Staff Report - September 18, 2001 - Agenda Item

The purpose of this report is to present the proposed Fiscal Year (FY) 2004-05 Annual Budget, Citywide Fee Schedule, including an increase in the Transient Parking Tax, and Appropriations Limit to the City Council, Redevelopment Agency, Housing Authority, Parking Authority, and Youth Endowment Services Fund Board for public hearing. The adoption of the FY 2004-05 Budget will be considered by the Council at their June 22, 2004 Council meeting.

Although the economy is showing modest signs of recovery, it is still vulnerable, complicated by the longer-than-expected war in Iraq and the upcoming presidential election.

The State of California�s FY 2004-05 Budget currently faces an operating deficit of $14 billion. The Governor successfully passed his Proposition 57 ballot measure which allowed the State to issue up to $15 billion in debt to reduce the budget gap. The debt will be repaid from local government�s � cent sales tax, and backfilled with property tax (�triple flip�). The Governor released his May Revised Budget for FY 2004-05 (the �May Revision�) which proposes that Redevelopment agencies will be responsible for contributing $250 million, with half coming from their relative share of gross tax increment and the other half based on tax increment net of revenues �passed through� to other agencies (similar to the current law�s methodology). Excluding the expense of administration, the Educational Revenue Augmentation Fund (ERAF) cost to Burbank�s Redevelopment Agency is expected to go from $1.3 million in FY 2003-04 to $2.4 million for both FY 2004-05 and FY 2005-06.

Additionally, the May Revision will nominally further impact the General Fund in the following areas: 1) Public Library Fund (PLF) � an additional reduction of $4,694 (10 percent); and, 2) Booking Fees - $12,772 reduction in revenues (this had already been eliminated from the projected revenue in the Proposed Budget). Although difficult to quantify the benefit for Burbank, another area addressed in the May Revision is that Proposition 42 Transportation funding would be directed towards local roads if the additional one-time money for the Indian Gaming Negotiations becomes available.

A significant development which staff has been monitoring closely in the last few weeks has been the ballot initiative proposed by the League of California Cities entitled the �Local Taxpayers and Public Safety Protection Act� (also known as �LOCAL� [�Leave our Community Assets Local�]). This ballot initiative has qualified for the November 2004 election, and basically requires voter approval before the State can divert local revenue. The Governor quickly responded to this act by proposing his own budget agreement which permanently eliminates the State�s Vehicle License Fee (VLF) backfill (i.e., the 2 percent rate becomes .65 percent rate) and replaces it with property tax. Local governments will contribute $350 million for two years (FY 2004-05 and FY 2005-06). Then, after the two year period, the State will be prohibited from taking property tax, sales tax, and the remaining VLF from local governments through a constitutional amendment. In addition, the State will repay the VLF revenue lost in FY 2003-04. For Burbank, the General Fund is expected to lose $1.794 million annually for the next two years, but will receive $1.863 million in year three, for a net loss of $1.726 million over the three year period. In light of numerous other proposals and compromises that were far less palatable, Burbank supports the Governor�s proposal, but also continues to support the LOCAL initiative.

The Legislative Analyst�s Office (LAO) reports that the governor�s proposal would greatly increase the stability of local finance and increase accountability in the mandate process. However, the LAO feels the proposal locks in place the currently flawed state-local fiscal structure, imposes added fiscal stress on many local governments, and is not structured in a fashion that addresses long-term state fiscal goals. Although the LOA�s office identified areas of potential concern, the League of California Cities continues to support the agreed-upon package with the Governor and will work for its passage.

Amidst the State�s budget problems, it is important to understand that Burbank is also experiencing increased recurring expenditures. Only as recently as the Mid-Year review in February, 2004, staff had projected the year-end deficit for the FY 2004-05 year would be a staggering $4.5 million. Currently, the projected deficit, without any balancing intervention, has shrunk to $1.4 million. Key external drivers that contributed to the reduced deficit include healthy growth in revenues that are economically driven, such as Sales Tax and Property Tax. Internal drivers were each department�s conscientious effort in reducing their discretionary budgets, as well as increasing fees, where feasible.

Per Council�s direction at the May 27^th budget study session, it was decided to utilize the BWP UUT In-Lieu set-aside in the amount of $274,457 to close the City�s FY 2004-05 non-recurring budget gap. The City Council was also in favor of combining the BWP In-Lieu set-aside and budget stabilization reserve funds. In addition, staff was directed to defer the funding of reserves to the close of FY 2003-04, to consider increasing the TPT rate from 10 percent to 12 percent which generates an additional $330,000 per year, plus recognizing an additional $1,104,000 in UUT and In-Lieu tax reserves, and fund additional positions within the Police Department. However, as has been disclosed to the Council in the Five-Year Financial Forecast, the City is still in a precarious position for the outgoing years and continued prudent fiscal planning is required.

