PURPOSE:

The purpose of this report is to provide the City Council with a review of the City�s financial status as of December 31, 2003, and to request Council approval of mid-year adjustments to the Fiscal Year (FY) 2003-04 Budget.  The report will also provide relevant detail as it pertains to the development of the City�s FY 2004-05 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.

BACKGROUND:

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 2003, 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 due to the potential financial impact of the State Budget crisis.

GENERAL FUND�S FINANCIAL STATUS:

The following is provides a summary of the FY 2003-04 which includes the impact of re-estimated revenues and the proposed mid-year adjustments.

FY 2003-04 Recurring Perspective � General Fund Revenues

For the first six months of the fiscal year, the General Fund received $44,807,473 in revenue, which represents 41.2 percent of the adjusted estimated revenues.  For perspective, it is worth noting that at the prior year six-month report, the City had received the same 41 percent of its estimated revenues. Overall, the City�s revised recurring revenue estimates for FY 2003-04 have been decreased by $177,398 over original estimates as a result of major losses in two important categories: Interest and Motor Vehicle In-Lieu Fees. The decrease was not as high as it might have been due to the fact that the City�s Sales Tax, Utility Users Tax, Transient Occupancy Tax (TOT) and Building Permit Fees have realized moderate increases over the original projections, which has offset the total realized decrease in revenues.

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 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 table on the next page.  (Please note that a brief description of the changes to each category follows the table.)

Table 1-General Fund Recurring Revenues

(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.  Based on strong receipts growth of 6.8 percent from July through December 2003 over the same period last year, revenues have been revised upward by 5.9 percent, driven in large part by sales related to the Burbank Empire Center.

2.         Property Taxes � The City�s Property Tax revenues have been revised upward by 1.4% over the original estimate based the City�s growth in assessed valuation related to the 2003-04 Fiscal Year.  Overall, property tax is expected to increase by 5.3% over the 2002-03 Fiscal Year.

3.         Utility Users Tax (UUT) � This revenue category has been revised upward by 3.7% driven by natural gas and electricity sales as well as 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.  Actual Mega Watt hours (MWh) sold through December 31, 2003 versus December 31, 2002 increased by 5.41 percent from the prior year.  Natural gas procurement prices are up 23% compared to last year; and effective January 2004, the Gas Company will increase the procurement component of the gas rate by 23%.

4.         Service Charges (Intra City)  � The revenue estimate has been reduced downwards by 3.7 percent due primarily to the following decreases:  Housing Section 8 Vouchers $174,505, Workers Compensation Fund Recovery $100,000, and a decrease of $204,000 in the Supplemental Law Enforcement Department of Justice Grants.

5.         Services Charges � The $322,988 increase is a combination of numerous increases and decreases in various accounts but are driven mainly by an increase of $200,000 in plan check fees.  An additional $70,500 is projected for site plan review fees, building permits, grading/electrical/plumbing/mechanical plan checks.

6.         Burbank Water & Power In-Lieu  - This revenue category has also been upgraded by $220,840 due to increased demand.

7.         Motor Vehicle In-Lieu � One of the most widely publicized and politicized revenue categories, the estimate has been downgraded from $6,160,050 to $4,170,622 (32.3 percent, or nearly $2 million) due to the loss of the State�s backfill during the period July through November.  Although commencing in October 2003, vehicle owners started paying the reinstated 2.0 percent fee, the Governor repealed the Vehicle License Fee (VLF) in its entirety and promised to backfill cities and counties the difference between the 2 percent fee and the prevailing .65 fee (those owners who paid the higher fee will get a refund from the State).  In January, the City received its expected VLF backfill payment for December and January, so it is staff�s opinion that the Governor will make good on his promise on the backfill, at least for the short term.  However, it is uncertain how the State Legislature will act to continue the backfill the rest of the fiscal year.  Nevertheless, the aforementioned $2 million loss for the period July through November will probably never be recovered.

8.         Interest / Use of Money � The $1,191,358 decrease over the original estimate relates to the continued decline in interest rates.

