PURPOSE

The purpose of this report is:

1. To present the Proposed Fiscal Year (FY) 2007-08 Annual Budget, Citywide Fee Schedule, and Appropriations Limit to the City Council, Redevelopment Agency, Housing Authority, Parking Authority, Public Financing Authority and Youth Endowment Services Fund Board for public hearing.  The adoption of the FY 2007-08 Budget will be considered by the Council at their June 19, 2007 Council meeting.

2. To present the City Council with the FY 2007-08 Council Goals implementation matrix, request that the City Council verify those items which are not to be included as part of the FY 2007-08 Council Goals and provide any final direction.

BACKGROUND

On March 6, 2007, staff presented the mid-year report to Council.  This report not only advised how the City was operating six months into the year, but also requested adjustments to the current Budget to address expenditures, which had surfaced since its approval in June.  Further, the report previewed some of the key components that were being considered in the development of the FY 2007-08 Budget.

During the last several months, staff has worked towards developing a proposed budget for the upcoming year.  All recommendations made by the City�s Executive Team were incorporated into this year�s budget study session materials.

On May 8, 2007, staff presented a preliminary overview of the Proposed FY 2007-08 budget, along with the five-year forecast.  The Proposed Budget documents were distributed on May 3, 2007 for Council�s review prior to their annual Council Goal Setting Workshop held on May 5, 2007.  During the workshop, each Council Member provided his or her top goals for the upcoming fiscal year.

Budget Study Sessions were held on May 8, May 15, and May 22, 2007.  The purpose of these sessions was to give Council the opportunity to review each department�s budget, and to provide an opportunity for them to ask questions and make modifications to the budget. 

On May 29, 2007, the Council further discussed the goals they presented during the May 5, 2007 workshop, provided clarification and reached consensus on those goals which will be top priority in the coming year.  During this discussion, Council also recommended funding for various goals and discussion paper items.

GENERAL FUND�S FINANCIAL STATUS

After incorporating all the changes recommended by the Council during the Budget Study Sessions, the following summarizes the Proposed General Fund Budget for FY 2007-08.  This summary incorporates the $790,000 of additional items that the Council included as part of overall budget deliberations.  If adopted as is, the current General Fund budget is balanced with a remaining overall projected balance of $286,726 (see Attachment A & B for more detail).

Available Non-Recurring Resources

In addition to the projected available fund balance, below are the available one-time resources as of March 31, 2007 (these are in addition to the City�s prescribed emergency reserves):

• Budget Stabilization Fund                                                                           $653,494

• Released Pension Obligation Bond Interest Reserve Fund                    $820,019

It is important to note that all the remaining UUT/In-lieu Set Aside account, the PERS stabilization fund, and some of the Budget Stabilization fund were used in FY 2006-07 to pay for the General fund portion of the Oracle technology project. This amount totaled just over $2.1 million for the General Fund.

FY 2007-08 Recurring Perspective � General Fund Revenues

For the first nine months of FY 2006-07, the General Fund received $91,460,047 in recurring revenue, which represents 70.4 percent of the revised estimated revenues.  Overall, the City�s recurring revenue estimates for FY 2007-08 have been increased by 6.8 percent over the revised FY 2006-07 estimates as a result of major increases in Sales Tax and Property Tax.  Sales Tax, Property Tax, and the Utility Users Tax continue to be the largest revenue sources, representing 54% of the General Fund�s recurring revenue.

The following table shows the adopted and revised estimate for FY 2006-07, and the projection for FY 2007-08.

GENERAL FUND � SUMMARY OF RECURRING REVENUE

(Note: the numbers indicated below are directly associated with the categories shown in the table above)

The following are brief explanations supporting the revenue estimates mentioned above and are comparing the FY 2007-08 estimate to the revised FY 2006-07 estimate:

1.      Sales Tax � Sales Tax revenues coupled with the Sales Tax Triple Flip In-lieu are the City�s largest revenue source.  The City�s long-term Sales tax revenue prospects remain positive.  Effective January 2008, jet fuel will become taxable at wing-tip (location where fuel is pumped), thus providing the City with additional sales tax revenue.  This will also be the first year that the City will receive a full year�s worth of sales tax produced by the new Home Depot and CarMax.

2.      Property Taxes � A total tax of one percent (1%) is levied on the assessed value of property as determined by the Los Angeles County Assessor.  The City of Burbank receives approximately 18.5% of the property tax levied on Burbank properties outside of redevelopment project areas.  FY 2007-08 Property Tax is expected to grow by 9.3% based on a projected increase in assessed valuation.  Assessed valuation in non-redevelopment areas has grown at a rate of 9% per year over the past two years.