It is with this in mind that staff has worked diligently over the past few months to develop a balanced approach to address the long-term structural problem that the City is still facing. Although Burbank was fortunate to have the budget balancing resources available for FY 2004-05, staff expects recurring deficits to continue over the next five years, from $2.9 million in FY 2005-06, $1.4 million in FY 2006-07, and escalating back to $1.8 million in FY 2008-09. The Executive Team continued its diligent work from last year in trying to resolve the recurring deficit problem. Through teamwork and creative thoughts, several budget balancing ideas were devised, and a comprehensive five-year plan was provided at the initial budget study session held on April 13, 2004. As part of the long range budget balancing plan, staff will continue to look at business practices in an effort to find efficiencies while also looking at regional synergy and collaborations to reduce ongoing costs.

Similar to last fiscal year wherein a target 10 percent across-the-board decrease was implemented, before any appropriation reductions were recommended to the General Fund departments, the Executives agreed on some basic principles that would drive the budget process for FY 2004-05. These principles include: maintaining critical City services with little or no impact; minimally impacting the community by avoiding, where possible, elimination of key programs, and maintaining affordable service fees through reasonable recommended increases; not impacting programs that pay for themselves; and, achieving durable reductions to address the structural deficit in FY 2004-05 and into the future.

It was determined that each department would attempt to identify reductions and reasonable increases in fees that would not necessarily hit any quantifiable target, but instead, to be intuitive in nature. However, in order to have some benchmark for discussion, departments were requested to come up with reductions if they had to reduce the discretionary portion of their budget by 2 percent and/or 4 percent. For the most part, each General Fund department achieved or came close to achieving at least the 2 percent reduction through actual cuts in personnel, materials, supplies and services, and programs, as well as fee increases. The total proposed General Fund reduction was $2,731,926, or an average of 2.97 percent of each department�s discretionary budget. The breakdown was $1,463,448 (salaries/benefits/overtime), $696,535 (materials, supplies & services), and $571,943 (increase in fees/revenue). Making these cuts was challenging, particularly on top of last year�s 10 percent reduction.

The continuing strategy is to reduce in areas that will have the least impact, such as freezing or eliminating vacant positions, offering retirement incentives to employees close to retirement, and reducing programs and services or increasing fees for existing programs and services that will not materially harm the quality of life that the residents and businesses of Burbank have come to enjoy.

The following are the main components included within the FY 2004-05 Proposed General Fund Budget:

� $2.8 [C1]million in additional Public Employees Retirement System (PERS) costs.

� $2.0 million (less $135,158 as a one-time only benefit) for a net increase of approximately $1.8 million for Memorandum of Understanding Projected Costs.

� The internal service funds (including general liability insurance) increased by $1,069,058[C2].

� Similar to last year, no new positions or upgrades were accepted unless they were revenue offset, or unless it was recommended by the Executive Team for operational needs.

� Most of the positions frozen in FY 2003-04 carried over into FY 2004-05 with savings of $1,710,345. Additionally, newly frozen positions in FY 2004-05 resulted in savings of $314,714. Total FY 2004-05 frozen position savings is $2 million.

� There was no allowable increase in Materials, Supplies & Services (M S & S) provided to any General Fund departments. Any exceptions were to be beyond the Department�s control. A total of $416,918 ($47,428 of that non-recurring) in M S & S exceptions are being requested.

� No new requests for capital outlay were allowed with the following exceptions: Fire shelters, a new pickup truck (Fire), and an aerial truck (Public Works).

An initial Budget Study Session was held on April 13, 2004. This Study Session assisted staff greatly in that the Council gave specific direction on the reductions and fee schedule increases that were being proposed and also requested staff to conduct research on certain areas of concern, so that they could be well informed when the time came for final decisions to be made.

The Council was presented with the Proposed Budget during the first week of May. Subsequently, Budget Study Sessions were held on May 11, May 25, and May 27, 2004.

During the April 13th Budget Study Session, staff advised the Council that the General Fund would have an undesignated fund deficit of $2,354,183. Two budget balancing resources available are the budget stabilization fund in the amount of $1,573,230, and/or the use of the PERS ramp-up savings in the amount of $1,993,000. Another possibility is the use of the BWP In-Lieu revenue, which has been used in previous budget years to balance the budget. As noted above, at its May 27^th budget study session, Council directed use of the BWP In-Lieu revenue to close the budget gap.

