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HomeMy WebLinkAboutAGENDA REPORT 2020 0527 SPC CCSA ITEM 05ACITY OF MOORPARK, 
CALIFORNIA City Council Meeting of May 27, 2020 ACTION It was the unanimous consensus of the Council to accept the City Manager’s Budget adoption recommendation, and as revised at the May 27, 2020, Special meeting, and to schedule the Fiscal Year 2020/2021 Budget for adoption at the June 17, 2020, Regular meeting. BY B.Garza. A. Consider City Manager’s Proposed Operating and Capital Improvements Budget for Fiscal Year 2020/2021. Staff Recommendation: Discuss proposed budget for Fiscal Year 2020/2021. (Staff: Troy Brown) Item: 5.A. MOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Troy Brown, City Manager DATE: 05/27/2020 Special Meeting SUBJECT: Consider City Manager’s Proposed Operating and Capital Improvements Budget for Fiscal Year 2020/2021 It is my pleasure to present the City of Moorpark’s Proposed Fiscal Year (FY) 2020/2021 Operating Budget and Capital Improvement Program. The annual budget is the spending plan that provides the necessary funds to keep our city safe, clean and maintained, and sustains exceptional municipal services to residents and businesses of Moorpark, keeping our local quality of life and property values high. The FY 2020/21 Operating Budget and Capital Improvement Program are being presented to you while the world is undertaking extraordinary efforts to combat the Coronavirus Pandemic of 2020 which has changed the lives of Moorpark residents and people around the world as social distancing measures are being implemented. In addition, the closure of businesses and industries in the United States (U.S.) has placed the economy into uncharted financial territories, virtually shutting down vital revenue sources cities use to provide basic services. Summary We entered this year expecting an economic downturn. The U.S. economy was already showing signs of weakening, effectively putting an end to the longest U.S. economic expansion in history. The eleven year expansion started in June 2009 after the country struggled through an 18-month downturn that began in December 2007. That recession had been the deepest recession since the 1930s. For the local economy, declines in the labor market were expected as the region reached near full employment causing a contraction among the pool of potential workers. This has a negative impact on local companies’ growth and profitability. Growth acceleration was not expected to occur across the region and this was already having an impact on Moorpark resources. To address the flat growth expected in the City, last fiscal year the City developed a “hold the line” budget philosophy in an effort to contain costs to the extent possible. Development of the FY 2020/21 budget brings with it the challenges we knew we would be facing, coupled with an unprecedented economic blow dealt by Coronavirus Disease 2019 (COVID-19) and a myriad of local and statewide health orders that will challenge the manner in which services are provided and entail difficult decisions as we attempt to navigate this calamity. Item: 5.A. 1 Honorable City Council 05/27/2020 Special Meeting Page 2 The proposed FY 2020/21 budget is significantly constrained due to revenue losses associated with business closures and Health Orders issued at the federal, state and local level. The financial impacts of the COVID-19 are unknown, yet dramatic and will certainly impact city services. With no financial assistance currently available to the City, use of reserves is projected to sustain the shortfall in current and next year budgets. COVID-19 Financial Impacts The FY 2020/21 budget being presented does not capture all of the impacts of COVID-19. As of the time of this writing, many businesses are still shuttered, unemployment continues to rise, and social distancing measures are still in place to protect the health and welfare of residents. Economic activities have declined and consumer spending habits have shifted more to online shopping. Stimulus packages by the Federal Government have been approved and distributed to Americans through the CARES Act and Paycheck Protection Programs (PPP). These programs provide funding to offset costs associated with combatting COVID-19 and have begun being distributed to businesses, industries, and cities (with a population of more than 500,000.) No relief has been designated to local governments with a population of less than 500,000 people, leaving every city in Ventura County without any financial aid. Both short and long term impacts of the current economic conditions are yet to be fully realized by the City. In the short term non-essential businesses in the City have been closed since March 19, 2020. Unemployment in the region was las reported in October 2019 at a rate of 3.3%. The protracted closure of businesses has increased unemployment to 5.5% by the end of March 2020 with economic indicators showing that this figure could rise to historic levels of 15% - 30% unemployment. For the proposed