3.      Utility Users Tax (UUT) � The UUT rate of 7% is applied to telephone, gas and electric usage.  Overall, FY 2007-08 UUT revenue is estimated to increase 4.5% due to increases in electric and natural gas retail sales.  It will be important for the City to continue monitoring proposed State and Federal legislation related to UUT as current legislative proposals may threaten this revenue stream to the City. As Internet technology advances, combining phone and video services, the City of Burbank is concerned about the potential for regulatory changes that will restrict the ability to protect the "time, manner and place" of the use of public rights-of-way, as well as their ability to charge fees and taxes to pay for related local services.  It is crucial for any pending legislation not to impact Burbank negatively as UUT is the third largest revenue source to the City's general fund.

4.      Service Charges (Intra City) - The increase in this revenue category from last year is due to increased general services provided by internal service departments to non-general funds and more accurate cost recovery.

5.      Services Charges � The $572,706 increase in this revenue category is due to several factors, including several fee increases for services, ranging from film permits to various planning fees.  These fees are still comparable to our survey cities, and are limited by the state constitution to the cost reasonably borne by the City to provide the services.

6.      Burbank Water & Power (BWP) In Lieu Taxes � This revenue category is projected to increase by $350,430 primarily due to BWP�s expected electric rate increase during the middle of the 2007-08 fiscal year.

7.      Motor Vehicle In Lieu (VLF) �This category is increasing by roughly $375,000 over last year�s estimate.  This category represents revenue derived from vehicle license fees imposed on California motorists for the privilege of operating a motor vehicle on the public highways. 

8.   Sales Tax Triple Flip In-Lieu - Beginning FY 2004-05, the State redirected one-quarter cent of the local Sales Tax to the State to pay deficit retirement bonds (�triple flip�).  In exchange, it fully offsets local government revenue by redirecting a commensurate amount of Property Tax from the Educational Revenue Augmentation Fund (ERAF).  Due to this change in allocation, 25 percent of Burbank�s Sales Tax is segregated into this separate revenue category.

9.      Interest / Use of Money � The $318,564 increase over the FY 2006-07 estimate is a result of the anticipated yield on the City�s portfolio.  The main investment goal is to protect each investment while achieving the highest rate of return.  The City Treasurer�s goal is 4.75%.

10.  Parking/Traffic/Other Fines - There is a modest increase of $47,000 in this revenue category over the FY 2006-07 estimate.

11.  Transient Occupancy Tax (TOT) � As a result of higher occupancy rates due to overall increase in the travel industry, this revenue source is anticipated to increase by 7% in FY 2007-08.  In April 2007, the voters rejected a ballot measure that would have authorized the Council to raise the TOT from 10% to a maximum of 12%.

12.  Building Permits/License Fees � A fee is levied for these permits in order to recover only the costs incurred.  Due to continued construction activity throughout the City and increased fees, staff anticipates a moderate increase over last year. 

13.  Transient Parking Tax (TPT) � This revenue category increased by $106,330 due to increased parking demand at the Airport along with area parking operators raising their parking rates.  The TPT rate is 12%.

14.  Business Taxes � This category slightly decreased by $155,000 to reflect the amount of revenue expected for FY 2007-08.

15.  Franchises � Franchise fees are imposed on various companies using �public rights-of-way� to conduct their business operations.  Such fees include:  5% on cable television gross receipts; 1% fee on natural gas gross receipts; 2% on receipts arising from electricity transmission by private companies; and, 2% on receipts arising from the use of pipelines within the City.  The revenue category is expected to remain relatively flat for FY 2007-08.

16.  Contribution from other Funds � The slight decrease reflects an overall decrease from other funds.  For example, every year, the General Fund receives a contribution from the Gas Tax Fund to offset the costs of staffing engineers and other support personnel for road construction projects.

17.  Intergovernmental Revenues � The modest $177,164 increase in this revenue category is the result of anticipated grants and state mandated program reimbursements.

The pie chart below illustrates the diversity of General Fund revenue, specifically indicating the percentage of each General Fund revenue category.

FY 2007-08 Recurring Perspective � General Fund Appropriations

It is important to note that at the beginning of the budget process, the City was facing a recurring budget deficit position in future years shortly after FY 2007-08.  As a result, the General Fund budget parameters for this year are once again strict. However, for FY 2007-08, departments were not requested to prepare discretionary appropriation reductions.

