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Home My WebLink About01-03-2012 B2 Council Reading FileCity of San Luis Obispo Issuer Credit Rating Meeting with Standard & Poor's October 14, 2011 M&city of SAn Luis osispo E4CRF COUNCIL READING CILE 75h;z- -- �� . Table of Contents I. Introductions and Purpose of Today's Meeting II. City's Management Structure III. City of San Luis Obispo Overview IV. City's Financial Overview: The New Fiscal Reality and Impact on 2011 -16 General Fund Fiscal V. Forecast City's FY 2011 -13 Financial Plan -a Path to Financial Sustainability City's Financial Management Practices Summary and Outlook Going Forward i city of �e sm lugs ompo 9 r + Section I Introductions and Purpose of Today's Meeting City's Presentation Team City of San Luis Obispo Katie Lichtig, City Manager Mary Bradley, Interim Director of Finance & Information Technology Fieldman, Rolapp & Associates Jim Fabian, Financial Advisor A city of ERN&i sAn LUIS OBlspo Purpose of Today's Meeting Introduction of City Manager and Interim Director of Finance and Information Technology Overview of how the City has weathered the "Great Recession" and impact to General Fund Financial Forecast in Describe process used by City to adopt the FY 2011 -13 Financial Plan based on "financial sustainability" Outlook going forward city of �i san Luis ompo Section II City's Management Structure City's Organizational Chart ORGANIZATION OF THE CITY OF SAN LUIS OBISPO CITIZENS MAYOR AND CRY COUNCIL cm cr" ATTORNEY MANAGER =aro ra., .ueenaieHa ux EngReemg TrleC Sally 9 fie. 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CIW W.—g.r A :d FY 2011 -13 Financial Plan includes 353.5 FTEs city of san luis ompo City Governance ® Charter City ® Council- Manager form of government ■ Council members are elected at -large and serve overlapping, four -year terms The Mayor is also elected at -large but for a two -year term, and serves as an equal member of the Council R Presently, City Council consists of: Mayor Jan Howell Marx Vice Mayor John Ashbaugh Council Member Kathy Smith Council Member Andrew Carter Council Member Dan Carpenter MY of X0 SAn Luis OBISpO a 0 Full- Service City Public Safety N Community Development • Police, Fire, and • Planning, Construction Environmental Safety Development, Natural Public Utilities Resource Protection, • Water, Recycled Water, Economic Health Sewer General Government Transportation • Legislative and Policy, • Transportation General Administration, Management, Streets, Legal Services, City Clerk, Creek & Flood Protection, Organizational Support Parking, Transit Services, Buildings & Leisure, Cultural & Social Equipment Services • Parks & Recreation, Cultural and Social Services abicity of s san Luis ompo Section III San Luis Obispo Overview City of San Luis Obispo Mountain %Ma Rosa { Central Coast of California San Francisco \ m Mid -Way Between S j(, ;e San Francisco and Los Angeles 91�aIw kJ�:am,.. i S� �$� � alley N.P:' i a isalia '? as Vega. CALIFORNIA _ �s Sm Luk ciuva .11akersfield ► lama Maria + 14 San Lake. Pacific Ocean Oxnard Bernardino Hai ' as -` City Los Angeles San Diegoo Mexicali ; n Luis Rio 000radib A Glty of � s san lugs omspo About the City Historic Mission Community Government, Business and Cultural Center of the Central Coast Vibrant Downtown —Anchored by City & County Government Centers, Retail & Entertainment businesses and Historic & Cultural destinations California Polytechnic State University at San Luis Obispo currently ranked No. 9 among California's public universities according to Forbes magazine 45,418 City Population of well- educated, highly- engaged and committed citizens ,� city of i san leis owspo Economic Base Stable and diversified economic base: • Higher Education (Cal Poly) home to approximately 20,000 students and 2,500 employees and Cuesta College home to approximately 12,000 students and 800 employees • Tourism is another economic driver, with visitors attracted to the historic mission, local vineyards, regional natural amenities • Public Utilities /Health Care /High - Technology Industries • State and Region -Wide Governmental Services • Strong retail sector anchored by downtown retail businesses, Costco, Home Depot and the newly opened Target =acity of s san tuts ompo Section IV City's Financial Overview: he New Fiscal Reality