HomeMy WebLinkAbout09/07/1993, 5 - STATE REVENUE REDUCTIONS IllllAl�lll�llllll��lp II MEETING DATE:
MY
II IIIIIIII Of
� San LUIS OBISPO ITEM NUMBER:
U COUNCIL AGENDA REPORT
FROM: John Dunn, City Administrative Officer
SUBJECT: STATE REVENUE REDUCTIONS
CAO RECOMMENDATION
Take no further action on the recently approved City budget at this time considering the
fiscal impact on the City of State revenue reductions for 1993-94 and the City's current
financial condition.
DISCUSSION
We learned approximately two months ago that the State's "take-away" of property taxes
previously available to the City was going to be somewhat less than we had been
anticipating over the last several months; $403,000 actual versus $500,000 earlier estimated.
Given what has happened to us in each of the last three years, this was a little bit of good
news for the City. Attached is a memorandum from the Director of Finance outlining the
specifics of the State's revenue cuts to us, along with an overview of the uncertainties that
continue to face us.
In the way of background, this has been the most difficult budget years the City has faced,
certainly in the post-World War H environment. For 1993-94, we made the unprecedented
move of eliminating 30.6 of our 336 authorized regular positions, an almost 10% decrease
of our City work force. These personnel cuts were from almost all departments, reducing
staff'by up to 25% in two departments.
These figures cannot be stated in financial terms alone. What we have been through as an
organization has made an indelible imprint on our organization. It has also left an imprint
on the services we provide. There is no way to make a personnel cut of this magnitude
without affecting many of our services, although the cuts were made in an attempt to
minimize negative service impacts on our citizens. However, the organization itself has been
subjected to several different forms of pain in the last eight months. First, there was the
pain of knowing a change and probable downsizing would be occurring, but not knowing at
that time where the cuts would be made. This "fear of the unknown" affected virtually all
the employees of the organization. Secondly, there was the pain of dealing with the need
for making cutbacks, in every department, and having each department make their
recommendations at two different levels as to where cuts would be made. Thirdly, there
was the CAO's decision-making process, and on March 13 the City Council's, in having to
choose where the cuts would be made. Fourthly, there was the pain of most of these 30
employees moving on to other jobs and other cities, and some of them having to be laid off.
S-/
�►����ibi���IIIIIII�h ��b�U city of San LUIS OBISpo
COUNCIL AGENDA REPORT
After the experience that this organization has gone through this winter-spring-summer, I
would like to be able to say that everything looks rosier and that the pain is over. In good
conscience, I cannot say that. I can say that with the sacrifices and difficult decisions, the
City is now on a course of fiscal solvency, which is an absolute responsibility of its elected
and appointed officials.
We have exercised great care in projecting our revenues and controlling our expenditures.
The situation for the present seems to be under control. However, there is a great unknown
for the future, and that is what the State will be doing to the cities, and to our City in.
particular, in the years ahead. There is no authoritative source saying that the State's fiscal
problems are over; indeed, the prognosis by the most knowledgeable parties is exactly the
opposite, that the State has at least one more and possibly more very difficult years ahead.
The State must continue to react to a reduction in defense expenditures, closing of military
installations, out-migration of companies to other areas, continued population growth,
unresolved legal and illegal immigration issues, increasing caseload in social welfare, decline
in our educational expenditures relative to other states, increases in crime in our major
urban areas, increases in gang activities and urban violence, and other shifts in population
and economic patterns. There are those who believe that the fiscal crisis facing the State
in the next year may be nearly of the same magnitude as this past year. We have heard
more than one observer coming from discussion at the State capitol and reporting that "the
word is that it was the counties this year, and that it will be the cities next year".
However, in the wake of a slightly lesser property tax take-away, receipt of some one-time
transportation monies, and the Governor/Legislature extension of the sales tax for six
months, with the proceeds of the latter being devoted to public safety, there is a belief in
some quarters that things are better than we earlier anticipated, and that some relief from
or change to our earlier decision making can now be made.
I and others have given a great deal of thought to this subject, and I have had many
conversations with people both inside and outside the organization as to what we should do.
I have also received detailed memorandums from the Police Chief and Fire Chief as well
as two communications from the City Employees' Association. Additionally, other
department heads have related incidents to me regarding the effects of the personnel
reductions on their staffs and services. Despite my desire, and I am sure that of the
Council, to grant some relief to a beleaguered organization, making major changes -
restoring some of the previous cuts - would endanger the organization in the long-term in
that we would not be able to respond to the probable circumstances of next year without
making further cuts.