9.         Parking/Traffic/Other Fines � The $110,500 increase is due to more parking control officers being on duty and able to write parking tickets.

10.       Transient Occupancy Tax (TOT) � The TOT revenue has been revised upwards by $433,000, or 12.2 percent, due to the continuing post-September 11^th recovery and the addition of several new hotels.

11.       Building Permits/License Fees � This revenue category has been increased 7.3 percent due to increased building permit activities.

12.       Transient Parking Tax (TPT) � This revenue category has been upgraded by 3.1% or $50,000 due to increased volume of airport travelers (up 9% for First Quarter 2003-04 versus First Quarter 2002-03).  It should be noted that the �parking wars� are still going on at the airport which equates to an annual estimated loss in revenues of $400,000.

13.       Business Taxes � This category increased by a negligible 1.5 percent or $21,500 due to the increase in taxes based on an increase in the Producers Price Index (PPI).  This adjustment occurs every January.

14.       Franchises � The decrease of $7,257 from the adopted revenue projection reflects the decline in franchise tax revenues received from cable television due to the exclusion of internet access fees related to cable modems from the payment of franchise taxes.

15.       Contributions to Other Funds � The $36,053 decrease relates to the Assembly Bill 1290 that required tax sharing related to the West Olive Project Area.  The amount originally budgeted was greater than the current estimated amount expected to be received.

16.       Intergovernmental Revenues � The $19,567 decrease in this revenue category is due to the following:  An increase of $35,000 and $697 for post-police officer training and STC jail training, respectively, offset by a decrease in Library of $8,891 for a literacy grant and a decrease of $46,286 in the California Public Library Fund (PLF) grant.  It should be noted that the appropriation based on the reduced literacy grant has been reduced by $5,588.

City�s Largest Revenue Sources

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 2002-03 revenue to the original revenue estimates for FY 2003-04 and the revised projected estimates for FY 2003-04.

The next chart focuses attention on the Transient Occupancy Tax and the Transient Parking Tax by comparing revenues for the same time periods � the final estimate for FY 2002-03; the original projected for FY 2003-04; and the revised projected estimate for FY 2003-04.

General Fund Appropriations Perspective:

With the exception of the requested mid-year adjustments detailed in this report, 48.6 percent of the appropriations have been expended as of December 31, 2003.  Again, for perspective, please note that the prior mid-year expenditures represented 47 percent of the recurring appropriations.  The majority of the requested mid-year adjustments are either related to: higher than expected program costs in addition to the costs associated with the Pavelka/Campbell criminal investigation, continued police enforcement at the Bob Hope Airport and to cover the Fire bargaining agreement increases.  These costs also are the primary reason for the higher appropriation percentage expended this mid-year compared to last year.

The City is heading into the 2004-05 fiscal year with a projected year-end available fund balance of $33,051.  More importantly due to continued increased costs for the Public Employee Retirement System (PERS), projected increases in bargaining unit costs, increases in liability self insurance rates, and the anticipated State Budget impacts, the City faces serious budget challenges over the next several fiscal years.

Fortunately, unlike several other cities in California, Burbank�s outlook is not as bleak.  This is in large part due to the City�s hard work and success over the years to create a viable economy that is well balanced with strong property values, varied tax sources, etc.  That being said, it is still important to remember that Burbank has its own increasing costs and will ultimately be subjected to the State�s efforts to balance its Budget.

The following table highlights the recurring component of the General Fund budget as of December 31, 2003, by department or category.

Table 2 � General Fund Recurring Appropriations

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 has to spend the money on the project and then bill the grantor agency, so that revenues lag behind expenses.

A review of the twelve special revenue funds show that expenditures are tracking as expected with about 33% of revenue being realized and 27% of expenditures being realized.

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 45% of projected, and expenses tracking at 36%.  The Funds continue to be monitored for changes that may impact future budgets.  Cashflows are currently in the process of being developed for FY 2004-05, and there will be a significant increase related to the General Liability Self-Insurance Fund.

