PURPOSE

The purpose of this report is to present the Proposed Fiscal Year (FY) 2006-07 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 2006-07 Budget will be considered by the Council at their June 20, 2006 Council meeting.

BACKGROUND

On February 14, 2006, 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 2006-07 Budget.

On May 2, 2006, staff presented a preliminary overview of the Proposed FY 2006-07 budget, along with the five-year forecast.  The Proposed Budget documents were distributed on May 4, 2006 for Council�s review prior to their annual May Goal Setting Workshop held on May 6, 2006.

Budget Study Sessions were held on May 2, May 9, May 16, May 23, and May 30, 2006.  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 Proposed Budget by Council during the sessions affecting recurring expenditures included restoring two frozen police officer positions, adding two police cadet positions, a forensic specialist and a kennel attendant, citywide training, and ramping up of an enhanced Burbank Bus circulator.  The Council also agreed to set aside an additional $1 million for infrastructure maintenance and repairs.

GENERAL FUND�S FINANCIAL STATUS:

After incorporating all the changes recommended by the Council during the Budget Study Sessions, the following summarizes the Proposed Budget for FY 2006-07 and the Revised Proposed Budget:

Total revenues are augmented by use of unrestricted reserves (see page 8).  By no longer setting aside the incremental Utility Users Tax (UUT) and In-Lieu funds, the recurring budget is projected to have a nominal surplus of $96,635 for FY 2006-07.  On the other hand, the projected non-recurring fund balance at year end of FY 2006-07 is in a deficit position of $3,142,351.  The PERS Stabilization Fund, the Budget Stabilization Fund, and UUT In-Lieu Set Aside will be used to close this non-recurring deficit of $3,142,351.

Available Non-Recurring Unrestricted Reserves

The following is a breakdown of the estimated remaining balances for the three unrestricted General Fund non-recurring sources after balancing the budget for FY 2006-07.

�     PERS Stabilization Fund                                                                     $   62,138

�     Budget Stabilization Fund                                                                   1,371,681

�     Utility Users Tax (UUT) In-Lieu Set Aside                                           -0-----

           TOTAL                                                                                           $1,433,819

FY 2006-07 Recurring Perspective � General Fund Revenues

For the first nine months of FY 2005-06, the General Fund received $87,277,795 in recurring revenue, which represents 70.7 percent of the revised estimated revenues.  The amount and percentage of revenue collected increased due mostly to increased Property Tax, Transient Occupancy Tax, and Building Permits revenue.  Overall, the City�s recurring revenue estimates for FY 2006-07 have been increased by 5.5 percent over the adopted FY 2005-06 estimates as a result of increases in the Sales Tax and Property Tax.  Property Tax estimates are affected by economic growth as well as the reinstatement of $1,850,941 due to termination of the ERAF III payment to the State.

As a result of the aforementioned issues coupled with the actual revenues received to date, staff is recommending the following revenue estimates for the upcoming year.

GENERAL FUND � SUMMARY OF RECURRING REVENUE

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

The following are brief explanations supporting the revenue estimates listed above and compare the FY 2006-07 estimate to the original adopted FY 2005-06 estimate:

1.      Sales Tax � Sales Tax revenues are the City�s largest revenue source.  As a result of exceeding projections from last fiscal year due in part to the opening of the new Home Depot, the revenue estimate for FY 2006-07 has been increased by $1,125,141.  The Educational Revenue Augmentation Fund (ERAF) Sales Tax Shift (Item 8) will be discussed below.

2.      Property Taxes � The City�s Property Tax estimate has been revised upwards by $2,576,062 largely due to the ERAF III payment to the State terminating.

3.      Utility Users Tax (UUT) � There is a decrease of $488,303 in this revenue category from the FY 2005-06 estimate as a result of erosion in this revenue due to competition from the telecommunications industry.  This category is also at risk due to pending state and federal legislation that could remove local jurisdiction of the UUT.

4.      Service Charges (Intra City) - The increase of $869,598 in this revenue category from the original estimate is due mostly to an increased amount of General Fund cost recovery for services provided to non-General Fund entities.

5.      Services Charges � The $388,769 increase in this revenue category is due to several factors, including several fee increases for services, ranging from plan checks to development fees.  These fees are still comparable or below those of our survey cities.

6.      Burbank Water & Power (BWP) In Lieu Taxes � This revenue category increased by $248,932 primarily due to BWP�s proposed electric rate increase.

7.      Motor Vehicle In Lieu (VLF) � This estimate remains flat until updated information is available from the State Controller�s Office, although this estimate is expected to remain close to last year�s amount.

8.   ERAF Sales Tax Shift - Beginning FY 2004-05, the State redirected one-quarter cent (25%) of the local Sales Tax to the State to pay its deficit retirement bonds (�triple flip�).  In exchange, the State fully offsets this local government revenue loss 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.  For FY 2006-07, the estimate is $503,693 over the adopted FY 2005-06 estimate.