The following chart reflects the changes that were presented at the original April 13^th Budget Study Session and the Proposed FY 2004-05 budget including changes made during the Budget Study Sessions, and the impact of the State Budget:

	4/13/04 Projected FY 2004-05	6/8/04 Projected FY 2004-05
Total Recurring Revenues	$112,625,057	$113,350,848

Less: Revised Recurring Appropriations	114,380,215	114,268,908
Potential Impact of Bargaining Units Agreements	2,168,000	2,170,000
Projected Frozen Position Savings	(2,045,664)	(2,025,060)
Projected PERS Contributions to be paid by Police Safety Personnel	(1,063,000)	(1,063,000)
Total Recurring Expenditures	113,439,551	113,350,848

Excess of Recurring Revenues Over/(Under) Recurring Appropriations	(814,494)	0

Undesignated Fund Balance � July 1, 2004	33,051	33,051
Plus: BAF Revenue for Capital Purchases	40,425	40,425
Plus: Airport Police Overtime	0	390,000
Plus: Use of BWP UUT In-Lieu	0	274,457
Available Non-Recurring Sources	73,476	737,933
Less: Required Reserves:
Estimated Working Capital Reserve Increase for FY 2004-05	(540,000)	0
Estimated Emergency Reserve Increase for FY 2004-05	(180,000)	0
Compensated Absences	(600,000)	0
Less: Projected One-Time Appropriations	(293,165)	(737,933)
Available Non-Recurring Balance/(Deficit)	(1,539,689)	0
Projected Undesignated Fund Balance/(Deficit), June 30, 2005	($2,354,183)	$ 0

The main changes from the April study session and the FY 2004-05 Budget follows:

Also at the May 27^th budget study session, Council directed that $50,000 be budgeted by the Redevelopment Agency to enhance Burbank Boulevard, including creating a logo, and street banners.

BACKGROUND

The development of the FY 2004-05 proposed Operating and Capital Budgets began in the fall of 2003. Budget orientation meetings with each department and their budget staff liaison were conducted in December 2003 and January 2004.

The �Program Budget� concept was introduced in FY 2003-04 which dissected budgets into individual programs, and included revenue (if applicable), to get a net cost by program total. The program budget was independent of the line item budget and as such, did not necessarily tie to the line item budget. However, this model was improved for FY 2004-05, wherein a template was provided to departments which allowed departments to take their familiar line item budget and then allocate it more easily into individual programs. The template�s purpose was to help departments to develop both their line item and program budgets in one step; and, to ensure that the program budget totals tied to the line item budget totals. Although the process was not perfect, staff feels that it was a positive step in further streamlining the process for next fiscal year.

Similar to last year, before any appropriation reductions were proposed to the General Fund departments, the Executives agreed on some basic principles that would drive the budget process for FY 2004-05. These principles include: maintaining critical City services with little or no impact; minimally impacting the community by avoiding, where possible, elimination of key programs, and maintaining affordable service fees through reasonable recommended increases; not impacting programs that pay for themselves; and, achieving durable reductions to address the structural deficit in FY 2004-05 and into the future.

Departments were also encouraged to review possible fee increases to help offset increasing costs. These fee increases were accompanied by justification to ensure that the fee increases were reasonable and in line with other cities� fees. As a result of this review, if approved by Council, the fee increases will result in $571,943 in incremental general fund revenue.

However, unlike last year, all General Fund departments were not given an across the board percentage that they had to reduce this year. Staff recognized that after having undergone a 10 percent reduction scenario last year, some departments would find it more difficult than others to make further reductions. As a result, departments were instructed to carefully review their budget and make reductions where possible. During this time, departments also explored ways to enhance revenues.

In order to have some benchmark for discussion, departments were requested to come up with reductions if they had to reduce the discretionary portion of their budget by 2 percent and/or by 4 percent. As noted, there was no across the board cuts; nonetheless, these �what-if� scenarios were requested for discussion purposes. During February and March, the Executive team reviewed and evaluated each department�s proposed reductions.

Even before the City considered the potential State Budget impacts to the upcoming fiscal year budget, the City was already progressing into a deficit position over the next several years due to the underperformance of several of its revenue categories and the significant increase in its recurring costs, especially the PERS rates. As previously noted, the General Fund budget parameters for this year were once again strict, requesting both a 2 percent reduction scenario and a 4 percent reduction scenario (reductions based on FY 2003-04�s discretionary budget amounts).

Similar to last year, no new positions or upgrades were accepted unless they were revenue offset, or unless it was recommended by the Executive Team for operational needs. A new position title was added, �Executive Assistant,� to more accurately reflect the responsibilities of certain individuals. This new title has minimal budgetary impact.

