PURPOSE:

The purpose of this report is for the City Council, Redevelopment Agency, Housing Authority, Parking Authority and Youth Endowment Services (YES) Fund Board to adopt the Fiscal Year (FY) Annual Budget for 2003-04, Citywide Fee Schedule, and Appropriations Limit.  Pursuant to the City Charter, a public hearing was properly noticed and conducted on June 10, 2003 at which time the Council received public comment, and provided direction to staff as to what should be incorporated into the Adopted Annual Budget.

BACKGROUND:

The development of the FY 2003-04 proposed Operating and Capital Budgets began in the fall of 2002.  By February 2003, it had become abundantly clear that the next five years would be financially challenging for the City.  At that time, staff disclosed to the Council that starting with FY 2003-04, a trend of recurring costs growing at a much greater pace than recurring revenues would begin with no signs of relief for at least five years.  This is in large part due to the following:

• Increased Public Employees Retirement System (PERS) Rates - for FY 2003-04 the City is projected to have $2.48 million in additional costs and for FY 2004-05 an additional $2.15 million;

• Increased Memorandum of Understanding Projected Costs � for FY 2003-04 this cost is projected at $3.2 million;

• Increased Internal Service Fund Costs - General Liability and Workers Compensation Self-Insurance Funds increased by $1,350,070 due to an increase in both the insurance costs and claims.  This industry continues to see large increases which are being felt by every sector, public and private. The Communications Replacement Fund increased by $314,000 to provide sufficient funding to replace radios Citywide over a five or more year period, and the Computer Equipment Replacement Fund increased by $103,000.

• Several Revenue Categories are Declining � the City�s Interest/Use of Money revenue continues to decline due to the interest rates.  The Transient Occupancy Tax (TOT) had declined by 6.2 percent before the events of September 11^th and although Burbank has several new hotels, the TOT revenues are still lagging behind budget estimates.  Although there are two new parking lots subject to the Transient Parking Tax (TPT), it has been negatively impacted due to the Airport reducing their daily rates.  At this point, the TPT is projected to decrease by $400,000. 

When it was revealed in February that the City would be facing a huge recurring deficit, the Executive Team began working together to find a reasonable solution to this on-going problem.  Before any appropriation reductions were achieved by the General Fund departments, the Executives agreed on some basic principles that would drive the budget process for 2003-04 and beyond.  These principles include: maintaining critical City services with little or no impact; minimally impacting the community by avoiding, where possible, elimination of key programs, and maintaining affordable service fees through reasonable recommended increases; assuring that the City pays market based salaries especially in light of the fact that reductions typically mean doing more with less; not impacting programs that pay for themselves; and, achieving durable reductions to address the structural deficit in 2003-04 and into the future.

Once the principles were established, each General Fund department was asked to identify durable reductions and reasonable and fair increases in fees that would provide for an overall 10 percent reduction.  The end result was that each General Fund department  achieved or came close to achieving a 10 percent reduction through actual cuts in personnel, materials, supplies and services, and programs as well as fee increases.  Finding these cuts was not easy and each department will be impacted, some more than others, but each is doing its part to address the deficit.    

In addition to the reductions that each department was required to achieve, the budget was developed under the following parameters agreed upon by the Executive Team:  no new positions/upgrades unless there was a �rock solid� revenue offset; the 2002-03 frozen positions remain, equating to an annual savings of $122,592; no allowable increase in materials, supplies and services; and, no new requests for capital outlay.   

The first Council Budget Study Session was held earlier than usual on April 9, 2003.  This Session included staff recommended reductions and fee increases.  The Council received the Proposed Budget at their May 3, 2003 annual Goal Setting Workshop.  Budget Study Sessions were held on May 6, May 20, and May 22, 2003.  Subsequently, the public hearing was held on June 10, 2003.

ANALYSIS:

Taking into account approximately $9.5 million in departmental reductions including increases in fees and charges,  the total recurring General Fund revenue growth for FY 2003-04 will be 1.7 percent versus a recurring expenditure growth of 2.4 percent.

With the budget parameters, costs, and revenues in mind, the chart on the following page is the proposed source of funds and appropriations for each fund or fund type for the 2003-04 Budget:

*Resources represent the total sources available to each fund, such as taxes, fees, charges, sales, interest, use of fund balance (from bond proceeds, depreciation, and available retained earnings) and includes changes disclosed in the addendums to the Proposed Budget.

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

STATE BUDGET IMPACTS

The State of California deficit for the 2003-04 Budget has grown to $38.2 billion and despite numerous attempts, the Legislature is experiencing an uphill battle in finding a compromise that will allow them to reach an acceptable approach to deal with their crisis.  The Governor released his �May Revision� to his Proposed 2003-04 Budget which continues to propose an approximate $250 million cut in redevelopment funding with increasingly larger cuts every year for 15 years, ultimately raising to cuts totaling $1.2 billion. Excluding the expense of administration, the Educational Revenue Augmentation Fund (ERAF) cost to Burbank�s Redevelopment Agency would go from $912,120 (projected for FY 2002-03) to between $2.8 and $3.0 million in FY 2003-04 with 5.0 percent annual increases until the school share is removed from redevelopment agencies.