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% housing set-aside obligation. Revenue flows come primarily from property taxes and from interest.  Revenue in the housing set-aside funds is derived from contributions from other funds.  Expenditure flows 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 2003.

Parking Authority Funds:

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.

Enterprise Funds

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 Funds cash flow and, at this point, projects that ongoing operational expenditures are exceeding revenues due to the National Pollution Discharge Elimination System (NPDES) permit requirements which increase operational and maintenance cost to run the Burbank plant as well as the Los Angeles Hyperion contract.

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

Electric and Water Funds:

Through December, the year-to-date megawatt hour (Mwh) sales for the Electric Fund of Burbank Water and Power (BWP) were 611,838 compared to the forecasted 600,683.  The increase is due to warmer temperatures during the summer months and cooler temperatures during winter months.  The year-to-date retail revenues were $74,418,000 (versus $73,695,000 projected) while operating expenses were $40,601,000 (versus $47,659,000).  The wholesale revenues were $72,311,000 (versus $8,050,000 projected) with expenses at $68,907,000 (versus $6,250,000).  In total, the gross margin for retail and wholesale is $37,221,000, compared to the projected $27,836,000, or 34% above projections.

The year-to-date water sales were 5,208,530 compared to the adopted budget of 5,388,921.  The year-to-date net water revenues were $5,085,000 (versus $5,457,000 projected) while operating expenses were $3,932,000 (versus $4,322,000), resulting in operating income of $1,153,000, or $18,000 above projections.

MID-YEAR BUDGET ADJUSTMENTS:

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.  In summary, the total mid-year adjustments requested are as follows: General Fund - $2,745,453 (recurring is $990,785); Non-General Fund - $2,127,839 (this is all non-recurring).  Due to offsetting revenues, the net impact to the General Fund is $1,563,499 and to the Non-General Funds is $2,127,839.  Below is the list of requests divided by General Fund and Non-General Fund.

General Fund:

Fire Memorandum of Understanding (MOU) Increases

As part of the approved bargaining agreements, the Fire Department needs an additional appropriation of $859,627.  This will be a recurring cost to cover salaries, overtime, constant staffing and benefits.

Brushfire Overtime

The Fire Department is requesting an additional $390,000 for overtime due to the requests for State Mutual Aid as well as the Country Club Brushfire this past year.  The total amount is revenue offset.

Interagency Communications Interoperability System (ICIS) JPA

The City is participating in the ICIS Joint Powers Agreement (JPA) and has requested $5,000 for the Police Department�s Budget and $1,250 for the Fire Department Budget.  This system will provide sufficient funding to replace radios Citywide, primarily for police and other public safety personnel.  This has been factored into the forecast as it is a recurring appropriation.

Furniture for Citywide EOC

Ten chairs are needed to augment the Citywide Emergency Operations Center (EOC) to handle excess people during an emergency and to replace damaged chairs.  The amount requested is $3,008 and is non-recurring.

Brush Clearance

A total of $330,000 is being requested for increased costs for brush clearance on the hillside.  The estimated recurring impact of the revised brush clearance program is $80,000 (see Attachment D).  At the January 27, 2004, Council meeting $280,396 from the close out of the Improvement District 83-1 (Rockmore Subdivision) was approved for the brush clearance program.

Citywide Disaster Mitigation Plan

A total of $60,000 is being requested by the Fire Department in order to hire a consultant to develop a citywide disaster mitigation plan. This plan is needed to meet federal Disaster Management Act requirements and remain eligible for Federal Emergency Management Agency (FEMA) monies.

Literacy Grant

The Library Services Department is requesting a decrease of $5,588 in their Literacy Grant Account as a result of receiving less from the State than the estimated amount of $44,000.

