 197 Productivity Improvement 212 Personnel Compensation Fund 243 Per Capita Grant Fund 244 Roberti Z'Berg/Harris Block Grant Fund Balances 06/30/03 1,054,033 0 0 0 255,261 266,595 15,000 0 95,000 73,834 40,451 475,629 0 100,000 540,921 5,510 55,000 0 235,025 208,318 102,906 75,000 836,921 0 0 Estimated Revenues 27,279,895 240,000 407,800 458,000 79,000 1,200,000 0 0 0 52,000 6,778,914 100,500 0 175,000 100,000 0 85,000 51,000 0 0 0 0 0 502,000 161,305 Fund Budgeted Inter -Fund Balances Expenditure Transfers 06/30/04 27,247,706 (540,604) 545,618 240,000 0 0 1,327,498 919,698 0 858,466 400,466 0 45,000 0 289,261 470,000 (700,000) 296,595 15,000 0 0 0 0 0 0 0 95,000 1.279 0 124,555 6,819,365 0 0 0 0 576,129 0 0 0 0 0 275,000 154,798 0 486,123 0 0 5,510 0 0 140,000 0 0 51,000 0 0 35,025 0 0 208,318 50,000 0 52,906 35,003 0 39,997 436,927 0 399,994 502,000 0 0 161,305 0 0 BUDGET ANALYSIS, BY FUNDS, PRELIMINARY BUDGET FISCAL YEAR 2002-03 .....CONT Fund Fund Title 302 Street Tree Maintenance Fund 303 Capital Facilities Fund 304 Park Development Fund 307 Proposition "A" Fund 308 Highway Bridge Rehab Fund 312 STP Local/TransNet Highway 313 CMAQ Grant 316 CEC Grant 348 State Conservancy Grant 349 State Local Assistance 343 State Local Partnership 345 Traffic Congestion Relief Fund 552 Local Transit 626 Facilities Maint Fund 627 Liability Ins. Fund 628 General Services Fund Balances 06/30/03 0 208,097 211,119 219,330 484,393 277,056 271,446 5,000 0 0 61,468 483,008 219,840 0 1,170,548 0 629 Information Systems Maint. Fund 452,579 630 Office Equipment Depreciation 1,957,192 631 Telecommunications Revolving 295,705 632 General Accounting Services 0 633 Unemployment Insurance Reserve 0 643 Motor Vehicle Svc Fund 479,560 Total All Funds 11,312,959 Fund Estimated Revenues 109,061 0 0 925,000 0 922,944 400,000 0 35,000 147,250 0 0 2,226,650 1,786,936 1,266,364 304,084 297,051 478,678 372,026 625,267 38,318 786,593 49,178,021 Budgeted Inter -Fund Balances Expenditure Transfers 06/30/04 109,061 0 50,000 0 0 0 1,144,330 0 150,000 0 1,200,000 0 0 0 0 0 0 0 147,250 0 0 0 0 0 2,439,944 0 1,786,936 0 2,281,435 0 304,084 0 644,083 0 710,700 0 347,791 0 625,267 0 38,318 0 1,186,593 (79,560) 52,213,703 0 0 158,097 211,119 0 334,393 0 671,446 5,000 35,000 0 61,468 483,008 6,546 0 155,477 0 105,547 1,725,170 319,940 0 0 0 8,277,277 IIN]JHI CITY OF NATIONAL CITY OFFICE OF THE CITY MANAGER 1243 NATIONAL CITY BOULEVARD• NATIONAL CITY• CA• 91950 • (619) 336-4240 June 3, 2003 HONORABLE MAYOR & CITY COUNCIL CITY OF NATIONAL CITY SUBJECT: BUDGET MESSAGE FOR PRELIMINARY 2003-04 RECOMMENDED RESOURCE ALLOCATION PLAN FOR OPERATIONS AND CAPITAL INVESTMENT Submitted for your consideration is the proposed Resource Allocation Plan for the upcoming fiscal year beginning July 1 and ending June 30, 2004. The City Budget is the single most important policy document that the City Council adopts during the year. It is the chief vehicle by which Council goals, policies and vision are connected with resources so that given ends are achieved and quality of life can be improved. As the Board of Directors of this Municipal Corporation you preside over a $52,213,703 spending plan spread over a variety of funds. The most important of these is the General Fund which accomplishes most of the City's essential services. The General Fund with a recommended spending plan of $27,247,706 is balanced and reserving requirements are met for all but the Vehicle Fund (mentioned later). A $4,818,342 Capital Investment Program (CIP) is also outlined. No new taxes are proposed and no service reductions or reductions in force are presently anticipated. The proposed budget anticipates a personnel quota of 344.76 full time equivalent employees. The employees of this public corporation are our biggest and most valuable resource. Without their commitment and the leadership of the Management Team, we would all accomplish nothing very quickly. The Redevelopment Agency (Community Development Commission) submits its budget under separate cover authored by its Executive Director. None of the numbers in the City's Budget reflect activities of the Agency. The Agency and the City have a somewhat inglorious and long history of separate actions taken often without joint planning; implemented by separate staffs and without coordination. Coordination and communication are recently becomming more a part of our daily lives. For example, there is collaboration on the Plaza Boulevard RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Widening Project by utilizing the resources of both the City and Agency staff. What would have been a typical engineering project has become an opportunity to create a sense of place ("Filipino Village"). We can't be installing center landscape medians without thinking of the ongoing maintenance responsibilities that might fall on City forces. We can't be encouraging certain types of land use in areas in which the Agency has an active interest. In recent years; individuals and leadership on the Agency's side and on the City side have come to believe in a more efficient way to conduct business. It is the City Manager's view that the Agency is in the lead position to affect long term change in the quality of life in National City. It is the Agency that has the power of redevelopment tools. The change in view of the two separate agencies starting to work more together on common goals is essential to our future. Right now it is literally based on individual, personal, relationships. It must move beyond this to become part of the culture of the two entities. Redevelopment cannot be successful without the City's service delivery resources. The City cannot become a better place to live without the economic tools at the Agency's disposal. It is my personal goal that we work earnestly and quickly at developing more methods of cooperation between the Agency and the City. Our employees are capable and up to the challenge. Ultimately it must be the City Council's vision that drives a final solution. Section I — Revenue & Economy On the national level, deflation seems to be the newest fear. After years of only minor inflation, the prospects of a general price