Additionally, the May Revise will impact the General Fund in the following areas: 1) Public Library Fund (PLF) � in conjunction with the proposed $15.8 million reduction in January and an additional $14.8 million reduction in May, $1 million will be remaining in the PLF.  Based on this reduction, the City may receive only three percent of revenues received this year, or around $2,800: 2) Booking Fees - the proposed elimination of booking fees paid would amount to a $12,772 reduction in revenues: and, 3) State Mandates � the proposal recommends the suspension of 34 mandates, the repeal of one (Open Meetings Act which requires the posting of agendas), and the deferral of all other mandates. Although the City has not budgeted reimbursement payments for FY 2003-04, there is an actual real loss of revenues that the City has counted on for many years (approximately $227,000 annually).  Of further concern in this area is the fact that the Administration intends to draft statutory language necessary to repeal 27 of the 34 mandates during the development of the 2004-05 Governor�s Budget.

The good news for local government is that the Governor�s proposal includes the restoration of the Vehicle License Fee (VLF) to its 2.0 percent level by July 1^st and the elimination of the backfill with a net zero impact to local agencies.  Although there could be a potential loss from a gap in July and August during the transition from backfill to increased VLF payments due to a lag time of 60-90 days, the California Department of Finance has stated their intent to ensure that local agencies do not lose any VLF revenue. 

CITYWIDE FEE SCHEDULE

The primary purpose of the Citywide Fee Schedule is to provide a one-stop listing of all City fees, charges, and rates. The Fee Schedule is reviewed and updated annually as part of the budget process  in an effort to document all of the fees that have been revised or changed during the fiscal year. The City Council has already approved fee changes during FY 2002-03 that have been incorporated into the Fee Schedule which is presented for Council consideration.  (The Fee Schedule is incorporated as an attachment to the Proposed Fee Resolution).   

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

At the June 10, 2003 public hearing, the City Council approved all but one of the recommended changes to the Fee Schedule.  Staff had recommended increasing the TPT from 10 to 12 percent to offset the fact that this revenue category is projected to decrease by $400,000 in 2003-04.  It was projected that the 2.0 percent increase would only cause the revenue category to decrease by $100,000.   However, following public testimony and Council discussion, staff was directed to remove the proposed increase in the TPT from the Fee Schedule.  The Council directed staff to revisit the issue at the mid-year report in 2004.

The following are some of the more significant fee changes which are included in the Fee Schedule:

Water Rate:

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

Sewer Fee:

Following an extensive analysis of the City�s Sewer Fund cash flow, it was determined that the monthly sewer service charge needed to be increased from $12.89 to $13.99 for a single family residential household.  Other increases are proposed for manure accounts, multi-family residential etc.  It is estimated that an approximate $1.10 annual increase will be necessary from FY 2004-05 through 2007-08.

Street Sweeping Charge:

This street sweeping program, currently funded by the General Fund will be shifted to the Refuse Fund  to comply with the City�s stormwater permit for trash and litter control on City streets.  The $.043 charged for this service on the utility bill will be rolled in to the refuse rate and charged on a per trash volume basis.

Animal Adoption Fees:

The fees for dogs previously altered are proposed to increase from $15 to $25.  The fee for dogs altered by the City are proposed to increase from $45 to $60.  It is important to note that the City currently subsidizes at least $10 of previously altered dog adoptions, and at least $30 of dogs altered by the City adoptions.  Further, these proposed fee increases still keep Burbank�s fees $5 lower than the average of surrounding jurisdictions.

Monthly Parking Permit Fee:

The monthly parking permit fee is proposed to be ramped up over the next three years.  It is proposed that the rate increase from $20 to $24 in FY 2003-04, and increase $4 in FY�s 2004-05 and 2005-06.   From surveys performed, staff has found that the full $32 rate is still lower than the fees charged by other cities.   

GANN INITIATIVE APPROPRIATION LIMIT

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

The City�s FY 2003-04 appropriation limit is estimated to be $116,607,407. The actual amount of the appropriations contained in the budget that is subject to the limit is $85,871,028. The difference between the City�s appropriation limit and the amount subject to it is $30,736,379.  As a result, the City has a significant gap between its legal limit and the actual appropriations subject to the limit.  The exact figures will be calculated and made available after the Council adopts the budget on June 17, 2003.

FISCAL IMPACT

Heading in to the 2003-04 Fiscal Year, the City was faced with an intimidating $9.5 million deficit.  This problem, in addition to the implications of the State�s budget deficit of $38.2 billion, provided for a significant challenge for the City to work through.