New Mail Machine:

The Management Services Department needs to replace the City�s mail machine that posts all outgoing City mail.  Parts can no longer be obtained for the existing mail machine which is outdated (purchased in October 1996) and does not comply with current U.S. Postal Department regulations. The balance of the machine's cost will be paid out of Fund 533.  The total non-recurring cost for the Management Services Department is $7,339 ($1,500 General Fund and $5,839 Fund 533).

Contract Service Instructors

The Park, Recreation and Community Services (P,R&CS) Department is requesting $10,000 to pay contract service instructors for various P,R&CS classes.  The total amount is revenue offset from fees collected from class participants.

Performing Arts:

The Park, Recreation and Community Services Department requests additional dollars needed to pay new 2003 and 2004 Performing Artists Rights and Special Events Fees to the American Society of Composers, Authors and Publishers (ASCAP).  The total cost is $2,307.

LiveScan Charges

An additional $14,000 is being requested by the Park, Recreation and Community Services Department in order to pay the costs of fingerprinting for City Youth Sports and local non-profit sports programs.  The total amount is revenue offset.

Roller Hockey Rink Operation

The Park, Recreation and Community Services Department requests $24,600 in an effort to operate the roller hockey rink that was previously operated by the YMCA.  The total amount will be revenue offset from registration and user fees.

Pavelka and Campbell Criminal Investigation

The Police Department is requesting an additional $534,430 for unanticipated costs related to the Pavelka and Campbell criminal investigation.  The costs are primarily for increased overtime and special investigation costs.

Police Overtime at Bob Hope Airport

The Police Department is requesting an appropriation of $448,546 for police services at the airport.  The total amount is revenue offset.

Pavelka Memorial

The Police Department has requested $10,000 to cover expenses for command staff and officers serving as �official� representatives during the Officer Pavelka Memorial in Washington D.C.

Spay/Neuter Services

The amount of $20,000 is requested to cover spay/neuter services for the Animal Shelter.  The total amount is revenue offset.

Vet Emergency Services

The Police Department has requested an additional $10,000 to cover veterinarian emergency services.

Animal Shelter Supplies

The Police Department has requested $3,772 to cover the cost of supplies.  This is being requested from the Animal Shelter Donations.

Parking Citation Contract

The amount of $6,000 (recurring) is being requested by the Police Department to cover the increased cost of the parking citation contract with the City of Inglewood.

CISCO Computer Maintenance

The Police Department has requested $17,000 to cover seven months of the CISCO computer maintenance contract for the newly installed Police computer infrastructure.  The annual recurring cost of $17,000 will be rolled into Fund 537.

Non-General Fund:

Development Impact Fees (Fund 127) � Requests are being made for additional funds for two transportation projects in order to complete the necessary work for each project.

• Buena Vista/Winona/I-5/San Fernando Intersection                   $100,000

• SR-134 Westbound Off-Ramp Improvements                             $300,000

Golden State Redevelopment Project Area (Fund 301) � A request is necessary to re-appropriate $522,000 for the Golden State Reclaimed Water Line Expansion project that were inadvertently transferred back to fund balance, but are necessary to complete the project.

BWP Electric Fund (Fund 496) � A request of $750,000 is being made for the replacement of the Lake One CO catalyst and the Lake One Selective Catalytic Reduction (SCR) retrofit.  Funding will be provided from BWP�s wholesale margins.

Refuse Collection & Disposal Fund (Fund 498) � An additional $150,000 is needed for increased costs for the City's contract with BLT Recycling due to a contractually allowed Consumer Price Index (CPI) adjustment and additional hauling of residue material from the Recycle Center to the landfill.  Funds should have been included in the original budget, but were inadvertently left off.  This request should not result in fee increases in the Refuse Fund.

General Liability Insurance (Fund 530) � A request of $150,000 is being made by Management Services to cover an increased amount of loss expenses associated with unanticipated litigation claims.

Vehicle Equipment Replacement (Fund 532) � A request of $150,000 is being made for an underground storage tank repair project with higher actual costs than anticipated.  The original cost estimate was based on staff�s understanding of the repairs needed before the project began.  Once the project started, staff discovered that more repairs than anticipated were needed. This request was submitted during the budget process, but inadvertently omitted from the final budget.