decline (deflation) seem unusual. The evidence of deflation is mixed. Nevertheless the Federal Reserve has us all thinking about the possibility of falling prices. Most agree that a modest period of prices winding their way slightly downward is good. Too much, however, and companies react with layoffs and wage cuts as they try and hang onto diminishing profit. From the City's end, not only would layoffs and wage cuts in the private sector mean more families in stress but as families reposition themselves, they will spend less. As this occurs, our revenue contracts. Our local revenue is completely linked to people's buying habits. Consumer spending in March (nationally) showed the biggest increase in 17 months as consumers bought cars, furniture and everything else. Two national measures of these habits are valuable. The New York -based Conference Board reports that its April Consumer Confidence Index rose to 81.0 from 61.4 in March. Similarly, The University of Michigan's own consumer sentiment index rose to 83.2 in April, up from March's 77.6. 0304BugMessFinal.doc 6/3/2003 Page 2 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Locally, the University of San Diego produces its own index of leading economic indicators. The index looks at building permits, unemployment insurance claims, local stock prices, consumer confidence and help wanted advertising. In the last 33 months the index has declined 28 times. The "good news" is that the rate of decline appears to be leveling off during the last few months. Job creation in the county is slowing. For the period ending in April, there were 1,300 fewer jobs in the region than the year before. The unemployment rate was 4.2% compared with statewide rate of 6.7% and a national rate of 6%. In National City, we seem to operate our own micro - economy. Sales tax receipts provide 55% of our General Fund revenue. Budget to budget, our projected sales tax receipts are up in Fiscal Year (FY) 03-04 over FY 02-03 by 10%. Built into the projection for FY 03-04 is an estimated $412,500 attributed to the opening of a new Wal-Mart in roughly September/October of 2003. General Fund Revenue FY 03-04 55% ® Sales Tax ■ VLF ❑ Property Tax ❑ Franchise Tax • Transient Occupancy Tax • Other Unfortunately, National City's tax base is not balanced. We live and die by sales tax generation because it is an unusually large revenue component compared with other cities. Property tax revenue is a distant third providing scant balance to our income. The pressures on the local economy are also unpleasant. As we add WaI-Mart we also have to contend with absorbing the Toss from the closing of FEDCO and Montgomery Ward and the loss of that revenue over several years. In aggregate, these businesses generated in the area of $585,000 in sales and property taxes in their highest year nearest their closing. Auto -related sales tax generation is a critical part of our revenue picture. These uses produce (on average, over a 3-year period) $4,534,000 or, about 34% of our total annual sales tax receipts. The decision by Chula Vista to ramp up its efforts to expand their existing Main Street dealerships beyond the existing three is a development worthy of our attention and debate. There is no rule book that foretells how our 13 dealers will fair with a potential 14-dealer shopping Mecca close to our border. 0304Bug Mess Fi nal.doc 6/3/2003 Page 3 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY — CITY MANAGER'S OFFICE The following two graphs provide some history for property and sales tax sources. $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 Property Tax Revenue 0) a) 0) 0) 0) 0) 0) O 0 0 0) a) 0) 0) 0) 0) 0) 0 0 0 N N N 0 0 0 0 0 0 O a a $16,000,000 $14,000,000 $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 Sales Tax Revenue rn c§ CO rn col 0 0 rn rn0 - - rn rn o N In breaking news of sorts, recent weeks have carried the story of local favorite Dixieline Lumber Co. being bought by Washington -based Lanoga Corp. Dixieline has one retail and two home construction assembly/supply operations within National City. Dixieline is a pre-eminent sales tax producer for National City. A decline in new home construction would cost us dearly. Or, much worse, a change in how sales transactions are reported (called situs) especially with a new out-of-state parent based in Washington State could cause a devastating blow to our sales tax receipts. Both the City's Redevelopment Vision and the Mayor's State of the City address comment on the need for housing generation. With owner -occupied housing at only 35%, the need for affordable housing has little argument. The proposal to convert the 170-room Red Lion Hotel to residential condominiums is, however, worthy of pause. This document is not the place to argue the worth of the concept or the land use decisions or homeownership opportunities that may be created. It is the right place to be mindful of the economic impact on the City. Admittedly in the very early stages of development, the proposers have opined an almost quarter -million dollar net gain to the "City," should the project proceed as conceived. Some of this is sales tax, most is property tax and their projections on Transient Occupancy Tax (TOT) are essentially neutral. As we proceed with development we need to be aware of several facts. One is that the overwhelming majority of net gain appears to accrue to the (Redevelopment) "Agency" (Community Development Commission); not to the City. Two - The revenue risk from the project, however, falls on the City as the developer's project no change in TOT revenues. The Red Lion generated about $140,000 in TOT for FY 01-02 and with three reporting months left to go this fiscal year, their generation is about $91,000. Is this revenue lost in a conversion? Does the twin 0304BugMessFinal.doc 6/3/2003 Page 4 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Holiday Inn property have enough capacity and trade with the same client base such that they can absorb what Red Lion leaves behind? A revenue reimbursement agreement from the Agency to the City might minimize our risk. Projected General Fund revenue growth is up slightly at about +2.19%. The table below shows the major activity. Budgeted FY 02-03 Budgeted FY 03-04 Change Property Taxes $ 2,294,916 Sales Tax $ 13,506,298 Transient Occupancy $ 1,039,000 Investment Earnings $ 1,604,775 All Other GF Revenue $ 7,649,864 $2,280,451 $14,912,500'. $937,766- $1,000,000 $7, 535, 934 -0.63% 10.41 % -9.74% -37.69% -1.49% Total GF Revenue Section II — Grants $ 26,094,853 $ 26,666,651 2.19% The City has enjoyed success in recent years with grant -funded employees. By FY 03-04 the City will have absorbed all of the cost of the 3-phase, 8 officer compliment brought in under the COPS (Community Oriented Policing Services) grant program. In FY 03-04 budget dollars that means that the City has absorbed about $701,000 in new annual costs into the General Fund in the form of peace officer salaries. It is nothing short of phenomenal that revenue growth in recent years has allowed us to accomplish this. Citywide, the grant results continue. For FY 03-04: Department Grant Share City Share F.T.E. Building & Safety Police Library $ 70,459 $ 34,203 2.00 $ 253,446 $ 81,443 4.00 $ 496,789 $ 15,912 20.77 TOTAL $ 820,694 $ 131,558 26.77 F.T.E" = Full Time Equivalent (equal to 1 full-time employee) 0304BugMessFinal.doc 6/3/2003 Page 5 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Section III — State Budciet Local governments, and particularly cities, are pretty much at the bottom of the food chain in terms of budget dollars and flexibility. A long list of voter approved initiatives from Propositions 8, 13, 218, etc. and the ceaseless creativity of our elected officials in Sacramento have left us staff -lean, under-resourced, exceptionally imaginative, poor, and completely dependent on sales tax. In a city replete with the needs of an older urban core community, this City, like many, is left with few economic tools by which it can accomplish change. Much of our revitalization hope rests with the Agency not by resources that the City Council can influence. Bleak as this may look; our friends at the Capitol have found a way to turn pale into white. For the State Budget process, Sacramento knows no bounds insofar as reaching into the pockets of the citizens who live here and business that invest here. Being at the bottom of the food chain means a projected Toss to the City in FY 03-04 of $2,139,370. These are dollars that the State has swooped down to gobble up and keep in Sacramento. Since the City began keeping records of State take -backs in 1981, an exhibit in this Preliminary Budget calculates the cumulative Toss to the State at $30,808,907. These are dollars that would have been available locally to address locally -determined needs but are, instead, lost to us. Against this backdrop, the State is hungry once again. Faced with what began somewhere around $15B, the State budget deficit has recently has been estimated at $38.2B. The Legislature is now is session, hold onto your wallet. The proposed Resource Allocation Plan for FY 03-04 that follows this budget message generally assumes that no significant reductions in State "subventions" (dollars the State sends the City) will occur. We take this view not because we are confident the State will leave us alone but, because, as is customary, the State cannot make their mind up on what they will do to us. Our assumption is that it may be as late as August before we have a State budget in place for FY 03-04. All we can really do at this point is to chronicle the potential city raids that are being discussed in Sacramento. The legislative process at budget time is frenetic. Nothing seems to happen for long periods and then, often in secret, often in the 13th hour; committee hearing rules are waived, ghost or placeholder bills emerge with brand new language or perhaps, just headings and no text, and mystically minutes later — we have a State budget. There is just no effective way to control or predict this process. We are left to react. Our pledge to you is that we will do the very best job reacting that we can. 0304 B u g M ess F i n al. d o c 6/3/2003 Page 6 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE With that said, here are the areas of reduction in which the State is "playing:' • Vehicle License Fee (VLF) $2,090,400 The City projects to receive a total of $3,120,000 in VLF revenue in FY 03- 04. This represents 11% of our total General Fund revenue. VLF is an extremely important revenue source because of its amount and flexibility. In general, for most vehicles registered in National City, a tax of 2% is applied to the vehicles' value. Owners pay that tax in the form of annual license payments to DMV. Several years ago the Legislature decided to pass along a 67% tax cut to vehicle owners in the form of a reduction in the VLF payments automobile owners made to DMV each year. That reduction would have come straight out of local government pockets except for a provision that created a "backfill" system. Under this arrangement, the State agreed to make up for the 67% loss local governments would suffer because of the tax reduction. We are currently backfilled for the "loss" which amounts to about 67% of VLF revenue. The remaining 33% is the base VLF we all currently pay. The Legislature is actively talking about eliminating the VLF backfill which would amount to the full 67% of VLF revenue or about $2,090,400. They could, of course, try to completely eliminate VLF by going after the remaining 33%. A total loss of VLF would cost the City $3,120,000 in FY 03-04. VLF, especially, is likely to be a protracted affair. First we have to deal with the State "pulling the trigger" in a few weeks on VLF. This means that the State takes a look at its revenues and says they won't be high enough so the VLF cut that was enacted several years ago disappears and people pay the full cost of the tax. This also means that the State requirement to backfill us goes away leaving the State with some more revenue to play with. The problem with this scenario is that some in the Legislature are prepared to fight on this. One member has threatened both an initiative to reverse the tax and a court battle to invalidate it. Should either of these paths be chosen, we would expect an extremely unpredictable budget picture for the next year or two. • Booking Fee Reimbursement $280,000 When we book prisoners into the County Jail, a State law provision enacted several years ago allows County Sheriffs' to charge agencies a fee for each booking. The County of San Diego currently charges $154 per booking. The State, in turn, picks up all of that amount with an annual reimbursement to us of about $280,000. 