It was the major premise of our approach this year that we were going to make those
decisions, make those cuts in expenditures which would best position this organization for
the present and the five-year future. It was our desire that we act once, decisively, in order
to avoid the necessity of a long, slow, painful process of having to repeat making a smaller
number of cuts each year.
�,�H�►�ii�IIIIIIUIi����I�l My Of San L"IS OBISpO
COUNCIL AGENDA REPORT
Because the recent very difficult budget process is so fresh in our minds, there is a tendency
to "look back" when considering the City's fiscal situation to see if there is an opportunity
to restore something to "the way it was". Instead, we must be looking forward.
While most of the discussion has been about personnel and services, because they are
perceived as having the most immediate impact, I would like to restate a premise which all
of us know. If a City neglects its resources/infrastructure/public facilities, its short-term
financial success is illusory. It is only as we address the long-term capital facility needs of
the City on a consistent, sustained basis that we are truly acting in our full capacity as
stewards of the City, and our citizens' future.
Over the last three years, the City has substantially reduced its investment in capital
improvement projects, with the 1993-94 General Fund contribution to capital at 50% of its
historic level. In essence, therefore, the City's capital improvement program offers little
more than maintenance or replacement of existing facilities. Yet, there are a number of
needs outlined in recently, or soon to be, approved plans. These include:
• Laguna Lake Master Plan
Downtown Physical Concept Plan
Open Space Element
• Housing Element
• Circulation Element
• Parks and Recreation Element
• Bicycle Transportation Plan
• Indoor Recreation Plan
• Mission Plaza Expansion
In addition, there are major programs that will need to be supported in order to implement
the updated land use element. These programs are intended to address neighborhood and
other priority community concerns. At the present time, we have no funds set aside to
support these programs.
There are a number of other areas which have not been supported in recent years because
of the budget problems. As two examples, the art-in-public-places program is virtually non-
existent, and the neighborhood traffic improvement program has been deferred.
In summary, I believe that our paramount duty is to recreate the condition whereby the City
is living within its available and projected means.
This position demands that we prudently conserve and utilize what has been entrusted to
US.
s-
111111►I111111101111 city of san L,.4is OBISPO
COUNCIL AGENDA REPORT
ALTERNATIVES
However, we do have to recognize that the State take-away was a bit less than anticipated,
that we were given some one-time funding, and that the Governor and State Legislature did
extend the sales tax, earmarking the money for public safety purposes. Therefore, I am
giving the Council some alternative courses of action for consideration, listed in priority
order:
1. Reinstate the Traffic Sergeant position. I have carefully reviewed the job description,
the work activities, the calls/citations issued by this position, and have concluded that
it is a direct service provider and helps meet the law enforcement needs of the
community.
2. Utilize the $69,000 sales tax extension to address the projected $500,000 short-fall in
the headquarters fire station site acquisition. The advantage of this approval is that
we would be applying one-time money to a one-time project.
3. Authorize management negotiators to meet and confer with the General Employees
Association to discuss the matters listed in their memoranda.
4. Restore a Police Officer position. The idea in taking this action would be to add
another "on-the-street" law enforcement position.
5. Set aside some money ($25,000 estimated) for professional analysis of the City's law
enforcement needs and Police Department capabilities, organization, restructuring,
etc.
6. Re-examine capital improvement programs that were deleted and see if these
projects are justified in order to meet critical public service needs or to properly
implement community plans.
I
SUMMARY
In conclusion, I want to thank the Council for your steadfastness in giving time and effort
to the budget process this year, and for your ready and reasoned decision making. I also
wish to thank the Management Team members for their help and advice on their
departmental needs and on the City's fiscal situation. I would also like to reiterate my
gratitude to the many people throughout the organization who were involved in putting this
year's budget together and who were part of the difficult decision-making process.
ATTACHMENT
Memorandum from the Director of Finance outlining the specifics of the State's
revenue reductions to the City
MEMORANDUM
August 30, 1993
TO: John Dunn, City Administrative Officer
FROM: William C. Statler, Director of Finance
SUBJECT: STATE REVENUE REDUCTIONS
RECOMMENDATION
Take no further action on the recently approved City budget at this time considering the
fiscal impact on the City of state revenue reductions for 1993-94 and the uncertainties that
continue to face us.
