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HomeMy WebLinkAboutAGENDA REPORT 2018 0523 CCSA SPC BGT ITEM 05A CITY OF MOORPARK, CALIFORNIA City Council Meeting of May 23, 2018 ACTION Discussed proposed Budget BY M. Benson MOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Troy Brown, City Manager DATE: May 17, 2018 (Special Council Meeting of May 23, 2018) SUBJECT: Consider City Manager’s Recommended Operating and Capital Improvements Budget for Fiscal Year 2018/2019 It is my pleasure to present the City of Moorpark’s Fiscal Year (FY) 2018/2019 Operating and Capital Improvement Projects Budget. The annual budget is the spending plan that provides the necessary funds to sustain the exceptional services to residents and businesses of Moorpark. Our City will have a balanced budget for the new fiscal year, while on the verge of future outlook that projects a structural deficit in the General Fund. The economy is beginning to slow in the after period of fiscal sustainability these last few years. During the first quarter of 2018, the U.S. economy grew only by 2.6%; a 0.5% decrease from the same quarter a year ago. This is the weakest showing during the prior four quarters. However, the national unemployment rate continued to decrease to 3.9% in April 2018, the lowest level since the year 2000, as the economy added 164,000 jobs. These indicators underscore the volatility and uncertainty in the economy moving forward. Since the Great Recession (Dec 2007 – Jun 2009), our organization has understood there will be continued economic peaks and valleys, and the need to be prepared and positioned for times when the economy is weak. Every four to six years, the United States experiences an economic slowdown, and we are now in the ninth year of a “recovering economy,” which suggests an economic recession is overdue. The City Council has consistently taken a very conservative, yet proactive approach to fiscal sustainability in budgeting. This philosophy has kept the organization well - positioned during both difficult economic times and periods of economic prosperity. The FY 2018/2019 budget continues that philosophy, but also recognizes that we must take a forward thinking approach to planning for the City’s future. Item: 5.A. Honorable City Council May 23, 2018 Special Meeting Page 2 BUDGET OVERVIEW Total Appropriations The FY 2018/2019 Budget appropriations total $59.3 million. This amount includes funding for the Capital Improvement Program, personnel, operations and maintenance. When compared to last year’s adopted budget, this represents an overall increase of $1.7 million or 2.9%. 2017/18 Original Budget 2018/19 Proposed Budget Variance Positive/ (Negative) Percent Expenses $ 52,698,046 $ 54,284,484 $ 1,586,438 3.0 % Transfers OUT $ 4,952,973 $ 5,017,625 $ 64,652 1.3 % Total Appropriations $ 57,651,019 $ 59,302,109 $ 1,651,090 2.9 % T O T A L C I T Y The chart below reflects the FY 2018/2019 total City budget of $59.3 million: General Fund, $18,764,371 Special Revenue Funds, $33,277,365 Capital Projects Funds, $3,797,549 Successor Agency, $3,462,824 Honorable City Council May 23, 2018 Special Meeting Page 3 Total Revenues Revenues for the City come from a variety of sources. Moorpark receives capital funds from other governmental agencies to support development of public infrastructure and facilities, grants from a variety of intergovernmental agencies, special revenues wh ich are restricted funds that can only be used for specific purposes, and locally derived revenues that support general fund activities. The chart below reflects a breakdown of the funding sources for FY 2018/2019. General Revenues, $18,893,316 Special Revenues, $17,171,935 Capital Revenues, $144,500 Successor Agency Revenues, $3,325,872 FY 2018/2019 General Fund Budget The proposed FY 2018/2019 General Fund Budget is projected to add approximately $129,000 to fund balance. Looking forward, based on current projections (although reserves remain at a relatively healthy level), the City will face structural deficits in the General Fund in all future years of the forecast. Closing this deficit will be a priority as we prepare future budgets. Honorable City Council May 23, 2018 Special Meeting Page 4 REVENUES EXPENSES Property Taxes 3,700,000 Police Services 7,690,930 Property Taxes VLF 3,700,000 Salaries & Benefits 4,552,898 Sales Taxes 4,100,000 Operations 3,132,917 Property Taxes other 1,325,000 Transfers Out 3,081,673 Franchise Fees 1,085,000 Capital 305,953 Interest 400,000 Other 4,583,316 Total Revenues $ 18,893,316 Total Expenses $ 18,764,371 SURPLUS $ 128,945 GENERAL FUND BUDGET FY 2018/19 General Fund Revenues Total FY 2018/2019 General Fund revenues total $18.9 million. Property taxes, Property Taxes VLF and Sales & Use taxes make up the largest portion of general fund revenue at $3.7 million, $3.7 million and $4.1 million respectively. Together these revenues account for 61% of general fund revenue with sales taxes being the most volatile in the revenue portfolio. Property tax growth has been strong and has exceeded pre -recession levels. We expect steady growth in revenues and have projected a 2% increase in property