Office Equipment Replacement Fund (Fund 533) � A request of $5,839 for the City�s mail machine by Management Services  is being made as it needs to replace the City�s mail machine that posts all outgoing City mail (see above request under �New Mail Machine�).  Parts can no longer be obtained for the existing mail machine which is outdated (purchased in October 1996) and does not comply with current U.S. Postal Department regulations. The balance of the machine's cost will be paid out of the General Fund.  The total non-recurring cost for the Management Services Department is $7,339 ($1,500 General Fund and $5,839 Fund 533).

TOTAL MID-YEAR BUDGET ADJUSTMENTS:

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).

General Fund                                                                                 $ 2,745,453

    Revenue Offset Requests                                                          (1,181,954)

    Net Impact to General Fund*                                                    $ 1,563,499

Non-General Fund                                                                                          

   Development Impact Fees Fund                                                     400,000

   Golden State Redevelopment Project Area (Fund 301)               522,000

   BWP Electric Fund (Fund 496)                                                        750,000

   Refuse Collection & Disposal Fund (Fund 498)                             150,000

   General Liability Fund (Fund 530)                                                    150,000

   Vehicle Equipment Replacement Fund (Fund 532)                       150,000

   Office Equipment Replacement Fund (Fund 533)                              5,839

Total Non-General Fund                                                                 $ 2,127,839

Grand Total All Funds - Appropriations                                      4,873,292

Revenue Offset Requests � All Funds                                      _1,181,954

            Net Impact to all Funds                                                     $ 3,691,338

*After excluding the Fire MOU appropriations of $859,627, the remaining $703,872 of non-recurring General Fund requests will be funded by the BWP UUT In-Lieu set-aside account.

DEVELOPMENT OF FISCAL YEAR 2004-05 BUDGET AND FIVE YEAR FINANCIAL FORECAST:

This section of the memo will discuss the Five-Year Financial Forecast based on information obtained subsequent to the development of the FY 2003-04 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.

Projected Revenues and Expenditures:

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 2.05 percent versus an average recurring expenditure growth of 3.66 percent.  The revenue growth includes the projected increase in Sales Tax (2.5%), Property Tax (at 5.0% for FY 04-05 and 4% in the following years after considering the impact of the State ERAF shift), TOT (2.5%) and UUT (at 1.3% for FY 04-05 and decreasing by 1.4% the next several years due to electric rate decreases).

The expenditure growth assumes the following costs:

Memorandum of Understanding Projected Costs:

The projected growth in employee�s salary and benefits is 2.5% 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 continue to pay market based salaries and benefits.

Materials, Services & Supplies (MS&S):

MS&S appropriations are assumed to increase at a rate of 6.2% for FY 2004-05 to 2.5% per year thereafter with the exception of utilities which reflects the anticipated reduction in electric rates beginning in FY 2005-06.  The expected increase in MS&S appropriations of 6.2% in FY 2004-05 include the estimated increase general liability self-insurance costs, the brush clearance program, ICIS membership fees and other anticipated MS&S increases.

Public Employees Retirement System (PERS) Costs:

Like many agencies, for many years, the City was super funded 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 in the equities market and the economy in general as well as enhanced retirement packages for Police and Fire, the City, along with many other agencies, has lost its excess funded status, thus causing increased employer PERS rates.  Projected PERS rates will be increasing annually.  A comparison of the current PERS rates versus the expected rate in FY 2008-09 follows:

                                                                          Budgeted                                 Projected

                                                                          2003-04                                  2008-09

Police 3% @ 50                                             16.255%                                    29.60%

Fire 3%@ 55                                                   16.891%                                    29.90%

Miscellaneous 2% @ 55                                     1.35%                                      8.90%

Our forecasted PERS rates improved from prior Forecasts due to our assumption that PERS will earn 12.25% on its investments for the FY 2003-04.  We are also assuming that PERS will meet its expected earnings rate of 8.25% in each year of the forecast. The forecasted PERS rates for FY 2004-05 have been adjusted to the actual rate as communicated by PERS.  An independent actuary forecasted the rates for the remaining fiscal years.  Based on the current projected rate projections, the forecasted PERS cost for FY 2008-09 is expected to increase over FY 2003-04 as follows.

