Staff Report - April 2, 2002 - Agenda Item

The purpose of this report is to provide the City Council with a review of the City�s financial status as of December 31, 2004, and to request Council approval of mid-year adjustments to the Fiscal Year (FY) 2004-05 approved Budget. The report will also provide relevant detail as it pertains to the development of the City�s FY 2005-06 Budget.

Moreover, this report is intended to provide the City Council with an as accurate as possible picture of how all City Funds are operating six months into the fiscal year based on the original revenue and expenditure estimates. Although it is the intent of this report to review the status of all Funds, the focus is primarily on the General Fund. The middle of the fiscal year is also a good time to ascertain whether any expenditures, outside the realm of the original approved budget, have surfaced which would potentially jeopardize the current budget authority and thus, require legislative action of appropriate budgetary adjustments.

Half way into each fiscal year the Financial Services Department asks each department to review their existing budgetary appropriations to ascertain whether any changes need to be made as a result of unanticipated costs that may have occurred thus far during the fiscal year. As a result of that review conducted during November and December 2004, it was determined that although most departments are able to absorb the majority of unanticipated costs through budgetary savings in other areas, there are still some expenditures that will cause several departments to be in jeopardy of overspending their budgets.

In addition to the mid-year budget review identifying whether any unanticipated costs may have occurred, it also provides the opportunity to look at where the City�s overall expenditures and revenues fall based on the current year projections. This review of the City�s overall financial status is particularly important this fiscal year knowing that FY 2005-06 will be the final year that the State can divert the City�s and Redevelopment Agency�s Educational Revenue Augmentation Fund (ERAF) revenue based on the agreement reached between the State and local government. Also, due the passage of Proposition 1A, the State cannot take back any sales tax, property tax, or vehicle license fees from local governments, unless a true fiscal emergency exists.

The City has recently closed the second quarter of FY 2004-05. Based on the results of the fiscal year-to-date, the following is a recap of the General Fund for FY 2004-05, including the recommended mid-year adjustments.

For the first six months of the fiscal year, the General Fund received $44,439,005 in revenue, which represents 38.5 percent of the adjusted estimated revenues. For perspective, last year�s six-month report showed the City receiving 41.2 percent of its estimated revenues, or $44,807,473. The percentage of revenue collected declined due to the cashflow impact of State budget issues such as the �triple flip,� the vehicle license fee (VLF), and the ERAF III payment to the State. Overall, the City�s revised recurring revenue estimates for FY 2004-05 have been increased by $2,192,510 over original estimates as a result of major increases in the following categories: Sales Tax, Transient Occupancy Tax, Building Permits/License Fees, and Transient Parking Tax. Although on a percent increase basis, Property Tax only increased 1.4 percent over our original projections, this increase equates to nearly $300,000 in revenue. The increases were offset in part to declines in Service Charges and In Lieu Tax revenue.

It is also worth mentioning that the current Sales Tax information is for receipts collected for the first four months of the fiscal year. Due to the way in which Sales Tax dollars are reported and distributed from the State to local governments, there is typically a two to three month lag. Thus, it is possible that the City�s Sales Tax revenues could further grow throughout the remainder of this fiscal year because the impact of the holiday shopping season has not yet been fully realized.

As a result of the aforementioned issues coupled with the actual revenues received to date, staff is recommending adjustments to certain revenue categories delineated in the following table.

(Note: the numbers indicated below are directly associated with the categories shown in Table 1 above).

The following are brief explanations supporting the revenue adjustments mentioned above:

1. Sales Tax � Sales Tax revenues are the City�s largest revenue source. As a result of exceeding projections from last fiscal year, the revenue estimate for FY 2004-05 has been increased by $950,750. The revised sales tax estimate reflects the impact of final amounts received for the calendar second quarter clean-up payment received in September impacted by the 25 percent �triple flip� allocation. In addition, the amount of $6,195,272 (Item No. 8) has been segregated into a separate account, �ERAF Sales Tax Shift� due to the State�s �triple flip.� The City collected 50 percent of this amount in January.

2. Property Taxes � The City�s Property Tax revised revenue estimate reflects an increase in supplemental property tax revenues and a 5.6 percent increase in the City�s FY 2004-05 Assessed Valuations resulting in a net increase of $296,684.

