PURPOSE

The purpose of this report is to present the Proposed Fiscal Year (FY) 2005-06 Annual Budget, Citywide Fee Schedule, and Appropriations Limit to the City Council, Redevelopment Agency, Housing Authority, Parking Authority, and Youth Endowment Services Fund Board for public hearing.  The adoption of the FY 2005-06 Budget will be considered by the Council at their June 14, 2005 Council meeting.

EXECUTIVE SUMMARY

The national economy is continuing to show signs of recovery in the employment and consumer spending areas, but it is still vulnerable due to the continued war in Iraq, escalating petroleum prices, rising interest rates, and the weak dollar.  Although FY 2005-06 General Fund recurring revenues are expected to increase by $7 million (6 percent) over FY 2004-05, the City�s financial forecast faces a significant challenge over the next several fiscal years, primarily caused by projected increases in MOU costs.  This structural imbalance between recurring revenues and expenditures continues to be an issue.

The City is heading into the 2005-06 fiscal year with a projected FY 2004-05 year-end available fund balance of $2,616,861, and it is expected that the FY 2005-06 year end balance will be only $23,508.  More importantly, however, due to increased projected bargaining unit costs, the City will continue to face serious fiscal challenges over the next several fiscal years.  It is with this in mind that staff has worked diligently over the past few months to develop a balanced approach that involves a variety of reductions in expenditures and revenue enhancements.

BACKGROUND

On February 15, 2005, staff presented the Council with the mid-year report, which not only advised how the City was operating six months into the year, but also requested adjustments to the current Budget to address expenditures which had surfaced since its approval in June.  Further, the report previewed some of the key components that were being considered in the development of the FY 2005-06 Budget.

On April 19, 2005, staff presented a very preliminary overview of the Proposed FY 2005-06 budget, along with the five-year forecast.  The Proposed Budget documents were distributed on May 4 and 5, 2005 for Council�s review prior to their annual May Goal Setting Workshop held on May 7, 2005.

A more finalized overview of the Proposed FY 2005-06 budget was presented to Council at its first Budget Study Session held on May 10, 2005.  Additional Budget Study Sessions were held on May 17 and May 24, 2005.  The purpose of these sessions was to give Council the opportunity to review each department�s budget, and to provide an opportunity for them to ask questions and make modifications to the budget.

Notable changes made to the budget between the April 19^th and the May 10^th sessions included adjusting overtime for both Police and Fire, restoring the outreach probation officer (per Council direction), and updating the Pension Obligation Bond principal and interest payments for Fire and Police Departments.  Another item requested by Council that was incorporated was to discontinue the $475,000 General Fund transfer to City Centre Redevelopment Project Area.  The result of these changes increased the General Fund appropriations by a net $390,651.

Additional changes (all are non-recurring) that Council requested at the May 24^th meeting included:

Council directed that the Utility Users Tax (UUT) In-Lieu Set Aside Account be used to cover this additional appropriation of $300,000.  In addition, Council directed to take $35,000 from the current soccer field project and redirect it for architectural services to refurbish both track/stadium facilities at Burbank and Burroughs High Schools (no additional fiscal impact).  Council was in concurrence with staff�s plan to expedite the Buena Vista Street improvement plan (at no additional cost).

GENERAL FUND�S FINANCIAL STATUS:

A public hearing was held on May 24^th, 2005, wherein the Council voted 4-1 to raise the Transient Parking Tax (TPT) from 11 percent to 12 percent.  Therefore, the revenue estimate for FY 2005-06 has been adjusted upwards by $230,000 from the previous estimate presented on May 10, 2005.