DISCUSSION
The purpose of this report is twofold: to discuss the fiscal impact of the State's revenue
reductions on the City; and to discuss what actions - if any - the City should take at this time
as a result of these reductions.
What is the impact of the reductions on the City of San Luis Obispo?
As a result of the State's adoption of its budget, $2.6 billion in property taxes will be shifted
for educational purposes from the following levels of local government in 1993-94:
AMOUNT PERCENT
Counties $1,998,000,000 77%
Cities 288,000,000 11
Special Districts 244,000,000 9
Redevelopment Agencies 65.000.000 3
TOTAL $2,595,000,000 100%
Although the target of taking $2.6 billion from local government was established early in the
State's budget process, a key concern - in addition to the more fundamental issue of whether
any shift should occur at all - was how this reduction would be spread among various local
agencies. A number of methodologies were developed and discussed, with impacts to us
ranging from $300,000 to over $1.5 million annually. For example, a simple extrapolation
from the $1.3 billion taken from local government in 1992-93 - which resulted in a loss to
the City of $436,000 (9% of our property tax revenues) - would have resulted in a loss of
about $900,000 in 1993-94 (adjusting for increased property tax revenues at 3.5%).
The following is a summary of the three key features of the State's revenue reductions to
cities and their impact on us: permanent property tax shift, "TD&P Roundabout", and
extension of the 1/2 cent sales tax:
J'�
■ Property Tax Shift. For cities, the permanent property tax shift to the "Educational
Revenue Augmentation Fund" has been developed based on each city's proportionate
share of the 1993-94 value of "state assistance payments" provided to cities under
AB8 adopted in 1979. (Provided in Attachment A is brief overview of AB8 and what
it was originally intended to do). Transcending the nuts and bolts of how these
amounts were determined - and what philosophical basis might exist for the
methodology chosen - the City will lose $403,000 this year and each succeeding year
thereafter in property tax revenues as a result of the state revenue reductions to
cities. Given the "order of magnitude" nature of our budget projections for state
take-aways, this is very close to our estimate of $500,000.
■ TD&P Roundabout. We will receive a one-time offset in 1993-94 of approximately
$126,000 from what has been labeled the "TP&D Roundabout". Without going into
a lot of detail, this is simply an effort on the State's part to mitigate the fust year
impact of their cut. Provided in Attachment B is a memorandum from the Public
Works Director describing the Transportation Planning and Development Account,
and the potential impact of shifting $90 million in these funds - on a one-time basis -
to cities. As noted in the memorandum from the Public Works Director, this
"roundabout" may simply result in there being $126,000 less available funding for
transportation programs that might have been allocated to us.
■ Half Cent Sales Tax Extension. If the 1/2 cent sales tax extension is approved
Statewide, it is estimated that our share - which must be allocated for "public safety"
purposes (although exactly what this means is not clear since there are no
"maintenance of effort" requirements) - will be $139,000 annually. The amount
allocated to cities is not based on point of sale, but a methodology that again relies
on AB8 apportionment factors. It is our understanding that if the 1/2 cent sales tax
extension is not approved, we would still be eligible for six months of the revenue
from the extension already approved by the State through December 31, 1993, for
a one-time revenue in 1993-94 of about $69,000.
In summary, although there will be some relief in 1993-94 from the TP&D roundabout and
six month extension of the sales tax, the only "sure" thing about the State cuts to us is that
we will lose about $400,000 annually, which is essentially consistent with our 1993-95 budget
estimates.
What action should we take at this time?
Although state budget issues as they affect us for 1993-94 appear to be resolved, there are
a number of uncertainties that continue to face us. Based on the following factors, it is
recommended that any consideration of changes to the operating or capital budget be made
at a later time:
■ End of Year Fund Balances. Our projected financial condition at the end of 1992-93
was a critical factor in our budget balancing strategy. Audited financial statements
confirming these estimates will be available at the mid-year budget review.
■ Financing of Headquarters Fire Station Site. Several key issues remain outstanding
regarding the purchase and financing of the Southern California Gas Company site
for the Headquarters Fire Station. These should be resolved by mid-year.
