HomeMy WebLinkAboutb22013-14midyrbudgetreview
FROM: Katie Lichtig, City Manager
Wayne Padilla, Director of Finance & Information Technology
Joe Lamers, Budget Manager
SUBJECT: 2013-14 MID-YEAR BUDGET REVIEW
RECOMMENDATION
1. Review and discuss the City’s financial condition and status of Major City goals at the mid-
point of 2013-14.
2. Approve revenue and expenditure changes presented in the accompanying Mid-Year Budget
Review document.
3. Provide direction regarding the proposed uses of the General Fund excess reserve over the 20%
level.
REPORT IN BRIEF
The City of San Luis Obispo has received national recognition for its use of a two-year budget
process that involves the community in the goal-setting process, emphasizes long-range financial
planning and supports effective program management. In its discussion about the City’s current
financial status and forecast this report addresses a number of significant issues as shown below.
The most recent end-of-year financial results from 2012-13 coupled with a review of current
year revenue and expenditure trends were considered in the development of the forecast that is
shown for 2013-14. The current forecast shows:
• For the General Fund, on-going revenues are projected to increase by $2.4 million this
year over the original budget while one-time revenues, which include grants and mutual
aid reimbursements, have grown by $1.1 million over the original budget amount.
• Development Fee programs continue to realize increases in funding this year in
significant amounts.
• Prior year encumbrances and capital project account balances have been reflected in the
current year expense budgets for all funds when applicable.
Three General Fund supplemental funding requests totaling $955,000 in 2013-14 have been
received from departments to provide one-time and on-going resources needed to accomplish
critical functions. These requests are described in detail later in this report and also in Section C
of the Mid-Year Budget Update.
The General Fund reserve exceeds the 20% level by $6.7 million, before considering the
supplemental funding requests referred to above. The report provides recommendations for the
use of a portion of this amount for additional one-time purposes.
2-18-14
B2 - 1
2013-14 Mid-Year Budget Review Page 2
Finally, this report identifies a number of uncertainties that must be monitored and considered in
the future as they become more defined. These include:
• The changing actuarial assumptions being considered by the California Public
Employees Retirement System (CalPERS) later this month that will increase employer
rates starting in 2016-17 and those that were adopted by CalPERS in April 2013 that will
change employer rates starting in 2015-16.
• The changes in on-going premium levels charged by the California Joint Powers
Insurance Authority for liability and workers compensation insurance coverage.
• The possibility for recurring retrospective charges from the CJPIA related to liability and
workers compensation claims experience.
• The potential for an adjustment in the amount of Franchise Fee revenues that are
generated from the City’s two utility funds as the result of a current review of the basis
on which those fees are charged.
DISCUSSION
The City’s two-year Financial Plan process calls for the submittal of a formal financial status
report to the Council every six months. The accompanying Mid-Year Budget Review for 2013-14
meets this requirement and provides a comprehensive overview of the City’s fiscal condition at the
mid-point of the current fiscal year.
Background: Purpose of the Mid-Year Budget Review
For routine fiscal monitoring, all departments have on-line access to real time accounting
information. Financial reports are issued monthly to key staff members and quarterly financial
reports are distributed to the Council and staff. Additionally, the Finance and Information
Technology (IT) Department issues regular reports to the Council and staff and the community on
key revenues such as sales tax, transient occupancy tax and investments, as well as ad hoc reports as
needed.
The preparation and submittal of a formal financial review at the mid-point of the fiscal year
provides an opportunity to take a broader look at the City’s financial picture and identify
recommended adjustments to make the city-wide 2013-14 budget reflect current assumptions and
trends.
Report Organization
The accompanying Mid-Year Budget Review is organized into five main sections:
Section A: Transmittal Memorandum: Provides a narrative overview of the City’s fiscal
environment and a narrative of key changes made to revenue projections as a result
of this review.
Section B: Financial Condition Summaries: Provides comprehensive presentations and
updates of projected revenues and expenditures based on staff’s best and most
prudent professional judgment applied to current conditions. Beginning fund
balances/working capital balances have been updated using the audited 2012-13
results. Projected ending balances for 2013-14 have been forecast using the revised
B2 - 2
2013-14 Mid-Year Budget Review Page 3
budget estimates. Council action is required to approve certain revenue and
expenditure items that are part of the forecast changes.
Section C: Mid-Year Requests: Provides detailed supporting documentation for the requested
mid-year budget adjustments submitted by various departments. These requests
require affirmative action on the part of Council to be approved.
Section D: Recent financial and revenue reports: Provides the most recent quarterly
investment report, quarterly Sales Tax newsletter, and monthly TOT report.