The following summarizes the projected results from operations for FY 2004-05 and the Proposed Budget for FY 2005-06:

In order to close the recurring deficit of $348,471, staff recommends using the City�s PERS Stabilization Fund to bring the balance to zero:

Recurring Deficit                                         $348,471

PERS Stabilization Fund                              (348,471)

Recurring Balance/Deficit                                  -0-     

FY 2005-06 Recurring Perspective � General Fund Revenues

For the first nine months of FY 2004-05, the General Fund received $76,490,738[1] in revenue, which represents 66 percent of the adjusted estimated revenues.  For perspective, last year�s nine-month report showed the City receiving 68 percent of its estimated revenues, or $73,442,936.  Overall, the City�s revised recurring revenue estimates for FY 2004-05 have been increased by $2,551,939 over original estimates as a result of major increases in the following categories:  Motor Vehicle In-Lieu (due mostly to reclassifying the ERAF III payment from property tax), Building Permits/License Fees, and Transient Parking Tax (TPT).  The Property Tax estimate has been revised downwards by $1.8 million (8.4 percent) due mostly to the impact of ERAF III payment of $1,850,941.  For FY 2005-06, revenue is expected to increase by $4.2 million (or 3.5 percent) over the revised FY 2004-05 projection (this projection was revised upward by $60,000 from the April 19^th report due to additional hazardous materials handling revenue).

GENERAL FUND � SUMMARY OF RECURRING REVENUE

FY 2005-06 Recurring Perspective � General Fund Appropriations

The following are the main components included within the FY 2005-06 Proposed General Fund Budget:

• $3.9 million for Memorandum of Understanding Projected costs.

• The internal service funds (including general liability insurance) increased by only $400,000, or 1 percent.  General Liability insurance actually decreased by $300,000, or 9 percent.

• Similar to last year, no new positions or upgrades were accepted unless they were revenue offset, or unless it was recommended by the Executive Team for operational needs.  The net approved increase to new positions/upgrades for the General Fund is $114,531.

• Most of the positions frozen in FY 2003-04 and FY 2004-05 carried over into FY 2005-06 with savings of $2 million.  Additionally, newly frozen positions in FY 2005-06 resulted in savings of $87,000, for a savings grand total of $2.1 million.

• Any increase to General Fund departments� Materials, Supplies & Services (MS&S) accounts were to be beyond the Department�s control.  The net amount of MS&S exceptions for the General Fund is $295,855 ($361,855 less $187,500 non-recurring less $65,000 revenue offset).

• There were three new program requests:  Community Development (CDD) proposed a Business Tax Amnesty Program (net gain to the City of $45,000); Police proposed an Animal Shelter Medical Program (net cost of $39,825); and Park, Recreation and Community Services (PRCS) proposed a Home Depot Security Program (net cost of zero).

• No new requests for capital outlay were allowed with the following exceptions:  CDD: Two high speed scanners ($10,000 total) and hardware/software for One-Stop Permit Pilot Project ($180,000); Fire: helmets (year one of two-year phase-in) and shelters (year two of two-year phase-in) ($26,000 total); PRCS: Burbank Athletic League funded projects ($53,000 � revenue offset).

• Other one-time appropriations include the Magnolia Park Streetscape ($125,000); City Manager:  Charter Review Committee ($40,000); and Public Works:  traffic signal timing project ($10,000).

• Police overtime at the airport has been eliminated because it is no longer required.  In the past, the costs were incurred, billed, and then reimbursed.

• The budget includes $545,976 to pay down the Pension Obligation Bond (POB) debt.

• Staff is requesting authorization to authorize a PERS pre-payment appropriation in the amount of $9,688,884.

• Staff is also requesting that the South San Fernando AB 1290 tax sharing portion now flow to the City's General Fund effective FY 2005-06.

*Resources represent the total sources available to each fund, such as taxes, fees, charges, sales, interest, use of fund balance (from bond proceeds, depreciation, and available retained earnings) and includes changes disclosed in the addendums to the Proposed Budget.  The recurring portion of revenue for the General Fund is $122,724,878, and the recurring General Fund appropriation is $119,266,119.

**The General Fund variance between proposed resources and appropriations is a result of the following: 1) the inclusion of the use of reserves (Utilities Users Taxes, UUT 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.