9.      Interest / Use of Money � The $777,778 increase over the FY 2005-06 estimate is a result of the anticipated improved yield on the City�s portfolio.

10.  Parking/Traffic/Other Fines - There is a modest increase of $65,000 in this revenue category over the FY 2005-06 estimate.

11.  Transient Occupancy Tax � The revenue estimate was increased by $286,240 to reflect the recovery in the travel industry.

12.  Building Permits/License Fees � This category increased by $278,529 due to continued strong building activity.

13.  Transient Parking Tax � This revenue category increased by $225,500 due to the combination of Council approving a rate increase in the tax rate to 12 percent during FY 2005-06, and the Airport area parking operators raising their parking rates.

14.  Business Taxes � This category increased by $105,000 to reflect increased fees.

15.  Franchises � The decrease of $181,928 in this revenue estimate from the FY 2005-06 adopted estimate reflects the decline in actual revenue received during FY 2005-06.  These fees are imposed on various companies using �public right-of-ways� to conduct their business operations.  Such fees include:  A 5% Franchise Fee on cable television gross receipts; 1% fee on natural gas gross receipts; a 2% fee on receipts arising from electricity transmission by private companies; and, a 2% fee on receipts arising from the use of pipelines within the City.

16.  Contribution from other Funds � The slight decrease of $58,164 reflects an overall reduction in transferred amounts from other funds.

17.  Intergovernmental Revenues � The modest $7,750 decrease in this revenue category is the result of the uncertainty of timing of grants and state mandated program reimbursements.

FY 2006-07 Recurring Perspective � General Fund Appropriations

The following are the main components included within the FY 2006-07 Proposed General Fund Budget:

• An estimate $3.2 million for anticipated Memorandum of Understanding costs is included.

• General Fund departments were asked to reduce their discretionary budgets by 1 percent from last fiscal year, equating to $953,855.  Through reductions in salaries/benefits, MS&S, and increased fees (revenue offsets were allowed at 50% towards reductions), $799,993 was achieved overall, or 84 percent of the target.

• Overall, the internal service funds increased less than $1 million (workers compensation insurance, general liability insurance, vehicles, office equipment, communication equipment, computer equipment).

• From FY 2003-04 through FY 2005-06, departments were allowed to freeze positions instead of formally eliminating them from their budgets; these frozen positions were considered budgetary reductions.  These positions were still budgeted in the personnel budget system, and then backed out manually and the dollars were put into salary holding accounts (departments were not allowed to use these funds).  However, starting in FY 2006-07, the positions are officially removed from the personnel budget system entirely

• Inflationary or contractual increases to General Fund departments� Materials, Supplies & Services (MS&S) accounts beyond the departments� control were included.  The net amount of MS&S exceptions for the General Fund is $168,727 ($433,564 less $264,837 revenue offset; $221,415 is non-recurring).

• There are four new program requests:

• Library Services proposes a popular book rental program that is estimated to generate $15,000 in annual revenue (with $3,000 in startup costs and nominal future recurring cost impact).

• Library Services also proposes a computer-for-a-fee program which is estimated to generate $33,000 annually (again, nominal recurring cost impact with $2,000 in startup costs).

• Fire proposes a Fire Recruitment Academy with $242,605 in non-recurring costs.  This program proposes to train six recruits to fill anticipated vacant firefighter positions.

• Public Works proposes a reflective traffic signs five-year program with a net cost over five years of $85,000 ($125,000 gross cost less $40,000 in savings).  Each sign when replaced will save $100 per year in future labor, equipment, materials, and power usage.

• No new General Fund capital outlays are requested for FY 2006-07.

• Capital project requests include:

• Ovrom Park project                                         $851,730 (non-recurring)[1]

• Debris basin cleaning holding                       $400,000 (non-recurring)[2]

• Street/alley/concrete improvements              $727,614 (recurring)

The charts on the following page summarize the discussion papers recommended by the Council as part of the budget study session process:

The following chart provides a Citywide snapshot of the resources and appropriations for FY 2006-07:

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.

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 B.

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

Water Rate:

Burbank Water and Power proposes a 4.8 percent increase for FY 2006-07 and beyond which represents an increase of approximately $1.90 to the average residential customer.  This rate increase is requested to replenish stored groundwater credits.

Electric Rate:

Burbank Water and Power proposes an overall 3.5 percent increase for FY 2006-07 which represents an increase of approximately $2.25 to the average residential customer.  Even with the rate increase, Burbank�s residential electric rates are lower than Southern California Edison and Glendale.  The rate increase is requested to help offset the huge cost increase in natural gas which is required by the utility.

Sewer Fee:

The Proposed budget includes 9 percent rate increases for FY 2006-07 and FY 2007-08, and an 8 percent increase for FY 2008-09.  For single family dwellings, the monthly rate will increase approximately $1.44 for FY 2006-07.