Section E: Status of Goals and Objectives: Contains the report on the second update to the
status of progress made on Major City Goals and Other Council Objectives as well
as the status of major Capital Improvement Plan (CIP) projects. This includes
recommended “Action Plan” revisions as discussed in the report.
Summary of Mid-Year Budget Review Results
After reviewing the City’s audited results for 2012-13 and the year-to-date revenue activity, the
mid-year review revealed the following with regard to the original 2013-14 budget:
Revenues and Inter-fund Transfers-In:
• The General Fund revenue projections have been updated and key changes are
described starting on page A3 of the Transmittal Letter contained in the Mid-Year
Budget Report. On-going revenue sources reflect changes that resulted in a net
increase of approximately $2.4 million or 4.4% over the original budget. Of that
amount $904,000 is from an increase in the forecast for development review fees.
One-time revenues, which include grant sources and mutual aid reimbursements,
increased by $1.1 million over the adopted budget amount. Combined, these changes
resulted in a 6.4% overall increase in revenue over the original budget. The following
represent changes to the transfer in transactions for the General Fund:
o The state released its forecast for Gas Tax revenues earlier this month and it
indicates that the city will be receiving $75,000 less this year compared to the
original budget. The transfer-in from the Gas Tax Fund has been adjusted
accordingly.
o The General Fund received a $9,000 transfer-in from the General Capital
Outlay Fund to help with the cost of remodeling the Marsh/Broad Streets
restroom in order to make it available during the late evening hours.
• The Community Development Block Grant (CDBG) Fund forecast is recognizing an
adjustment to the current year grant allocation in the net amount of $2,500.
Previously allocated but unspent grant allocations were rolled over to the current year
in the amount of $741,900 to match previously programmed project costs which were
also rolled over in accordance with the city’s capital project budgeting policy.
• The Law Enforcement Grant Fund is recognizing $120,000 from the Public Safety
Liaison Officer Program which funds an equal amount of cost for county probation
services under a multi-agency agreement. An additional $205,000 is being
recognized from a grant received from the Office of Traffic Safety to pay for
B2 - 3
2013-14 Mid-Year Budget Review Page 4
additional enforcement costs. Both of these items were previously approved by the
City Council.
• The Gas Tax Fund will realize $75,000 less revenue this year compared to the
original budget according to the latest forecast provided by the state.
• The Public Art Capital Fund is reflecting a donation received toward the cost of the
Library Mural in the amount of $500. The fund has also received $84,000 in Public
Art fees so far this year and the forecast anticipates that up to $100,000 will be
received. The original budget did not anticipate the receipt of development fees. The
fund is also reflecting a transfer-in from the General Fund in the amount of $18,185.
This amount represents the City’s annual set-aside for public art which is determined
based on eligible general capital outlay projects. This amount was not identified and
included for funding at the time that the current year budget was adopted.
• The Insurance Benefit Trust Fund’s adopted budget reflected a transfer-in from the
enterprise Funds totaling $644,000 to cover the cost of the first installment payment
owed to the California Joint Powers Insurance Authority for the retrospective deposit
that is owed for past years’ liability program charges based on an analysis of coverage
years up to 2009-10. When staff completed the 2012-13 fiscal closing process, it was
determined that the enterprise funds were required to report their obligation to repay a
portion of the deposit at June 30, 2013. As a result, each fund was separately charged
for their share of the expense last year. Since that occurred, and since the payment
has been made to the CJPIA directly by the enterprise funds, the obligation contained
in this year’s budget to transfer that expense to the Insurance Benefit Fund must be
removed to avoid charging the funds twice for the same expense.
• The Sewer Enterprise Fund revenue forecast contains the assumption that the rate
structure requiring schools to pay for sewer service based on average daily attendance
values will change after the public hearing to allow the school sites to be billed on the
basis of a flow-based charge, which is the same method used for other commercial
users. Under the forecast assumption, sewer charge revenues will decrease by
approximately $65,000 this year as a result of this rate change. On an annual basis,
the estimated revenue decrease is between $200,000 to $225,000.
• The Transit Enterprise Fund revenue forecast is recognizing $10,779 received as a
reimbursement for damages to a bus shelter. This is offset by an equal amount of
repair expense.
• The Water Enterprise Fund revenue forecast is reflecting a decrease in the estimated
interest earnings for the year to reflect the current estimated amount. The proposed
reduction is in the amount of $119,200.
• The Tourism Improvement Board Fund’s revenue from assessments is tied to the
growth level that is forecast for the Transient Occupancy Tax in the General Fund. As
a result, the annual assessment revenue is forecast to increase by $48,100 which
represents a 4.2% increase over the original budget estimate.