FY 2020/21 budget, sales taxes for the City make up 18% of our General Fund revenues. The City is projected to lose $549,000 in FY 2019/20 and $694,000 in FY 2020/21 in sales tax revenues respectively. Each day that businesses remain closed, these figures grow. It is highly likely that once Stay at Home Orders are lifted, many businesses will remain closed either to mitigate the spread of COVID-19 or because they will not be able to recover from the extended closures. The Stock Market has incurred substantial losses over the first quarter of 2020. On January 2, 2020 the Dow Jones Industrial Average (DOW) closed at 28,868. Between the periods of January 2020 to March 30, 2020, the DOW lost 6,547 points closing at 22,327 on March 30. Stocks in the second quarter have slightly rebounded and the DOW is hovering around an index 24,000. The City relies on continued economic growth to help offset its rising fixed costs of services from contractors. Contractors provide many city services including landscaping, Building & Safety, plan check reviews, and public safety, just to name a few. This significantly impacts our ability to use revenue growth, attained through economic growth, to help offset rising expenditure costs. Charges for many of the City Services are also being impacted. Making up only 7% ($1,409,369) of General Fund revenues for the City, charges for services are not a major source of General Fund revenue. However, collectively this is an important source of revenue for the City. Film permits, rental revenues, parks and recreation programming revenues, fines and 2 Honorable City Council 05/27/2020 Special Meeting Page 3 forfeitures, and user fees are all impacted. Losses here, coupled with massive losses in sales taxes, will impact the City’s ability to align costs with services. On the expenditure side, cost containment measures are being implemented. In addition to all non-essential spending being curtailed, conferences, non-essential travel, and non-expended purchases from the prior fiscal year have been put off. Vacated positions will be held open while a hiring freeze will be enacted for each vacancy that occurs in the City until such a time that we understand the depth of the financial impacts we face. Special programs and public safety services funding through the General Fund are proposed to be significantly reduced. Programs being reduced include the Special Truck Enforcement on Los Angeles Avenue and the traffic safety program administered through our contract with the Ventura County Sheriff’s Department. During the May 16, 2018 regular meeting, City Council approved staff recommendation to revise Policy 5.2 Fund Balance Reserve. The City will maintain 20% of expenditures for Emergency/Contingency reserve level in the General Fund, which equates to about $3.5 million for June 30, 2018, plus $1 million set aside in the unreserved fund balance for budget adjustments during the fiscal year. Based on the FY 2018/19 actual General Fund expenditures of $18,372,616, the Emergency/Contingency reserve was increased by $175,000 to $3,675,000. This amount provides three (3) months of operating reserves to allow for continuity of service in the event of an emergency. I anticipate this reserve to be significantly depleted to make up for losses in revenues as a result of business closures to combat COVID-19. These efforts will likely be insufficient to align our expenses with revenues. The continued loss of sales taxes and other revenues, compounded by skyrocketing unemployment and no financial relief being provided by the Federal Government, presents massive yet-to-be fully realized impacts for the City. There are a number of challenges we faced heading into the fiscal year even before the Stay Well at Home Orders and Executive Orders were put in place by the County of Ventura and Governor Newsom. You may recall from our budget discussion during the last budget cycle that the City and the region were already suffering from slow growth attributed largely in part to a shrinking labor pool and lack of available housing in the region. Future Outlook Uncertain On the positive side, the City Council entitled the 69-unit Green Island Villas townhouse project in 2020 and grading of the 228-unit Pacific Communities residential project is set to commence shortly. Each of these units will add a variety of housing options for Moorpark residents and move the City further toward meeting its stated housing goals and Regional Housing Needs Assessment (RHNA) requirements of 1,164 units in this 5th RHNA cycle. Despite our uncertain financial future, one new position is proposed in the FY 2020/21 budget, a Senior Housing Analyst. This position, funded entirely using the Affordable Housing funds, is necessary for a few reasons. First, Moorpark is facing a prolonged housing crisis. Income limits – used to determine the level of affordability for households - are not keeping pace with rising housing construction costs. Therefore, the gap between the cost to build housing in the low and very-low