■ Sales Tax Revenue Trends. The 1993-95 Financial Plan assumed very modest levels
of growth in sales tax revenues. Although recent trends are encouraging, no
authoritative sources are projecting any significant increases in retail sales activity
over the next twelve months. By mid-year, we should have a better picture of what
economic recovery looks like for our State and region.
■ Property Tax Revenues. Initial information from the County indicates that our 3.5%
growth projection for 1993-94 is on target. However, the County has received a
number of requests for reassessment, which could result in a significant downward
revision in property tax revenues estimates.
■ Half-Cent Sales Tax Extension. The reliability of revenues from the half-cent sales
tax extension won't be known until the November election. It should be noted that
preliminary polls indicate that the current outlook for passage is not favorable.
■ Alternative Method of Property Tax Collections. As approved by the Council in July
of 1993, implementing the alternative method of property tax allocations could result
in a one-time source of funding to the City of about $500,000. The County's final
determination on whether to go forward with this option, and how much it will
actually mean to us, will be known to us by mid-year.
■ State's Continuing Fiscal Condition. By all accounts, the State's fiscal crisis is not
over, and another budget shortfall of significant dimensions will in all probability be
facing the State next Spring. The probable impact is that there will be another
threatened and actual revenue take-away from cities next year, particularly since
cities were viewed as getting off relatively light this year as compared to counties.
The latest word we hear from Sacramento sources is that "this year it was the
counties, next year it's the cities".
In summary, although we now know the impact of State revenue reductions on us for 1993-
94, a number of uncertainties continue to face us as discussed above. Further, we should
remember that this represents the third year in a row that the State has taken funding away
from us in the $500,000 range, leaving us with almost $1.5 million in reduced revenues in
1993-94 as a result. Although 1993-94 may be slightly brighter than initially projected, we
have to consider the further cuts the State may make in 1994-95. Based on these factors,
it is recommended that any consideration of changes to the 1993-94 operating and capital
budget be made at a later time, when we will have better information upon which to base
our decision-making.
ATTACHMENTS
A. Memorandum on AB Background
B. Memorandum on affects of TP&D Roundabout
S-!
i
Attachment
MEMORANDUM
May 10, 1993
TO: John Dunn, City Administrative Officer
FROM: William C. Statler, Director of Financ
SUBJECT: AB 8 BACKGROUND
In response to your request, the purpose of this memorandum is to provide you with a brief
background on AB 8 adopted by the State Legislature in 1979:
Reason for AB 8
AB 8 was adopted in the aftermath of Proposition 13 in order to set the groundrules for
how revenues generated from resulting 1% general property tax levy would be allocated
between taxing agencies. Prior to Proposition 13, this was not a problem, as each agency
set its own rate, and the resulting total was simply the sum of each agency's rate. By
establishing the 1% limit, Proposition 13 brought about the need to fundamentally alter the
way that property tax revenues would be allocated.
Issues addressed by AB 8
In the interim period between the passage of Proposition 13 and AB 8, there were a number
of issues regarding allocation of the 1% levy that were addressed on an "ad hoc" basis. AB
8 was intended to be a "permanent" solution for these issues, which included:
■ How should revenue allocations between local taxing agencies be determined?
■ How should 'bail-out" funds which were made available in the immediate aftermath
of Proposition 13 be reflected in these allocations?
■ How can reliance on local property taxes be reduced for local schools in order to
provide for a more equitable, statewide system?
■ How should "growth" in the property tax base be allocated?
■ How will special district revenues be allocated, with a distinction between
"dependent" and "independent" districts?
What changes are being proposed?
Although no specifics regarding the Governor's proposal to further shift $2.6 billion in
property tax revenues have been presented, it is reasonable to assume that it simply
represents another redistribution of the 1% levy between local agencies. This is what
happened last year when the City lost $430,000 in property tax revenues: our share of the
S�
levy (previously determined in 1979 by AB 8) - as well as the portion going to counties and
special districts - was reduced, and shifted to schools. In turn, the State reduced funding to
schools by the amount of this shift.
Although attempts have been made to provide a philosophical basis for these shifts
(eliminating the "bailout" component of AB 8, for example), these efforts are disingenious,
and not necessary. The reality is that the State governs the administration of property
revenues under the 1% levy limit, including its apportionment among local agencies, and
they can change it however and as often as they want - it's their prerogative. Logically, this
could ultimately lead to eliminating any property tax allocations to cities, and no apologies
would really be necessary. Of course, this extends to any of our other traditional municipal
revenue sources (sales tax, for example): as creatures of the State, we can ultimately only
have the revenue sources it allows us, and none of them are written in stone.
As a concluding note, I find it interesting that even the Speaker refers to AB 8 as legislation
"which provided for a permanent method of allocating proceeds from the 1% property tax
rate". We now know definitively how long permanently is: about 12 years.
If you have any further questions on the specifics of AB 8, or require additional information, ,
please do not hesitate to contact me.
s-9
Attachment
MEMORANDUM
June 30, 1 -993
TO: John Dunn
FROM: Mike McCluskey
SUBJECT: Effect of TP&D Bailout
SB 1135 will take $130 million out of the state's TP&D account and transfer it to
the Department of Motor Vehicles. DMV will then transfer $130 million of motor
vehicle in-lieu fees to cities and counties as a one-time bailout. The amount
transferred to the City of San Luis Obispo will be $126,000.
The raid on the TP&D account will reduce Transit Capital Improvemment (TCI) and
State Transit Assistance (STA) grants available from the state in 1993/94, but the
exact amount TCI and STA reductions for each local jurisdiction is unknown.
The City has programmed $125,000 in TCI grants for two CIP projects: Bus
Rehabilitation ($105,000 in 1992/93) and Transit Transfer Center ($20,000 in
1993/94). With existing executed grant agreements, this grant revenue should be
secure.
SLOCOG uses the local STA allocation to pay for a portion of the Regional Transit
Authority operating costs. If this allocation were reduced, SLOCOG would use
TDA money instead, which would in turn reduce the City's TDA allocation by as
much as $40,000.
As mentioned in previous memos, the transit operations will run an annual deficit
over the next two years, but the transit fund balance eligible for operations will
cover these deficits until the City can figure out how to close the ongoing gap. If
the City's TDA allocation were reduced, during 1994/95 transit operations would
prematurely exhaust the fund balance, and the City would have to cut back
existing service levels.
I recommend leaving the City's $126,000 TP&D bailout unappropriated for the
time being. Further, I recommend a policy by which the general fund would make
good any shortfalls of budgeted TDA revenue through 1994/95, using the
$126,000 bailout.
G:\WP6 11TPSD
San Luis Coastal Uni fwd School District
1 4 9 9 SAN LUIS R I E
SAN LUIS OBISPO, CA 93401-3099
{ TELEPHONE (805) 543-2010
DATE MEETIN y- AGENDA �-
- ITEM #
September 7, 1993
HAND DELIVERED IrCOUNCIL ❑ CDD DIR
pPfAO FIN DIR
City of San Luis Obispo CACAO ❑ FIRE CHIEF
The Honorable Mayor Peg Pinard &t TORNEY ❑ PW DIR
and Council Members CLERKIORIG ❑ POLICE CHF
990 Palm Street ❑ MGMT TEAM ❑ REG DIR
San Luis Obispo, CA 93403-$100 ❑ C READ FILE [3 UTIL DIR
Qr A-140 ❑ PERS DIR -
Dear Mayor Pinard and Council Members:
First I would like to express my appreciation for the open-mindedness of the City of San
Luis Obispo in working jointly with the San Luis Coastal USD in considering the
development of a joint powers agreement to facilitate crossing guard services to the
children of our community. During the difficult budget times we are encountering, I believe
that this can be the forerunner of other joint powers agreements in which win-win
situations could be derived from problems that we will all encounter.
The Administration of the San Luis Coastal Unified School District strongly supports the
continuation of the traffic supervisor position to oversee and maintain the authority of
crossing guards within the City of San Luis Obispo.
We recognize that we will bear some of the fiscal responsibilities associated with the
Crossing Guard Program but feel that the program has been well managed and carries
with it the power of authority of the law enforcement agency within our city boundaries.
This status for crossing guards is an important deterrent to those who might otherwise not
be respectful of the authority that the position requires. The safety of the crossing guards
and the children are enhanced by this kind of support.
We stand ready to work with you in developing a joint powers agreement to facilitate the
program and are confident you will give serious consideration to continuation of the traffic
supervisor position.
Thank you for your cooperation in this matter.
Sincerely yours,
rczee�e C�
Edwin Denton, Ed.D. SEP 7 1993
Superintendent SANCLUIS OBISPo, CA
ha
District Superintendent,EDWIN DENTON,Ed.D.