B2 - 4
2013-14 Mid-Year Budget Review Page 5
• The Transportation Impact Fee Fund’s original budget estimate for impact fees was
set at $712,000 while actual receipts to date exceed $820,000. The proposed budget
reflects an increase of $188,000 for a total of $900,000.
• The Fleet Replacement Fund’s original budget contained an estimate for the amount
of proceeds that would be received from the lease purchase of a new fire engine. The
actual cost of the fire engine was lower than the original budget amount which also
lowered the amount borrowed under the lease purchase agreement by $24,549. As a
result, the forecast reflects this amount of decrease in the lease purchase proceeds
account.
• The Parkland Development Fund’s adopted budget did not include an estimate for in-
lieu fees; however, the year-to-date actual receipts are material. The proposed budget
forecast includes an estimate for dwelling unit fees in the amount of $1,200 and the
Park in-lieu fees are estimated at $85,000.
• The Open Space Acquisition Fund’s current year fee receipts total $21,000. The
proposed budget reflects a forecast of $25,000 for the year.
• The Airport Area Impact Fee Fund’s year-to-date receipts of impact fees are in excess
of $255,000. The proposed budget reflects a forecast of $300,000 for the year.
• The Los Osos Valley Road Impact Fee Fund currently reports that a total of $3,100
has been received and this is equal to the forecast amount shown in the proposed
budget.
• The Affordable Housing Fund has received Inclusionary Housing Fees in excess of
$623,000 and the proposed budget reflects a forecast of $650,000 for the year.
• The Parking Enterprise Fund’s original interest income estimate has been found to be
too high in light of current conditions. As a result, the budget forecast reflects a
decrease to the original budget estimate of $84,700.
Council action is required to affirm certain items contained in the summary schedule that is
provided in Section B of the Mid-Year Budget Update which reflect changes to the revenue
forecast and the transfers in/out that have not been previously approved by prior Council action
or by the City Manager under the authority of that office. These items are shown in the column
labeled “Pending Approval.”
Expenditures and Transfers-Out:
As part of the process of transitioning from one fiscal period to the next, the budget procedures
provide for the carryover of unspent capital project monies into the new year. For all affected
funds, this has been accomplished and is reflected in the summary schedule that is provided in
Section B of the Mid-Year Budget Update. In addition, encumbrances representing existing
obligations to outside vendors for work in progress for various activities that were underway in
2012-13 have also been rolled over to the current year and the budget for expenditures has been
B2 - 5
2013-14 Mid-Year Budget Review Page 6
increased accordingly. The details of these encumbrances are listed in the same summary
schedule that is contained within Section B of the Mid-Year Budget Update document.
Various items that have been previously approved by Council action or by the City Manager
under the authority of that office have been included in the budget of the affected fund when
approved. These are also listed in the summary schedule of changes to expenditure contained in
Section B of the Mid-Year Budget Update document.
There are two items that affect all funds which have staffing costs. The first is an adjustment
that is required to be made to properly reflect the full cost of the required annual contribution for
the retiree medical program. At the time the 2013-14 budget was drafted, a portion of the annual
required contribution was not included in the total annual cost that is shared with all funds that
have staffing costs, due to an oversight when interpreting the actuarial report. This fact was
discovered during the closing of the 2012-13 financial records. The total additional expense that
is to be added to the city-wide budget is $219,730. This amount is similar to that which was
budgeted in the past using the actuarially defined costs. The narrative below identifies the
amount that applies to each fund.
The second adjustment reduces the amount that was budgeted city-wide for the cost of
Unemployment Insurance benefits by $101,400. The city’s experience level has been much
lower than the expense forecast, allowing this reduction to occur. The amount applicable to each
fund is shown below.
The following items represent changes made to the expenditure budgets of the various funds and
departments shown.
General Fund
• Finance & I.T. - $2,542 in overtime costs were incurred when a staff member was
sent to assist with a mutual aid fire response to provide GIS tracking of the fire lines.
This amount is offset by an equal amount of revenue.
• Fire Department - $225,649 was incurred for mutual aid service costs. This is offset
by an equal amount of reimbursement revenue; The City administers the county-wide
hazardous material mitigation program and is reimbursed for the cost of the part-time
business manager. During the first 6 months of this year, the cost of this position was
$5,903 and the City received reimbursement for that amount.
• Risk Management – Reduce appropriations by $46,800. This amount was included in
the budget as an estimate for interest on the retrospective deposit owed to the
California Joint Powers Insurance Authority. No additional payments are due until
July 2015 and the amount is fully funded in that year.