Most of the positions frozen in FY 2003-04 carried over into FY 2004-05 with savings of $1,710,345. Additionally, newly frozen positions in FY 2004-05 resulted in savings of $314,714. Total FY 2004-05 frozen position savings is $2 million.

There was no allowable increase in M S & S provided to any General Fund departments. Any exceptions were to be beyond the Department�s control. A total of $416,918 ($47,428 of that non-recurring) in MS&S exceptions are being requested.

No new requests for capital outlay were to be allowed unless funded by a revenue source. Any exceptions were to be beyond the Department�s control. No new requests for capital outlay were allowed with the following exceptions: Fire shelters, and new pickup truck (Fire), and an aerial truck (Public Works).

The first Council Budget Study Session was on April 13, 2004. This Session included staff recommended reductions and fee increases. The Council then received the Proposed Budget just prior to their May 8, 2004 annual Goal Setting Workshop. Budget Study Sessions were held on May 11, May 25 and May 27, 2004. At the first Study Session, the Financial Services Director provided a brief overview of the Proposed Budget, projected available recurring and non-recurring fund balances, and significant changes to all departmental budgets including increases in internal service funds and PERS rates. Then, each Department Manager reviewed their proposed reductions, fee changes (if applicable) and any new positions/upgrades (which had to be revenue offset), materials, supplies and services exceptions (which had to be out of the departments� control), and any capital outlay.

At each budget presentation, the City Council asked questions, provided feedback, and gave direction to staff regarding the proposed budget. This direction from the City Council has been included as part of the Budget before the Council for consideration.

FY 2004-05 BUDGET � GENERAL FUND APPROPRIATIONS AND REVENUES:

The total recurring General Fund revenue growth for FY 2004-05 and recurring expenditure growth over FY 2003-04 are both 3.0 percent.

Sales Tax. Sales Tax revenues are one of the City�s largest revenue sources. Sales Tax is still projected to increase 2.5 percent next year, however, the decrease in this category is due to the anticipated �Triple-Flip� Legislation. Beginning in FY 2004-05, the State redirects one-quarter cent of the local Sales Tax to the State to pay deficit retirement bonds. In exchange, it will fully offset local government revenue by redirecting a commensurate amount of Property Taxes from the Education Revenue Augmentation Fund (ERAF).

Property Taxes. The City�s growth in assessed valuation is assumed to increase by nearly 5 percent.

Utility Users Tax (UUT). This revenue category has been estimated to increase by nearly 0.6 percent primarily due to electricity sales and increased cellular collections. UUT revenues from local and long distance phone services continue to decrease due to competition as well as the trend towards cellular use.

Interest / Use of Money. This revenue category is expected to increase by a modest $13,430 in FY 2004-05 due to the inclusion of the $130,000 anticipated benefit from pre-paying the City�s FY 2004-05 PERS obligations.

Transient Occupancy Tax (TOT). The TOT revenue is anticipated to increase by 2.5 percent over this year�s revised projection. As one of the City�s long range budget balancing ideas, staff will bring back the issue of increasing the tax from 10 percent to 12 percent. A ballot measure would need to be approved prior to the Council having the ability to increase the tax. Preliminary research indicates that this would equate to $800,000 annually in increased revenues.

Transient Parking Tax (TPT). This revenue category is estimated to grow by 2.5 percent for FY 2004-05 primarily due to increased passenger travel at the airport. It should be noted that the �parking price wars� are still going on at the airport and equates to an annual estimated loss in revenues of approximately $400,000. Staff has included $330,000 in revenue growth for FY 2004-05 based on the approval of the 2% tax increase.

The expenditure growth assumes (in addition to approximate $1,463,448 in reductions and/or fee increases) the following costs:

Like many agencies, for many years, the City was superfunded in the Public Employees Retirement System (PERS) and as a result did not have to pay the actual employer rates and was able to use the budgetary savings for other City expenditures. However, with the downturn of the market and the economy in general as well as the enhanced retirement packages offered to the bargaining groups, the City, along with many other agencies, has lost its superfunded status for miscellaneous employees starting in FY 2003-04, and thus will again be required to pay PERS the actual employer rates. It is anticipated to cost the City $2.8 million in additional PERS costs for FY 2004-05 and an additional $2.15 million in FY 2005-06. It is projected that the Police Safety members will contribute $470,000 toward their PERS contribution for FY 2004-05, this amount will increase to $482,000 in FY 2005-06.