3. Utility Users Tax � There is a modest increase of $67,850 in this revenue category from the original estimate due mostly to increased natural gas prices, offset in part due to lower than expected electricity usage during the summer months.

4. Service Charges (Intra City) - The decrease of $145,010 in this revenue category from the original estimate is due mostly to a smaller recovery from Workers Compensation.

5. Services Charges � The $521,540 decrease in this revenue category is due to several factors, including decreases in the Police Department�s weekend prisoner program, Police false alarm response revenue, and miscellaneous revenue. The largest reduction is for less than expected Emergency Medical Services billing receipts.

6. BWP In Lieu Taxes� This revenue category decreased by $346,680 primarily due to re-estimating revenues relating to a reduction in revenues received so far this fiscal year.

7. Motor Vehicle In Lieu � The $87,784 increase over the original revenue estimate is due to a revised estimate by the State Controller�s Office becoming available.

8. ERAF Sales Tax Shift - Beginning FY 2004-05, the State redirects one-quarter cent of the local Sales Tax to the State to pay deficit retirement bonds (�triple flip�). In exchange, it will fully offset local government revenue by redirecting a commensurate amount of Property Tax from the ERAF. Due to this change in allocation, 25 percent of Burbank�s prior year�s Sales Tax has been segregated into this separate revenue account. The original estimate was $6,050,000 but has been increased to $6,195,272 (increase of $145,272) due to a recently released computation by the State of California Department of Finance.

9. Interest / Use of Money � The $58,109 increase over the original estimate relates to amounts recovered for property damage and finance charges received this fiscal year, offset by decreases in the Animal Shelter�s sale of animals, Tennis Center and Roller Hockey rental accounts, and senior donations.

10. Parking/Traffic/Other Fines - There is no change in this revenue category from the original estimate.

11. Transient Occupancy Tax � The revenue estimate was increased by $220,300 to reflect the FY 2003-04 actual receipts combined with the impact of revenues received through December 2004.

12. Building Permits/License Fees � This category increased by $197,133 due to increased building activity.

13. Transient Parking Tax � This revenue category increased by $465,008 due to the combination of Council approving a 1 percent increase in the tax rate from 10 percent to 11 percent, and the Airport area parking operators raising their parking rates.

14. Business Taxes � This category increased by $28,000 to reflect FY 2003-04 actual results.

15. Franchises � The increase of $23,335 in this revenue estimate reflects the increase in franchise tax revenues expected to be received from the Southern California Gas Company offset slightly by a decrease in cable franchise revenue.

16. Contribution from other Funds � The $37,000 increase reflects a recalculation of the expected West Olive AB1290 payment to the City.

17. Intergovernmental Revenues � The $21,415 increase in this revenue category is the result of the booking fee reimbursement being restored by the State, an increase in the Literacy grant and Stough Canyon maintenance, offset by a small additional decrease in the State�s Public Library Fund grant.

The following chart highlights the top three General Fund revenue categories, Sales Tax, Property Tax and Utility Users Tax (UUT) and illustrates the final FY 2003-04 revenue to the original revenue estimates for FY 2003-04 and the revised projected estimates for FY 2004-05.

*Note: The Sales Tax graph includes the segregated $6.2 million for FY 2004-05 which is part of the ERAF Sales Tax Shift under the �triple flip.�

The next chart focuses attention on the Transient Occupancy Tax and the Transient Parking Tax by comparing revenues for the same time periods � final for FY 2003-04; the original projected for FY 2004-05; and the revised projected estimate for FY 2004-05.

General Fund Appropriations Perspective:

With the exception of the requested mid-year adjustments detailed in this report, 49.1 percent of the appropriations have been expended as of December 31, 2004. For perspective, the mid-year expenditures for FY 2003-04 represented 48.6 percent of the recurring appropriations, or .5 percent lower than this fiscal year. It should be kept in mind that maintaining the less than 50 percent expenditure level was more difficult this year than last, since this year�s discretionary departmental budgets were reduced by 2 to 4 percent from last year.

The majority of the requested mid-year adjustments are either related to: higher than expected program costs, or capital outlay resulting from various projects that are in progress. The aggregate general fund requests are substantially higher (mostly due to the $3 million requested for year one of the Central Library ramp-up and the $1,000,000 for infrastructure replacement) than those requested last year: $5,355,303 (recurring is $124,970) versus $2,740,453 (recurring was $990,785); Non-General Fund - $2,298,752 (recurring is $315,652) versus $2,127,839 (all was non-recurring).