taxes from fiscal year 2017/2018, an amount which is capped by Proposition 13. Property tax is discussed in greater detail later in this transmittal letter. In most instances, revenues from new development are insufficient to fully fund municipal services and lag behind construction of the residential units due to the timing of various revenues being realized. Per various fee resolutions and ordinances, revenues from impact fees, construction fees, and permits are not due until building permits are issued for residential units. Property taxes are realized the following fiscal year after the unit has been assessed and placed on the County’s tax rolls. For FY 2018/2019 we are anticipating new permit revenue only from the Everett Street Apartments, although several phases of new residential developments (Meridian Hills, Masters and Pinnacle) have recently been issued their final permits. All fees from these projects have already been collected. The next anticipated projects to be issued building permits ar e Pacific Arroyo, Mansi, and Grand Moorpark. These developments are anticipated to commence construction in the current fiscal year, although as previously mentioned the City is not budgeting for Honorable City Council May 23, 2018 Special Meeting Page 5 any revenues from the projects as it is unlikely they will progress to building permit stage in FY 2018/2019. Future development will help expand the City’s property tax base; however, property tax revenue for new development is limited due to the Master Tax Sharing Agreement with the County. On average, the City can expect to receive only $0.091 from every dollar of property tax from development. Growth in property is limited due to prior state legislation; therefore the City can predict growth in this area with relative accuracy. Under Proposition 13, passed by California voters in 1978, the assessed value of a property cannot increase by more than 2% unless the property is sold. $ 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 1999-002000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-122012-132013-142014-152015-162016-172017-182018-192019-202020-212021-222022-232023-24Property Taxes SALES TAX The City’s sales tax rate is 7.25% similar to that of others cities in the County with the exception of Oxnard, Ventura, Port Hueneme, and Santa Paula who have higher sales tax rates. More importantly, the City’s sales tax portfolio relies heavily on busi ness-to- business and general consumer goods. This structure allows Moorpark to weather economic ebbs and flows much better than other cities that have heavy dependencies on auto sales and consumer goods; however a greater diversity of sales derived from auto and transportation and restaurants and hotels would strengthen the sales tax portfolio. Globally, the retail industry is going through a significant period of transformation. Online sales are penetrating the consumer market at a rate higher than could have Honorable City Council May 23, 2018 Special Meeting Page 6 been anticipated, causing a strain on traditional brick & mortar stores. Toys R Us, Sears, and other big box retailers are either shuttering sites or retooling their business model to keep pace with online giants like Amazon who are gaining market share at high rates. The City contracts with HdL to provide sales tax analysis, administra tion, and reporting. According to HdL, over the period from 2012-2017 sales from brick and mortar sales have experienced an increase of 10%, while growth from online sales have increased 88% over the same period. Because of antiquated sales tax policies, local municipalities often receive no sales taxes from online sales because there is no direct point-of-sale in the community. Yet cities still depend on revenues from point-of-sale to repairs streets, roads and infrastructure used by delivery companies that transport goods over local roads to deliver to residents. PROPERTY TAX Property taxes in the City are derived from two sources: secured and unsecured. The term "secured" simply means that taxes are assessed against real property (land or structures). The tax is a lien that is "secured" by the land or structure. The county collects property taxes and distributes shares to various governmental agencies based on a percentage formula, and administers property taxes in a manner consistent with Proposition 13 which was approved by California voters in 1978. Under Proposition 13 Honorable City Council May 23, 2018 Special Meeting Page 7 tax reform, property assessed values were rolled back and frozen at the 1976 dollar amount. Property assessed values on any given property are limited to no more than 2% per year annual growth as long as the property does not change ownership. Once sold, the property is reassessed at the sale price, and the 2% yearly growth rate continues to future years. This allowed property owners the ability to estimate th e amount of future property taxes, and determine the maximum amount taxes could increase as long as they owned the property. Property taxes are split among a variety of taxing agencies consistent with California law. The City receives approximately 9.1 