On March 30, 2004, Council approved a resolution authorizing Burbank to issue up to $25,150,000 in pension obligation bonds (POBs) to refund an Unfunded Accrued Actuarial Liability for the Police and Fire Departments. The FY 2004-05 budget includes savings from the POB issuance approximating $0.5 million annually.

Staff is proposing to prepay the City�s FY 2004-05 PERS contributions which is anticipated to save the General Fund $130,000 in FY 2004-05.

The projected growth in employees� salary and benefits is 2.5 percent for FY 2004-05 through FY 2008-09. Due to the budget challenges facing the City during the next several years, the City acknowledges that it will be in a difficult position to pay market based salaries and benefits.

The General Liability and Workers Compensation Self-Insurance Funds increased by $865,167 due to an increase in both the insurance costs and claims, the Communications Replacement Fund increased by $160,008 to provide sufficient funding to replace radios Citywide over a five or more year period, and the Computer Equipment Replacement Fund increased by $102,604. The Vehicle Replacement Fund showed a net decrease of $160,816, and the Equipment Replacement Fund increased $100,308. To mitigate the increase in costs to the General Fund, an additional year was added to the lives of vehicles (vehicle life depends on particular vehicle type), equipment (from five to six years), and personal computers (from four to five years).

With the budget parameters, costs, and revenues in mind, the following chart is the proposed source of funds and appropriations for each fund or fund type for the FY 2004-05 Budget:

*Resources represent the total sources available to each fund, such as taxes, fees, charges, sales, interest, use of fund balance (from bond proceeds, depreciation, and available retained earnings) and includes changes disclosed in the addendums to the Proposed Budget. The recurring portion of revenue for the General Fund is $113,350,848, and the recurring General Fund appropriation is $113,350,848.

** The General Fund variance between proposed sources and appropriations is a result of the following: 1) the inclusion of the use of reserves (Utilities Users Taxes, BWP In-Lieu and related interest earnings) previously designated for BWP competitiveness and set-aside in the General Fund and 2) yet to be settled contracts with several bargaining groups.

As is typical with every budget season, items will be inadvertently left out of the budget, conditions will change that will require staff to rethink a revenue estimate or program cost, or the Council will direct staff to make adjustments to the appropriations. This budget year is no different. There are a few items that have changed.

The budgetary reductions as a result of the Governor�s May Revision to the 2004-05 State Budget related to ERAF, Public Library Fund grants and booking fees were not included in the Proposed Budget in our revenue projections but are now included in the matrix (Attachment 1). Any further changes that may take place will be addressed in the quarterly or mid-year reports.

� $1,069,055 was restored to Property Tax revenue due to the Governor�s proposal.

� The Vehicle License Fee was decreased by $1,794,772 as part of the Governor�s proposal.

� One full-time and two part-time positions, totaling 2.6 FTEs, were inadvertently double counted as a result of these positions transferring from Park, Recreation and Community Services to Management Services. The positions are an Administrative Analyst, a Recreation Specialist, and a Utility Worker. The Proposed Budget was overstated by approximately $150,897.

� At the May 27^th budget study session, Council directed to restore $46,258 to fund 2 Police Cadet positions or a Kennel Attendant. The Police Department was requested to come back to Council with a recommended use for this money in case there were possible better uses for the restored funds.

STATE BUDGET � IMPACT ON BURBANK

The Governor released his FY 2004-05 Proposed State Budget on January 10, 2004, and his May Revision on May 13, 2004. Foremost among the positive signs is a pick-up in state personal income growth. In the second quarter of 2003, personal income was 3.1 percent higher than a year earlier; two quarters later it was 4.5 percent ahead of a year ago. The Department of Finance also notes increases in state taxable sales, increases in exports for California-made merchandise, and relatively low mortgage rates as contributors to an improving economy.

Overall, the Governor and legislature are attempting to address an operating deficit of $14 billion. The May Revision notes that �in February, the Legislative Analyst projected that the State would face a structural deficit of $7 billion in 2005-06, even assuming the enactment of all of the savings and other solutions proposed in the Governor�s Budget. As a result of the changes proposed in the May Revision, the Department of Finance now estimates that the deficit by the end of 2005-06 will be eliminated.� Despite this improvement, the State�s long-term fiscal outlook relative to the January budget plan has worsened. The May Revision misses an opportunity to make further progress toward eliminating the State�s long-term structural imbalance. The Governor�s May Revision seeks to bring the Budget in balance with a series of cuts, overhauls of programs, and �redesigns.�

If adopted, it would result in a balanced budget in FY 2004-05, and leave the State with enough Proposition 57 bond proceeds to cover much of the structural budget gap for FY 2005-06. However, because it relies more heavily on growth than on real savings than did the January Budget, it doesn�t address the persistent budget gap for outgoing years. The LAO�s Office estimates the FY 2006-07 structural budget deficit to be nearly $8 billion.