New Positions/Upgrades:

Just over $767,000 of new positions and upgrades are included in the proposed budget.  Many of these positions are offset by reductions or increased revenue.  Some of the new positions included are a Plan Check Engineer, a Grants & Revenue Manager, a Police Computer Analyst and a Traffic Signal Technician.

Materials, Supplies & Services (M S & S):

A total of over $600,000 is recommended for a variety of operational needs.  This includes such items as additional training monies, funds to offset the increase in postage, funds to enhance the city�s web site and funding to cover the Environment Impact Report (EIR) for the land use element of the General Plan.

Capital Outlay:

General Fund capital outlay requests total approximately $450,000.  This includes funding for permit software for Public Works as part of migrating to a one-stop permit shop and technology items/equipment for the new Community Services Building (CSB).

New Programs:

Only one new program item was requested and included in the proposed budget.  It is a non-recurring cost of $384,805 requested by the Fire Department to run a recruit academy starting in September of 2007.

Discussion Paper Items:

There are six discussion paper items that have been included as part of the proposed budget.  The total financial impact of these items equate to roughly $750,000 for the upcoming fiscal year.  The proposed budget incorporates funding for these items:

1. Historic Properties Survey                                                   $50,000         One-Time

2. Restoring 3 Previously Frozen Firefighter Positions      $165,168[1]     Recurring

3. Increased Restroom Maintenance Service in Parks      $100,000         Recurring

4. Restoring 2 Previously Frozen Police Officer Positions $216,324        Recurring

5. Top to Bottom Review of Police Department                  $150,000         One-Time

6. Air Quality Element                                                                $60,000        One-Time

In addition to these items, the Council agreed to add the following items totaling $790,000:

1. Support implementation of sustainability efforts                   $300,000         One Time

2. Third party traffic review                                                           $250,000         One Time

3. PerformArts Endowment Fund                                                $100,000         One Time

4. Expansion of the Tuttle Center shade structure                       $63,000         One Time

5. Increase in Code Enforcement                                                  $32,000         Recurring

6. Communications (Port. Audio System/Town Hall Mtgs.)        $25,000         One Time

7. Pilot oral history program                                                            $10,000        One Time

8. Diversity training for Boards & Commissions                          $10,000         One Time

Infrastructure Investment Plan for FY 2007-08

As part of last year�s budget process, Council requested that staff update the infrastructure deficit report.  A report was provided and in response to that, Council formed a subcommittee to analyze and prioritize the City�s infrastructure deficit.  The Infrastructure Subcommittee began meeting in August 2006, with subsequent meetings held about every month thereafter.  The committee completed a comprehensive needs assessment of all existing City infrastructure, identified future capital projects, identified available and potential funding sources for specific infrastructure and developed short-term and long-term timeframes for completion of infrastructure projects.

A study session was held on April 17, 2007 that provided an overview of the subcommittee�s work to the full Council.  Direction was provided to continue the efforts of the subcommittee and continue to develop a plan with potential funding sources for each of the various projects. 

Another overview of the developed infrastructure plan along with funding recommendations was provided to the entire Council as part of the budget study sessions.  In addition to those projects already identified in the proposed capital improvement plan, the Council agreed to fund some additional infrastructure projects for FY 2007-08.  Attached is a table that highlights these infrastructure projects in addition to the funding source for each project (see attachment C).

FY 2007-08 Citywide Budget � Resources versus Appropriations

The following chart provides a Citywide snapshot of the resources and appropriations for FY 2007-08:

*Note: Resources represent the total sources available to each fund to cover the current year�s appropriation.  Examples include taxes, fees, charges, sales, interest, and use of fund balance (from bond proceeds, depreciation, and available retained earnings).  All changes by the Council during previous budget deliberations have been incorporated into these figures.

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 Summary of Proposed Fee Schedule Changes is included as Attachment D.

Although there are a number of changes, the following are the more significant fee changes being proposed.

Water Rate:

Burbank Water and Power proposes a 4.8 percent increase for FY 2007-08 which represents an increase of approximately $1.97 to the average residential customer.  This rate increase is requested to replenish stored groundwater credits and to offset Metropolitan Water District (MWD) water rate impacts.