The City is heading into the 2005-06 fiscal year with a projected year-end available fund balance of $2,222,410. More importantly due to continued increased costs for the Public Employee Retirement System (PERS), projected increases in negotiated salaries and benefits, and the anticipated State Budget impacts (FY 2005-06 is year two of a two-year agreement with the State allowing it to divert revenue), the City continues to face serious budget challenges over the next several fiscal years.

The following table highlights the recurring component of the General Fund budget as of December 31, 2004, by department or category.

In addition to the General Fund, below is a brief summary of all the Non-General Funds.

Special Revenue Funds:

Special Revenue Funds refer to twelve governmental funds that receive dedicated revenues that can only be spent on dedicated projects, such as grant revenue for Community Development Block Grant or Housing. In many cases, especially with grants, the City must spend the money on the project first, and then bill the grantor agency, so that revenues lag behind expenses.

A review of the twelve special revenue funds show that revenue and expenditures are tracking closely to each other: Realized revenue: 26.3 percent; Realized expenditures: 28.7 percent.

Internal Service Funds:

Internal Service Funds are used to generate resources to pay for a variety of services that could, theoretically, be provided in the private sector. The City also uses internal service funds to set money aside in a prudent way to provide for replacement of capital assets in the future. These funds receive revenues by charging other funds and departments for services or from appropriated transfers.

Revenues and expenses in the Internal Service Funds are as expected with revenues tracking about 46 percent of projected, and expenses tracking at 20 percent. The Funds continue to be monitored for changes that may impact future budgets. Cashflows are currently in the process of being developed for FY 2005-06 to determine the need to increase rental rates.

Redevelopment Agency:

The Redevelopment Agency has four capital projects funds for each of the project areas, four debt service funds for the project areas and the 20 percent housing set-aside obligation. Revenue comes primarily from property taxes and interest. Revenue in the housing set-aside funds is derived from contributions from other funds. Expenditures in the capital projects area vary depending on project area activity. Debt service expenditures are more predictable as the primary expenses for principal and interest have specific payment dates as per bond covenants. Revenues and expenditures are as anticipated.

Housing Authority:

The Housing Authority revenues and expenditures are pursuant to federal government regulations and are performing as anticipated as of December 2004.

The Parking Authority is responsible for the debt service and maintenance of City-owned parking facilities (structures and lots), as well as construction of new facilities. The Parking Authority has two funds, a capital projects fund and a debt service fund, and revenues and expenditures are on track for this fiscal year.

Enterprise Funds are established to account for City operations that are financed and operated in a manner similar to private business enterprises and include the Water Reclamation and Sewer Fund, Golf Fund, Refuse Collection and Disposal Fund, all of which are performing as anticipated for this time of year.

Staff is currently in the process of reviewing the Sewer Fund�s cash flow and predicts that ongoing operational expenditures will exceed revenues due to the National Pollution Discharge Elimination System (NPDES) permit requirements. These requirements increase operational and maintenance costs needed to run the Burbank plant (next permit is scheduled for renewal July 2005) as well as the Los Angeles Hyperion contract.

Staff is also in the process of evaluating the cash flows for the Refuse and Golf Funds. However, a preliminary review that both are operating as expected for this time of year.

Fiscal-year-to-date retail electric sales were 602,530 MWh, compared to the budget of 607,244 MWh. Fiscal-year-to-date retail electric revenues were $71,751,000, compared to the budget of $73,779,000. The lower than expected MWh sales and revenues are primarily attributable to cooler than normal weather. Fiscal-year-to-date operating expenses were $54,100,000, compared to the budget of $58,890,000. The lower operating expenses are due to lower than budgeted power supply expenses. The Electric Fund�s fiscal-year-to-date Change in Net Assets (Net income) of $17,357,000 exceeded budgeted net income of $13,394,000 by $3,963,000.

Fiscal-year-to-date potable water sales were 5,099,535 CCF, compared to a budget of 5,179,415 CCF. Fiscal-year-to-date potable water revenues were $7,951,000, compared to the budget of $8,810,000. Fiscal-year-to-date potable water sales and revenues were also impacted by cooler than normal weather. Water Fund operating expenses of $7,406,000 were lower than the budget of $7,887,000. The Water Fund�s fiscal-year-to-date Change in Net Assets (Net income) of $2,069,000 was $790,000 higher than the budget of $1,279,000.