0304BugMess Final. doc 6/3/2003 Page 7 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE • Public Library Foundation (PLF) $33,990 The Governor's proposed budget cuts $33,990 from the prior year allocation for this fund. In National City, the PLF monies help hire staff to provide services at public counters and buy books and videos. In FY 04- 05 another $26,319 reduction is proposed. • Police Technology Programs $246,152 CLEEP, SLESF & LLEBG have historically provided some funding for hardware and software upgrades to Police information systems, weapons and safety equipment. • Peace Officer Standards & Training (POST) $100,000 One of the older reimbursements from the State, POST, sets standards for peace officers and peace officer training and provides reimbursement for most of our training expenses. • Mandated Claims Reimbursement $50,000 The State is required, in some circumstances, to reimburse the City for the cost of new "mandates" the State imposes on us. This affects about a half -dozen things we do and an elimination of the reimbursement would mean there would be no money to fund the claims cities file with the State for these programs. • Transportation $575,000 Two funding streams are being tinkered with in Sacramento. One is Gas Tax, our bread-and-butter fund for transportation purposes. In FY 00-01 the City received about $1.2M. Our last estimates of State budget proposals places our Toss next year at about $150,000. The second program is Transportation Congestion Relief Funds (TCRF). The $425,000 received in FY 00-01 is potentially all at risk in FY 03-04. • $250,000,000 "Help -the -State Fund" $507,000 One of the latest gimmicks to emerge are dual proposals ($250M each) that hit cities and counties. Cities take the statewide hit of $250M on a per capita basis which equates to about a $507,000 loss for National City. This is simply extortion as the State seeks our money to help it balance its budget deficit. In sum, the active debate in Sacramento could impact us somewhere in the area of $3,881,942 in FY 03-04, $3,026,800 of which would be in the City's General Fund. Our advocate, Joe A. Gonsalves and Son, is working mightily on our behalf to try and shape the debate over these issues. 0304B ug Mess F i na I.doc 6/3/2003 Page 8 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Two final items are noteworthy for their potential local impact. Even though the City's redevelopment activities are under separate leadership, clearly what affects the health of redevelopment can affect us on the City side. The creativity and energy of an admittedly small Agency staff can only go so far when Sacramento seeks Agency money in addition to City resources. The Governor's latest proposals call for a statewide $250M shift from agencies' to Sacramento in FY 03-04 and growing by $50M per year for each year for another 14 years. Again, a systematic raid on local resources which, ordinarily, you could direct as to their use and the goals they could achieve. The Executive Director of the Community Development Commission currently estimates that this statewide $250M cut would cost our Agency in the area of $1,000,000 in reduced Tax Increment in FY 03-04. Proposed legislation anticipates that if a redevelopment agency cannot cover its debt service then the City's General Fund must do so for them. If passed, future Agency bonding could have a real General Fund consequence. The final item of budget concern from Sacramento comes in the form of AB 1221 (Steinberg/Campbell). AB 1221 is the latest in a line of sales tax re -distribution / local government realignment bills to come from the Capitol. Firmly grounded in the belief that California local government is broken and that they know how to fix it, they have crafted a bill that freezes sales tax and property tax receipts. From there a base is established and local governments are required to trade the growth in sales tax for the growth in property tax. The "bad" that the authors' allege local governments have committed is to favor sales tax generation over housing starts. History should record that this occurred within minutes of the passage of Proposition 13. It occurred not because local governments were greedy but because we needed survival mechanisms. What National City has done by cultivating Plaza Bonita, the Mile of Cars and now Wal- Mart is neither over -reaching nor bad public policy. Absent those three sources of revenue we wouldn't want to contemplate our fate. Making a number of assumptions and running a computer model to project AB 1221's impact on National City, the first year's net loss is fairly "manageable" at ($193,674). From there it compounds and after 5 years, AB 1221 is costing us ($1,902,802) per year. Extremely toxic public policy with a draconian impact on our ability to provide services. Section IV — Unmet Needs The Mayor and City Council have discussed a high-energy list of opportunities that need attention over the near term. Where municipal funding is called for, we 0304Bug Mess Fi n aI. doc 6/3/2003 Page 9 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE anticipate the majority will be coming from the Agency and only a small portion from the City. The budget although balanced and capable of delivering current municipal services does not have the capability of funding all of the needs that appear. Some of those significant projects and others Staff has identified that might have City budget impact are shown below: • Proposed new fire station: the possible relocation of Fire Administration may require resources. • Library - State Grant and local bond sale proceeds will accomplish the magnificent construction for us. The operating cost of the new facility, however, has yet to be