Electric Rate:

Effective January 2008, Burbank Water and Power proposes a 2.5 percent increase to residential customers, which represents an increase of approximately $2 to $3 to the average residential customer.  Even with the rate increase, Burbank�s residential electric rates are competitive with other comparable agencies.  The rate increase is requested to help offset increased fuel costs in addition the costs of acquiring renewable power resources and energy supplies.

Sewer Fee:

The Proposed budget includes a 6 percent rate increase for FY 2007-08. This action follows the Council direction in FY 2006-07 of having a smooth rate plan of 6%, 6%, 6%, 5%, 5% (this is the second year).  For single family dwellings, the monthly rate will increase approximately $1.02 for FY 2007-08.  There is no proposed increase to Lifeline customer rates

Refuse Rate:

The Proposed budget includes a 9 percent rate increase for FY 2007-08.  During the FY 2006-07 budget workshops, staff proposed a 9 percent refuse service rate increase which would have amounted to an increase of about $1.71 to the monthly 64 gallon container fee.  The rate increase was recommended to help the Refuse Fund cover its growing operating costs and comply with legal bond coverage requirements.  The City Council instead directed staff to develop a 5-year �rate smoothing� plan. Council adopted the first year of that plan, which included a Refuse rate increase of 6%.  Unfortunately, that rate increase is not sufficient to offset operating costs, and the Fund is projected to incur an operating loss by the end of FY 2006-07, with deficits projected in each of the following several years as well.   Should those operating deficits occur, the Fund�s ability to also make its required bond debt payments could be in jeopardy.  Staff is recommending that the Council adopt a Refuse rate increase of 9%, which equates to $1.81 per month on a 64 gallon refuse cart.  Lifeline customer rates will remain unchanged.  The increase will help bring the Fund back into fiscal health and also enable the fund to comply with other legal requirements and the City�s Fiscal Policies.

Special Noticing Requirements due to Bighorn-Desert View Water Agency Decision:

In July 2006, the California Supreme Court decided Bighorn-Desert View Water Agency v. Verjil.  This ruling determined that metered rates for consumption of water qualify as "property-related fees" and are subject to the noticing and voting requirements of Proposition 218.  The ruling also applies to sewer service charges and charges for refuse collection where the rate is set by a government agency, as opposed to a privately contracted waste hauler.

Prop. 218 created a category of fees known as "property-related fees."  Basically, such fees may not be imposed or increased unless a local government conducts a public hearing not less than 45 days after mailing a notice to all fee payers.  Staff has complied with this new noticing requirement and is recommending that water, sewer, and refuse fee increases be effective in FY 2007-08.  Attached is a staff report prepared by Burbank Water & Power and Public Works that that provides more detail of the required noticing efforts and the amount of protest votes received (see attachment E).

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 and C Transportation Funds are subject to the appropriation limit. All other funds that fall under the City Council�s control (i.e., Redevelopment Agency, Enterprise Funds and General Fund user fees) are exempt from this limitation.  The Redevelopment Agency is statutorily exempt and Enterprise Funds receive their funds through service charges, not general taxes.

The City�s FY 2007-08 appropriation limit is estimated to be $143,579,990.  The actual amount of the appropriations contained in the budget that is subject to the limit is $105,803,101.  The difference between the City�s appropriation limit and the amount subject to it is $37,776,889.  As a result, the City is well below its appropriations limit.  The exact figures will be calculated and made available after the Council adopts the budget on June 19, 2007.

CITY COUNCIL FY 2007-08 GOALS

As previously mentioned, during the May 5, 2007 annual Goal Setting Workshop, each Council Member provided his or her top ten goals for the upcoming fiscal year.  Following this workshop, at their May 29, 2007 meeting, the Council discussed their individual goals, provided clarification for staff, and reached a consensus on those goals which will be top priority in the coming year.  During this meeting, Council also funded several goal items and discussion papers.  As a follow up to the May 29, 2007 discussion, staff has provided as Attachment F of this report, a matrix which itemizes the implementation of the FY 2007-08 Council goals.  This matrix serves as a kick off point and provides Council with a preview of how staff will carry out the goals.

Staff would like to note that there are several goal items which are not included in the matrix.  These goal items are currently being implemented through various City projects and programs; and many are also included as part of the City�s work program and are proposed to be continued into the 2007-08 fiscal year.  Therefore, staff did not believe it was necessary to include them.  These goal items are:

1. Continuation of the revitalization of the South San Fernando Project Area.

2. Development of Former Zero site on Front Street.

3. Keep eye on Universal Project Plan and impact it will have on Burbank.

4. Reinstate the prior protective measure of the Rancho Master Plan.

5. Retain Burbank�s �Small Town Character.�

6. Continue work in Focus Neighborhoods.

7. Continue efforts around development of Civic Center, including Library, Administrative Services Building, and parking.