For local government, the major changes from the January State Budget are: (1) Proposed budget agreement in exchange for former additional ERAF shift; (2) reduction in the Public Library Foundation (PLF) funding of an additional 10 percent; and, (3) possible increase in Proposition 42 Transportation funding.

Additionally, at first glance, it appears that the proposed agreement between the Governor and the League of California Cities (in response to the Local Taxpayers and Public Safety Protection Act ballot initiative) is much worse for cities than the January 2004 budget. However, the proposed agreement to take city and redevelopment funds is limited to two years. In FY 2006-07, the State will repay local government for the reduction in the VLF backfill lost in FY 2003-04. The General Fund is expected to lose $1.794 million for the next two years, then receive $1.863 million in year three, for a net loss of $1.726 million over a three year period.

Because staff anticipated many of the cuts, there are very few items that further affect the City�s FY 2004-05 budget. The following is a brief look at the potential impacts that the Governor�s May Revision to the Proposed Budget for FY 2004-05 will have on the City of Burbank.

Budgetary Reductions

Educational Revenue Augmentation Fund (ERAF). In FY 2003-04, there was a �one time� shift of Burbank redevelopment revenue of $1,343,093 which, as it turns out, was not a one-time shift after all, as the Governor�s January Budget again requires Redevelopment agencies to shift $135 million to ERAF in FY 2004-05. The Governor�s May Revision added another $1,134,010 to this amount, bringing the total ERAF shift from the Redevelopment Agency to $2,477,103. To put this ERAF shift into perspective, if the FY 2004-05 shift takes place, the total amount shifted from the Burbank Redevelopment Agency since the ERAF�s inception is over $8.3 million.

Public Library Foundation. The May Revision cut 10 percent from the previous year�s levels, equating to an additional loss of $4,694 for the FY 2004-05 Budget.

Booking Fee Reimbursement: This item was cut by the Governor, but is a small revenue loss to Burbank of $12,772. This cut is already included in our Proposed Budget for FY 2004-05.

Proposition 42 Transportation Funding. Although there is no improvement for local cities, counties, and roads rehabilitation in the May Revision, the State did say that if any additional one-time money for the Indian Gaming Negotiations became available, funding would be directed towards local roads. The current estimate is a $180 million loss for FY 2004-05, on top of the $188 million loss in FY 2003-04 to cities and counties, although it is difficult to quantify the precise dollar impact to Burbank at this time.

At the State level, the May Revision will provide $383 million for transportation purposes, of which $243 million will be transferred from the General Fund to the Traffic Congestion Relief Fund (TCRF), and an additional $140 from the estimated 2004-05 �spillover� revenues to the TCRF. Also, while the January Budget proposed suspension of the FY 2004-05 Proposition 42 transfer with no repayment, the May Revision converts this transfer to a loan to the State, and repayment of the outstanding General Fund obligations will be accelerated.

State Mandates. The City has not budgeted State reimbursement payments for FY 2004-05 due to the State suspending payments to local agencies for State-mandated programs. However, this continued suspension of payments by the State remains a real loss of revenues that the City had counted on for many years. Further, the governor�s proposal suggests an array of changes, including accelerating the timing of test claims, the ability of local governments to terminate the mandate within 90 days if the State cannot reimburse in the current or future State budgets; disallowing the governor to veto a mandate appropriation, and broadening the definition of mandate to include situations when the state transfers partial funding responsibility for a joint-State-County program.

Through the Mayor, staff has sent numerous letters opposing legislation that has been introduced that would have negatively impacted local governments. On the flip side, letters have been sent to Burbank�s legislators and others for their efforts in working hard to listen to local government concerns and find reasonable alternatives to maintain revenues to local government.

Staff will continue to monitor the State Budget and its potential impacts on the City of Burbank and keep the Council advised as developments arise.

Because the State�s reductions to Burbank are reasonably known at this time, the Budget includes those reductions in the revenue projection. Since Burbank has already had to make reductions over the last two years, any further reduction from the State would be difficult to manage. As of the writing of this report, the Governor is negotiating with the League of California Cities on an agreement that will constitutionally protect local government revenues commencing in FY 2006-07, in exchange for a $350 million local government contribution for both FY 2004-05 and FY 2005-06. This agreement, if passed by the Legislature, will go before the voters in November, as will the LOCAL ballot initiative requiring voter approval before the State can take away local government revenue. The City of Burbank supports both measures.