income ranges are significantly constrained and many of the planned units for these income ranges are not being constructed even though the projects are entitled. The lack of available housing stock within the City is severely hampering our economic development 3 Honorable City Council 05/27/2020 Special Meeting Page 4 efforts as companies seeking to establish or grow their businesses here are challenged by housing issues. Additionally, this is driving home values out of reach for many young families as well as those trying to remain in Moorpark as their prior generations have. Next, the City is already in the affordable housing business. Staff currently manages 100 housing units throughout the City with various levels of affordability associated with them. This brings with it many reporting, compliance, and housing activities that must be completed on a regular basis. We achieved this extraordinary number of affordable units by negotiating development agreements with Developers and by forging partnerships with local affordable housing agencies within the region. The City’s Affordable Housing Program is aptly managed by a Program Manager in the Parks, Recreation and Community Services Department and is among the many responsibilities of the Program Manager. With the level of the crisis and the complexities associated with managing affordable housing, some focus needs to be placed in this area. Given the size of the program and the magnitude that a robust housing program brings to the City, a Senior Housing Analysts working out of the Community Development Department is proposed. This position would be funded entirely out of the City’s Housing fund, which is projected to have a fund balance of $3.1 million at June 30, 2020. The Housing Analyst will provide focus and attention on administration of the City’s Affordable Housing program by identifying funding opportunities to bring additional dollars to the City for furthering our affordable housing goals and by facilitating the construction and acquisition of additional affordable units. FY 2020/21 Proposed Budget “Significantly Constrained” With the current national, state, and regional economic backdrop in mind, the FY 2020/21 budget reflects many unknowns. Revenue impacts to sales taxes will not be fully realized until actual receipts are received. Sales tax distributions to the City lag two to three months behind the transactions to allow the state to reconcile the amounts before disbursements are made. The duration of the Governor’s Emergency Declaration and County Medical Officer’s Stay Well at Home Orders is unknown; therefore, the length of the business shutdown is speculative at this time. It is projected that social distancing measures will span into the summer months. While unessential expenses are capped, without a significant offset for major anticipated revenue losses, sales taxes, and charges for services, additional measures will be needed to contain service levels within available revenue sources. Overall, the approach toward development of the City’s proposed budget is “significantly constrained” when compared to the prior budget cycle. The total budget amount includes continued appropriations for the Capital Improvement Program. However, no new General Fund dollars are available from the City’s General Fund to support capital projects. When compared to the FY 2019/20 adjusted budget, this represents an overall decrease of 91% or $2,403,353 in General Fund money. 4 Honorable City Council 05/27/2020 Special Meeting Page 5 The below charts shows the major sources of revenues for the City and the projected decreases in revenues compared to FY 2019/20: $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 in MillionsTotal Revenues by Source Adjusted Budget 19/20 Estimated 19/20 Recommend 20/21 Total Revenues As noted above, Total Revenues for the City come from many sources. In addition to receiving funds from other governmental agencies to support maintenance activities for streets and roads (as an example), the City also receives grants and special revenues which are restricted for a variety of purposes. The City’s total proposed revenue budget of $42,371,987 represents a 1.26% decrease from the total adjusted revenue budget for FY 2019/20. These figures are based on known assumptions we are aware of as of March 2020. We anticipate further declines in sales taxes as a result of the Stay Well at Home Order which requires non-essential businesses to remain closed. In anticipation of prolonged recessionary indicators such as unemployment claims, business closures, and no relief from the other governmental agencies, it is expected that economic growth will not occur throughout FY 2020/21. This will likely impact gas tax revenues, fines and forfeitures, and other charges for city services. Navigating through FY 2020/21 will be challenging. With so many unknowns and no answers on the revenue side, our ability to maintain existing service levels will suffer. With each passing day that Moorpark businesses are shuttered, the