                                                                                                  Budgetary Impact

Police 3% @ 50                                                                              $1,928,832

Fire 3%@ 55                                                                                     1,724,338

Miscellaneous 2% @ 55                                                                  2,865,836

Forecasted Additional PERS Costs                                            $6,519,006

The following is a chart of anticipated PERS rates:

Retiree PERS Health Care (SB 1464)

In a related PERS cost, the City is also responsible for paying a portion of the Retiree PERS Health Care for each employee as mandated by Senate Bill 1464.  This cost will annually increase from the current $25 per month per retiree to $32.20 for 2004 and will increase to $97 in FY 2008-09 where after it will increase by the Consumer Price Index (CPI).

Savings from Frozen Positions:

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.

Central Library Costs:

The estimated staffing levels for the new Central Library is estimated to add $891,000 to the Library�s annual budget beginning in FY 2008-09.  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, the forecast accounts for a one time appropriation of $685,000 in FY 2007-08 for costs related to opening the new Central Library.

Magnolia Park:

The forecast also has a $125,000 annual appropriation for Magnolia Park through FY 2006-07.

FY 2004-2005 BUDGET DEVELOPMENT PARAMETERS:

Even before the City considered the potential State Budget impacts to the FY 2003-04 Budget, it is important to note the City was already progressing into a deficit position over the next several years due to the underperformance of several of our revenue categories and the significant increase in our recurring costs, especially the PERS rates.  As a result, the General Fund budget parameters for this year are once again strict.

New Positions/Upgrades:

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

Frozen Positions Remain:

The positions that were frozen in the FY 2002-03 and FY 2003-04 Budgets will remain frozen.  This equates to an annual savings of $1,804,880.

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

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

Capital Outlay:

No new requests for capital outlay will be allowed.

Budget Reduction Scenarios:

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

However, in order to have some benchmark for discussion, departments have been requested to come up with reductions if they had to reduce their budget by 2% and by 4%. As noted, there will be no across the board cut; however, these �what-if� scenarios have been requested for discussion purposes.  The Executive team will evaluate these reductions and make recommendations to the City Council.

BUDGET BALANCING IDEAS:

A list of possible reductions and revenue enhancement ideas has been developed.  All of these matters are being studied by the appropriate department.  For perspective to what is being considered, listed below are some of the different ideas.

List of Potential Revenue Enhancements:

• TPT increase to 12%

• TOT increase vote at General Election in 2005 to 12%

• Update the Existing Fee Schedule rates to ensure the City is recovering its costs and consider creating new fees for existing services

• Implement a technology surcharge to certain fees (Development Impact Fee Study is in process, which includes technology fee)

• Consider parking fines increase

• Consider allowing the South San Fernando AB 1290 tax sharing portion to flow to the City

• Dividend from BWP (based on wholesale surplus)

               -General Election 2005

• Create contribution opportunities where appropriate (i.e., similar to the Animal Shelter which has placed a line on the annual license renewal asking pet owners to donate to the spay/neuter fund)

• Pursue corporate sponsorships and advertising opportunities of City facilities and services (i.e. Pepsi Parks, sell space on refuse trucks etc.)

• Exercise the City�s right to the cable franchise Public, Education & Government (PEG) fee

List of Potential Expense Reductions:

• Consider employee paid PERS (in connection with increase in benefits). This is a negotiation item.

• Review overtime usage citywide.

•          *Does not include mandatory Constant Staffing/FLSA time per Fire MOU

• Retirement Incentives � SERPS & attrition.

• Limit Bilingual Pay.