8. Begin construction on DeBell Clubhouse.

9. Begin construction of Ovrom Park.

10. Plan for further parking availability in Magnolia Park.

11. Complete pedestrian and street improvements in focus neighborhoods.

12. Continue collaborative efforts with local, regional, state and federal agencies, i.e. ICIS, BUSD, MTA, LADOT.

13. Prepare for replacement of any and all Executive staff.

14. Reassess police services impact fees on new projects, particularly large residential and commercial.

15. Use of family resource centers to promote communication and education.

16. Collaborate with community, organizations and agencies to improve public health awareness, via health initiative that promotes innovative programs.

17. Continued opportunities for youth.

18. Remain vigilant against airport expansion.

19. Foster small business, new business, and start-ups.

20. Promote safe street crossing, pedestrian friendly environment.

21. Maintain a healthy and safe downtown.

Lastly, during the May 29, 2007 meeting, there were a few goal items which Council discussed, but did not designate as goals to be implemented this year.  These items have been provided below and staff requests Council verification that they are not to be included as part of the FY 2007-08 Council Goals.

1. New Redevelopment area named in Ramada Inn Area or other areas if possible.

2. Establish appeal process for home occupations that will have little or no adverse impact on neighborhood.

3. Must be adequate, convenient parking for all new projects, including non-handicapped guest spaces and no compact parking spaces.

4. Must include circulation plans for projects certain (to be determined) size and for all projects involving subterranean or structure parking.

5. Evaluate value of a �communications plan� that established consistency and transparency.

6. Replace project sub-committee meetings with one or more study sessions so that the process of arriving at recommendations and action is more �transparent� so the public, as well as all Council Members, can better understand the basis of any recommendations and participate in a more informed manner.

7. Increase the frequency of reports to the Council and public on the activities of the Noise Working Group.

8. Establish a Burbank �Family Appreciation Day�: bring families, businesses, and civic leaders together to unite the community and celebrate Burbank�s traditional family atmosphere; waive all park and rec fees for the day; free celebration/picnic at Starlight Bowl and/ore other City parks.

FISCAL IMPACT

The adoption of the Budget sets the initial appropriations for the new fiscal year.  For FY 2007-08, total appropriations of $139,534,334 have been balanced against estimated revenue in addition to the use of fund balance.  If adopted as is (including the items added by Council), the overall General Fund budget will be balanced with a projected overall balance of $286,726 at year�s end.  This year�s General Fund budget is roughly 6% larger than the adopted FY 2006-07 budget.

The City�s General Fund forecast has improved over the past several years. Strong revenue growth in addition to discretionary budget reductions over the past four years have helped improve the balance between recurring revenues and recurring expenditures.  The following chart illustrates the current close relationship between revenue and expenditures for the foreseeable future.

Due to the combination of the overall economic climate and the City�s expected costs, the General Fund budget is balanced for FY 2007-08.  Over the next five years, revenues are expected to increase an average of 3.9 percent annually, and costs increasing an average of 4.3 percent.  As a result, the budget gap in year 5 (FY 2011-12) is projected to be $2.898 million.  Staff will continue to update the 5 year financial forecast appropriately and update the Council on a quarterly basis.

RECOMMENDATION

Staff recommends that the City Council, Redevelopment Agency, Housing Authority, Parking Authority, Public Financing Authority, and the Youth Endowment Services Fund Board conduct the public hearing on the Proposed Fiscal Year 2007-08 Annual Budget, Citywide Fee Schedule, and Appropriations Limit.  Staff will incorporate any final City Council direction into the Budget resolutions that will be presented to the Council on June 19, 2007 for final adoption.

Staff also recommends that the City Council review the FY 2007-08 Council Goals implementation matrix,  verify those items which are not to be included as part of the FY 2007-08 Council Goals and provide any final direction.

ATTACHMENTS:

Attachment A               General Fund Budget Matrix

Attachment B               General Fund Five Year Financial Forecast

Attachment C               FY 2007-08 Recommended Investment Plan for Infrastructure

Attachment D               Summary of Fee Schedule Changes

Attachment E                Memo: Notice of Public Hearing on Water, Refuse and Sewer Rates

                                       for FY 2007-08

Attachment F                FY 2007-08 City Council Goals Implementation Matrix

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