As was previously discussed, each department was asked to identify any necessary adjustments to their budgets as a result of changed circumstances that are beyond their control and budget authority. Each of the requested adjustments (both appropriations and revenues) is delineated in detail by department and found in Attachment C.

Unexpected and On-Going City Program Costs � (Total requested: $5,355,303)

An additional $15,600 is requested by the City Clerk�s office to cover the outside printing costs for the Candidate Statements for the upcoming February and April 2005 elections.

Community Development Department � Special Departmental Supplies (recurring)

A user audit by Information Technology conducted in November, 2004, resulted in an increase in user licenses and maintenance fees. Accela, the licensor of PermitsPlus permitting software, set their minimum upgrade at 10 licenses (currently, CDD has 3 licenses). The requested amount of $32,300 will cover: 1 license pack for 10 users = $26,125; sales tax for licenses @ 8.25% = $2,155.31; annual maintenance for 10 licenses, pro-rated for 6 months ($609.58/month) = $3,657.48; sales tax on maintenance @ 8.25% = $301.74. Although the maintenance fees can be prorated for 6 months (1/1/05 � 6/30/05), the licenses cannot.

An additional $3,000 is requested by the Fire Department to cover the additional costs for Interagency Communications Interoperability System (ICIS) participation. (Police and Fire split the cost 80/20.)

Fire Department � Special Departmental Supplies � Training (non-recurring)

In order to cover additional polygraph screening exams for firefighter recruit background checks, $7,766 is requested by the Fire Department.

The Library Services Department is requesting an increase of $4,967 in their Literacy Services account as a result of receiving more from the State than the estimated amount of $38,412 in their Literacy Grant revenue account.

Management Services is responsible for safety shoes which are required by MOU provisions, and the budget had not been increased since 1999 ($3,500). Since then, the budget has not been able to keep up with actual cost increases. In order to comply with MOU and Cal OSHA provisions, an $11,000 increase is requested (FY 2004-05 budget is $75,000).

� The amount of $3 million is requested from the UUT & In Lieu Set Aside account to cover the first year of ramp-up for the new Central Library. This amount will be transferred to a holding account, with the goal of adding $1 million annually over the next few years from year end budget savings.

� The amount of $1 million is requested for the infrastructure replacement reserve. The goal is to fund $1 million per year out of budget savings which would be used for any necessary infrastructure improvements.

� An additional $84,000 is requested to mitigate traffic at the Animal Shelter. The original estimate was $10,000 (approved by Council March 2, 2004). With the planned design, the construction and landscaping cost is $114,000. Funds of $30,000 are currently available in the project (construction work on the animal shelter is complete). The project consists of modifying the existing Animal Shelter driveway located at 1150 Victory Place, and provides new landscaping along its frontage. The existing driveway which has two-way traffic will be modified to receive only one in-bound traffic off of Victory Place, and a new ramp will be provided in the north bound direction. The new ramp will merge onto Victory Place where the roadway is already wider and becomes the second north bound lane.

� An additional $4,770 is needed to pay for annual Local Agency Formation Commission (LAFCO) costs. Each city�s obligation is based on each city�s total revenues relative to total revenues for all cities within Los Angeles County.

� The amount of $250,000 is requested to fund counseling programs for high schools and middle schools, and other teen-related programs, including �Teens in Action,� as recommended by the Mayor�s Youth Task Force. The $250,000 will be placed into a holding account and will only be released by City Council approval.

Park, Recreation and Community Services - Contract Services � Olive Recreation Center (recurring; revenue offset)

An additional $15,000 is requested to pay contract instructors. Cost will be revenue offset from increased volume of class registration fees paid by class participants.

An additional $12,000 is requested by the Police Department to cover the additional costs for Interagency Communications Interoperability System (ICIS) participation. (Police and Fire split the cost 80/20.)

Police Department � Safety Suite Software and Hardware (non-recurring with some recurring impact)

The amount of $868,000 is requested for the purchase of the Police safety suite of software and hardware. This project incorporates the upgrade/replacement of the existing Police Records System with a Windows� suite of products, designed to provide public safety agencies with the ability to collect, manage, share and effectively use critical information including: Computer Aided Dispatch Software, Records Management System, Mobile Applications, and Field Based Reporting with Automatic Vehicle Location. The total cost of $1.5 million will be split with Fund 533 (which is contributing $632,000).