PROPOSED CITYWIDE FEE SCHEDULE

The primary purpose of the Citywide Fee Schedule is to provide a one-stop listing of all City fees, charges, and rates. The Fee Schedule is reviewed and updated annually as part of the budget process in an effort to document all of the fees that have been revised or changed during the fiscal year. The City Council has already approved fee changes during FY 2003-04 that have been incorporated into the Fee Schedule which is presented for Council consideration. (The Summary of Proposed Fee Schedule Changes is included as Attachment 2).

As was previously discussed, there was a conscious effort made to review all of the City�s fees, charges and rates due to the significant budget reduction facing the City. It was agreed that making reductions in costs alone would not be the most prudent course of action, as many more services, programs and employees would no doubt have been affected. Thus, each department that has fees, charges and rates, spent a great deal of time researching the current rates, identifying areas of concern, and conducting surveys of other cities to ascertain a fair and reasonable charge. In addition, some departments were able to identify new fees that were being charged by surrounding communities that made sense for Burbank to consider.

Although there are a number of changes, which are outlined in Attachment 2, the following are the more significant fee changes being proposed.

Until recently, the TPT has been a stable revenue stream for the City since its inception in 1996. Since its implementation, it has represented approximately 1.9 to 2.0 percent of total General Fund revenues. The average annual revenue is approximately $1.8 million.

Over the last two years, two significant things have occurred related to the TPT: a new parking lot opened near the Airport and the Airport reduced their daily rate to $5. While the new lot has had a positive impact on the revenue, the decrease in the rates by the Airport has had a significant negative impact on this revenue. It is expected that the TPT receipts for FY 2004-05 will be approximately $91,250 higher than the original revenue estimate for FY 2003-04.

Even before the Airport rates decreased, staff was looking for creative ways to increase the City�s revenues to address the projected budget deficit. Increasing the TPT was one way that was suggested by staff.

Following a lengthy analysis of the TPT, including a survey of the rates charged by other cities (January 27, 2004 Staff Report attached as Attachment 3), the Council approved placing a ballot measure on the General Election for the citizenry to consider increasing the TPT. The end result of the April 8, 2003 Election, was that the voters of Burbank approved the ballot measure which allows the City Council to increase the City�s existing TPT from the current rate of 10 percent up to a maximum of 12 percent, after a public hearing on the matter.

The City held its first Public Hearing on June 10, 2003 to receive public input on its Fiscal Year FY 2003-04 Proposed Budget and Citywide Fee Schedule, which included a proposal to increase the TPT to 12 percent. The Council voted 4-1 against raising the TPT at that time.

On December 16, 2003, by majority vote, the Council agreed to consider holding another Public Hearing to receive input and to then vote on the issue of raising the TPT from 10 percent to 12 percent. The second Public Hearing was held on January 27, 2004, and Council again voted 4-1 against raising the TPT at that time.

In light of the City�s current financial condition, and the fact that there are very few opportunities for the City to effectuate a positive change in a revenue source, staff is recommending that the Council take public comment on the matter at a third Public Hearing, as required by the ballot measure and ultimately take action to approve an increase in the TPT from 10 to 12 percent. It is estimated that this increase will provide an increase in TPT revenue of $330,000. It should be noted that at the May 27^th budget study session, discussion ensued about possibly exempting from the proposed additional 2 percent tax, the users of the �small parking lot� operators. At this time, there are no concrete definitions as to what an exempted small parking operator would be. Also, it should be reiterated that the TPT is a user tax, not a tax on the operators and they merely pass the tax along to the City. The latest breakdown of the operators and their revenues is included in Attachment 3.

This is the third year of a five year smooth ramp-up of a water rate increase, which averages 4.8 percent a year.

This is the second year of a five year rate plan with annual 7% rate increases for FY 2004-05 through FY 2007-08 (monthly fee will increase from $13.99 to $14.97 for FY 2004-05).

It is recommended that new fees be established to cover the staffing cost of various Park, Recreation and Community Service facilities used for filming purposes.

This new fee will reimburse the City for the costs of administration the criminal restitution program will be paid for by the defendants, and is expected to generate $5,000 in revenue.

Both the Police and Fire personnel rates in a number of categories have been increased to be in line with recent MOU increases. The average rate increase over FY 2003-04 is 6.85 percent.

This fee will be increased by 33 percent, to $48 per household annually. Both the current and new fee are lower than other local cities, and had not been increased since 1998. Estimated incremental revenue is expected to be $39,845.