and Impact on 2011 -16 General Fund Fiscal Forecast Impact of the Great Recession ■ Reductions in all of the General Fund Major Revenues ■ Employee Benefit costs increasing while revenues stayed flat or declined ■ Overall High Unemployment and Economic uncertainty ■ Significant increases in CalPERS retirement rates beginning 2013 -14 ■ Fiscal Health Contingency Plan activated twice since 2008 city o f j still luls owsp0 Impact of the Great Recession: Aggressive Actions Implemented ■ 2007 -09 Financial Plan: $4.8 million gap closed • Expenditure reductions - 75% ■ 2009 -11 Financial Plan: $11.3 million gap closed • Expenditure reductions — 79% ■ 2010 -11 Financial Plan Supplement: $3 million "stop gap" • Expenditure reductions —100% Micity of i san Luis oBispo Tough Outlook, but San Luis Obispo positioned well: ■ Reserves at 20% of operations per adopted policy levels ■ Good information ■ Strong financial systems &policies in place Excellent Council leadership ■ Excellent organization &capable staff Great tradition of responsible stewardship i city of it san luis omspo 2011 -16 General Fund Fiscal Forecast ■ Used to identify General Fund's ability over the next five years on an "order of magnitude" basis to: • Deliver current service levels • Maintain existing infrastructure & facilities • Preserve long -term fiscal health by aligning revenues and costs • Maintain fund balance at policy levels JL city of INOM24 sin tuis ompo Forecast Methodology i--ja Took a detailed look at 15 year trends. • Demographics . Population, Housing, CPI • Revenues . Top Eight = 80% of Total: Sales tax, property tax, TOT, UUT, "VLF Swap," business tax, franchise fees, gas tax • Expenditures . Operating, CIP, Debt Service ,� city of mas san Luis osispo Forecast Methodology - continued ■ Reviewed current economic conditions • Consulted with expert advisors • Determined sustainable base for each revenue source ■ Modified expenditure assumptions for current Council direction and long -term fiscal climate ■ Used professional judgment to determine long -term outlook micity of d sxn Luis ompo Overview of Economic Assumptions Low inflation environment for five years ■ Slow economic recovery ■ Reset of revenue and expenditure base ■ Competitive grant revenues not included Development impact fees not included Reflects conservative estimate of new development Mdcity of a san Luis owspo General Fund Major Revenues maze city of san Luis OBISPO General Fund Revenue Framework • Revenue base diverse and balanced • Three major revenues are 60% of General Fund • Sales Tax • Property Tax • Transient Occupancy Tax ■ Major revenues have reached bottom and started recovery • Return will be long and moderate • All increasing except Property Tax ■ Measure Y % cent general sales tax will be reauthorized in 2014 Sodcity of a san Us owspo Sales Tax: Key Assumptions • Revenues have reached bottom • New lower sustainable base • Trend of very moderate recovery will continue ■ Base sales tax will increase by compounded rate of population & inflation over next 5 years MY Of IMWQi san Luis ompo Property Tax: Key Assumptions ■ 75% of county properties declined in value over last 2 years ■ But no significant declines in property values or major reassessments downward for this forecast ■ Gradual increases of 3 -5% in out years ■ Property Tax in Lieu of VLF will follow these projections a city of �o san leis owspo TOT: Key Assumptions ■ Revenues have bottomed out ■ Earlier recovery than other revenues ■ Positive impact of TBID and Hospitality Marketing ■ 2% growth for 2011 -12 & 2012 -13 ■ Modest increases of 3 -4% for remainder of forecast period ON&city of san Luis oBispo General Fund Expenses oftan city of san Luis OBI PO Key Expenditure Assumptions: ■ No increases beyond contractual obligations in 2011 -12 ■ Modest increases for population & inflation for rest of forecast period ■ Key driver is staffing cost increases • Goal for labor agreements is cost containment i!city of d SAn Luis omspo Revenues vs. Expenditures: Next 5 Years $62,000,000 $60,000,000 $58,000,000 $56,000,000 $54,000,000 $52,000,000 $50, 000,000 {r• ,A N CO LO C� T T T T T N N N N N Fiscal Year Fading - - - Revenues — Expenditures oft!city of m san Luis osispo Results of 2011 -16 General Fund Fiscal Forecast ■ Based on revenue assumptions and current service levels: • 2011 -12 budget gap of $2.2 million * Grows to $3 million in 2012 -13 and $3.5 in 2013 -14 • Budget gap averaged $2.6 million annually over next five years a city O� �/ San luis OBISp0 Translating the "new fiscal reality" from the Five -Year Forecast • General Fund Major Revenues have bottom -out or stabilized and modest growth is anticipated going forward • General Fund Expenditures are increasing at a higher rate than revenues due primarily to increased employee benefit costs One -time stop gap measures were not sustainable on a long -term basis City needed to invest in CI P to ensure infrastructure maintenance, fleet, building & IT assets ■ These factors resulted in an on -going General Fund budget gap of $4.4 million aft!city of " san Luis ompo Tinancial Sustainability" and the FY 2011 -13 Financial Plan Fiscal forecast projected new economic base for revenues and expenditures Recognition that the City's long -term sustainability depends more on controlling costs than on development of new revenue sources • City needed to preserve its long -term fiscal health by aligning revenues &costs • Reduce operating costs by focusing on efficiency &effectiveness i city of i sm Luis owspo Section V City's FY 2011 -13 Financial Plan -a Path to Financial Sustainability 71 SLO Budgeting Process Purpose: to link what "we" for the community to the r do so want to accomplish sources needed to Financial Plan does this by: • Clearly setting Major City Goals • Establishing timeframes and organizational responsibility • Allocating resources for programs and projects Financial Plan includes 2 year operating budget and Capital Improvement Plan covering 5 years Involves extensive community input �, city of m� san Luis owspo SLO Budgeting Process (Continued) Goal- Setting and the Budget Process Advisory Bodies Community Surveys Current 2 -Year Goals * December 14 2010 "Budget Foundation" M kshap Letters from Community Groups Goal -Setting Input Council Goal Setting Workshop January 29, 2011 Letters from Individuals Fiscal Forecast ** Long -Term Plans, Goals & Policies * ** October 19, 2010 Major City Goal Work Programs and "Strategic Budget Direction: Apol 12 Preliminary Budget: May 26 Budget Workshops: June 2, 9 and 14 Adopted Budget June 21, 2011 L city Of 11111111GO san Luis owspo The Path to Financial Sustainability • Effects of Great Recession on City began in 2008 • Most severe impact on "tax funded" General Fund • Series of aggressive expenditure reductions totaled $17.6 over four years • "New Fiscal Reality" identified in 2011 -13 Financial Plan 0 • Continuing economic downturn has "reset" revenue base • Significantly increasing employee costs Ongoing structural gap between revenues and expenditures of $4.4 million in General Fund 2011 -13 Financial Plan focuses on ongoing, permanent balance Financial sustainability principles were applied to the City's Enterprise Funds WN!city of d San LUIS OBISpO Financial Sustainability Principles v Sustainability Principles: • Ongoing revenues = ongoing costs • One time revenues = one time costs • Five -Year Capital Improvement Plan • Streamlining and simplifying City operations • Employee concessions balanced with the need to attract and retain well - qualified employees • Maintain General Fund Reserve balance at 20% • Stay focused on accomplishing Measure Y projects • Implement Council Goals amicity of d san Luis owspo Key General Fund Revenues: Sales Tax $16,000,000 $14,000,000 $12,000,000 $10,000,000 o $8,000,000 H $6,000,000 $4,000,000 i $2,000,000 $o -�1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fiscal Year Ending city of san luis oBispo Results of Last Ten Quarters "Situs" Sales Tax % Change: Last Ten Quarters -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% ■ 1 st Qtr 2009 2nd Qtr 2009 • 3rd Qtr 2009 ■ 4th Otr 2009 ■1st Qtr 2010 ■2nd Qtr2010 ■ 3rd Qtr 2010 ■ 4th Gtr 2010 ■ 1 st Qtr 2011 ■2nd Qtr2011 city of iA san Luis ompo I f - 13.7 -8.6O -4.9% -0.5% 2.9 0 TBOJOD 6.9 °I 10.0% 9.1% -20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% ■ 1 st Qtr 2009 2nd Qtr 2009 • 3rd Qtr 2009 ■ 4th Otr 2009 ■1st Qtr 2010 ■2nd Qtr2010 ■ 3rd Qtr 2010 ■ 4th Gtr 2010 ■ 1 st Qtr 2011 ■2nd Qtr2011 city of iA san Luis ompo Key General Fund Revenues: Property Tax $14,000,000 $12,000,000 $10,000,000 $8,000,000 ca 0 F $6,000,000 $4,000,000 $2,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fiscal Year Ending city of �i san Luis oBlspo Key General Fund Revenues: Property Tax • Property Tax is "lagging" revenue • Financial Plan projects slight decrease in 2011 -12 and 1.5% increase in 2012 -13 ■ Preliminary information from Assessor indicates 1.3% decline in assessed value for 2011 -12 • Assessor proactively adjusted assessed value for properties purchased 2001 -2010 • Countywide reduction 1.5 -1.6% Statutory CPI adjustment is .75% for 2011 -12 �City of i san Luis osispo Key General Fund Revenue: Transient Occupancy Tax (TOT) $6,000,000 $5,000,000 $4,000,000 H$3,000,000 $2,000,000 $1,000,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fiscal Year Ending A city of IMMMi san Luis osispo Budget Balancing Strategies Revenue Enhancements $301,300 $351,300 Operating Budget Reductions Employee Concessions Operational Efficiencies $1,812,000 $1,956,000 $1,300,000 $2,600,000 $50,000 $100,000 city of � sain Luis owspo Implementing Employee Concessions ■ Control of Personnel costs implemented by taking the following steps: • Ballot Measure A - Approval by 73.95% of voters to allow Council to reduce retirement benefits of employees without voter approval • Ballot Measure B - Approval by 72.67% of voters to eliminate Binding Arbitration for Public Safety • Instituted budget driven negotiations to secure concessions with bargaining units =h!city Of N San WIS OBISPO 2011 -12 General Fund Revenues: $51.5 Million All Other Revenues Service Charges ��i General Salec Taw Prop Tax in Lieu of VLF 7% Utility Users Tax 10 % Other Taxes 9% Tax 17% 9% asure Y les Tax 11% Ohioarty of �o san Luis oBispo 2011 -12 General Fund Operating Program Expenditures: $50.2 Million Community Development 13% Leisure, C Social S 14C, General Gnvernment Transportation 6% Public Safety 50% micity of m san Luis owspo Section VI City's Financial Management Practices City of San Luis Obispo's Financial Management Tools iff Revenue and expenditures assumptions • Detailed basis for projections • Extensive trend analyses W Budget amendments and updates • Regular economic and revenue reviews • Strong interim reporting Long -term financial planning • Five -Year Fiscal Forecast Long -term capital planning • Two -Year Operating Budget • Five -Year Capital Improvement Program a Investment management policies • Formally adopted policies that are reviewed annually Debt management policies • Debt affordability model • Strong preference for pay -as- you-go financing Reserve and liquidity policies • Formally adopted policies that are reviewed annually with the adoption of the Budget l city Of id san Luis ompo Financial Reporting &Monitoring Annual Reports • "Unqualified" auditors' opinion • Use "GAAP" • Meet GFOA "excellence" criteria • Issue within 180 days Extensive Interim Reporting and Monitoring • On -Line Access • Monthly Operating Reports • Quarterly Financial Reports • Sales Tax Report • Monthly TOT Report • Quarterly Investment Reports • Mid -Year Budget Reviews • Interim Annual Reports • Ad Hoc Reports • Goal Status Reports ,� city of � san Luis ompo Section VII Summary and Outlook Going Forward Summary and Outlook Going Forward a City's management team is experienced and capable ■ City has weathered the Great Recession better than most FY 2011 -13 Financial Plan recognizes the new fiscal reality and is based upon financial sustainability Budget includes investments in infrastructure maintenance and tools & equipment to deliver service effectively City Council made tough policy decisions to control personnel costs and is committed to making further changes if required City's Financial Management Practices are strong, well embedded and sustainable San Luis Obispo is the government, business and cultural center of the Central Coast with a diverse property tax base as well as a solid local sales tax and TOT base City Council, Community and City Staff collaboratively involved in the development of the FY 2011 -13 Financial Plan Ohicity of o san Luis ompo Questions �, city of m san Luis osispo Contacts P Katie Lichtig, City Manager 1- 805 - 781 -7114 klichtig @slocitv.org 11 Mary Bradley, Interim Director of Finance and IT 1- 805 - 481 -7125 m brad ley@slocity.org Jim Fabian, Financial Advisor 1- 949 - 660 -7307 ifabian @fieldman.com WN!city of d san Luis owspo