• The retiree health insurance adjustment is $173,220 and the unemployment insurance
cost reduction is $83,359 for the General Fund.
• Transfer Out - Each year the set-aside for public art is determined based on eligible
general capital outlay projects. This amount has been identified ($18,185) but was
not funded at the time that the current year budget was adopted. This amount, if
B2 - 6
2013-14 Mid-Year Budget Review Page 7
approved, will come from the General Fund reserve. Because of increasing General
Fund revenues projected for the rest of this year, approval of this transfer will not
have a significant impact on the General Fund’s undesignated reserve.
Community Development Block Grant Fund
• The retiree health insurance adjustment is $600.
• The unemployment insurance cost reduction is $223.
Law Enforcement Grant Fund
• The unemployment insurance cost reduction is $422.
Gas Tax Fund
• The current estimate for Gas Tax revenues provided by the state indicates that the
City will be receiving $75,000 less than the amount contained in the original budget.
The transfer-out to the General Fund has been adjusted accordingly.
Tourism Business Improvement District Fund
• The retiree health insurance adjustment is $900.
• The unemployment insurance cost reduction is $149.
Insurance Benefit Fund
• As explained in the revenue section, the originally established payment ($644,100) to
the California Joint Powers Insurance Authority for the first installment of the
retrospective deposit was included in the adopted budget for this fund. The amount of
the payment was to be provided by the Enterprise Funds via inter-fund transfer during
the current year; however, the obligation was required to be reported in the enterprise
funds as an expense of the 2012-13 year under Generally Accepted Accounting
Principles. As a result, the payment appropriation should be removed from the
expenditure budget.
Water Enterprise Fund
• The fund’s share of the above mentioned retrospective deposit ($253,900) is being
removed from the budget due to the expense being recorded in the prior year.
• The fund’s budgeted obligation to the Nacimiento water program is being lowered by
$282,000 based on the annual funding requirement set by San Luis Obispo County,
after the current budget estimate was adopted.
• The retiree health insurance adjustment is $17,430.
• The unemployment insurance cost reduction is $6,243.
Parking Enterprise Fund
• This fund’s share of the retrospective payment to the CJPIA was $83,500 and was
reported in the 2012-13 year as described above and therefore is being removed from
the budget.
• The retiree health insurance adjustment is $5,850.
• The unemployment insurance cost reduction is $2,702.
B2 - 7
2013-14 Mid-Year Budget Review Page 8
Sewer Enterprise Fund
• The Sewer Fund owed $258,300 for the CJPIA retrospective deposit. This amount was
reported as an expense in 2012-13 and therefore must not be shown as an obligation of
the current year.
• Based on the recently completed financing of the Water Resource Recovery Facility
(WRRF) Energy Improvement Project, the actual debt service obligation is different from
the amount budgeted and the debt service appropriation is being lowered by $477,100 to
match the actual obligation.
• The budget for the WRRF Energy Project ($8,947,000) is being established at this time to
create the project budget that will carry forward until the project has been completed.
• The retiree health insurance adjustment is $18,330.
• The unemployment insurance cost reduction is $6,861.
Transit Enterprise Fund
• This fund’s share of the retrospective payment to the CJPIA was $17,600 and was
reported in the 2012-13 year and therefore must not be shown as an obligation of the
current year.
• The retiree health insurance adjustment is $1,200.
• The unemployment insurance cost reduction is $520.
Whale Rock Commission
• This fund’s share of the retrospective payment to the CJPIA was $30,800.00 and was
reported in the 2012-13 year and therefore must not be shown as an obligation of the
current year.
Fleet Replacement Fund
• The actual cost of the fire engine will be $24,549 less than originally shown in the
budget. The proposed budget reflects this change in spending assumptions.
Council action is required to affirm certain items contained in the summary schedule that is
provided in Section B of the Mid-Year Budget Update which reflect changes to the expenditure
forecast that have not been previously approved by prior Council action or by the City Manager
under the authority of that office. These items are shown in the column labeled “Pending
Approval.”
Fund Balances and Working Capital Totals
Following the completion of the City’s Comprehensive Annual Financial Report, staff reviewed
all of the final fund balance and working capital totals to establish the new amounts that are
reflected in the mid-year budget. These amounts and the amount of any change from the original
estimate used for the 2013-14 original budget are shown in the Change in Financial Position
documents which are included in Section B of the Mid-Year Budget Update document.