The Police Department is requesting $46,900 from deposits collected in account ND000.21002 (spay /neuter) to cover costs of veterinarian services for spaying and neutering of shelter animals. Currently, there is $26,901 in the account with the additional $19,999 expected to be collected from January 2005 through June 2005.

Unexpected and On-Going City Program Costs � (Total Requested: $2,181,752)

Proposition A� Transportation Fund (Fund104) � For implementing Burbank Local Transit (BLT) Phase I and II as recommended by the Transit Services Task Force, an additional $80,000 is requested.

City Centre Debt Service Fund (Fund 202) � An additional appropriation of $295,652 is needed to cover the second installment of the Mall rebate check, payable to Burbank Mall Associates, LLC Property and Sales Tax Rebate.

City Centre Redevelopment Project Area (Fund 302) � Additional funding of $12,000 is needed to pay for traffic engineering services for the Downtown Parking Management Plan.

Low/Moderate Housing (Fund 305) � An additional $75,000 is needed to pay for the costs associated with professional services for the litigation on the Peyton/Grismer Project.

Refuse Collection & Disposal Fund (Fund 498) � An additional $20,000 is needed for the landscape maintenance contract at the Recycle Center which had previously been included in the Landfill budget but was not budgeted for FY 2004-05.

Office Equipment Replacement Fund (Fund 533) � The amount of $1.5 million (the General Fund is contributing $668,000 for a net cost of $662,000) is requested for the previously mentioned Police safety suite, and $25,500 is requested to replace the ceramics kiln for Park, Recreation and Community Services.

Municipal Building Replacement Fund (Fund 534) - An additional $120,000 is requested from this fund to reimburse the contingency budget for funds used on the old Fire Station #13 re-roofing and rehabilitation project.

Computer Equipment Replacement Fund (Fund 537) � The amount of $53,600 is requested to replace all 43 remaining old clone PC�s at the Northwest and Central Libraries.

The following is the total amount of the adjustments requested by each Fund: (Please look at Attachment C for a detailed description of each individual request by Fund).

This section of the memo will discuss the Five-Year Financial Forecast based on information obtained subsequent to the development of the FY 2004-05 Adopted Budget. The intended purpose of the financial forecast is to gain an understanding of the long-term financial trends. This long-term perspective will allow the City to make informed financial decisions today while fully understanding the future financial impacts of these decisions.

Forecasted revenues are driven by the parameters included within Attachment B. These assumptions are inherently conservative; however, there is a risk that certain revenues may be over estimated due to economic cycles, events such as a September 11^th tragedy and state budget impacts. Projected revenues are updated throughout the budget development process as new information becomes available.

At this point, it is staff�s expectation that based on current trends, the total recurring revenue growth for FY 2004-05 through FY 2008-09 will average 3.11 percent versus an average recurring expenditure growth of 4.14 percent. The revenue growth includes the projected increase in Sales Tax^{^[1]} (average of 2.8%), Property Tax (5.6 percent growth rate for FY 2004-05 and 5 percent thereafter), TOT (3.6% for FY 2004-05 and 2.5% thereafter), TPT (41.6 percent for FY 2004-05 and 3.3% thereafter) and UUT (.2% for FY 2004-05, -.9 for FY 2005-06, then decreasing by 1.6% thereafter due to electric rate reductions).

The projected composite growth in miscellaneous employees� salaries and benefits is Staff�s current estimate to reach market-based salaries over a three year period. 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 continue to pay market based salaries and benefits.

MS&S appropriations are assumed to increase at 2.5 percent per year, which is the anticipated CPI increase. MS&S appropriations include the Internal Service Funds rental rates (except for Worker�s Compensation).