PROPOSED CITYWIDE FEE SCHEDULE

The primary purpose of the Citywide Fee Schedule is to provide a one-stop listing of all City fees, charges, and rates. The Fee Schedule is reviewed and updated annually as part of the budget process in an effort to document all of the fees that have been revised or changed during the fiscal year. (The Summary of Proposed Fee Schedule Changes is included as Attachment 2).

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

Water Rate:

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

Sewer Fee:

The Proposed budget includes an overall 7 percent rate increase (proposed three-year smooth rate, then a 4.5 percent increase for the fourth year).  For single family dwellings, the monthly rate will increase $1.01, from $14.99 to $16 for FY 2005-06.

Refuse Rate:

FY 2005-06 will be year one of a five-year smooth rate of 3 percent.  For a single family dwelling, this increase is only $.55, from $18.45 to $19 per month.

Group Picnic Fees:

PRCS is proposing to raise its group picnic fees, which are still considerably lower than Glendale, Pasadena, Inglewood, Torrance and Alhambra.  Hourly fee increases range from $10 to $20, and $200 (for a five hour period) for non-resident fees for Gross Park.  It is expected these fee increases will generate an additional $18,600 in revenue.

License and Code Services and Planning Fees:

Various fees were raised from 2.8 to 15.13 percent (or $17 to $170), including Conditional Use Permits (basic, single family, single family hillside, and alcoholic beverages).  Developmental Review Application fees were increased 14.55 percent, or $80.  Planned Development, Variance and Administration Use fees were increased from 2.8 percent to 15 percent (or $17 to $650).  Although there is no fee increase for reinspection fees, staff is proposing to implement the fee after the second inspection instead of the third inspection.  These fees are still well below comparison cities and cover only a portion of the costs to process these items.

Electrical and Building Permits:

Electrical permits are proposed to increase on average 7 percent (or $.50 to $9).  The annual estimated revenue increase is expected to be over $36,000.  Various building permits are proposed to increase, equating to additional revenue of over $178,000 annually.

Monthly Parking Permit Fee:

This is the final year of a three year ramp up for the public lot monthly parking permit fee.  The rate increased from $24 to $28 in FY 2004-05, and another $4 in FY 2005-06, bringing it up to $32.  From surveys performed, staff has found that the full $32 rate is still lower than fees charged by other cities and is expected to generate an additional $56,592 annually.

STATE BUDGET  - MAY REVISION 2005

The State of California�s FY 2005-06 Budget presented in January, 2005, faced an operating deficit of $8.6 billion.  The FY 2005-06 Revised Budget, released May 13, 2005 (�May Revision�) shows a slightly brighter picture.  The revenues are projected to increase $4.2 billion (including prior year increases) from improved economic activity ($4 billion) and a modest increase ($180 million) in the net gain related to the State�s amnesty program.

The May Revision proposes to reduce the amount of new or existing budgetary debt by $2.5 billion, primarily through eliminating the planned FY 2005-06 sale of deficit-financing bonds and prepaying one-half of the vehicle license fee �gap� loan (which was due in full to local governments in FY 2006-07).  It also proposes to increase funding for programs by a net amount of $1.7 billion, mostly through restoring Proposition 42 Transportation funds, funding for senior citizens� property tax and renters� tax relief programs, and one-time funds for K-14 education.  Based on these proposals, the revised shortfall is �only� $6 billion.  One item that may or may not be included in the May Revision is the fact that legislators just recently voted themselves a 12 percent pay raise (they had not gotten raises since 1998).

Three items in the May Revision that impact the City of Burbank are the restoration of Proposition 42 Transportation funding to the Gas Tax Fund (Fund 125), earlier-than-expected repayment of State mandated program costs (General Fund), and the impact of the VLF early repayment (since the City opted to participate in California Statewide Communities Development Authority's [the "Authority"] VLF Gap Loan Program).

The Legislative Analyst�s Office (LAO) reports that the State�s general approach of using the revenue for debt reduction and one-time items is sensible, in light of the State�s structural budget gap.