Based on the 2012-13 financial results reported in the Comprehensive Annual Financial Report,
the General Fund’s unrestricted reserve grew by $4.5 million more than the budget estimate for
that year. A report given to the City Council indicated that the increase in the unrestricted reserve
was $5.1 million more than the budgeted forecast, but this did not take into the increase in the
B2 - 8
2013-14 Mid-Year Budget Review Page 9
reserve for encumbrances ($373,000) and the amount retained in the debt service reserve
($331,600) which increased the restricted portion of the total fund balance. Part of the overall
increase in the unrestricted reserve is due to a one-time adjustment of $1.8 million made directly
to the fund balance in order to recognize accrued sales taxes according to the calculated value by
the State. Going forward, sales taxes will remain in line with the normal budget forecast growth
trends and no significant adjustments to the year-end accrual will need to be made.
Based on the current financial projections, the City’s General Fund will exceed its 20% unrestricted
reserve level requirement throughout the 2013-15 Financial Plan period. As mentioned above, the
reserve amount in excess of the 20% requirement, estimated at $6.7 million, is available for one-
time projects and programs. After consideration of the following supplemental funding requests,
$5,810,000 remains available for additional one-time expenditures. More detail is provided later in
this report on other possible use of this available resource for the Council’s consideration.
Supplemental Funding Requests
Section C of the Mid-Year Budget Update document contains detailed information on the three
supplemental funding requests that have been received, all coming from General Fund departments.
These requests meet the criteria to qualify for supplemental funding by having a critical relationship
to one or more major city goals, not having existing support from current appropriations and
requiring urgent action in order to meet existing service delivery expectations. The table below
represents the proposed 2013-14 funding amounts related to each request and the proposed source
of funding.
As indicated above, the complete details of each request are shown in Section C of the Mid-Year
Budget Update document. Below is a brief description of each request.
Fire Vehicle Mechanic program - This request is being made to provide adequate funding for the
recruitment and retention of a qualified fire vehicle mechanic and the development of an apprentice
program that would create a line of succession for this position which has been extremely difficult
to fill. An additional amount is also being sought to supplement the Fire Department’s budget with
$26,000 for fleet maintenance costs at this time due to the limited funds available to continue
maintenance of emergency equipment. This portion of the funding request is being treated as a one-
time cost since the situation will be addressed at the time the supplemental budget is prepared for
2014-15, thereby limiting the on-going impact to the General Fund to the current year. Future on-
going costs will be $157,000 in 2014-15 and will escalate by approximately $4,000 per year after
that.
Quickest Route Automatic Vehicle Locating Software – This request is made to obtain a
software component to the current fire dispatch software that will allow dispatchers to see which
emergency vehicle is closest to the current call for service and route that vehicle to the call,
potentially saving minutes in the department’s response time to life-threatening emergencies
compared to the dispatch system’s current capabilities. This has a one-time acquisition cost of
$20,600 and future licensing fees of approximately $800 per year that will be absorbed into the Fire
Department’s operating budget with no increase in appropriations required in the future.
B2 - 9
2013-14 Mid-Year Budget Review Page 10
Development Services Funding Request – This request follows on the presentation made by
the Community Development Director to the City Council in September 2013 about significant
workload impacts affecting the Community Development, Fire and Public Works Departments
stemming from the large number of development applications that had been received up to that
time. Since then, the number of development applications has continued to grow, increasing the
workload on both the existing staff and the contractors hired to provide supplemental assistance.
This increase in applications is also reflected in the growth in development revenue which is
expected to exceed the current budget estimate by more than $900,000. This submission is both
a recap of the activities that have taken place since September 2013 showing how the funding
allocated at that time have been utilized and a request to utilize the additional revenues that are
forecast to be received in excess of the existing budget for the remainder of this year. Staff is
also requesting to return to the City Council in June during the Supplemental Budget review
hearings with a policy for the future identification of development fees in excess of the budgeted
amount and the timely appropriation of those amounts in order to adequately fund the required
service levels needed to serve the development application process.
On-going expenses stemming from this request represent the additional salary and benefit costs
associated with extending three existing positions from 75% time worked to full-time
employment and covering the 50% cost of the Principal Transportation Planner that is currently
paid by the Parking Enterprise Fund, but due to workload demands from new development can
no longer be justified. On-going costs extending beyond 2013-14 increase from $50,100 to
$130,600 in 2014-15 and increase by approximately $3,400 per year thereafter.
Limited term expenses related to this request include funding for a Contract Special Projects
Manager in the Community Development Department and development services legal support
obtained through a consultant services contract. These expenses are estimated to be $54,000 in
2013-14 and $196,000 in 2014-15 but are not currently expected to continue beyond that year.