City will need to use reserves to fund services. Fortunately those reserves are available, but they are extremely limited and available 5 Honorable City Council 05/27/2020 Special Meeting Page 6 for one-time uses only. Should the Stay Well at Home Order extend into May and June, which it likely will, our Emergency/Contingency Reserve funds will be significantly reduced. The only other source of funding available for operations in the short-term beyond the economic uncertainty is the reserves in the City’s Endowment Fund. Use of these funds to address immediate needs will impact the future of critical capital improvement projects such as a future City Hall and a new library. Sales Taxes Sales taxes are a major contributor to the City’s General Fund to support services. Sales taxes are derived from local companies and retailers who sell their goods in Moorpark to residents, visitors, and other businesses. Recovery in this area will depend on which businesses open, when they open, the business model they will operate once they do open, and consumer confidence indicators that impact spending. As previously mentioned, the City is projected to lose approximately $549,000 in FY 2019/20 and another $694,000 in FY 2020/21 based on current estimations. You will recall tha t in previous assumptions we had projected a slowdown in sales tax growth for FY 2020/21 due to the continued relatively modest job growth in the region and the lack of housing to accommodate all economic levels of the region. This is one of the biggest threats to our fiscal sustainability. The 10-year Sales Tax trend is depicted here $2,622,418 $2,730,871 $2,695,884 $2,749,320 $3,316,402 $3,854,408 $4,291,309 $4,336,676 $3,651,000 $3,506,000 $0 $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 $4,000,000 $4,500,000 $5,000,000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21Revenues Fiscal Year Sales Tax 10-Year Trend 6 Honorable City Council 05/27/2020 Special Meeting Page 7 Total Expenditures CAPITAL, $22,056,136 SERVICES & SUPPLIES, $18,916,637 SALARIES & BENEFITS, $8,401,575 TRANSFERS, $4,735,201 UTILITIES, $1,940,261 DEBT SERVICE, $1,377,261 FY 2020/21 Total Expenditures All Funds -$57,427,071 Employee costs at $8.4 million, 58% of which are allocated to the City’s General Fund budget, are only expected to increase moderately (4.9%) primarily due to increases in health care and retirement costs. Uncontrollable expenses are related to health care and retirement which are administered by third party providers such as California Public Employees’ Retirement System (CalPERS) and other health care providers. Healthcare costs are expected to increase by 18% and the retirement asset that we enjoyed on June 30, 2019 of $362,122 has been erased by losses of -4% to CalPERS retirement investment performance. The City’s unfunded accrued pension liability as of June 30, 2018 valuation date projected for FY 2019/20 still remains manageable at $ 1,107,929, but is growing and will require fiscal stewardship to ensure this required benefit remains funded. Left unchecked, the unfunded liability in CalPERS could balloon into the millions of dollars without financial vigilance. CalPERS will certainly be considering changes to its return assumptions on its investments as it works to recapture market losses realized by the deep stock market declines in the first quarter of 2020. We have also taken steps to reduce expenses through salaries and benefits. Through the partnership we have with our local labor group (SEIU 20), the current Memorandum of Understanding will be extended with no cost-of-living adjustments for FY 2020/21. The City has typically provided employees a cost-of-living increase of approximately 1-2%. These modest Cost of Living (COLA) adjustment over the years have been insufficient to keep pace with the consumer price index, which has averaged 2% over the same period of time. Employees have been gracious for the support of the City, however the impacts are being 7 Honorable City Council 05/27/2020 Special Meeting Page 8 manifested through challenges with recruitment and retention. Applicant pools have not yielded a broad cadre of candidates to choose from, this is particularly evidenced in engineering, parks and street maintenance, and other specialty classifications. Administrative pools have fared well. The City has been plagued with challenges retaining its employees as some have left in recent years for higher paying positions in other cities or the private sector. It is important to note that the employees have willingly stepped up and done their part to help contain costs. I am, as I’m sure you are, grateful for their contributions during this difficult time. With projected substantial decreases in revenues, a number of events and programs are not proposed in the FY 2020/21 budget. Without federal or state relief to help offset revenue losses, efforts must be made to contain our costs. The Ventura County Sheriff contract has proposed a 1% increase compared to FY 2019/20. This concession will help contain expenses as this $7,657,295 contract is a significant driver of expenses. For FY 2020/21 the contract presumes one patrol deputy being temporarily reassigned to a six-month training position in their agency. This position will benefit the entire department as the deputy will be training all patrol deputies in tactics and officer safety. To cover the vacancy, one of the three deputies assigned to the traffic unit will backfill that patrol position. This is for two reasons: 1) to give the City the best possible chance of bringing that reassigned deputy back to Moorpark when his six month commitment is up; and, 2) to offer the city a six-month cost savings by not filling the traffic position for the time period of his absence (approx. 