• Work Furloughs (i.e. 1-2 days off w/o pay or close between Christmas and New Year�s Day) including the idea of employee trading holiday pay for a floating day.  This is a negotiation item.

• Retirement Costs � Negotiate a 2^nd tier employee for new hires. The City could share the cost with new employees for retirement (i.e. employees pay part or all of their retirement until they are vested at 5 years).  If they leave City service prior to vesting, they would receive their contributions back.  NOTE:  This is a negotiated item.

• Eliminate or Reduce Merit Pool.  This is a negotiation item.

- BCEA

- BMA

- Non-represented

- Executives

• Consider eliminating the Executive Physical reimbursement(s).

• Implement Salary Freeze (performance based increases not automatic increases)

• Consider eliminating Wellness and Professional Development programs.  Note: These are negotiated items.

• Eliminate 4 hour minimum call-back overtime.  This is a negotiation item.

• Eliminate Executive Car Allowances.

• Consider joint operation of the Burbank/Glendale Police Helicopter operations.

• Consider joint operations with other governmental agencies (similar to our management of Glendale�s traffic signals).

• Consolidate functions/facilities with BUSD.

• Explore the feasibility of contracting out City services.

• Consider reducing/eliminating City programs/services.

• Consider extending the life cycle of vehicles and equipment (i.e. similar to the policy that increased the police car life expectancy from 2 to 3 years in FY 2003-04).

• Consider reducing the City fleet.

• Across the board department cuts or hold all department to previous FY budget level over next few years.

• Create a centralized, either by department and/or Citywide, Limited Duty Work program.  This could be tied in with overall workers� compensation reform.

• Consider the pre-payment of FY 2004-05 PERS obligations and/or the use of a Pension Obligation Bond.

POTENTIAL STATE BUDGET IMPACTS:

ERAF Shift:

The Governor released his FY 2004-05 proposed State budget on January 9, 2004.  Much to the dismay of city officials across the state, the Governor has chosen to use local government revenues to balance the state budget which faces a $14 billion deficit. Specifically, the Governor�s budget proposes to shift an additional $1.3 billion in property tax revenues from cities, counties, special districts and redevelopment agencies on a permanent basis to the Education Revenue Augmentation Fund (ERAF) to help defer the state�s obligation for K-12 education funding.  This increase is on top of the $6 billion in property taxes already being shifted to ERAF accounts from local governments.  To Burbank�s General Fund, this equates to a loss of $1,069,005 (or 22% greater than the City�s projected ERAF shift for FY 2004-05; or 24% over the FY 2003-04 ERAF payment).

Comparing FY 2004-05 to FY 2003-04, the incremental ERAF shift difference to the General Fund is $1.1 million in addition to another $1.3 million from the Redevelopment Agency, equating to an approximate $2.4 million overall loss to the City.

Vehicle License Fee (VLF):  In January, the City received our expected VLF backfill payment for December and January, so it is staff�s opinion that the Governor will make good on his promise on the backfill, at least for the short term.  However, it is uncertain how the State Legislature will act to continue the backfill the rest of the fiscal year.

Booking Fee Reimbursement:  This item was cut by the Governor, but is a small revenue loss to Burbank of $12,772.

Redevelopment Agency Impacts:

Education Revenue Augmentation Fund Shift:

In FY 2003-04, there was a �one time� shift of Burbank redevelopment revenue of $1,343,093 which, as it turns out, is not a one-time shift after all, as the Governor�s proposal again requires Redevelopment agencies to shift $135 million to ERAF in FY 2004 05.   According to the California Redevelopment Association, �the intention is to make the redevelopment shift permanent for future years and to increase it in relation to growth in tax increment.�  As there is no legislative language yet, there is no determination on how the shifts would deal with low and moderate income housing set-aside fund.  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 $7.2 million.