These costs are proposed to be paid from the excess over the 20% reserve amount since they are
not directly tied to the development review fee program but are vital to supporting that process
and ensuring that other priorities are attended to in a timely manner. Additional limited term
expenses spanning 2013-15 are being requested in the total amount of $992,400 to extend the
current contractor and temporary staffing support that was implemented with Council’s support
of the department’s request in September 2013. If approved, these expenses would be paid from
on-going development fee revenues.
Proposed Uses of Excess Reserve Over 20%
In addition to the supplemental funding requests received, staff is proposing the following as
possible uses of the remaining amount of the excess reserve over the 20% level:
$3.0 million to pay down unfunded liabilities. This could be applied either to the $24 million
side-fund liability that exists in the California Public Employees Retirement System (CalPERS)
safety program or the retrospective deposit balance in the amount of $2.025 million that exists at
the California Joint Powers Insurance Authority. Further analysis with regard to the CalPERS
side-fund amount and options will be brought back to the City Council in April.
$1.7 million to backfill for Measure Y revenues in 2014-15 if needed. As staff indicated in its
report to the City Council on January 21st and the Council concurred, one of the options to be
considered for preserving services in 2014-15 in the event that the Measure Y revenue stream
B2 - 10
2013-14 Mid-Year Budget Review Page 11
does not continue beyond March 2015 would be to use a portion of the existing reserve amount
that exceeds the 20% level.
$435,000 for street paving and the paving of the Sinsheimer stadium parking lot.
• Additional funding is needed in the street rehabilitation and reconstruction account to more
fully fund paving in Areas 6 and 7, including the completion of required ADA curb ramps in
the project area. This additional funding would help complete the neighborhood paving
needs in these areas.
• The Sinsheimer Parking Lot project budget was reduced in the 13-15 Financial Plan by
$50,000. In addition, increased requirements relative to the Municipal Stormwater Permit
result in a current project deficit of $80,000.
$250,000 to be set aside as a matching grant future use in acquiring land at 40 Prado Road
for the homeless services center as proposed by Community Action Partners of San Luis
Obispo County (CAPSLO). This assumes that other agencies, including the county and the
newly formed Homeless Foundation of San Luis Obispo County contribute their fair share. The
amount of the city’s contribution could be reduced depending on the final tally of contributions
provided by other cities in the county. Yet this set-aside may be used to achieve this aspect of
the Homeless Major City Goal if required.
$250,000 to be used to begin the city hall reconfiguration to provide an elevator for public
use and to consolidate two public service counters on the main floor.
$100,000 for the creation of an employee development and leadership program in
conjunction with the county. The City is in discussions with the County of San Luis Obispo
regarding the possibility of collaborating to provide a cost effective and progressive approach to
leadership development for the two organizations (City and County). Collaborating with the
County allows the City to participate in providing a three-tiered leadership development model
that includes supervisory, management, and executive academies with classroom training,
experiential learning activities, guest speakers, and coaching. The model would be provided
through a group of consultants based on proven public sector competencies and regularly
evaluated for effectiveness. While certain aspects of the leadership development program may
be tailored for City or County specific needs, the economy of scale offered by this collaboration
allows both organizations and our community to benefit from a program that otherwise would
not be affordable for the City. Staff is requesting $100,000 of the one-time funds in excess of
policy reserve to be designated for the purpose of “seeding” this program. Staff is in preliminary
discussions with the County and consultant and therefore, does not have a complete estimate of
costs and timeline for roll-out but is confident this amount will get the program up and running.
Financial Uncertainties
The purpose of the mid-year review is to provide an update on the status of known or newly
identified potential changes in the City’s revenue and expenditure trends. As of the date of this
report, the following issues have been identified.
• The California Joint Powers Insurance Authority (CJPIA) staff recently updated their
estimates of liability and workers’ compensation coverage for 2014-15 from estimates
B2 - 11
2013-14 Mid-Year Budget Review Page 12
previously provided and included in the 2013-15 Financial Plan. As a result, the premium
for liability coverage will be $13,000 or approximately one percent more than the original
estimate budgeted while the premium for worker’s compensation coverage will be
$42,500 or approximately three percent more than the original estimate budgeted. Based
on further information received from CJPIA, it appears that liability insurance premiums
will grow a 5% and workers compensation premiums will grow by 8% each year, starting
in 2015-16.
• In addition to the insurance premium increases, the CJPIA has notified the City that the
latest retrospective adjustment of coverage years including 2011-12 has resulted in new
charges for both the liability and workers compensation insurance programs that must be
paid in July 2014. The additional charge for the liability program is $39,300 and the
additional charge for the workers compensation program is $442,700. Given the nature
of the retrospective adjustment process, it is possible that additional charges could be
identified in the future.