cents of every property tax dollar paid. The 9.1 cents is divided into three parts: 6.7 cents for general fund uses, 1.7 cents for library operations and 0.7 cents for Vector Control uses. The following chart illustrates the breakdown of property tax dollars generated by secured property allocated to each eligible agency. Honorable City Council May 23, 2018 Special Meeting Page 8 Property taxes are an important source of general fund revenues and have traditionally been more predictable than sales taxes given Proposition 13. The Great Recession of 2009 had a profound impact on property taxes as the overall assessed valuation of the City actually decreased as a result of the housing crisis. As property values decreased, County Assessors statewide reduced secured assessments as allowable under Proposition 8. These reductions occur when the current market value of secured property is less than the assessed value as of January 1. During the period of the Great Recession, many properties values experienced Prop 8 reductions greater than 2%. Because growth is limited to 2% per year under Prop. 13, it took many years to return property taxes to pre-recession levels. Unless homes were resold which resets property values to current levels, or additional Prop 8 upward adjustments are Honorable City Council May 23, 2018 Special Meeting Page 9 completed, property tax growth was limited to 2% even though the City’s total assessed valuation declined by more than 2%. Based on sales through November, the current single-family home median sales price is $705,500. This is up by 6.1% over the median price for 2016 but is still -2.0% below the pre-recession peak median price of $720,000 from 2007. The FY 2018/2019 budget projects property assessed values increasing by 2% city-wide. While the City revenues sources continue to improve and provide resources to continue existing services, they are not growing at a pace that keeps pace with the service demands associated with new development or provide sufficient resources to address ongoing transportation, facility, quality of life programs such as youth intervention, open space acqui sition, and transportation maintenance. Proposed FY 2018/2019 General Fund Budget Augmentations The FY 2018/2019 budget is a “hold the line” budget. Staffing remains lean in the organization with employees continuing to provide a high level of service, while often wearing multiple hats. Employee negotiations are scheduled to end at or near the same time as the budget adoption, as such there are no raises or salary augmentations in the proposed budget. However the FY 2018/2019 budget does include fundi ng for anticipated increases as a result of step increases as employees move through salary ranges established in the City’s Classification and Compensation plan. The Proposed Budget uses resources to make one-time investments in long-term planning relative to a number of significant initiatives facing the City. Long-term planning aides the City in moving in a strategic direction and facilitates continued progress toward the Council’s objectives. For FY 2018/2019, emphasis will be placed in the following specific areas that require foresight and focus in order to achieve our goals. Arts Master Plan The City collects a 1% fee from development projects to fund various art projects. The current fund balance in the City’s Arts fund is about $4.5 million. A number of projects have been completed using these funds since 2002. $30,000 is proposed to be programmed to complete an Arts Master Plan which will provide strategic direction and create a new long-term roadmap for cultural development throughout t he community. The Master Plan process will include input from City Council, Arts Commission, staff and various stakeholders throughout the community. Upon completion the plan will be the guiding document for allocation of future art fees. Trails Master Plan Moorpark places an emphasis on quality of life and has recently completed several trail segments that provide a multitude of recreational uses. To strengthen connectivity and gain a larger context of the strengths, weaknesses and opportunities with trail development, a Trails Master Plan is needed to direct the limited resources available for trail development in a manner that achieves the greatest value for each dollar spent. Honorable City Council May 23, 2018 Special Meeting Page 10 $45,000 is proposed to be allocated for creation of a Citywide Trail Mast er Plan. Upon completion, the Master Plan will establish guidelines for multi-purpose (pedestrian, bicycle, equestrian) trail development, for trailhead design, for public access to open space and park areas, for signage and for volunteer programs. Planning Manager During the economic recession the City saved valuable resources by taking a number of proactive steps to align expenditures with revenues. One such tact was eliminating vacant positions and reallocating costs from the General Fund to other funds. This allowed Moorpark to weather the economic downturn with no layoffs of employees. In the years following the recession the full time equivalent (FTE) count in the organization