Summary of Burbank�s incremental loss is estimated as follows:

City of Burbank ERAF Shift:                                                       $1,069,005

Booking Fee Reimbursement                                                         $12,772

TOTAL GENERAL FUND                                                        $1,081,777

Redevelopment Agency ERAF Shift:                                        $1,343,093

TOTAL CITYWIDE                                                                     $2,424,870

In addition, Proposition 42 transportation funds were also targets of the Governor�s proposed budget, but it is difficult to quantify the precise dollar impact to Burbank at this time:

• At the State level, an estimated $1.1 billion in Proposition 42 transportation funds are suspended for the FY 2004-05 state budget year. This means that cities and counties will not receive their local street and road rehabilitation monies again in FY 2004-05, estimated to be $179.5 million. 

• In addition to the Proposition 42 suspension, the proposed budget also contains the mid-year transportation cuts proposed by the Governor in November.  Such reductions include a reduction of $189 million previously proposed to flow to the Traffic Congestion Relief Projects funded from Proposition 42 revenues.

The total incremental loss to Burbank should the Governor�s current budget proposal be adopted is roughly $2.4 million with a $1.1 million additional loss to the General Fund.  Staff will continue to monitor any changes and provide updates when appropriate.  Staff will also continue to contact our state legislators to address our concerns.

It is also important to note that there is a proposed local government initiative for the November 2004 ballot called the Local Taxpayers and Public Safety Protection Act.  If passed by the voters, it will nullify the proposed ERAF shift.

FIVE YEAR FORECAST:

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.

Although staff plans to provide the Council with a very descriptive five-year forecast at their annual  retreat in May which will include ideas of how to alleviate some of the projected deficit, the following chart will serve to highlight the enormous 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 an annual percentage over 5 years to lessen the impact of the budget crisis on the City.   Staff also anticipates the use of the Budget Stabilization Fund, the PERS Ramp-up Savings for FY 2003-04 and the UUT In-Lieu Set-Aside Account to aid in balancing the City�s budget during this five year period.

CAPITAL PROJECTS:

At the January 6^th City Council meeting, the Council requested a list of potential capital projects.  Attachment E to this memo contains a listing of City capital projects.  There are several capital projects that are at various stages in either the design, planning and/or construction phase.  The projects are categorized as follows: Completed; Funded; Potentially Funded; Partially Funded; and Unfunded.  Many of these projects are listed in the City�s Capital Improvement Plan along with the various funding sources for each project.

Hilton Repayment Note:

Also, at the City Council meeting of January 6, 2004, the Council approved accepting the lump sum offer of $6.0 million for payment in full of the Participant Repayment Note that was held by Strategic Hotel Capital (Hilton Hotel).  Attached is a memorandum from the City Attorney�s office that summarizes how the $6 million can be used (Attachment F).  Basically, the proceeds can be used in any of the City�s redevelopment project areas for any valid redevelopment purpose.

CONCLUSION:

The City is heading into the 2004-05 fiscal year with a projected year-end available fund balance of only $33,051.  More importantly however, due to increased costs for the Public Employee Retirement System (PERS) rates, projected bargaining unit costs, increasing liability costs and the anticipated State Budget impacts, the City will continue to face serious fiscal challenges over the next several fiscal years.  Burbank�s fiscal challenges are no different than any other city in California and in many cases throughout the nation.

Unfortunately for Burbank this means we are not in a position to be considering new programs or services, instead all departments are in the process of reviewing their budgets and looking for ways to make reductions or enhance revenues.  Most importantly, we must remember that even before the City considered the potential State Budget impacts to the FY 2004-05 Budget, the City was already progressing into a deficit position over the next five years due to the underperformance of some of our revenue categories and the significant increase in our recurring costs, especially the PERS rates.

FISCAL IMPACT STATEMENT:

If approved, the requested mid-year adjustments will total have a combined net financial impact of $1,563,499 to the General Fund, $703,872 of which will be funded by the BWP UUT In-Lieu set-aside account.  There will also be a $2,127,839 impact to Non-General Funds.

RECOMMENDATION:

It is recommended that the City Council approve the proposed resolution requesting mid-year adjustments to the Fiscal Year 2003-04 Budget.

Attachments

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