• Last April, the CalPERS Board adopted a new rate structure intended to provide a
funding formula that ensures that all plans are fully funded within a fixed 30-year period.
This formula makes a number of other changes in assumptions that have long been held
by CalPERS, including a change to a 25 year period for recognizing market gains and
losses and the use of a 5-year window to implement rate changes (smoothing). CalPERS
has provided estimates for the range of costs that will be incurred after the new employer
rates take effect starting in 2015-16. Based on these estimates, the additional costs in
2015-16 could be $201,000 for the Miscellaneous plan and $273,600 for the Safety Plan.
By the e nd of that year, the City will have set-aside $740,000 from a self-assessed charge
that begins in 2014-15 at 1% of staff wages and grows to 2% starting in 2015-16. By
2017-18, the higher employer rates could create additional costs totaling $1.5 million,
which would exceed the set-aside amount by $930,000. This additional cost potential has
not been built into the Five Year Fiscal Forecast.
• As a result of a demographic and economic experience study, PERS actuaries are
recommending to the PERS Board the adoption of changes in plan assumptions that will
lead to rate increases. The study found that more employees were retiring than previously
assumed and that retirees were living longer in retirement. It is also being recommended
the PERS Board adopt an updated mortality index which will help assumptions align with
mortality improvements. If approved by the PERS Board, the rate increases would first
take effect in FY 2016/17. Board policy calls for a five year ramp up of rate increases
stemming from assumption changes, which means the full impact of these changes
wouldn’t be phased in until FY 2020/21. Preliminary estimates from PERS project the
employer cost could increase (as a percentage of salary) from 0.9% to 1.9% for
Miscellaneous and 1.9% to 3.3% for Safety in the first year and increase to 3.1% to 6.5%
for Miscellaneous and 5.3% to 9.3% for Safety in the fifth year.
The range of potential cost increases from these rate changes for the Miscellaneous and
Safety plans are shown in the table below. The low end of the employer rate change
estimate for both plans is shown in the column labeled “Low” while the upper end of the
range estimate for the two plans is shown in the column labeled “High”. These cost
assumptions have not been included in the Five Year Fiscal Forecast. It is important to
note that the staffing costs contained in the 5 Year Fiscal Forecast do not reflect
assumptions for savings that will be achieved when new staff is hired and they become
members of either the 2nd or 3rd tier retirement programs, which have a lower overall cost
B2 - 12
2013-14 Mid-Year Budget Review Page 13
to the city. This means that the current expense forecast is already carrying some excess
costs and the actual savings built in will help to partially offset some of the increases to
employer rates that are shown below.
Estimated Additional CalPERS Employer Costs from 2014 Actuary
Recommendations
2016-17
2020-21
Low High
Low High
Miscellaneous $133,000 $281,600
$511,300 $1,072,000
Safety $213,700 $371,200
$665,900 $1,168,500
$346,700 $652,800 $1,177,200 $2,240,500
• Staff identified the need to analyze the franchise fees charged to the water and sewer
utility funds to ensure that they are being charged appropriately and are commensurate
with the impacts placed on public infrastructure. The outcome of that analysis and the
impact on current and future revenues from this revenue source are not known at this
time. The total fees generated equal $1.03 million in the current fiscal year.
City-wide Perspective in the Mid-year Update
While the Mid-Year Budget Review primarily focuses on programs and projects financed through
the General Fund, it does contain relevant information regarding any projected changes affecting the
City’s enterprise funds. Consistent with the City's policy of annually reviewing the enterprise fund
rates, a comprehensive analysis will be presented in June 2014 addressing rate and revenue issues in
the Water, Sewer, Parking, and Transit funds.
Major City Goal Update
The Mid-Year Budget Update document also includes in Section E a status report for Major City
Goals and the progress toward accomplishment of the work program as defined by the Council.
SUMMARY
After evaluating the fiscal environment described above, along with the submissions of the
various departments, staff recommends that the City Council should consider and approve the
three operating program supplemental funding requests submitted as part of this Mid-Year Budget
Review. Together these General Fund requests total $954,800 for 2013-14.
ATTACHMENT
1. Mid-Year Budget Review for 2013-14 (Available on the City Website and distributed under
separate cover to City Council)
2. Resolution
B2 - 13
Attachment 2
RESOLUTION NO. (2014 SERIES)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
APPROVING CHANGES TO THE 2013-14 BUDGET, INCLUDING THE APPROVAL OF
SUPPLEMENTAL FUNDING REQUESTS AND PROPOSED USES OF THE GENERAL FUND
RESERVE THAT EXCEEDS THE 20% MINIMUM LEVEL
WHEREAS, on June 17, 2013 the City Council approved the 2013-15 Financial Plan and the
2013-14 budget;
WHEREAS, in accordance with the City’s Budget and Fiscal Policies, staff has completed a
review of the city’s revenue and expenditure trends and has developed changed forecast amounts
which are explained and compiled in the Mid-Year Budget Review; and
WHEREAS, the City Manager has recommended the approval of three supplemental funding
requests received from the Public Works, Community Development and Fire Departments.