In recognizing that a long-term financial strategic plan must be created, the Executive Team also understood that in the absence of a plan, a balanced budget still needed to be presented to the Council for FY 2003-04.  This balanced budget before the Council includes significant reductions from each General Fund department, reasonable fee increases to increase the revenues, yet also proposes  the use of non-recurring dollars to meet on-going expenditures.  While one could argue this does not meet the �true spirit� of the City�s Financial Policies, after lengthy deliberations, it has become apparent that this is the most prudent course of action for the City to take.

After all reductions have been made, and the proposed revenue from the fee increases have been accounted for in addition to removing the staff recommended increase in the TPT, it is projected that the City will need to use $1,486,925 from the Burbank Water and Power set-aside to balance the 2003-04 Budget. (These are the incremental revenues that have been collected on the Utility Users Tax and In-Lieu Tax as a result of the most recent electric rate increases.  These revenues were set-aside in a holding account because the Council did not want to count on these revenues as recurring since it was understood that the electric rates would eventually decrease.)   With this use of funds, there is still projected to be $7.0 million in the BWP set-aside holding account at June 30, 2004.

The adoption of the Budget sets the initial appropriations for the new fiscal year. Appropriations have been balanced against estimated revenue and other sources of funding, such as reserves or bond proceeds and are in compliance with the City Council�s adopted financial policies.

CONCLUSION

The City staff has worked diligently over the past few months to develop a balanced approach to address the long-term structural problem that the City is now faced with.  The proposed recurring deficit for FY 2003-04 was originally projected to be approximately $9.5 million and does not include any potential hits from the State. A deficit this large is extremely intimidating, and will no doubt have a negative impact on the delivery of our services and programs, and most importantly on our employees. As the Executive Team contemplated the types of reductions that would need to be made this year and over the next five years, it became abundantly clear that there was no way that within a few months the best answer to an on-going problem would be found.  As such, the Executives held a number of healthy deliberations, beginning in January and through working side by side as a team reached a compromise on a reasonable way to reduce costs and balance the budget. 

This approach is balanced and buys time for the Executives to re-group following the adoption of the 2003-04 Budget, and begin the process of developing and producing a strategic plan that will help the City effectuate reasonable and prudent changes to the way we currently conduct our business.  This process will be all encompassing in that the Executives will work with the unions to ensure that all avenues are explored and that together the City�s future is contemplated and determined.  This strategy will include among many ideas, finding efficiencies in our own business practices while also looking to regional synergy and efficiencies to reduce our on-going costs.

The budget before the Council is the result of a collaborative effort.  The City team pulled together in a very short period of time to make the necessary reductions and revenue enhancements while being considerate of City staff and the business and residential community.  It has been a long time since Burbank has had to make such significant cuts.  Moreover, the outlook is not improving over the next five years, and this causes even more stress in terms of the City�s ability to make even further reductions.    

The next five years will present a variety of challenges for Burbank and it is staffs belief that given the right amount of time for the City family to come together to address our structural problem, we are confident that a sound strategic plan will be created and successfully implemented.

RECOMMENDATION

Adoption of proposed City Council resolutions entitled:

(4/5 vote required)

1.   A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK ADOPTING THE BUDGET FOR FISCAL YEAR 2003-04, PROVIDING FOR THE TRANSFER OF REVENUE FROM THE BURBANK WATER & POWER DEPARTMENT TO THE GENERAL FUND, AND MAKING APPROPRIATIONS FOR AMOUNTS BUDGETED.

(4/5 vote required)

2.   A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK DETERMINING AND ESTABLISHING THE CITY�S APPROPRIATIONS LIMIT FOR FISCAL YEAR 2003-04.

3.   A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK ADOPTING THE BURBANK FEE RESOLUTION.

(4/5 vote required)

4.      A RESOLUTION OF THE COUNCIL OF THE CITY OF BURBANK AMENDING THE  BUDGET FOR FISCAL YEAR 2002-03 PROVIDING FOR THE PURPOSE OF MAKING APPROPRIATIONS FOR AMOUNTS DELINEATED.

Adoption of proposed Redevelopment Agency resolution entitled:

A RESOLUTION OF THE REDEVELOPMENT AGENCY OF THE CITY OF BURBANK ADOPTING THE BUDGET FOR FISCAL YEAR 2003-2004.

Adoption of proposed Housing Authority resolution entitled:

A RESOLUTION OF THE HOUSING AUTHORITY OF THE CITY OF BURBANK ADOPTING THE BUDGET FOR FISCAL YEAR 2003-2004.

Adoption of proposed Parking Authority resolution entitled:

A RESOLUTION OF THE PARKING AUTHORITY OF THE CITY OF BURBANK ADOPTING THE BUDGET FOR FISCAL YEAR 2003-2004.

Adoption of proposed Youth Endowment Services Fund resolution entitled:

A RESOLUTION OF THE YOUTH ENDOWMENT SERVICES FUND OF THE CITY OF BURBANK ADOPTING THE BUDGET FOR FISCAL YEAR 2003-2004.

Attachments

Staff Report dated June 10, 2003 from the Public Hearing

Proposed Resolutions

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