These new fees cover the cost of staff�s time in inspecting, researching, and reviewing many facets of the developing and building process. Examples of review include site plans, building permits, conditional use permit and administrative use permits, subdivision map review, variance review, lot line adjustment, zone map and text amendment review, excavation/street use permit review, traffic study review, traffic control plan review, sign/signing plan review, among others. In total, the estimated additional revenue is $79,570.

A new fee of $30 is proposed to cover a planner�s time (and sometimes a supervisor�s time), in doing plan check for non-development projects. This fee along with proposed increases to some other planning applications to cover costs is estimated to account for $72,690 in additional revenue.

Various fees were raised on average 10 percent, including Property Maintenance Inspection fees, regulatory license fees to cover 90 percent of cost, and Business Tax Amnesty Program to encourage business registration. In total, the increase in revenue is expected to be $115,000 for this fee category.

Building, grading, mechanical, electrical, and plumbing fees were increased 4 percent. Other fees that fall in this category that have a smaller impact are the surcharge fees: Community Facility Fee (5 percent); Fire Permit ($20); and Grading Bond ($50 administrative fee per permit). Altogether, the building permit revenue category is expected to increase $135,429.

This is year two of a three year ramp up for the public lot monthly parking permit fee. The rate increases from $24 to $28 in FY 2004-05, and another $4 in FY 2005-06. From surveys performed, staff has found that the full $32 rate is still lower than fees charged by other cities.

Last year, due to the budget deficit for that year and projected deficits in future years, staff performed a comprehensive overhaul of the Fee Schedule which resulted in a number of fee increases as well as new fees. This year, the trend continued with staff fine tuning fees, so that we were comfortable that the fees are in line with our surrounding cities, remain affordable, and have minimal impact on the users. Moreover, it is important to keep in mind that the City is not out to make money, and as such, very few of the non-enterprise funded programs have total cost recovery, instead the City General Fund heavily subsidizes many City services.

GANN INITIATIVE APPROPRIATION LIMIT

The City is required by State law to establish an appropriation limit each fiscal year. Only those revenues received from proceeds of taxes are subject to this limit. This means that only certain revenues from funds such as the General Fund, and Propositions A & C Transportation Funds are subject to the appropriation limit. All other funds that fall under the City Council�s control (i.e., Redevelopment Agency and Enterprise Funds) are exempt from this limitation. The Agency is statutorily exempt and Enterprise Funds receive their funds through service charges, not general taxes.

The City�s FY 2004-05 appropriation limit is estimated to be $121,877,315. The actual amount of the appropriations contained in the budget that is subject to the limit is $89,250,018. The difference between the City�s appropriation limit and the amount subject to it is $32,627,297. As a result, the City has a significant gap between its legal limit and the actual appropriations subject to the limit. The exact figures will be calculated and made available after the Council adopts the budget on June 22, 2004.

Only as recently as the Mid-Year review in February, 2004, staff had projected the year-end deficit would be a staggering $4.5 million for FY 2004-05. This problem, in addition to the State�s budget deficit of $14 billion, provided for a significant challenge for the City.

Currently, the projected deficit, without any balancing intervention, has shrunk to $1.4 million. Key external drivers that contributed to the reduced deficit include healthy growth in revenues that are economically driven, such as Sales Tax and Property Tax. Internal drivers were each department�s conscientious effort in reducing their discretionary budgets, as well as increasing fees, where feasible.

Per Council�s direction at the May 27^th budget study session, it was decided to utilize the BWP UUT In-Lieu set-aside in the amount of $274,457 to close the City�s FY 2004-05 budget gap. The City Council was also in favor of combining the BWP In-Lieu set-aside and budget stabilization reserve funds. In addition, staff was directed to defer the funding of reserves to the close of FY 2003-04 and to consider increasing the TPT rate from 10 percent to 12 percent which generates an additional $330,000 per year, plus recognizing an additional $1,104,000 in UUT and In-Lieu tax reserves, and fund additional positions within the Police Department. However, as has been disclosed to the Council in the Five-Year Financial Forecast, the City is still in a precarious position for the outgoing years and continued prudent fiscal planning is required.

The adoption of the Budget sets the initial appropriations for the new fiscal year. Appropriations have been balanced against estimated revenue and other sources of funding, such as reserves or bond proceeds.

RECOMMENDATION

Staff recommends that the City Council / Redevelopment Agency / Housing Authority / Parking Authority / Youth Endowment Services Fund Board conduct the public hearing on the Proposed Fiscal Year 2004-05 Annual Budget, Citywide Fee Schedule, Transient Parking Tax increase, and Appropriations Limit. Staff will incorporate any City Council direction into the Budget resolutions that will be presented to the Council on June 22, 2004 for final adoption.

Council Agenda - City of Burbank

Tuesday, June 8, 2004