calculated and will likely be an expense of FY 04- 05. • The proposed Aquatic Center could also require capital and operational dollars depending on what type of construction funding and operating model is chosen. • The Redevelopment Vision recently developed includes four broad goals to revitalize the Community. As planning develops for these issues it is possible that City financial support or staff resources will need to be a part of the solution. Areas that might be candidates include: the development of Neighborhood Councils; rental housing upkeep and maintenance; signs, entrances, landscaping (and maintenance) connected to commercial and residential areas of town, and; marketing. Marketing becomes important as your Honorable Body may at some point want to get the word out to residents and business owners as to the City Council's vision and accomplishments. The City's Cultural Arts and Park Development Funds should be interwoven with the Agency's Community Pride and Quality of Life goals to see where common opportunities might lie. • The City's aging police radio system although functional at present, needs to be replaced before it collapses. The term for the typical new systems is "800 mega -hertz" or, "800MHz" for short. This is not a new issue for us or for other cities that have faced the same need. Police Management and City Manager's Office Staff have worked at length to sift through the mountain of technical issues that are part of this problem. When a clear path and financial resources are available, we will begin to discuss a solution with you. The current estimate of the required capital investment is $2,300,000. • City Hall is in need of a seismic retrofit to help prepare us for the eventuality of an earthquake. This is a large undertaking that is still in need of additional capital resources. Architectural and engineering work 0304BugMessFinal.doc 6/3/2003 Page 10 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE continues on the project and we are coupling it with a major interior and exterior remodel of the entire facility. Once we know more about the State Budget we will be able to decide how to proceed with this project. • Storm water management has become an extremely important part of the City's responsibility to the health of our Bay and to that of our residents, businesses and tourists. Unfortunately, much of the source pollution which enters the Bay from or adjacent to National City is not generated from National City. We are downstream and the last stop before whatever is in the storm system enters the Bay. Notwithstanding this dilemma, State and local regulations make us responsible. Knowing that available local resources were extremely modest, the Public Works Department has done everything practical to launch programs and systems to ensure that we are doing are part. The Water Quality Control Board has been working with Public Works to create more aggressive approaches to detection and isolation and we believe that they know we are serious about affecting change. This is one of those budget areas where we almost cannot have enough resources committed toward the problem. Current resourcing in the Proposed FY 03-04 Budget is $350,000, however, the Director of Public Works/City Engineer has previously estimated he could use upwards of $1,500,000. The program is known as NPDES (National Pollution Discharge Elimination System). Section V — Expenditure Budget One of the more troubling budget trends is how closely our expenditures track our revenues. In 3 of the last 10 years, our expenditure budget has surpassed our revenue for the given year. You will see this in the chart below as the red line crosses over the black line in 1995, 1999 and in 2000. The practical effect of this is to draw down on available fund balance (monies available but not designated for a particular expenditure) or from reserves (monies that are set aside and not to be spent). What we need is good solid revenue growth at a rate consistently surpassing the rate of growth on the expenditure side. 0304B ug Mess F i na I.doc 6/3/2003 Page 11 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE $30,000,000 $25,000,000 $20,000,000 $15,000,000 10 - Year Revenue & Expense History General Fund 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Black = revenue Red = expenditures On the revenue side, an aggressive economic development program is a tool that could yield long term results. On the expenditure side, we have to live within our means. This poses enormous challenges for operating departments many of which are understaffed and for the City Council which needs operating dollars to expand programs and capital investment to launch the vision statements. The submittal of the FY 03-04 budget may end up being a transitional budget for us. It is completed using our best brain -power but it awaits action in Sacramento before we can gauge how we will fair for the year. For this budget, a number of budgetary controls were put in place. Most notably these included: • The continuation of a hiring freeze for non -safety positions • The submittal of zero -growth budgets by department heads. The FY 03- 04 Budget generally (with some targeted exceptions by the City Manager) becomes a "roll-over" budget from the prior year. • Reductions in operating spending for FY 03-04 • Ongoing, individual, review of all purchases — budgeted or not • Reductions in discretionary General Fund capital spending • Already -funded General Fund capital projects placed on hold All of these actions were taken to create flexibility for us in FY 03-04. One significant difference in the proposed FY 03-04 budget is the reductions the City Manager made to operating spending. As part of the balance of producing a resource plan that meets the City needs, operating expenditures were reduced by a net of $404,924 or 1.49% of gross General Fund expenditures. 