Like many agencies, the City has been experiencing increasing Public Employees Retirement System (PERS) costs due to investment losses and increasing benefits. For the FY 2005-06 actuarial, PERS changed several important actuarial assumptions. PERS decreased its assumed investment return rate from 8.25 percent to 7.75 percent. This actuarial assumption change has the impact of increasing employer contributions to compensate for lower investment earnings. This assumption change greatly impacted the Miscellaneous Plan. Another key actuarial assumption change relates to the assumption that safety employees would retire when they reach the 90 percent cap on benefits. PERS now assumes that safety employees work beyond the date the cap is reached which has the impact of reducing employer contributions on an annual basis. This key actuarial change combined with the positive impact of the Pension Obligation Bonds (POB) greatly reduces the FY 2005-06 PERS rates related to the Police and Fire plans. A comparison of the FY 2004-05 PERS rates (prior to the impact of the POB) versus the rates for FY 2005-06 follows:

The net result of the above FY 2005-06 PERS rates improves the five-year financial forecast from prior forecasts. Staff recommends that the budgetary PERS rate for any group be no less than the normal cost. As a result, the attached forecast assumes a Fire PERS rate of 13.515 percent. The savings will be placed in the PERS Stabilization Fund and will be used when the actual PERS rate is above the normal cost rate. The budgetary impact of the FY 2005-06 PERS rates represents an increase in General Fund appropriations of $1,316,000 over FY 2004-05.

The following chart shows the projected PERS rates included in the Five-Year Financial Forecast through FY 2009-10:

In June 2004, the City issued POB to fully pay the Unfunded Accrued Actuarial Liability of the Police and Fire PERS plan as of the last actuarial valuation date. The POB greatly reduced the PERS rate. For budgetary purposes, staff assumed an annual net savings of $519,200. Any savings in excess above this amount will be used to pay additional principle of the POB. Staff anticipates that for FY 2004-05 an additional $120,000 will be available for principle reduction. The anticipated net savings related to issuing a variable rate POB compared to a fixed rate POB is $623,000.

Another side benefit of issuing the POB in June 2004 was the advantage of participating in the PERS asset return of 16.7 percent for FY 2003-04. The benefit of this return will start to be reflected by PERS for the FY 2006-07 actuarial valuations.

The FY 2003-04 adopted Budget includes frozen positions from the past two fiscal years. The Forecast assumes that these frozen positions will continue throughout the forecast. One of the long range budget balancing plan strategies available that could be used to reinstate frozen safety positions ($733,650) is to increase the TPT tax to 12 percent from its current level of 11 percent and/or to increase the TOT to 12 percent from its current level of 10 percent. In order to give Council the ability to raise the TOT, it would have to be first approved by Burbank voters in the 2007 election (Council had elected not to pursue this avenue for the April 2005 election). However, the voters have already given Council the authority to raise the TPT up to 12 percent (Council did approve raising the TPT rate from 10 percent to 11 percent during the budget adoption process in June 2004). The projected annual revenue increase from the additional 1 percent increase of the TPT would be approximately $230,000; the projected annual revenue increase from the additional 2 percent increase in the TOT would be approximately $900,000.

The estimated staffing levels for the new Central Library is projected to add $297,000 to the Library�s annual budget beginning in FY 2007-08, $594,000 in FY 2008-09, and $890,000 for FY 2009-10. In accordance with past practice, we will ramp-up the General Fund budget over a three year period to be prepared for this increase in appropriations. In addition, if approved by Council at Mid-Year, $3 million will be transferred to a holding account from the UUT & In Lieu Set Aside account with the goal of adding $1 million per year to cover the cost of construction of the new Central Library. Also, in FY 2007-08, a one-time appropriation of $685,000 has been included to open the anticipated Central Library.

Beginning in FY 2004-05, $1 million annually is expected to be put into an infrastructure replacement reserve account. The goal is to fund $1 million per year out of excess budget savings, if available.

The forecast also includes a $125,000 annual appropriation through FY 2006-07 for angled parking in Magnolia Park.

It is important to note the City projects a recurring budget deficit position over the next several years due to the significant increase in our recurring costs, especially the PERS rates, and negotiated salaries and benefits. As a result, the General Fund budget parameters for this year are once again strict.

Similar to last year, no new positions or upgrades will be accepted unless they are revenue offset, or operationally necessary.

The positions that were frozen in the FY 2003-04 and FY 2004-05 Budgets will remain frozen. This equates to an annual savings of approximately $2 million.

There will be no allowable increase in M S & S. Any exceptions must be beyond the Departments control.

No new requests for capital outlay will be allowed unless approved by the Executive Team.

For FY 2005-06, departments have been requested to present discretionary appropriation reductions of 1 percent. An item worth mentioning is that in past years, revenue increases, either through fee

increases or through volume, could be used towards a department�s reduction. However, the Executive team will be carefully scrutinizing using revenue as part of any allowed reductions and will review all cost reductions. It is the intent of the Executive Team to use the PERS Stabilization Fund to balance the FY 2004-05 recurring budget.