Proposition 42 Transportation:  Burbank�s projected allocation for FY 2005-06 is $449,044, but it is excluded from the revenue estimate since it is still subject to Legislative approval.  The last payment we received for Prop 42 funding was in FY 2002-03 in the amount of $266,448.  The State eliminated payments for FY 2003-04 and FY 2004-05 totaling $655,717.  In any event, this is good news for local government, particularly in light of the street damage caused by our recent rains.

State Mandate Cost Reimbursements:  The May Revision provides for two additional mandated program reimbursements:  Peace Officer Bill of Rights (POBAR) and the Services to the Handicapped & Disabled Students programs.  The POBAR reimbursement methodology may change, but it is still pending review.  Other mandate reimbursements restored in January include Administrative License Suspension, Animal Adoption, Domestic Violence Arrest Policies, Firefighter Cancer Presumption, Health Benefits for Survivors, Open Meetings/Brown Act Reform, Peace Officer Cancer Presumption, Rape Victims Counseling Notices, and Stolen Vehicle Notification.  As a reminder, under Proposition 1A, mandated programs that deal with employee relations or public safety are exempt from being suspended when funding is deferred.  The January budget package also proposed a 15-year payback on previously deferred mandate payments instead of the 5-year payback period agreed to last year.  Also, some questions still remain on the details of this proposal as to when repayment begins and if cities may borrow against future payments.  Currently, the estimated cumulative balance due to Burbank is $644,420 (up to and including claims for FY 2003-04).  The City filed a claim for FY 2003-04 in the amount of $271,282; and the estimated claim amount for FY 2004-05 is $290,438.  In March, the City received $80,153 for an Animal Adoption claim (not included in above mentioned balances).

Vehicle License Fee (VLF) Repayment:  In March, 2005, the City of Burbank, along with many other cities and counties, participated in the Authority�s program wherein Burbank sold its $1.8 million VLF receivable due from the State.  The May Revision proposes to pay one-half of the VLF repayment obligation that would have otherwise been due August, 2006.  The Authority will now receive this payment, will invest it, and any earnings will be rebated to the participants pro rata on November 15, 2006.  Investment of amounts allocable to the Tax Exempt Notes (this is what Burbank elected) would be yield restricted; and depending on the timing of any early payment, it is possible that tax-exempt participants would not be able to qualify for an arbitrage rebate exception.

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 2005-06 appropriation limit is estimated to be $130,212,383.  The actual amount of the appropriations contained in the budget that is subject to the limit is $95,157,444.  The difference between the City�s appropriation limit and the amount subject to it is $35,054,939.  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 14, 2005.

FISCAL IMPACT

The estimated available fund balance of $2,222,410 as of June 30, 2005, presented at the Mid-Year review in February, 2005, is now estimated to be $2,616,861.  However, for the period ending June 30, 2006, it is expected that the General Fund will have a recurring deficit of $348,471, and an undesignated fund balance of only $23,508.  As presented to Council on April 19^th and May 10^th, staff recommends using the PERS Stabilization Fund to close the recurring deficit.

For FY 2005-06, the estimated recurring revenues are $122,724,878, and recurring appropriations are expected to be $119,266,119.

The key drivers to continued increasing costs are Memorandum of Understanding (MOU) agreements with bargaining units, and PERS rates for Miscellaneous employees.  Revenues are expected to continue to be strong but unfortunately are not keeping up with increased costs.

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

RECOMMENDATION

Staff recommends that the City Council / Redevelopment Agency / Housing Authority / Parking Authority / Youth Endowment Services Fund Board conduct the public hearing on the Proposed Fiscal Year 2005-06 Annual Budget, Citywide Fee Schedule, and Appropriations Limit.  Staff will incorporate any City Council direction into the Budget resolutions that will be presented to the Council on June 14, 2005 for final adoption.

ATTACHMENTS:

Attachment 1                Budget Matrix & Financial Forecast

Attachment 2                Summary of Fee Schedule Changes

go to the top