0304BugMess Fi nal.doc 6/3/2003 Page 12 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE As submitted, the projected General Fund budget for FY 03-04 shows revenues of $27,279,895 and expenditures of $ 27,247,706. Revenues are up $1,185,042 or 5% over the revenues projected this time last year for the FY 02-03 Preliminary Budget. Expenditures are up $1,017,613 or 4% over the expenditures projected this time last year for the FY 02-03 Preliminary Budget. Changes to employee compensation packages and benefit enhancements made to our P.E.R.S. contracts produced the majority of this change. The total Preliminary Budget, all funds, for FY 03-04 is proposed at $52,213,703. No labor agreements expire during FY 03-04. The Management Group will need to be addressed this summer however the Miscellaneous and Police contracts continue until 6-30-05. The Firefighters M.O.U. expires on 12-31-04. As a public agency, our mission is essentially service delivery. Our chief resource is our employees. The following graph shows our General Fund spending plan for FY 03-04 in terms of just how big a part of our budget employees are. Employees vs. Paper Clips - Where Does the Budget Go? 15% 85% ® Personal Services IN Maintenance & Operations 0304BugMess Fi nal. d oc 6/3/2003 Page 13 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE Just as employees are how we deliver services, we deliver the majority of our services in the public safety area. The following two charts make this point. Where Does the City Invest the Majority of its Resources? 31%® 4 69% • public Safety • All Other City Programs Where Does the City's Public Safety Investment Go? 31% la% 50% • Police ■ Fire Ei All Other City Departments Significant Changes & Issues Following is a brief review of some issues and some of the more significant changes that the City Manager's Office has made to the Preliminary Budget for FY 03-04 and some of the issues that were part of budget development: 1. Risk Management — Fewer companies are willing to write public entities in California and are looking to recover years of losses with astronomic rates. The City's premiums for excess liability and excess workers' compensation insurance are expected to increase by 34% and 249% this year despite raising the deductibles. Spiraling insurance premiums, substantial State - mandated workers' compensation benefit enhancements and adverse liability loss experience are behind a $407,319 increase in FY 03-04 budget over FY 02-03. This is the first significant increase to the Risk Management budget in eleven years. Even with this next year's increase, the M&O budget is still $288,041 less than what it was in 1992. 2. Chamber of Commerce — The Chamber's allocation from the City had been at $45,000 (plus $3,000 for the Holiday Bowl float) for the last several years. In FY 01-02 it was increased to $55,000 (plus $3,000 for the float) to add City support for the then -new Community Concert Band. In FY 02-03 (year we are just ending) the $55,000 support level was continued plus an added $5,000 for the start-up of the new Community Youth Band. This brought the Chamber's FY 02-03 allocation to $60,000. For FY 03-04 the Chamber has requested (their letter is included in the Non -Departmental budget) total City funding of $80,000 ($61,500 in 0304 B u g Mess F i n a l. doc 6/3/2003 Page 14 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE general support activities; $3,500 for the float, and; $15,000 for the Community Concert Band. The City Manager recommends current support levels be rolled -over for total funding of the same $55,000 in general and Band support and $3,000 for the float. 3. Community Development Block Grant (CDBG) — As a result of the recently completed allocation process for these funds, the City Council elected not to fully fund several specific City program with Block Grant monies. The City Manager was asked, as was the Agency Executive Director, to see what resources were available. From the City side, an additional $43,625 in new General Fund resources were necessary to make ongoing City programs whole. This allocation is included in the FY 03-04 budget and will complete the funding for the Tiny Tots and Learn to Swim recreation programs; The T.I.P.S. trauma program out of Fire, and; the balance of the Housing Inspection Program. 4. The City pays energy costs for everything from a copy machine at the Police Department to the LPG systems that heat the municipal pool to the traffic signal lights at many of our intersections. Energy prices have whip- sawed the budget for the past few years running from $743,260 in FY 99- 00 to $157,000 in FY 01-02. For FY 03-04 the budget recommendation is $960,000. This is one of those budget areas that we just have to throw up our hands and guess at where we will end the year budget -wise. The Public Works Department has accomplished some stellar results in encouraging employees to be more mindful of their energy use. Some buildings like Civic Center have seen usage decline by 56%. Out in public the efficiencies have also been felt as traffic lights have seen both their red and green lamps replaced with new more energy -efficient technology. 5. The City has a policy requirement that we maintain reserves to replace rolling stock as it ages. Fire trucks, police cars, parking enforcement scooters, code enforcement sedans, cherry -pickers should all come out of this fund. Technically the requirement is based on a depreciation model not on a replacement cost model. For this reason and because of budgetary constraints over the years, we have not in my tenure, had the ability to meet the reserving requirement. This is the only formal reserve we cannot fund adequately. In a study of this reserve performed by the Finance Department in 2000, their estimate was that the reserve was under funded by $3,153,168. Because of this and again because of the State budget fiasco, this Office has contracted vehicle replacement spending in each of the last two years. In short, we are saving less than we need to replace vehicles and equipment AND we are spending less than we should each year to rotate our fleet. 