The Governor released his FY 2005-06 proposed State budget on January 10, 2005. As mandated in the passage of Proposition 1A in November 2004, local governments� property tax, sales tax, and vehicle license fees were not further impacted beyond FY 2004-05 levels. Also, under the agreement reached between the State Legislature and local government, there were no changes in the Educational Revenue Augmentation Fund (ERAF). Local government will once again contribute $1.3 billion in ERAF shifts to help solve the state budget. Burbank�s ERAF contribution for FY 2005-06 is expected to remain at FY 2004-05 levels ($1,850,941) and Burbank�s Redevelopment Agency�s contribution remains at $2,477,336. Starting FY 2006-07, there will be no further contributions from local government to the State, unless a fiscal emergency exists, wherein the State may borrow money from local governments.

The agreement also provided that the State start reimbursing local governments their administrative costs for State mandated programs. Burbank should start to see a portion of the estimated costs reimbursed for FY 2005-06. By March 15, 2005, payment is expected for the Animal Adoption mandate in the amount of $30,000 to $40,000. It is uncertain as to when Burbank can expect to see the balance of its outstanding claims reimbursed, currently totaling $644,420 (up through and including claims submitted for FY 2003-04).

The other funding areas not covered under Proposition 1A that affect local government are booking fees (no funding provided), California Organization of Police and Sheriffs (COPS) (maintained at FY 2004-05 levels), and Public Library Foundation (PLF) (reduced by 15.3 percent). The only net change in staff�s FY 2005-06 projection is to the PLF, reducing it from $41,895 to $35,485, or a $6,410 reduction.

As noted above, Burbank�s Redevelopment Agency�s contribution remains at FY 2004-05 levels ($2,477,336) due to the passage of Proposition 1A.

It should be mentioned again that FY 2005-06 is the final year that the State can take ERAF funds from both the City and the Redevelopment Agency, unless a State fiscal state of emergency is declared.

While we are in the process of contemplating an upcoming difficult budget process, it is important to keep in mind that the City�s forecast for the next several fiscal years only gets worse, primarily caused by projected increased PERS rates and negotiated salaries and benefits.

Although staff plans to provide the Council with a more descriptive five-year forecast throughout this year�s budget process, the following chart will serve to highlight the difficult challenge the City will be facing over the next several years. Clearly, the structural imbalance between recurring revenues and expenditures needs to be addressed.

Knowing that there is a projected deficit, staff has developed a long range budget balancing plan incorporating several of the revenue enhancements mentioned previously. The plan also looks at reducing General Fund appropriations by one percent in FY 2005-06 to lessen the impact of the budget crisis on the City. It is possible to utilize the PERS Stabilization Fund and/or the Budget Stabilization Fund to help balance the budget over the next three years; however, additional revenues and/or further budget reductions will be needed to balance the last two years of the forecast.

In addition to the undesignated projected fund balance for June 30, 2005, the following is a breakdown of the estimated available balance for non-recurring sources.

Utility Users Tax (UUT) & In Lieu Set Aside (estimated for 6/30/05) $1,200,000

The UUT & In Lieu set aside funds are a result of electric rate increases and are intended for one-time projects or to be set aside as a reserve to mitigate any future decline in UUT or In Lieu revenues.

In FY 2003-04, the State failed to make three months of VLF backfill payments to cities and counties resulting in a VLF funding gap. The State has agreed to make these VLF gap loan payments to cities and counties by August 15, 2006. The State owes the City $1,771,985. Under SB 1096, the California Communities Gap Loan enables local agencies to sell their VLF receivable to California Communities for an upfront fixed price between 92-96% of their receivable. Assuming a conservative 92% sale price, the City would receive $1,630,226 from the amount owed by the State. At the February 15, 2005 meeting, staff will be presenting the sale documents for approval and recommend that the net sale proceeds be included as part of the Community Services Building Project.

The current balance in the capital projects contingency account in Fund 370 is $3,928,292. This account is designed to offset any shortfalls related to capital projects.

Another source of one-time funding is from interest earned on bond proceeds in Fund 370 (Capital Projects). As of December 31, 2004, the City has earned a total of $742,874 in bond proceeds that are available for capital projects such as the Community Services Building.