2 months in FY 2019/20 and 4 months in FY 2020/21). Maintaining this vacancy will save approximately $145,000. In addition, the Information Technology Administrator has been unfunded, generating approximately $150,000 in savings, the incumbent is proposed to fill the vacant Information Technology Manager position. The proposed budget also contemplates reductions in landscape maintenance ($200,000), employee continuing education and development in every department, reductions in vehicle maintenance for public safety ($45,000), Building and Safety services ($73,000), and, as a final example of the difficult decisions that have been made in an attempt to curb expenses, the City’s annual flagship event, the 3rd of July Fireworks, will be cancelled this year due to the impacts of social distancing requirements put in place to combat COVID-19. Cancelling this event for July 3, 2020 will save the City approximately $45,000 in expenses and protect the overall health and well-being of residents. Capital Improvement Program projects which rely on General Fund dollars are being delayed in an effort to provide capacity in the General Fund. We will continue to make progress on the ADA Transition Plan by allocating $25,000 to this annual program. Existing capital improvement projects such as the Princeton Avenue Improvements (funded by grants and gas taxes) and funding for items to sustain services during emergencies are considered. Such projects include funds for gas line improvements at Arroyo Vista Community Center. Until such a time that funding from pre-negotiated Development Agreements such as Traffic Mitigation Fees, Los Angeles Area of Contributions, Park fees, etc. becomes available to use for capital projects, staff is not proposing to fund additional capital improvement projects. Further, certain capital improvement projects not only require General Fund dollars to construct, but also require General Fund dollars to maintain. As an example, the installation of a raised median on Los Angeles Avenue from State Route 23 westward to Spring Road has been placed 8 Honorable City Council 05/27/2020 Special Meeting Page 9 on hold until available funding sources are realized to pay for the anticipated ongoing maintenance costs of $6,000 per year. While these containment measures will help in the short run, they are not sustainable. The constraints on the expenditure side of the budget are where residents will feel the service reductions the most. The City provides exceptional services to residents to enhance the Quality of Life in Moorpark, many of these services are provided by General Fund dollars which will not be available in FY 2020/21 to support them. The General Fund currently subsidizes additional traffic enforcement, truck enforcement ($10,400) on Los Angeles Avenue, landscape maintenance in citywide districts, and parks maintenance. On many occasions we have evaluated and discussed the transfer of General Fund dollars to the Citywide Parks Assessment District to cover the costs of parks maintenance. You will recall the amount to be paid by the General Fund for the general benefit has been increasing each year as maintenance and replacement costs have increased. Those costs have outpaced the maximum 3% CPI adjustment to the assessment consistent with Proposition 218. Increases in this area continue as the costs to maintain parks rises and General Fund support will continue to increase at a rate that challenges our long term fiscal sustainability. For FY 2020/21, the Citywide Park district ad valorem tax of $65.23 per single family equivalent unit generates approximately $889,000 per year which is only sufficient to cover 39% of the special benefit portion. The City will need to transfer $1.5 million in General Fund money to fully fund park maintenance activities. This increasing transfer of General Fund dollars is not fiscally sustainable and under the current economic conditions facing the City, will require further analysis once more information becomes available regarding the City’s fiscal position. Reductions in this transfer amount result in overgrown weeds, longer time periods between mowing of parks, and reductions in water use. This will have an impact on the aesthetics of City parks. 