continued to decline. The City has added only one position and that was in FY 2017/18. One of the positions lost during the economic downturn was a Planning Manager. The elimination of this position has saved the General Fund about $560,000 over the past four years; however this has had a negative effect on the ability to complete a number of long-term planning efforts over the years. $94,000 from the Development Services fund is proposed to reinstate the Planning Manager position. This is an increase in the transfer from the General Fund in support of Development Services. More funding for streets with SB1 funds Additional funding for streets and roads are programmed into the capital improvement budget to assist with maintenance and rehabilitation efforts. Senate Bill 1 (SB 1) was implemented in November 2017 which invests more than $5 billion annually directly for maintenance, repair, and safety improvements on state highways, local streets and roads, bridges, tunnels and overpasses. SB 1 also provides investments in mass transit to help relieve congestion. For Moorpark, an additional allocation of approximately $2 12,000 has been programmed into FY 2017/2018 budget which represents a twenty-five percent (25%) increase in resources to address pavement rehabilitation programs and projects. FY 2018/19 amount is $650,000. Even with these dollars, the City’s 79 miles of its roadway network remains severely underfunded. GENERAL FUND RESERVES The chart below details the General Fund Reserve (includes Special Projects fund) from FY 1994/95 to FY 2016/17. The numbers below do not reflect the $4 million payment to CalPERS in September 2017. Honorable City Council May 23, 2018 Special Meeting Page 11 HISTORY OF MOORPARK’S GENERAL FUND BALANCE AND RESERVES Fiscal Years 1994/95 thru 2016/17 (Based on audited numbers) For the last several years, the City has used annual operating savings from the general fund to balance the following year’s budget. Thereby, not adding significantly to the general fund reserve. A short list of significant items the City has spent using the amount of general fund reserve:  CalPERS unfunded liability $8 million (approx.)  Equipment Replacement Fund $2.2 million  OPEB unfunded liability $1.3 million  Tierra Rejada Road landscape $1 million +  Tyler Financial and Permitting Software $350,000 Staff estimates that the June 30, 2018 ending fund balance for the combined general fund and special projects fund to be about $28.5 million. Not all of this is available for future projects as the general fund needs an Emergency/Contingency reserve of about $3.6 million. 94/ 95 95/ 96 96/ 97 97/ 98 98/ 99 99/ 00 00/ 01 01/ 02 02/ 03 03/ 04 04/ 05 05/ 06 06/ 07 07/ 08 08/ 09 09/ 10 10/ 11 11/ 12 12/ 13 13/ 14 14/ 15 15/ 16 16/ 17 Reserves 4.53 5.46 5.86 6.58 7.50 8.54 10.6 11.7 13.4 14.7 18.3 21.2 24.4 25.1 26.6 28.2 28.0 29.2 29.7 28.4 27.6 30.0 31.1 Surplus 0.21 0.93 0.40 (0.3 0.92 1.04 1.62 1.16 1.70 1.30 3.30 2.94 2.90 0.79 1.36 1.63 (0.2 1.50 0.52 (1.2 (0.8 2.39 1.12 ($ 5) $ 0 $ 5 $ 10 $ 15 $ 20 $ 25 $ 30 Millions Honorable City Council May 23, 2018 Special Meeting Page 12 FY 2017-18 to FY 2022-23 PROJECTIONS Staff has prepared a five year projection of the General Fund estimated increases in revenues and expenses and the resultant surplus or shortfall. A recession is highly probable within the next five years; however, a recession is not forecasted in these numbers. The assumptions for revenues are: property taxes up 2 -3% annually, sales tax up 2% annually (this may be optimistic given the rise in internet sales), investment earnings up 2% annually, various fees up 2% and other fees show no change. There is about $260,000 projected for Transient Occupancy Tax (TOT), beginning in FY 2019/20. The police services CFD reduces down to zero for the Moorpark Highlands property owners. The assumptions for expenses are: salaries up 1.3% annually (reflects a 1% annual COLA plus merit step increases), benefits up 6% for medical and 2% for other benefits, Police services contract up 5% annually, operating costs up 2% annually except contractual services up 3%. No changes to capital outlay or capital improvement. Overall, this is a 3% increase in expenses annually. The chart below shows the history of the General Fund along with the five year projection. The projected shortfall for FY 2019/20 is about $50,000 and grows to about $1 million in FY 2022/23. As the City Council recalls, every year for the past nine years, you have taken action to reduce costs or shift costs to other funds in order to balance the General Fund budget. The chart above shows continuation of this trend. $ 0 $ 5 $ 10 $ 15 $ 20 $ 25 Revenue Expense Honorable City Council May 23, 2018 Special Meeting Page 13 Capital Budget Overview The Capital Projects appropriation for FY 2018/2019 is about $23.7 million. The major projects are: New City Hall/Civic Center Complex ($3.5 million), Princeton Avenue Widening ($7 million), Los Angeles Avenue Widening (Spring to Moorpark)($1.8 million), Los Angeles Avenue Medians ($1.7 million), Arroyo Drive Bike/Pedestrian Project ($1 million) and 500 Los Angeles Avenue Property Purchase ($1.8 