HomeMy WebLinkAboutD-3 Staff Report - Fiscal Sustainability Follow-upSCHEDULED ITEM
D-3
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
VIA: SERGIO GONZALEZ, CITY MANAGER
FROM: TALIKA M. JOHNSON, DIRECTOR OF ADMINISTRATIVE SERVICES
DATE: JANUARY 21, 2020
SUBJECT: FOLLOW-UP TO FISCAL SUSTAINABILTY ASSESSMENT
BACKGROUND:
Over the past several months, Council has received reports regarding the City’s budget and
Staff’s ongoing Fiscal Sustainability Assessment efforts performed to ensure the City is:
capturing all revenues per contractual agreements; maximizing revenue potential through
contracts and franchise agreements; and running its operations as lean as possible without
negatively impacting services to Azusa residents and businesses. Efforts to decrease costs and
increase revenues thus far, resulted in reduced projected General Fund budget deficits ranging
from $2.1 - $3.3 million to $1.3 - $2.7 million annually over the next five years.
In November, Council approved placement of Measure Z, a 3/4¢ sales tax measure, on the March
3, 2020 ballot for voter consideration, which if passed, would generate approximately an
additional $4.5 million in revenues for the City, and would be sufficient to cover the forecasted
budget deficits. However, if Measure Z does not pass voter approval, the Council would have to
make further policy decisions to address the projected shortfalls.
RECOMMENDATION:
Staff recommends that the City Council take the following action:
1)Provide Staff with direction to address the projected General Fund budget deficits in
preparation of the Fiscal Year 2020/21 Budget.
ANALYSIS:
The General Fund currently has a $46.9 million operating budget. Over the next five years it’s
estimated the budget will grow to $48.6 million. Given the City’s current revenue base,
beginning in Fiscal Year (FY) 2019/20 and over the next five years, annual budget deficits are
APPROVED
CITY COUNCIL
1/21/2020
Fiscal Sustainability Follow-up
January 21, 2020
Page 2
projected ranging from $1.3 million to $2.7 million. While the City has a diverse revenue mix
and is prudent in spending tax-payer dollars, expenditures are outpacing revenues.
Deficit spending means the City must tap into reserves to bridge revenue shortfalls. In addition to
a budget policy, the City has a General Fund Reserve Policy which is used as a benchmark tool
to assess financial performance. Beginning with the current FY 2019/20 budget year, reserves
are projected to be $256,000 below the target of $10.6 million without an increase to revenues
and/or decrease in costs.
To address the forecasted budget deficits, requires the consideration of the following options
which can be implemented individually or as a combination based upon Council input and policy
direction:
1) Using reserves on hand
2) Making budget cuts
3) Enhancing revenues, including consideration of voter-approved local funding options
In order to maintain targeted reserve levels in accordance with the adopted policy, revenues will
either need to be increased or significant service cuts will need to be considered. Below is a
summary of the five-year budget forecasts and estimated reserve balances.
Table 1: Five-Year Budget Forecast and Reserves Analysis
Throughout the budget sustainability assessment process all three of the aforementioned options
have been examined and applied.
• Reserves on hand are being used to stabilize the current year budget.
• Staff identified and implemented operational efficiencies and cost cutting ideas which
included freezing a vacant position in the City Manager’s office and restructuring the
Finance and Human Resources departments into one department, resulting in $324,000 in
annual savings.
• Staff identified a revenue enhancement opportunity (an increase to the City’s hazardous
materials facilities tax rate) which is estimated to result in annual revenue increases of up
to $1 million over the next five years.
• After engaging the Azusa Community on their service needs and priorities, Council
approved placement of a three-quarter cent (3/4¢) sales tax measure (Measure Z) on the
Actual
FY 17-18
Revised
FY 18-19
ADOPTED
FY 19-20
ESTIMATED
FY 20-21
ESTIMATED
FY 21-22
ESTIMATED
FY 22-23
ESTIMATED
FY 23-24
Total Revenues 42,208,830 44,653,924 44,755,099 42,702,543 45,153,801 45,605,339 46,061,393
Total Expenses 44,849,887 42,336,440 46,871,180 46,003,554 47,636,594 48,112,960 48,594,090
Operating Surplus or (Deficit)(2,641,057)$ 2,317,484$ (2,116,081)$ (3,301,011)$ (2,482,793)$ (2,507,621)$ (2,532,697)$
Add: Cost Savings Measures 324,000 324,000 324,000 324,000 324,000
Add: Contract/Franchise Enhancements 250,000 500,000 687,500 875,000
Revisd Operating Surplus or (Deficit)(1,792,081)$ (2,727,011)$ (1,658,793)$ (1,496,121)$ (1,333,697)$
Beginning Available Reserves Balance 12,484,905 9,843,848 12,161,332 10,369,251 7,642,240 5,983,447 4,487,327
Ending Available Reserves Balance 9,843,848 12,161,332 10,369,251 7,642,240 5,983,447 4,487,327 3,153,630
Reserves Target 6,265,725 10,265,725 10,625,252 10,825,533 10,734,120 10,829,267 10,911,308
Above/(Below) Reserves Target 3,578,123$ 1,895,607$ (256,001)$ (3,183,293)$ (4,750,673)$ (6,341,940)$ (7,757,678)$
Fiscal Sustainability Follow-up
January 21, 2020
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March 3, 2020 ballot for voter consideration, which if passed, would generate
approximately an additional $4.5 million in direct local returns to the City of Azusa.
Although passage of Measure Z would bridge the projected budget deficits and help mitigate the
potential need to reduce services to Azusa residents, as a contingency, Staff has begun to explore
options to reduce Department budgets by six to ten percent or $2.7 - $4.6 million.
The City provides exceptional programs and services to the Community while running efficient
operations. Reducing the General Fund budget by 6-10% would result in major service
interruptions to the Community, and consequently, may have adverse effects on the quality of
life Azusa residents have come to enjoy. Should Measure Z not pass, it will necessitate a
dialogue with the community and eventually Council policy direction as to how to best address
the projected budget shortfalls. It should also be noted that because budget reductions will not
only result in reduced services and revenues due to lower staffing levels, the impact to staffing
levels will have to go through the meet and confer process with the City’s labor groups and
therefore, take time to implement. Nevertheless, in addition to the $324,000 already identified as
savings, other options explored amount to $3,485,835 in potential reductions that in normal
circumstances would not be recommended:
• Elimination of Community Resources programs such as: open swim during pool season;
reduction of swim season by four weeks; reduction of after school programming and
open gym hours at Memorial Park and the NRC; and reduction of non-nutrition related
special events for seniors ($182,200)
• Reduction in Library and Senior Center services by reducing hours of operations
($319,430)
• Foregoing major IT initiatives and equipment replacements needed to streamline archaic
systems with more efficient business practices ($587,600)
• Elimination of crossing guard contract services ($220,550)
• Reduction in Police Department staffing levels ($1,546,855)
• Reduction in landscaping, tree maintenance, after hours services such as park restrooms
availability and trash/debris removal, and watering of medians and park turf ($99,590)
• Reduction in graffiti removal staffing and quality of cover-up paint, and facilities
cleaning and routine maintenance ($57,270)
• Reduction in advanced development planning efforts ($119,000)
• Reduction in economic development marketing and promotion activities for attraction of
new businesses and engagement of specific economic development studies or retail gap
analysis ($78,000)
• Freezing positions responsible for community inspections and processing code
enforcement actions ($214,340)
• Elimination of one-part time City Clerk position and neighborhood services community
program benefits ($29,000)
• Reduction in grant writing contract and the amount of employee recognition events
($32,000)
Fiscal Sustainability Follow-up
January 21, 2020
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FISCAL IMPACT:
There is currently no fiscal impact associated with the recommended action. Council input will
serve as guidance in the preparation of the Fiscal Year 2020/21 given the options outlined to
address projected budget shortfalls and outcome of Measure Z.
Prepared by: Reviewed and Approved:
Talika M. Johnson Sergio Gonzalez
Director of Administrative Services City Manager