9 Honorable City Council 05/27/2020 Special Meeting Page 10 0 200 400 600 800 1000 1200 1400 1600 1800 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21In ThousandsFiscal Year General Fund Transfers to Park Maintenance Use of Reserves Anticipated Fortunately, the City has General Fund reserves set aside to sustain through economic ebbs and flows. The Emergency/Contingency Reserve of $3,675,000, equivalent to 20% of the City’s total General Fund annual expenditure (or three months’ worth of operating reserves), will be necessary to make up for losses of both current and next years’ fiscal years . Further use of Emergency/Contingency Reserve funds will depend on the scale and pace of the economic recovery. These funds are not to be depended on to meet the long-term ongoing needs of the City. In the likely scenario where a structural deficit becomes present in the General Fund, decisive action will be required to align revenue with expenses. This will lead to further service reductions in the areas of public safety, parks maintenance, and further impacts to internal services within the City. Over the years thru consistent conservative spending, the City has built a healthy General Fund Reserves (General Fund and Special Projects Fund), as of June 30, 2019, the General Fund Reserves level is over $31.2 million. We have utilized this reserve to balance the budget; pay down unfunded pension and other post-employment liabilities; and/or financed equipment replacement and capital projects. Below is the historical graph from FY 1998/99 thru FY 2018/19: 10 Honorable City Council 05/27/2020 Special Meeting Page 11 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 Fund Balance 7.50 8.54 10.60 11.75 13.46 14.76 18.30 21.24 24.41 25.20 26.65 28.29 27.89 29.86 30.41 29.12 28.30 30.18 31.31 29.64 31.19 Surplus 0.92 1.04 1.62 1.16 1.70 1.30 3.31 2.94 2.90 0.79 1.37 1.64 (0.45 1.50 0.55 (1.29 (0.82 1.88 1.13 (1.67 1.55 ($5) $0 $5 $10 $15 $20 $25 $30 $35 MillionsGeneral Fund Balance and Reserve History Fiscal Years 1998/99 thru 2018/19 (Based on audited numbers) Beyond the City’s Emergency/Contingency Reserve, two other available sources of funding exist that could be available to buoy the City through the economic downturn: The Special Projects Fund which is projected to have a fund balance of $24.3 million and the Endowment Fund which is projected to have a fund balance of $10.1 million. Use of both of these funds would result in delays to significant capital projects the City is planning to undertake including a new Library, City Hall, and other special projects (splash pad, Arroyo Vista Recreation Center expansion, Community Center upgrades, and more). While the use of reserves to sustain the City services in the short term is a viable solution, depending on the duration of the business closures in place due to COVID-19, even the use of reserves may not be enough without financial aid from the state or federal government. Conclusion The proposed FY 2020/21 Annual Budget and Capital Improvement Program are in flux, as there are many unknowns; unfortunately the only solution to fully understand the immediate and long term implications is time. We know the full financial impacts of the business shutdown and Executive Orders that are in place to combat COVID-19 are unknown and there will be lingering economic effects related to unemployment and consumer confidence. Given the unprecedented circumstances which we face, additional reductions and further use of reserves will be required to meet the immediate needs of residents. The proposed FY 2020/21 budget is significantly constrained to provide as much relief for the General Fund as possible, although further expense containment is likely to be needed to implement a sustainable budget and align 11 Honorable City Council 05/27/2020 Special Meeting Page 12 expenditures with available revenues. Staff will be providing regular updates to the City Council on the state of the City’s financial position throughout the fiscal year. I would like to thank the City Council for your continued efforts in fiscal stewardship and for maintaining your commitment to fiscal sustainability while meeting the high service demand expectations of residents. I also am committed to providing fiscal transparency and providing sound, but difficult, recommendations as we navigate through FY 2020/21. I would like to thank and recognize each member of the City’s budget team including Kambiz Borhani, Irmina Lumbad, Hiromi Dever, and Daisy Amezcua for the long hours and hard work they have done in coordinating the budget process and developing the budget. In addition, I would like to thank other contributing team members, Daniel Kim and Chris Ball, for their work in preparation of the Capital Improvement Program. Refer to City Manager’s Draft Recommended Budget binder previously distributed to the City Council on May 13, 2020. The budget is posted to the city’s website at: http://moorparkca.gov/DocumentCenter/View/10546/FY20-21-Budget---CMs- Recommended?bidId= Staff Recommendation Discuss proposed budget for Fiscal Year 2020/2021. 12