NOW, THEREFORE, be it resolved by the Council of the City of San Luis Obispo that:
1. The revised revenue and expenditure forecast amounts for 2013-14 identified in the Mid-Year
Budget Review presented on this date are hereby adopted as the current forecasts for 2013-14.
2. The supplemental funding requests for the operating programs of the Public Works, Community
Development and Fire Departments are hereby approved.
3. The one-time uses of the General Fund reserve that exceeds the 20% minimum level have been
identified and shall be restricted for such future use as shown in Exhibit A to this Resolution.
4. The City Manager is hereby directed to make modifications to work programs, policies, and
other components of the Financial Plan to reflect consistency with funding approvals set forth in
this resolution.
******************
B2 - 14
Resolution No. _ (2014 Series)
2013-14 Mid-Year Budget Review
On motion of ___________________, seconded by _______________________, and on the following
vote:
AYES:
NOTE:
ABSENT:
the foregoing Resolution was passed and adopted on February 18, 2014.
ATTEST: _________________________________
Mayor Jan Howell-Marx
Anthony Mejia, City Clerk CMC
APPROVED:
Christine Dietrick, City Attorney
B2 - 15
Resolution No. _ (2014 Series)
2013-14 Mid-Year Budget Review
Exhibit A
Recommended one-time uses of the General Fund reserve that exceeds the 20% minimum level:
$3.0 million to pay down unfunded liabilities. This could be applied either to the $24 million side-
fund liability that exists in the California Public Employees Retirement System (CalPERS) safety
program or the retrospective deposit balance in the amount of $2.025 million that exists at the California
Joint Powers Insurance Authority. Further analysis with regard to the CalPERS side-fund amount and
options will be brought back to the City Council in April.
$1.7 million to backfill for Measure Y revenues in 2014-15 if needed. As staff indicated in its report
to the City Council on January 21st and the Council concurred, one of the options to be considered for
preserving services in 2014-15 in the event that the Measure Y revenue stream does not continue beyond
March 2015 would be to use a portion of the existing reserve amount that exceeds the 20% level.
$435,000 for street paving and the paving of the Sinsheimer stadium parking lot.
o Additional funding is needed in the street rehabilitation and reconstruction account to more fully
fund paving in Areas 6 and 7, including the completion of required ADA curb ramps in the project
area. This additional funding would help complete the neighborhood paving needs in these areas.
o The Sinsheimer Parking Lot project budget was reduced in the 13-15 Financial Plan by $50,000. In
addition, increased requirements relative to the Municipal Stormwater Permit resulted in a current
project deficit of $80,000.
$250,000 to be set aside as a matching grant future use in acquiring land at 40 Prado Road for the
homeless services center as proposed by Community Action Partners of San Luis Obispo County
(CAPSLO). This assumes that other agencies, including the county and the newly formed Homeless
Foundation of San Luis Obispo County contribute their fair share. The amount of the city’s contribution
could be reduced depending on the final tally of contributions provided by other cities in the county.
Yet this set-aside may be used to achieve this aspect of the Homeless Major City Goal if required.
$250,000 to be used to begin the city hall reconfiguration to provide an elevator for public use and
to consolidate two public service counters on the main floor.
$100,000 for the creation of an employee development and leadership program in conjunction
with the county. The City is in discussions with the County of San Luis Obispo regarding the
possibility of collaborating to provide a cost effective and progressive approach to leadership
development for the two organizations (City and County). Collaborating with the County allows the
City to participate in providing a three-tiered leadership development model that includes supervisory,
management, and executive academies with classroom training, experiential learning activities, guest
speakers, and coaching. The model would be provided through a group of consultants based on proven
public sector competencies and regularly evaluated for effectiveness. While certain aspects of the
leadership development program may be tailored for City or County specific needs, the economy of
scale offered by this collaboration allows both organizations and our community to benefit from a
program that otherwise would not be affordable for the City. Staff is requesting $100,000 of the one-
time funds in excess of policy reserve to be designated for the purpose of “seeding” this program. Staff
is in preliminary discussions with the County and consultant and therefore, does not have a complete
estimate of costs and timeline for roll-out but is confident this amount will get the program up and
running.
B2 - 16