million). Future Challenges While the FY 2018/2019 budget well positions the City for the short-term, it is prudent to keep a watchful eye on the future. The long-range financial outlook projects modest growth with anticipated expenditures outpacing available revenues. A structural deficit is projected to occur using current assumptions of continued modest growth. It is likely that an economic downturn will occur, with most renowned economist predicting a slow down within the next 12-18 months. General Fund resources, particularly sales taxes, will fall under pressure and be insufficient to meet expenditure levels. In FY 2017/2018, the City Council approved the unwinding of the police services component of Community Facilities District 2004-1 (Moorpark Highlands). FY 2018/2019 reduced revenue amounts to $99,000. This equates to one full-time maintenance worker in the Parks department. The full reduction occurs in FY 2021/2022 with a $423,000 loss. This loss equates to 1½ Senior Deputies in the Police department. The visual aesthetics of Moorpark are an important priority to the City. Projects to remediate the lingering effects of the drought have been completed in City parks and work has commenced to rehabilitate landscaping in the medians of Tierra Rejada and Spring Road. Landscaped areas in citywide (General Fund) zones will require funds to install/upgrade planting and irrigation in order to restore them to the standards adopted by the City. Additional funds will be required for improvements on Princeton Avenue ($285,000), Campus Park ($400,000), and Los Angeles Avenue ($180,000) and there is a planned project on the north side of LA Ave Between Gabbert and Shasta ($155,000). The total future funding needed for these projects will total over $1 million. There is an estimated fund balance of $176,000 in the Tree and Landscape Fund for FY 2018/2019. There are no other funding mechanisms to fund these projects other than the General Fund. The City currently transfers $131,000 per year in General Fund money along with $273,000 in Gas Tax money to fund citywide landscaping. This amount is increasing year over year. The current park assessment to fund citywide landscaping is not keeping pace with expenses. Continued maintenance of the City’s urban forest and landscaping will become increasingly difficult given the projected financial forecast. The General Fund transfers $1.7 million to parks maintenance fund each year. Honorable City Council May 23, 2018 Special Meeting Page 14 The City’s municipal facilities at the Civic Center Campus are at the end of their useful life and in various states of disrepair. Community Development is currently housed in a double-wide mobile unit which has been remediated for insect infestations, mold and water damage. The Administration Building, Community Center and Senior Center buildings have suffered water damage, failing HVAC systems and have consumed hundreds of thousands in repairs. The facilities are not conducive to facilitating workflow and are not in a condition where they will meet the public needs for the foreseeable future. We will need to make difficult decisions as it relates to meeting the needs of employees, customers and residents on where municipal facilities will be located, which one will be constructed first and how new facilities will be paid for. These facilities will cost tens of millions of dollars, again with no other funding mechanism available other than the General Fund, Endowment fund or Special Projects fund, which is replenished using General Fund dollars. CONCLUSION The presentation of a budget to the City Council is always exciting, particularly since this is the first budget being prepared under my organizational leadership. The proposed work efforts in the budget document include many new high-profile, high impact projects that set us on a course for planning our future. I would like to congratulate the City Council for their continued commitment to fiscal sustainability and demonstrating responsible leadership and direction ; and for being excellent stewards of the public’s funds. Each of you care deeply about the community and give back in ways far beyond what is reflected in the budget. I would also like to thank and recognize each member of the budget team, including Ron Ahlers, Irmina Lumbad, Hiromi Dever, and Daisy Amezcua for their tireless work in coordinating the budget development process. In addition, I would like to thank the Leadership Team, Daniel Kim and Shaun Kroes for their work in preparation of the Capital Improvement Program. Finally, I would like to thank you for allowing me to a play a role in realizin g the goals of the City Council and the community. Thanks to the City Council’s leadership, I am confident that our organization will enter the new budget cycle strongly positioned, renewed in determination, and armed with the tools and resources to conti nue progress on your organizational goals. Refer to City Manager’s Recommended Budget binder previously distributed to the City Council on May 16, 2018. The budget is posted to the city’s website at: http://moorparkca.gov/DocumentCenter/View/7854/Budget -Draft-2