Refuse Rate:

The Proposed budget includes 9 percent rate increases for FY 2006-07 and FY 2007-08, and an 8 percent increase for FY 2008-09 and FY 2009-10.  For single family dwellings, the monthly rate will increase roughly $1.71 for FY 2006-07.

Consolidation of Planning Fees:

Beginning with FY 2006-07, staff is proposing a new approach to planning application fees. The departments of Community Development, Public Works, Fire and Park, Recreation, and Community Services propose to consolidate their fees for such items as conditional use permits and variance applications.  Although revenue will be allocated to the appropriate department�s revenue accounts, the applicant will now only need to make one payment at one location.

In addition to consolidating fees, the fees charged for these applications are also proposed to be increased in order to recoup more of the City�s costs for providing these services.  These proposed fees still remain below that of comparable cities.

STATE BUDGET  - MAY REVISE 2006

The Governor released his FY 2006-07 proposed State budget on January 10, 2006 which projects that the State will be able to fund much more than a current-law budget and still maintain fiscal balance in 2006-07.  Expenditures were estimated to be $98 billion (including $4 billion in increased spending) and revenue to be $99 billion.

The FY 2006-07 Revised State Budget, released May 12, 2006 (�May Revise�) shows an even brighter picture.  The revenues are projected to increase another $7.5 billion (both FY 2005-06 and 2006-07) over the January budget which the governor proposes to spend on current programs ($4.3 billion, with $3.1 billion to schools), prepaying debt ($1.6 billion), and increasing the reserves by $1.6 billion.  Priority spending includes enhancing disaster preparedness, education and protecting the public�s safety.  The May Revise�s budget is $131.1 billion ($101 billion General Fund).

The May Revise provides for early repayment of State Mandate cost reimbursements that had been suspended and were to be repaid over a 15 year period starting in FY 2006-07 and it includes two years worth of payments for a total of $170 million.  For mandate payment claims made for FY 2005-06, there is $90.3 million included in the May Revise.  The amount due to Burbank is unknown at this time.  The May Revise also appropriates $270,000 for a commission whose purpose will be to reform the State mandate process.

Items contained in the May Revise that affect Burbank�s public safety are increased funding for the Citizens� Options for Public Safety (COPS) program.  Although booking fees (now known as �jail access fees�) were restored, they were restored only to counties (Burbank had been receiving $12,772 until it terminated July 1, 2005).

The Legislative Analyst�s Office (LAO), while encouraged by the State�s strong revenue performance, urges that the Legislature keep its focus on regaining long-term fiscal balance.  The State still has operating budget shortfalls of roughly $3.5 billion in both FY 2007-08 and 2008-09, before dropping to $1 billion in 2009-10.

The May Revise was released one week after the Legislature passed a $37.3 billion infrastructure investment package from which cities will benefit from a number of specific proposals. These include the early repayment of $920 million in Proposition 42 funds that were borrowed from transportation projects (Burbank will receive $445,694 FY 2006-07); $98 million proposed reimbursement to local governments of State mandated programs; $23.3 million increased funding for the COPS; and a number of other items.  The only known dollar impact to Burbank from this package is $3.4 million for transportation and infrastructure improvements.  This measure will go before the voters on November 7, 2006.

GANN INITIATIVE APPROPRIATION LIMIT

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

The City�s FY 2006-07 appropriation limit is estimated to be $136,356,986.  The actual amount of the appropriations contained in the budget that is subject to the limit is $99,833,207.  The difference between the City�s appropriation limit and the amount subject to it is $36,523,778.  As a result, the City is well below its appropriations limit.  The exact figures will be calculated and made available after the Council adopts the budget on June 20, 2006.

FISCAL IMPACT

The estimated available fund balance as of June 30, 2006 is projected to be $2,412,203.  For the period ending June 30, 2007, it is expected that the General Fund will have a recurring balance of $96,635, and a deficit of $3,142,351 for the non-recurring budgets.  Staff proposes using the unrestricted reserve funds to close the non-recurring deficit.

For FY 2006-07, the estimated total resources are $132,640,529, and total appropriations are expected to be $132,543,894.

The key driver to continued increasing costs are related to Memorandum of Understanding (MOU) agreements with bargaining units.  Revenues are expected to continue to be strong but unfortunately are not expected to keep up with increased costs.  As the following graph illustrates, at the end of FY 2010-11, the budget gap between recurring expenditures and revenue is projected to be $4.4 million.

The following chart shows the expected recurring expenditures and revenues over the next five years:

The adoption of the Budget sets the initial appropriations for the new fiscal year.  For FY 2006-07, appropriations have been balanced against estimated revenue and other sources of funding, such as reserves.

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 2006-07 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 20, 2006 for final adoption.

ATTACHMENTS:

Attachment A               Budget Matrix & Financial Forecast

Attachment B               Summary of Fee Schedule Changes

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