0304 B u g M ess F i n a l. d oc 6/3/2003 Page 15 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE 6. Personal Services — a variety of minor adjustments have been made to the City Manager's recommended staffing plan. First and foremost, no layoffs are currently recommended. Public Library Foundation funding reductions may cause some contraction in part-time allocations for the Library. The changes to Personal Services are as follows: a. Several departments have seen their department heads retire recently. The affected budget units have been adjusted to account for the departure of the Executive and appropriate acting pay. Three vacant positions have been eliminated as part of the overall repositioning of the budget. The 3 are: a vacant park caretaker that was newly authorized in FY 02-03 but never filled; a vacant, part- time equipment service trainee in Public Works, and; a vacant, part- time student worker in Planning. These reductions return approximately $189,000 to the General Fund. b. In the Mayor and City Council area several changes have been made. As part of a budget adjustment for FY 02-03 the new Special Assistant to the Mayor position has automatically been rolled forward into the FY 03-04 recommended budget. Also during FY 02-03 two clerical positions were reallocated to other City departments and the appropriate adjustments have been made to the Mayor and City Council budget and to the receiving departments' budgets. c. The Mayor, Vice -Mayor and Director of Human Resources have discussed the level of clerical support that is appropriate for the Mayor and City Council Office. Previously, the position was allocated at the Executive Assistant II level. A current review suggests downgrading the position to an Executive Assistant I level. The proposed budget includes $49,337 to fund at this reduced level. d. The City's parking regulation program has had a beneficial impact on freeing -up scarce parking resources and discouraging illegal parking. Although Staff is of the opinion that we are getting close to the saturation point in terms of enforcement, there are still some problem areas and times and weekend days that current resources cannot cover. The recommended budget contains $10,437 to fund one additional part-time parking regulation officer. e. The first department to change Executive leadership will be Personnel. As your Honorable Body is aware, Dr. Richard Garcia was engaged to assist us in hiring a new director. As part of this 0304B ug Mess F i na I.doc 6/3/2003 Page 16 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE process, this Office asked Dr. Garcia for a review of what significant issues, if any, he thought we had that would make it difficult for us to recruit a new director. Dr. Garcia completed his review and identified two issues to bring to our attention. The first was a title change for the position and the department to the more commonly used term, Human Resources. Your Honorable Body has recently adopted an ordinance change that cures this problem. The second issue was professional staffing. Dr. Garcia felt strongly that the department was in need of additional journey -level professional staffing and that the lack of that staffing would be a difficult point to overcome with potential candidates who would otherwise have to be willing to come into a `one -person -shop.' Dr. Garcia indicated that he listened carefully to the City Councils' desires and goals for a new Personnel Department; to Department Heads statements about the services they and their employees need from Personnel, and; to conclusions this Office has come to related to staffing in Personnel. It is Dr. Garcia's conclusion and a recommendation shared by this Office that an additional position is required. The City Manager's recommended budget includes funding to implement this need. Resources are allocated at a level equivalent to a Management Analyst III. The position is funded beginning 1-1- 04 at a budgeted allocation of $32,470. The timing is done for several reasons. First, it gives the new Director of Human Resources time to evaluate the specific needs in the Department. Second, the Director can then review those needs with the new City Manager and have the Manager determine whether it is appropriate to move forward. The positioning in the budget is a placeholder in the budget and shows our commitment to staffing that Department. f. The Planning Department budget has been adjusted to reflect the addition of two new commissioners and stipend payments based on their more frequent meeting schedule. In addition, Staff overtime costs have been increased, again to service the more frequent meeting schedule. The total of these additions was $16,800. 7. For accounting purposes the annual debt service payment ($485,227) on the Police Department bond issue has been moved from the Police budget to the City lease payment account so that it can be monitored centrally. The same will be true when the debt service schedule for the new Library 0304B ug Mess Fi nal.doc 6/3/2003 Page 17 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE bonds is set up. On the new Library - for FY 03-04, one interest -only payment of $200,680.89 will be due on February 1, 2004. The payment will be offset 1:1 by income from the parcel tax over -ride. 8. Several changes were made to the City Council's operating accounts and those of the Non -Departmental, Human Resources & City Clerk budget units: a. Within Non -Departmental, the Government Purposes account was reduced by $5,000. This $5,000 allocation was transferred to a new Government Purposes account in the City Council budget. The action will give the City Council more flexible expenditure authority and it is more reflective of recent expenditure needs and activity; b. A new account has been established in the City Council budget to fund miscellaneous, non -personnel, operating costs associated with the City Council's new Neighborhood Council program. $2,500 has been allocated toward this purpose; c. Translation Services - $20,000 has been included in the City Clerk's budget to administer this program; d. The City Clerk's Election Budget of $12,000 has been reduced to $500 as there will be no election during FY 03-04. Funding will be restored in FY 04-05 for the next municipal election; e. The Human Resources Department budget has been increased by $1,000 to fund the City Council's new Employee of the Month program. 