At the January 14^th meeting, the Council was presented with a comprehensive list of Capital Projects throughout the City (Attachment D). This list, referred to as the �Dream� List, describes what the project is, the cost estimate, funding status, funding sources, start date estimates for design and construction, and who the lead department is for the project. The list was provided in response to Council�s desire to review projects that could use one-time funding for available non-recurring resources. The aforementioned list of all non-recurring resources outlines the funding currently available.

In addition to various capital projects, $250,000 is recommended to be set-aside and placed in a holding account for the Mayor�s Youth Task Force. The purpose of the Mayor�s Youth Task Force is to research and evaluate youth programs that address the needs of Burbank youth. Several programs have been forwarded to City Council for funding and approval. Examples of previous programs recommended by the Mayor�s Youth Task Force and approved by City Council are PeaceBuilders, Got Wheels!, Youth Employment, Middle School Grant Program, Teens in Action Communication Media, and Teens in Action Police Youth Relations Committee. The goal of these funds would be to focus on the youth counseling programs in addition to the Teens in Action Communication Media program.

Staff recommends setting aside $3 million using a combination of undesignated projected fund balance and UUT In Lieu set-aside funds for FY04-05 to begin ramping up monies for a new Central Library. Following the initial set aside of $3 million, it is the intent to ramp up $1 million per year each year by using excess year-end budget savings.

This project incorporates the upgrade/replacement of the existing Police Records System with a Windows� suite of products, designed to provide public safety agencies with the ability to collect, manage, share and effectively use critical information including: Computer Aided Dispatch Software, Records Management System, Mobile Applications, and Field Based Reporting with Automatic Vehicle Location. The estimated project cost is $1.5 million. Costs include hardware, software, licenses, implementation services, support and training. $632,000 is currently available in Fund 533, and staff has included $868,000 in the Mid-Year request as a contribution from the General Fund.

The goal is to fund $1 million per year out of excess budget savings, if available, over the next five years, which would be used for any necessary infrastructure improvements.

The City is heading to FY 2005-06 with a projected balance of $2,222,410. Due to the passage of Proposition 1A, Burbank is in a position to better project and retain revenue due to the inability of the State to divert Sales, Property and VLF revenue. Future years are always uncertain, but compared to this time last year, the City was projecting a budget gap of $9.7 million in year 5 (FY 2008-09). In contrast, the gap has decreased to less than half, or to $4 million for FY 2008-09. Revenues are expected to increase an average of 3 percent, and costs an average of 4 percent. The five year budget gap average this time last year was $8 million versus $2.1 million at this point in time, therefore, our five year outlook has improved dramatically. In the meantime, staff is preparing plans to assist in the balancing of future fiscal year budgets.

If approved, the requested mid-year adjustments for the General Fund will have a total impact of $5,355,303 (net of revenue is $5,288,436) less $3 million funded by UUT & In Lieu Set-Aside account for the Central Library ramp-up. Also, included in this figure is $1 million for the new infrastructure reserve fund. There will also be an impact to the Non-General Funds of $2,181,752 (net of revenue is $1,313,752). The total fiscal impact Citywide is $7,537,055 (net of revenue is $6,602,188).

It is recommended that the City Council approve the proposed resolution requesting mid-year adjustments to the Fiscal Year 2004-05 Budget.

Attachment C (List of Requested Mid-Year Appropriations and Revenue Adjustments)

^{^[1]} We have estimated future growth at 2.5 percent, or the same as the assumed Consumer Price Index (CPI) growth of 2.5 percent. Beginning in FY 2004-05, however, 25 percent of the prior year�s estimated sales tax amount has been shifted to the State and replaced by an ERAF shift back to the City (�triple flip�). The Forecast assumes that the City will be made whole by the State related to the 25 percent sales tax shift. In both FY 2005-06 and FY 2006-07, the sales tax increase is presumed to be 3.4 percent annually over the prior year due to the opening of a new Home Depot, then reverting to 2.5 percent in FY 2007-08 and future years.

^{^[2]}Actual rate is 12.193%

^{^[3]}Payment sunsets July 1, 2005.

BURBANK REDEVELOPMENT AGENCY

Tuesday, February 15, 2005

General Fund Appropriations Perspective:

Special Revenue Funds:

Internal Service Funds:

Redevelopment Agency:

Housing Authority: