City of Santa Monica
California

Staff Report
2807

Financial Status Update, FY 2018-19 Proposed Budget, and FY 2018-20 Proposed Biennial CIP Budget

Information

Department:Finance Department, Budget DivisionSponsors:Director Donna Peter, Director Susan Cline
Category:04. Study Sessions

Recommended Action

Recommended Action

Staff recommends that the City Council:

  1. Receive the FY 2017-18 through FY 2021-22 Financial Status Update;
  2. Review and provide direction to staff regarding the FY 2018-19 Proposed Operating Budget and FY 2018-20 Proposed Biennial Capital Improvement Program (CIP) Budget;
  3. Review and provide direction to staff on proposed change to the expenditure control budgeting policy;
  4. Review and provide direction to staff on proposed new fees and revisions to certain Community and Cultural Services fees, zoning fees and residential preferential parking fees; and
  5. Provide direction to staff on allocation of Council discretionary funds.

Staff Report Body

Executive Summary

The City operates with a two-year operating budget, a municipal best practice that maximizes stable, long-term planning while streamlining the process for financial management and policy making. The City’s Proposed Budget for FY 2018-19 (the second year of the FY 2017-19 Operating Budget approved by Council in June 2017) maintains and furthers the City’s transition to a fiscally sustainable and outcome-based method of allocating its resources. As we look ahead to increasing fiscal challenges resulting from higher pension costs and flattening revenue growth, as well as the likelihood of a recession, it is imperative that we hold the line on spending, reallocate existing resources to address high priority community needs, and continue to incorporate metrics into our management processes in order to move into data-driven decision-making.

 

The Proposed FY 2018-19 Budget includes minimal changes to the approved FY 2017-19 two-year budget plan. FY 2018-19 is also the first year of the FY 2018-20 Proposed Biennial Capital Improvement Program (CIP) Budget, which follows the same principles of fiscally sustainable and outcome-driven resource allocation of the operating budget as it makes significant investments in maintaining and enhancing critical City infrastructure and City facilities essential to providing services. Santa Monica is a leader in responsible financial and environmental leadership in municipal capital planning and construction. Funding for critical infrastructure protects the City’s existing capital investment and minimizes future maintenance and replacement costs.

 

The total FY 2018-19 Citywide Proposed Budget is $732.5 million, $439.1 million of which is in the General Fund. The FY 2018-19 Proposed Budget represents a 5% decrease over the FY 201819 Budget Plan, due mostly to changes in capital project timing. While there is a small increase in permanent staff in the General Fund to address public safety, reductions in staff in other funds result in a decrease of 0.8 FullTime Equivalent (FTE) positions overall. The total Proposed Capital Improvement Program Budget is $186.3 million in FY 2018-19, and $115.4 million FY 2019-20. Budget and FTE changes to the FY 2018-19 Budget Plan are summarized in the following table:

 

 

The May 2018 General Fund Financial Status Update includes the Proposed FY 201819 Budget in its projection of the City’s future budget climate. The Update shows positive balances during the first three years of the five-year forecast and shortfalls of $7.1 million and $15.2 million (3.6% of the General Fund Budget), respectively, in the last two years. The projected shortfalls are due primarily to anticipated increases in pension costs in spite of the City’s significant prepayments to the retirement system. 

 

The financial status of other funds remains relatively stable. As previously reported, the Housing Authority Fund is projected to require subsidies through the end of the forecast period. The Cemetery Fund is projecting a deficit in two years, and staff are assessing operations to provide a long term plan for the fund. The Pier Fund is also projected to require subsidies as the combination of operating and large capital expenditures are outpacing the growth of revenues during the forecast period.

 

Also presented in this report are proposed new fees and revisions to certain Community and Cultural Services fees, zoning fees and residential preferential parking fees.

 

Background

On June 27, 2017 (Attachment A), Council adopted the first year and approved the second year of the FY 2017-19 Biennial Budget; and adopted the second year of the FY 2016-18 Capital Improvement Program Budget. On October 24, 2017 (Attachment B) and February 13, 2018 (Attachment C), Council approved certain revisions to the FY 2017-18 Adopted Budget that adjusted revenues and expenditures, and approved corresponding adjustments to the FY 2018-19 Budget Plan. The February 2018 Update showed three years of positive General Fund structural balances before an anticipated shortfall in FY 2020-21 and in FY 2021-22. Since February, staff completed an exception-based budget process, identifying budget adjustments to reallocate resources to higher priority areas, and to reflect revenue changes that occurred since the biennial budget adoption. 

 

Discussion

Economic Update

The current economic expansion is now one of the longest in the post-World War II era, and economic growth both on a national and State level is expected to continue in the near term.  However, there are signs that the growth is leveling off, and history would indicate that the economy is likely to head into a recession sometime within the next five years.

 

While the State budget has also expanded in recent years to attempt to correct long term issues, and the Governor’s FY 2018-19 Budget predicts a healthy surplus, a recession could reduce State revenues by an estimated $20 billion annually over several years. Also, although the effect of Federal tax law changes cannot yet be measured, given the disproportionate dependence of State revenues on the wealthiest individuals, the net impact could increase the volatility in State income tax receipts.

 

Santa Monica’s economy remains relatively strong. However, there are signs of moderation in the local economy’s growth rate. General Fund revenue growth is slowing down after several years of strong increases. Average annual growth over the last three years has been less than 4% following growth rates of over 8% in the three years of recovery following the recession.

 

Within this context, the City’s General Fund forecast continues to show modest revenue growth as the City absorbs the impacts of a changing economic landscape, present in the on-going shift to on-line sales from brick and mortar and alternative transportation models. Also, as with the State and national economies, the threat of a recession could significantly alter revenue projections. More information on some of the City’s key revenue sources is provided below.

 

Property values in the City remain the third highest in Los Angeles County for a City with the 19th largest population. For the third consecutive year the FY 2017-18 assessed value increase was within the range of 6%. Moderate increases of 3-4% are projected over the next five years.

 

Sales tax (both sales and use and transaction and use tax) growth is expected to be modest, reflecting the global shift of retail activity from brick and mortar businesses to on-line businesses, a softening in auto sales, and some corrections by taxing entities.  City taxable sales are projected to be relatively flat in FY 2018-19, with future annual growth rates in the 22.5% range.

 

Tourism, which provides a major stimulus to the local economy by creating jobs and producing revenues, continues to show strength. Transient Occupancy Taxes have increased at an average annual rate of over 9% over the last seven years. While the overall growth rate is expected to moderate over the next few years, the recent addition of two hotels with 260 new rooms to the lodging supply as well as another hotel with 271 rooms in the construction phase will continue to bolster City revenues. One area of uncertainty over the forecast period is the impact that new registration requirements for home share hosting platforms will have on current revenue projections.

 

Business License Taxes are expected to be relatively flat in FY 2018-19 and then show baseline growth of approximately 2% annually over the forecast period. Utility Users Tax revenues are expected to remain relatively flat over the forecast period as revenues from telecommunication services continue to drop. Parking Facility Taxes are expected to grow by approximately 4% in FY 2018-19 reflecting revised downtown parking rates, then grow by less than 2% over the remainder of the forecast period. Interest rates have risen sharply in the last year after the historically low levels of the prior seven years, resulting in greater investment income. While a gradual increase is expected over the forecast period, rates are still expected to remain at relatively low levels.

 

Staff will continue to monitor parking revenues, a consistently strong revenue source for the City. Parking revenues from downtown parking structures and lots are expected to end FY 2017-18 approximately 7% below prior year levels, reflecting a significant shift in how people travel into and around the City. This is primarily a result of EXPO light rail and ridesharing services providing alternative modes of transportation for visitors and community members. However, recent Council-approved rate revisions should restore parking revenues to previous levels.

 

The forecast also reflects annual cost of living adjustments for user fees and charges as well as recently completed cost of services studies for the Planning and Community Development and Community and Cultural Services departments. Additionally, the forecast reflects new fee revenues from implementation of the City’s seismic retrofit program. Building and Safety permit revenue projections are expected to peak in FY 2017-18 and FY 2018-19 reflecting the number of mixed use housing projects that have been approved in the past few years and the adoption of the Downtown Community Plan, which has made it easier for uses such as restaurants and fitness facilities to open in the Downtown area.

 

At the time of the adoption of the FY 2017-19 Operating Budget, the transmittal letter warned about financial challenges in the future: “This budget responds to the known challenges projected in our five-year forecast. The pressures from rising costs for pensions, workers’ compensation, and healthcare are not new. Each, however, has been exacerbated due to recent developments. Additionally, we are seeing significant increases in construction and maintenance costs due to economic conditions and new statutes. Disturbingly, federal funding may be negatively impacted by policies coming out of the White House. Finally, if the current economic expansion continues during the upcoming two-year budget cycle, it will be the longest period of growth in the past 100 years -- and cannot go on indefinitely.  These threats impact the General Fund as well as the City’s other funds.”  All these long-term concerns remain as we proceed with the second year of a budget that is balanced and look forward to significant adjustments that will need to be made in the FY 2019-21 budget cycle.

 

Looming over the City’s strong financial health is the currently projected $461 million unfunded pension liability.  This long-term obligation reflects the impact of overly optimistic assumptions by CalPERS in prior years, and member agencies’ (including the City of Santa Monica’s) decisions to increase benefits based on these assumptions, as well as the drastic reduction in CalPERS’ investment portfolio during the Great Recession.  While Santa Monica is not alone, Santa Monica’s commitment to long-term fiscal responsibility and sustainability impels serious action to reduce this shortfall.  That’s why Santa Monica was a leader in establishing lower pension benefits for everyone hired after July 1, 2012 and last year the City made an advance additional payment to CalPERS of $45 million, bringing the total of our voluntary advance payments to $76 million.  The magnitude of the remaining shortfall, however, will require additional tangible and likely painful diversion of funding to address this threat to our fiscal health.  The year ahead will provide the opportunity for dialogue with our community and our workforce about how together we address this need and set the basis for Council to establish specific and measurable policy goals to ensure our pension obligations are adequately funded.

 

General Fund Financial Status Update

The General Fund Financial Status Update reflects the revised revenue projections and proposed operating budget changes included in this staff report. Staff has completed three forecast scenarios that consider Best, Probable, and Worst Case impacts on the General Fund. The chart below shows the three forecast scenarios.

 

 

 

 

The Probable scenario serves as the baseline for the forecast and assumes that operations will remain at their current level and structure. In this scenario, the General Fund is projected to experience a shortfall of approximately $7.1 million in FY 202021 that increases to $15.2 million (3.6% of the General Fund budget) in FY 202122. Health insurance and workers’ compensation costs continue to be cost drivers, although the largest challenge is the significant rise in the cost of pensions. Based on the most recent actuarial analysis, net pension contributions in the General Fund are anticipated to increase 37% ($14.9 million) by FY 2021-22, and will continue to increase at a high rate through FY 2023-24, when the phasing in of the most recent decrease to the discount rate assumption, used to determine the future value of the pension portfolio, will be complete. Over the next several months, staff will study the feasibility of various methods to lower pension contributions and healthcare costs and will ask Council to consider alternatives as part of the next biennial budget process. Overall, operating expenditures are anticipated to grow an average of 3.8% per year during this period, while ongoing revenues are anticipated to grow an average of 2.4% per year.

 

In the Best Case scenario, bolstered by higher increases in revenues, General Fund revenues would continue to exceed expenditures until FY 2021-22, when a $5.7 million shortfall is projected. The Worst Case scenario shows the effects of a possible recession as well as intensification of some potentially negative trends in the areas of parking, sales, transient occupancy and business license tax. In this scenario, the General Fund would experience a shortfall of $3.5 million in FY 2019-20 that would increase significantly to $30.6 million in FY 2021-22.

 

Other Funds Status

Other major funds included in the Financial Status Update fall into two categories: 1) funds that operate with sufficient revenues to sustain necessary operating and capital needs; and 2) funds that have a structural deficit where ongoing revenues are not sufficient to cover ongoing expenditures.

 

Self-Sustaining Enterprise Funds

The Water and Wastewater Funds have sufficient revenues to cover current operations. Based on existing analysis, rate increases in the Water Fund allow the implementation of the Sustainable Water Master Plan while also maintaining reserve levels. As noted at the recent public hearing to adopt the current rates, additional studies are underway to further assess the financial needs to achieve Water Self-Sufficiency and those reports are scheduled to be presented to the Council in August 2018. The Wastewater Fund continues to have adequate revenues and reserves to meet current operational and capital expenditures.

 

The Resource Recovery and Recycling (RRR) Fund will maintain a positive fund balance over the next five years. There are several upcoming proposals that may have a substantial impact on the financial stability of the fund, including various solid waste and recycling initiatives and pilot programs, the Fund’s share of costs to complete the Corporate Yards modernization project, and the displacement of the recycling contractor at the Corporate Yards that will result in additional costs for transporting the City-collected recycling materials to an offsite location. Staff will continue to monitor fund performance and consider the need for a rate increase in the future.

 

The Big Blue Bus (BBB) Fund balance reflects the department’s need to tap into reserves in the first three years of the forecast and the potential utilization of Municipal Operator Service Improvement Program (MOSIP) funds in the last two years. While MOSIP funding can be used for both operating and capital expenditures, BBB expenses its share of the funding to support the capital program that includes bus procurement, fleet and operational technology projects, bus stop improvements and infrastructure projects. It is anticipated that the Department will rely more heavily on MOSIP funds as future bus procurement costs will increase as the Department embarks on the procurement of electric buses and related yard and facility infrastructure improvements needed to support electric buses. BBB has never used MOSIP funding to balance the budget. The department historically ends each fiscal year within budget due to savings in materials, supplies, and fuel.

 

BBB’s passenger revenue has finally shown signs of leveling in FY 2017-18 YTD after three consecutive years of decline. Revenue from the recently-approved Los Angeles County Measure M sales tax increase along with the implementation of planned operational strategies will assist the department in reducing the impact of increased costs associated with workers’ compensation, general liability, and other escalating costs, which will narrow the gap between operating revenues and expenses. 

 

In September of 2018, BBB will make minor modifications to routes that will realize some expenditure savings. Staff will evaluate rededicating these savings to ridership growth areas in order to boost ridership and passenger revenue during the last quarter of FY 2018-19. A more aggressive set of changes geared to new service planning standards will be introduced in 2019 pending rider and staff engagement as well as feedback, public hearings and Council approval.  Those changes are expected to more dramatically reduce operating costs and support ridership growth, further narrowing the gap between revenues and expenditures. BBB will continue to monitor its performance and staff will return to Council in FY 2018-19 to present the new planning service standards, proposed service changes and procurement/operation of the new electric bus fleet.

 

The Airport, Beach, and Community Broadband Funds will generate adequate revenues to sustain their operations throughout the next five years.

 

Funds Requiring Subsidies

The Housing Authority Fund has a projected operating structural deficit of approximately $0.7 million to $1 million annually throughout the forecast period. This assumes that U.S. Department of Housing and Urban Development (HUD) funding to housing authorities will not be reduced. For FY 2018-19, the Housing Authority will require an operating subsidy from affordable housing funds set aside in the Special Revenue Source Fund.

 

The Cemetery Fund is projecting a deficit of approximately $50,000 in FY 2019-20 that increases to approximately $0.3 million in FY 2021-22. The implementation of the green burial program has not realized the anticipated growth in the fund. The fund required a General Fund loan at the end of FY 2016-17 and is projected to require additional General Fund loans starting in FY 2019-20 if no changes are made to the operations of the Cemetery. Staff is assessing operations to provide a long term self-sustainable plan for the Cemetery Fund.

 

The Pier Fund is not able to sustain an adequate balance to cover both its operating costs and large capital expenditures. Capital needs that cannot be funded by the Pier Fund during the forecast period must compete with General Fund-supported capital needs. It has been Council practice to subsidize the Pier as a public space, rather than create a loan receivable to the General Fund. The Pier Fund has a projected operating structural deficit of $0.5 million in FY 2021-22 due to anticipated decreases in lease revenues due to construction impacts of various planned capital projects.

 

Expenditure Control Budgeting Policy

Based on the City’s fiscal policy, one-third of each year’s General Fund non-salary operating budget savings may be reappropriated to the departments that achieve the savings. The remaining two-thirds of the non-salary savings is incorporated into the General Fund fund balance. In the spirit of the two-year planning and budgeting cycle, staff recommends that departments carry over FY 2017-18 non-salary savings to FY 2018-19 in order to complete projects that may have been delayed in the first year of the biennial budget. Therefore, staff recommends changing the City’s Fiscal Policy to eliminate expenditure control budgeting for year 1 of the biennial budget cycle.

 

Process/Activity Efficiency Proposals

As the City faces new fiscal challenges in the future, staff is revamping its upcoming biennial budget process to one based on performance measurement and allocating resources where they are best used.  In the interim, as part of the Exception-Based Budget process, departments were asked to begin thinking in this way and provide at least one change in their operations for FY 2018-19 that either streamlines or eliminates a process or activity. Many departments were able to take advantage of existing and upcoming technology to support their changes. The proposals may not directly result in a budget savings, but rather make more efficient use of resources. A sample list of process/activity efficiency proposals is detailed in Attachment D. Staff will provide a roadmap for the transition to a performance based budget as part of the budget adoption staff report.

 

Exception-Based FY 2018-19 Operating Budget Adjustments

The Citywide operating FY 2018-19 Proposed Budget is $546.3 million, $372.5 million of which is in the General Fund. Staff recommends an increase of $6.4 million in revenue adjustments and a decrease of $1.2 million in expenditure adjustments to the FY 201819 Budget Plan approved by Council in June 2017. Changes are summarized below, and listed in detail in Attachment E.

 

Revenue Adjustments – General Fund (+$4 million,1%)

Significant FY 2018-19 Proposed General Fund revenue adjustments include:

·         Parking Related Revenues (+$3 million) – Primarily reflects projected impact of Council-approved parking rate revisions for the Downtown parking structures.

·         Fees and Charges – (+$1.1 million) – Primarily reflects greater volume of building and safety permit fees.

·         Property Taxes (+$0.9 million) – Primarily due to greater payments from Successor Agency tax increment revenues once Successor Agency obligations have been met.

·         Parking Facility Taxes (+$0.4 million) – Primarily reflects the impact of the parking rate revisions.

·         Sales Taxes/Transaction and Use Taxes (-$1.3 million) – Decrease primarily reflects lower than anticipated taxes from autos and general consumer goods.

 

Revenue Adjustments – Other Funds ($2.4 million, 0.8%)

Significant revenue adjustments in other funds include:

·         Local Return (45) Fund – increase of $2.4 million due to Measure R Local Return and Measure M Local Return funds being transferred from the BBB Fund.

·         Airport (33) Fund – decrease of $0.7 million due to primarily lower than anticipated lease rates.

·         Vehicle Management (54) Fund – increase of $0.2 million due to updated Vehicle Replacement Program and Fleet Management inventory.

 

Operating Expenditure Adjustments – General Fund

General Fund operating expenditure adjustments result in a net appropriation of $0.7 million. Changes are detailed in Attachment E. Significant appropriations include:

·         $0.6 million decrease to reflect lower than anticipated Measure Y and GSH Transaction and Use Tax funds to the Santa Monica-Malibu Unified School District and Measure GSH funds for the affordable housing program. This is a direct result of the flattening of sales and use and transaction and use tax revenue.

·         $2.3 million transfer of Gillette/Boeing settlement funds to the Water Fund for the City/USGS Monitoring Well and Numerical Flow Model and Redrilling of Santa Monica Well #3 Capital Improvement Program (CIP) projects.

·         $0.6 million increase to adjust the portion of Parking Structure 7 and 8 revenues paid to Macerich as a result of higher than anticipated parking revenues.

·         $0.2 million increase to augment the level of hospitality services provided by DTSM Ambassadors to ensure Tongva and Palisades Parks remain safe and welcoming for all users.

·         $0.2 million non-salary increase to effectuate the reallocation of existing staff resources to supporting the City’s growing network infrastructure and a contracted Network Operation Center for afterhours technology support of critical business applications.

·         $0.2 million increase to support the recruitment of police officers.

 

Operating Expenditure Adjustments – Other Funds

Proposed operating expenditure adjustments for other funds result in a net decrease of $1.9 million. A detailed list is included in Attachment E.

·         $2.3 million transfer of Gillette/Boeing funds to the Water Fund for Capital Improvement Program (CIP) projects.

·         In the Special Revenue Source Fund, a net $0.2 million increase to the budget resulting from a decrease in an interfund transfer in (shown as a budget credit) to reflect lower than anticipated GSH funds set aside for the affordable housing program.

 

Personnel Changes

This report includes staffing adjustments to reflect ongoing operational changes and results of classification and compensation studies. To control compensation costs, staff kept the number of new positions and funding to a minimum, instead repurposing existing or vacant positions to areas needing additional attention, or reallocating funds to absorb new positions. Staffing adjustments are detailed in Attachment F. These changes result in a net decrease of 0.8 Full-Time Equivalent (FTE) employees – a 6.2 FTE increase in the General Fund and 7.0 FTE decrease in the other funds. Together, position changes result in a net increase of $0.2 million in FY 2018-19 in the General Fund.

 

In the General Fund, staff recommends the addition of 3.0 FTE Custody Officer positions (funded by reallocated overtime budget) to ensure safe and efficient jail operations, a 0.5 FTE Deputy City Attorney II (funded by Consumer Protection funds) to assist with consumer and tenant protection work, extension of 1.0 FTE limited-term Senior Advisor to the City Manager on Airport Affairs (funded by Airport funds) to continue work in seeking local control of the Airport, extension of 1.0 FTE limited-term Human Resources Information Systems Analyst [funded by Enterprise Resource Planning (ERP) capital project budget] to continue work on the ERP System, offset by the deletion of 1.0 FTE Production Supervisor and 0.3 FTE as-needed positions. Additionally, staff recommends the addition of a 1.0 FTE Network Engineer (offset by the deletion of a Community Broadband Analyst in the Community Broadband Fund) to support the City’s growing network infrastructure and the transfer of a 1.0 FTE CIP Project Manager (funded by Airport funds) to the General Fund.

 

In the other funds, staff recommends the deletion of 5.0 FTE Fixed Based Operation positions in the Airport Fund and the transfer of two positions (1.0 FTE Community Broadband Analyst in the Community Broadband Fund and 1.0 FTE CIP Project Manager in the Airport Fund) to the General Fund.

 

Fees and Charges

The master fee and fine resolutions are presented to Council annually as part of the budget adoption. Most City user fees will increase by 4.4% on July 1, 2018, reflecting the projected FY 2018-19 increase in total City compensation, which includes salary, healthcare, retirement and workers’ compensation costs. There will also be other minor modifications to the fee and fine schedules for clean-up items such as description changes, consistency with similar fees and related ordinances, update to seismic retrofit fees, and consistency with State law.

 

In addition, staff proposes five new fees:

·         $361 – Address Assignment Fee – Processing of new address assignments and change requests to existing addresses.

·         $95 – Mobility Impound Fee – Processing of mobility devices abandoned in the Public Right of Way. (To replace fee adopted in March 2018 when it was anticipated that work would be undertaken by outside contractor.)

·         $20 – Administrative Fee (Parking Citation Dismissal: Disabled Placard) – CA Vehicle Code 40226 allows agencies to charge an administrative fee not to exceed $25 for processing cancellation of a citation.

·         $20 – Administrative Fee (Parking Citation Dismissal: Preferential Residential Permit)Administrative fee to recover the cost of cancelling a citation for a preferential residential permit.

·         $1 – Copy Sets for Nomination papers (First 2 sets are free)

 

Additionally, staff proposes revisions to certain Community and Cultural Services (CCS) fees, Zoning fees, and Residential Preferential Parking fees.  These proposals are discussed in further detail below:

 

Community and Cultural Services (CCS) Fees

Following adoption of the FY 2017-19 Biennial Budget, staff conducted a thorough analysis of CREST, Community Recreation, and Cultural Affairs program fees. The proposed fees are in accordance with the Council-adopted Pricing Policy for Recreation Programs and Permit Services and use cost of services data from the citywide fee study conducted in FY 2016-17. The last time these fees were comprehensively evaluated and updated was in FY 2012-13.

Fees for Adult Sports Leagues, Field Rentals, and Miles Playhouse Rental are proposed to increase incrementally over three fiscal years to lessen the impact on community participants. Staff also recommends creating eight new user fees for The Cove Skate Park and one new fine/penalty charge for late cancellation or no show of field rentals. The proposed fee schedule (Attachment G) includes the fee increases and cost recovery rates. Proposed fee adjustments were reviewed and approved by the Arts Commission, Recreation and Parks Commission, Field Sports Advisory Committee, and Cradle to Career Work Group.

Staff anticipates implementation of the proposed fees will result in approximately $191,000 in additional annual revenue.  The budget increase is included in the FY 2018-19 Proposed Budget.

Planning and Community Development (PCD) Zoning Ordinance Fee Update

Current zoning fees were adopted on May 12, 2015 in association with the 2015 Zoning Ordinance update (Attachment H).

 

Using data from an updated cost of services study conducted in FY 2017-18, staff proposes revisions to existing fees to ensure that, for most fees, the City is following Council policy to recover 100% of the costs to provide the service.  Staff also proposes two new fees:

·         3.7% of permit – Downtown Community Plan (DCP) / Land Use Circulation Element (LUCE) – fee to recover costs to prepare and revise the DCP/LUCE.

·         0.7% of permit – Travel Demand Forecasting Model (TDFM) – fee to recover costs to prepare and revise the TDFM.

 

Additionally, staff proposes restructuring seven existing fees, including the Environmental Impact Report (EIR), proposed to be a per hour-charge against an initial deposit of 37% of the consultant contract amount, and elimination of five fees that no longer reflect the services being provided.

 

Residential Preferential Parking Fees

A cost of services study was also conducted for Residential Preferential Parking fees, which were last revised in 2013. Based on the study, it was determined that current fees recover 98% of current costs and the only change being proposed is to increase the fee for fourth and subsequent permits by $1 to $61.

 

A summary of user fee findings for the City’s Planning fees and Residential Preferential Parking fees is detailed in Attachment I.

 

FY 2018-20 Capital Improvement Program Budget

The City of Santa Monica biennially develops a five-year Capital Improvement Program (CIP) budget (Attachment J). Funds for the first year (FY 2018-19) are approved and appropriated as part of the budget process, and funds for the second year (FY 2019-20) are approved now and will be appropriated prior to the start of the second fiscal year.  Budget plan numbers for FY 2020-21 through FY 2022-23 are included as a planning tool to demonstrate total anticipated capital funding needs. This proposed CIP budget advances capital projects leveraging available funds to achieve City Council’s vision of a sustainable city of wellbeing for today’s residents and future generations in our community.

 

Recent CIP budgets funded a surge of high-profile projects including the completed rebuilt California Incline and Pedestrian Bridge, the Colorado Esplanade, and Ishihara Park. Work continues on the City Services Building and the new Fire Station 1, which will both be complete in 2020.  The Proposed FY 2018-20 CIP funds further plans for mobility enhancements, parks and beach improvements including the Civic Center Multipurpose Sports Field, infrastructure work to advance water self-sufficiency, and City Yards Modernization. In addition, the Proposed Budget funds ongoing infrastructure maintenance to protect the City’s existing capital investments and minimizes future replacement costs.

 

CIP Budget Overview

The Citywide CIP Proposed Biennial Budget funds 100 capital projects across 22 Funds. The total Proposed Budget is $186.3 million in FY 2018-19, and $115.4 million in FY 2019-20. The FY 2018-19 Proposed Budget represents a decrease of $52.6 million or 22 percent compared to the FY 2017-18 Adopted CIP Budget of $238.9 million.  The prior budget included the City Services Building and the Fire Station 1 budgets and was larger than average. In addition, to more consistently follow general accounting principles, affordable housing loans will no longer be budgeted in the CIP starting in FY 2018-19, which will slightly reduce the size of the overall capital budget moving forward. Available, committed, and disbursed housing funds, formerly programmed as part of the CIP Program budget, will now be recorded as fund balances or notes receivables in the City’s general ledger. Housing staff will transmit a staff report annually to Council to document Affordable Housing revenues, disbursements, commitments, fund balances, and available balances after commitments.

 

General Fund

The General Fund represents one-quarter of the total CIP Budget over the biennial period. The FY 2018-19 proposed budget is $66.6 million, which includes additional allocations beyond the $21 million, including: $38.3 million in Charnock settlement funds previously held in General Fund reserves for project equity and will now be used for the construction of the City Yards Modernization project, $7.6 million in reserves for the Civic Center Multipurpose Sports Field, and $2.2 million in bond proceeds for the Fire Training Facility.

 

The annual allocation of $21 million for General Fund capital projects will be reduced by approximately $3 million in both years of the biennial budget to pay debt service on the City Services Building. The CIP debt service payment will be lower after the building is operational due to savings that the General Fund will realize once leases for City office space are terminated.

 

In FY 2019-20, the proposed General Fund budget is $14.2 million, which is lower than average due to a projected $6.1 million subsidy to the Pier Fund to support capital work at the Pier. That amount is being deducted from the annual allocation for General Fund CIP projects.

 

Impacts on the Operating Budget

If all projects proposed in this five-year plan are completed, they will add an estimated $5,000 to the General Fund operating budget in FY 2018-19, increasing to a potential estimated $0.6 million in FY 2022-23. The most significant increases include $0.2 million annually to maintain the Civic Center Multipurpose Sports Field starting in FY 2020-21, and up to $0.2 million annually at the end of the five-year planning to maintain and pay for electricity for electric vehicle charging stations as more are installed. Staff will return to Council for consideration of a cost-recovery recommendation after at least 25 “smart” Electric Vehicle charging stations have been operational for three months or more; it is anticipated that this will be in spring 2019. These types of ongoing costs are considered by the CIP Committee when projects are evaluated during the CIP Budget Process to ensure that the Capital Budget Plan does not create unsustainable ongoing maintenance needs. The costs are also included in the five-year financial forecast in all scenarios.

 

Operations and maintenance costs associated with capital projects approved in prior biennial CIP budgets are updated regularly and continually inform updated five-year forecasts and operating budget proposals. Operating budget increases in non-General Funds are able to be supported by those funds.

 

CIP Budget Process

The CIP budget process is facilitated by a CIP Committee comprised of the City’s Department Heads, the City Manager, and the Assistant City Manager. Departments prepare project application submittals for funding consideration, and the CIP Committee reviews and scores applications against the criteria outlined below. Project budget requests, particularly for General Fund capital dollars, have exceeded available funding in recent years. Project applications are evaluated within the context of available funding limits to ensure that limited resources fund one-time priority projects while also effectively maintaining the City’s existing infrastructure. 

 

The CIP Committee scores projects that are competing for limited funds according to three broad criteria, defined as follows:

 

Mandated Activities

·         Projects necessary for health and safety reasons that cannot be deferred

·         Projects mandated by the Federal or State government

·         Projects necessary to adequately maintain existing facilities, infrastructure, or equipment

·         Projects underway that have unavoidable budget shortfalls and that cannot be modified

Council / Community Priorities

·         Projects that clearly address a Framework Outcome and/or meet a Council Strategic Goal 

·         Projects that respond to a Council action or directive

·         Projects identified in an adopted City planning document

Fiscal Responsibility

·         Projects that will improve operational efficiencies and achieve ongoing cost savings

·         Projects that generate revenue

·         Projects where significant outside funding has been obtained to leverage City funding

 

Based on evaluation against these criteria, capital budget recommendations are presented to the City Council for consideration. 

 

The Capital Improvement Program and the Framework

The City of Santa Monica is connecting its budget to the Framework, connecting key departmental goals and activities to seven outcome areas, drawn from the Sustainable City Plan and the Wellbeing Index. The Framework is the City of Santa Monica’s strategic direction, connecting organizational purpose and day-to-day functions for a sustainable city of wellbeing built on a foundation of good governance.

 

The FY 2018-20 CIP Biennial Budget advances five of the seven Framework Outcome Areas. Primarily, the capital program addresses Place & Planet, helping create a resilient built and natural environment. Roughly seventy percent of capital dollars are allocated to projects that advance the Place & Planet Outcome Area during the biennial budget period. These projects primarily address the sub-outcome area of Infrastructure, to develop, protect, and maintain City-owned infrastructure.

 

The CIP also addresses the Governance outcome area by funding capital projects that promote a reliable, effective, and efficient government. These projects primarily address the sub-outcome area of Effective and Efficient Business Processes through software and hardware enhancements and City vehicle procurement.

 

In addition, the Biennial CIP Budget addresses the Safety outcome area through projects such as the procurement of new fire vehicles, safety improvements for pedestrians and cyclists, and the installation of fire sprinklers and bollards on the Pier.

 

In the Health Outcome Area, the largest project is the Civic Center Multipurpose Sports field, which addresses the Physical Health sub-outcome area. In the Community Outcome Area, there is one proposed project to upgrade the audio-visual system in the City Council Chambers will help facilitate community engagement.

 

 

* This includes one project with a budget of $200,500, or 0.07% of the Biennial Budget.

 

The Capital Improvement Program and Council’s Strategic Goals

The FY 2018-20 CIP Biennial Budget and the five-year Capital Plan also continue to advance Council’s adopted Strategic Goals. In particular, creating a new model for mobility is an ongoing focus of the CIP and is central to the proposed five-year Plan. The Plan includes over 20 mobility-related projects, both new and ongoing, with total recommended budget allocations of roughly $32 million over the biennial period (excluding Big Blue Bus spending).

 

The FY 2018-20 Proposed CIP Budget adds additional funding to some of the existing projects and also funds several new mobility projects. Mobility projects included in the CIP meet one or more of the following criteria: they are identified in adopted plans to complete bike, pedestrian and transit networks; they advance work toward Vision Zero; they leverage outside transportation funds; and they are coordinated with adjacent projects or maintenance efforts. Some key mobility projects in the FY 2018-20 Proposed Budget include: the 17th Street Expo Bike Connectivity Improvement Project which will add a protected bikeway along 17th Street from Wilshire Blvd. to Pico Blvd. and continue Greenway treatment along Michigan Ave from 14th Street to 19th Court ($9.2 million total project budget); Phase 1 of the Lincoln Neighborhood Corridor Plan which will enhance pedestrian safety along Lincoln Blvd. ($5.0 million total project budget); Pedestrian Improvements at Four Schools ($1.8 million) and at Six (additional) Schools ($1.9 million); Vision Zero and Mobility Project Delivery ($1.6 million); Design of an Ocean Avenue Protected Bikeway from California to Colorado ($0.6 million); Pico Blvd. and Santa Monica College Pedestrian Safety Improvements ($1.2 million); and several additional smaller projects and studies. 

 

The FY 2018-20 CIP budget will advance accessibility work at the Pier to contribute to an Inclusive and Diverse Community, and will make park improvements related to the City’s work to address homelessness. In addition, the Proposed Budget includes a Library Facilities Master Plan project that will address the Learn and Thrive strategic goal, and the Airport Runway Repurposing to address Council’s Airport strategic goal. 

 

Other Major Areas of Focus 

In addition to completing critical ongoing infrastructure maintenance activities, this five-year capital plan advances work in several key focus areas related to parks and beach improvements, water and stormwater projects, and the modernization of critical City facilities.

 

Park and Beach Improvements

The City Council directed ambitious park expansion and beach improvements in Santa Monica that are currently underway along with processes to update the Parks and Recreation Master Plan (originally adopted in 1997) and complete a Master Plan for the renovation and expansion of Memorial Park. The previous Biennial Budget funded completion of the Airport Park Expansion design phase and this budget funds design for Memorial Park Expansion based on Master Plan outcomes. Future construction of the Memorial Park project will be partially supported by a $20 million allocation of Santa Monica College Measure V funds. Financing options for the full Memorial Park construction budget will be further analyzed as cost estimates and funding opportunities evolve. Alternative financing could come from a variety of sources including parks and recreation development impact fees, Los Angeles County Measure A allocations and grant opportunities, and proceeds from a potential future local general obligation bond.

 

This Proposed Biennial CIP Budget also funds construction of improvements to the North Beach Trail and completion of the Civic Center Multipurpose Sports Field, with reserve funding previously set aside for the field appropriated to the budget in FY 2018-19.

 

Water & Stormwater Projects

The FY 2018-20 Biennial CIP Budget advances the City’s efforts to achieve Council’s goal of becoming water self-sufficient. Several current and planned projects are designed to capture and treat stormwater and wastewater for reuse, improve the efficiency of our water treatment systems, and continue to reduce reliance on imported water by developing new local sources. Staff will return to Council in August 2018 with an updated Sustainable Water Master Plan (SWMP) which includes projects that are already underway, such as the Clean Beaches Initiative, a 1.6-million-gallon cistern currently being installed adjacent to the Pier, and planned projects such as the Sustainable Water Infrastructure Project (SWIP) which will capture and treat stormwater and wastewater for beneficial reuse locally. The total budget for SWIP is $69.8 million, $56.9 of which is a state loan from the Clean Water State Revolving Fund.

 

In addition, the SWMP calls for installation of new local groundwater wells, and efficiency improvements of the City’s current water treatment and metering systems designed to provide extra water and minimize leaks and water waste in the system. The FY 2018-20 Proposed CIP Budget funds several projects that will advance these goals, including a City/USGS Monitoring Well and Numerical Flow Model, the Redrilling of Santa Monica Well #3, and Arcadia Reverse Osmosis Recovery to improve treatment plant efficiency. The Water Fund is able to support all ongoing, routine capital work. Significant one-time capital expenditures are required to advance Council’s goal of water self-sufficiency. The Proposed CIP Budget includes a transfer of $2.3 million in Gillette/Boeing Settlement Funds to support two of the water self-sufficiency projects, the City/USGS Monitoring Well and Numerical Flow Model, and Redrilling Santa Monica Well # 3. A new water rate study to be completed in 2019 will identify additional work and funding necessary to meet the water self-sufficiency goal.

 

Modernization of Critical City Facilities

During the FY 2018-20 biennial period, work will continue on two critical City facilities that were funded in the FY 2016-18 CIP budget—the City Services Building and Fire Station 1. Construction is underway on the City Services Building and is anticipated to be complete in 2020.  The 50,200-square-foot Living Building Challenge building will create a centralized Permit Center and an efficient, sustainable City Hall campus.  Construction of the new Fire Station 1 will begin this summer and is also anticipated to be complete in 2020. The 28,690-square-foot station will be located at 1337-1345 7th Street and will replace the existing Fire Station 1.

 

Work will also continue on the City Yards Modernization project, which received design funding in the FY 2016-18 CIP Budget. The City Yards is a 14.7-acre site located at 2500 Michigan Avenue that serves as the base for the City’s maintenance operations, associated offices, storage facilities, and other industrial uses. Since the City acquired the site in the 1940s, its operations have been adapted on an as-needed basis for various City functions, resulting in an inefficient utilization of space that no longer meets the functional needs of the facility. Schematic design is now complete, and the estimated cost to complete a modified scope of the first phase of the project is $114 million.

 

The FY 2018-20 CIP plan proposes utilizing $38.3 million in Charnock settlement funds to fund a portion of construction. The source of funds for the remaining $64.0 million required for construction will need to be identified during this biennial period.  It is anticipated that these funds will come from contributions from enterprise funds, as well as possibly bond financing, settlement funds, or other sources. In any funding scenario, costs would be allocated to other funds with associated operations at the City Yards, including Resource, Recovery, and Recycling and the Vehicle Management Fund. City Yards Modernization efforts would also be coordinated with adjacent Water and Wastewater plans, ensuring that those funds would also contribute their share of costs. Staff will explore financing options and return to Council with a recommendation.

 

Unfunded Projects

Projects that do not receive funding are listed in the budget document and are tracked for consideration in future funding cycles. In some cases, these are still high priority projects but they may need to be deferred for a number of reasons such as exploring opportunities to leverage City funds with external funding, or to acknowledge workload considerations where existing staffing capacity is fully committed to other urgent projects. In some cases, staff is able to continue preliminary or related work until it is possible to fully fund a broader effort.

 

Airport Park Expansion is the largest project on the unfunded list at this time. Design of the park is now complete, and staff continues to explore funding options for construction. Alternative financing could come from a variety of sources including parks and recreation development impact fees, Los Angeles County Measure A allocations and grant opportunities, and proceeds from a potential future local general obligation bond. Staff will continue to explore alternate financing options and provide recommendations to Council as opportunities arise.

 

Phase 2 of the Lincoln Neighborhood Corridor Plan, which consists primarily of pedestrian lighting, is also on the unfunded list. However, phase 1 of the project, which includes median and crosswalk improvements, is funded in the Proposed Budget.

 

Council Discretionary Funds

Each year, Council allocates discretionary funds to assist the community in special projects or support important but otherwise unfunded priorities.

 

Council has traditionally supported community partners like the Business Improvement Districts, Santa Monica traditions like the Fourth of July Parade, one-time programs, and community students through science or music grants allowing Santa Monica youth to participate in special events. Projects and programs supported by Council discretionary funds for the past three years are detailed in Attachment K.

 

Allocation of the funds may occur along with Budget Adoption or throughout the year. Including unallocated FY 2017-18 discretionary funds and FY 2018-19 discretionary funds, the Council has access to $756,243 in FY 2018-19.

 

Financial Impacts and Budget Actions

The FY 2018-19 Proposed Budget is $732.5 million. This amount represents a 7% decrease over the FY 2017-18 Revised Budget and a 5% decrease over the FY 201819 Budget Plan, due mostly to decreased capital spending. Staff will return to Council on June 12, 2018 to recommend adoption of the FY 2018-19 Proposed Budget.

Meeting History

May 22, 2018 5:30 PM  City Council Regular Meeting
draft Draft