9. The annual Vehicle Capital Investment Program to replace rolling stock has, for the second year, been significantly downsized to reflect budget constraints mentioned earlier. Resources are provided in the amount of $162, 509. 10. The Contingency Reserve was established in FY 02-03 and funded at the $75,000 level. The account has had no activity and no requests to use it. It has functioned as it was intended, as an operating reserve to meet unforeseen needs during the year. Despite the account's "success" in not being used, this Office recommends the account's funding be increased to $125,000 and that amount is reflected in the budget as presented. The budget as presented this year contains a number of presentation differences from prior years. The changes in the City Manager's Office have left a far shorter budget production calendar that we would ordinarily desire. The turnover in Executives has introduced a web of salary savings and acting pay issues for which we budgeted the best way we thought 0304 BugMess Fi nal. doc 6/3/2003 Page 18 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE possible. For these reasons we would feel more comfortable increasing the budget flexibility in this account. 11. Fire Department — As new members of the Heartland Fire Dispatch Joint Powers Authority (JPA) our membership fee will require a budget increase of $51,639 over the FY 02-03 allocation when we were simply contractors with Heartland, not JPA members. In future years, however, our costs will decline as we will no longer be paying at the contract rate. Also in Fire, our Hazardous Materials Emergency Response Program cost will increase by $10,000 due to increases from the County/City of San Diego consortium from which we purchase services. Section VI — Future Issues In addition to what has been said above, there are several other budgetary issues for FY 03-04 and beyond. The first is our P.E.R.S. rates and the impact of poor investment yield on the P.E.R.S. system. P.E.R.S. has completed actuarial valuations of our 3 plans (Miscellaneous, Police & Fire) and has projected rates for FY 04-05 (table below). PERS Rates Miscellaneous Police Fire Members Members Members FY 02-03 FY 03-04 FY 04-05 4.21% 4.82% 10.40% 5.05% 8.78% 18.50% 7.96% 12.81% 25.80% These valuations take into account the age of our workforce, the frequency of retirement, contract enhancements (like the ones authorized last year), and; the employees' health. You will see a doubling of current rates for all employee groups. In addition, the rate of gain of P.E.R.S. payments in relation to base salary is of concern. In FY 01-02 P.E.R.S. amounted to 7.14% of our payroll and the table below illustrates that that will grow to 16.7% of payroll in FY 04-05. An L.A. Times article last February reported on this issue relative to the cities in Ventura County. There, a number of cities are looking at P.E.R.S. payments at 25-35% of payroll. 0304 BugMessFin al. doc 6/3/2003 Page 19 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE For some perspective, the table below shows several years of gross P.E.R.S. payments: PERS Costs FY 01-02 FY 02-03 FY 03-04 FY 04-05 Total Payroll PERS Payment PERS % of Payroll $ 19.267,751 $ 21 014,043 $22,433,336 $23,456,089 1,375,824 $ 2,103,256 $2,633,245 $3,917,299 7.14% 10.01% 11.74%, 16.70%- A second issue is the Library. The new Library should be in operation during the second half of 2005. To get them physically moved in City dollars will likely be required. In addition, there will likely be items which the State Grant, the bond proceeds or the fund-raising campaign cannot pay for. We will have to be prepared for these expenses to make the Library happen. The City Council has also discussed the possibility of re -purposing the old facility into an arts complex. In addition, certain City departments need added office space and we would hope for some blending of the building's uses to allow for both needs to be met. Again, remodeling costs would likely fall to some extent on the City. Section VII — Sewer Enterprise Fund The FY 03-04 Preliminary Budget also includes funding from a proposed increase in customer wastewater rates. The cost of wastewater collection, transportation and treatment has recently increased dramatically. Wastewater rates charged to residents and businesses must be increased to keep up with these rising costs. In FY 03-04 the cost of providing wastewater service will total approximately $6.8 million. The new rates included in the FY 03-04 Budget will generate approximately $6.1 million. Therefore, even with the higher customer rates, it will also be necessary to augment the wastewater FY 03-04 Budget with approximately $700,000 from the City's Wastewater Rate Stabilization Reserve to cover the full cost of wastewater collection, treatment, and transportation. Three major factors play a role in the increase in costs that are driving rates up in National City: 1. The increased amount we are being charged by San Diego for wastewater treatment. 2. The increased wastewater flow being generated by National City - primarily due to San Diego installing additional and more accurate flow meters. 0304BugMess Fi nal.doc 6/3/2003 Page 20 RESOURCE ALLOCATION PLAN FY 2003-2004 CITY OF NATIONAL CITY - CITY MANAGER'S OFFICE 3. The requirements of the State issued NPDES storm water pollution prevention permit. As part of the budget, a portion of our NPDES program compliance costs are being shifted from the General Fund to the Sewer Enterprise Fund. The General Fund is balanced with this $200,000 reduction in mind. Conclusion Although a great deal of time, thought and listening has gone into the preparation of this document we have to say that its half-life is, perhaps 30-60 days. As unbelievable as it sounds, our prediction is that we will have to open up the budget process again once or even twice after your Honorable Body adopts it. This will be made necessary by late and potentially severe actions the State may take to balance its own budget. We are all in for a rough and long-lasting roller coaster ride over the next 12 to 24 months. Respectfully submitted, ?1,4rzi\-- Park L. Morse Acting City Manager 0304BugMess Fi nal. doc 6/3/2003 Page 21