City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council receive an overview presentation (including
presentations from the following Departments: City Council, City Manager, City Clerk,
and Risk Management) on the Proposed Budget for Fiscal Years 2008-09 & 2009-10
from the City Manager and Chief Financial Officer for both the City and the Culver City
Redevelopment Agency.
DISCUSSION:
Section 700 of the City Charter of the City of Culver City (City Charter) provides, in
pertinent part:
“…The City Manager, or his or her designee, shall: …Prepare and submit
to the City Council an annual budget pursuant to this Charter, and
implement the final budget approved by the City Council…
Further, Section 801 of the City Charter provides:
At least 45 days prior to the beginning of each fiscal year, the City
Manager shall submit a proposed budget to the City Council. After
reviewing the proposed budget, the City Council shall set the date and
time for a public hearing on the proposed budget and, at least 10 days
prior to its scheduled date, shall cause notice of such public hearing to be
published in a newspaper circulated in the City and designated by the City
Council.
Meeting Date: 05/05/08 Item Number: J-2
AGENDA ITEM: JOINT ITEM: Budget Study Session – Fiscal Years 2008-09 &
2009-10 Proposed Budget: Budget Overview and the Following Departments:
City Council, City Manager, City Clerk, and Risk Management
Contact Person/Dept.: Jeff Muir, CFO Phone Number: 310.253.6016
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: [X]
Public Notification:
Master Notification List 4/30/08; Published Notice of Meeting in the Culver City News
and Culver City Observer on 5/01/08.
Department Approval:
Jeff Muir (04/30/08)
City Attorney Approval:
Carol Schwab (by H. Baker) (04/30/08)
Fiscal Impact Review:
Jeff Muir (04/30/08)
City Manager Approval:
Jerry B. Fulwood (04/30/08) City of Culver City, California
City Council Agenda Item Report
Copies of the proposed budget shall be available for public inspection in
the office of the City Clerk at least 10 days prior to the public hearing.
The City’s Fiscal Year begins on July 1 of each year. The Public Hearing required by
Section 801 of the City Charter has been scheduled for Monday, June 16, 2008 and
will be noticed in accordance with said Section.
This first budget study session is an overview and summary of the Proposed Budget
for Fiscal Years 2008-09 and 2009-10 (Proposed Budget). The Chief Financial Officer
will give a presentation to the City Council and the Redevelopment Agency which will
include a discussion of current economic conditions and provide financial highlights for
each of the City’s and Agency’s major funds. For reference, a copy of the Proposed
Budget is attached to provide some general budget and economic information.
ATTACHMENTS:
1. City Manager’s FY 2008-09 and 2009-10 Budget Message
MOTION:
That the City Council and Redevelopment Agency:
Receive a presentation from the City Manager and the Chief Financial Officer.
MEETING DATE: 05/05/08
AGENDA ITEM: Budget Study Session – Fiscal Years 2008-09 &
2009-10 Proposed Budget: Budget Overview
ATTACHMENTS
Pages
1. City Manager’s FY 2008-09 and 2009-10 Budget Message 1-15
ADMINISTRATIVE OFFICE
9770 CULVER BOULEVARD, CULVER CITY, CALIFORNIA 90232-0507
(310) 253-6000
•
FAX (310) 253-6010
JERRY B. FULWOOD
City Manager
I
PRINTED ON RECYCLED PAPER
April 28, 2008
Honorable Members of the City Council:
PROPOSED FISCAL YEAR 2008-09 AND 2009-10 BUDGET
INTRODUCTION
In accordance with Section 801 of the City Charter, I am submitting the proposed 2008-
09 and 2009-10 budget for your review. Shortly you will conduct a series of “Budget
Study Sessions” at which these documents will be discussed and modifications may be
proposed. You will also be asked to set a Public Hearing, which must precede budget
adoption and must take place on or before June 30, 2008. We are targeting June 16,
2008 for the Public Hearing and budget adoption.
A YEAR OF ACCOMPLISHMENT AND TRANSITION
There has been much progress by the City in the past year. The City Council and staff
have worked hard on completing many important projects, and making significant
progress on others.
The City Council approved a ballot measure for the April 2008 ballot to modernize the
City’s Utility Users’ Tax (UUT) Ordinance. This measure was placed on the ballot to
protect approximately $3 million in annual revenue from telecommunications UUT that
was at risk due to certain legal challenges in other jurisdictions. Culver City residents
once again demonstrated their support of the City’s high levels and quality of service by
approving this item at a 79% rate. The City Council has also continued to actively
participate and ensure Culver City is represented in regional issues at all levels. This
includes remaining active in the Westside Cities Council of Governments (COG) to
create a unified voice with surrounding cities to more effectively address the regional
issues that affect us all.
In addition to providing City-wide direction pursuant to City Council policies, the City
Manager’s office, in conjunction with the new Chief Financial Officer and Budget &
Finance staff, successfully completed an update of the City’s Comprehensive Financial
Plan, which provides information and future projections on all City funds in order to
guide the organization in making prudent financial decisions. The City’s first two-year
budget was also implemented under the City Manager’s leadership. The City
Manager’s Office also played a lead role in an audit of Comcast/Time Warner for
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calendar years 2002 through 2005 which yielded over $160,000 in underpaid utility
users tax and applicable penalties. In April 2008, the Risk Management division
implemented an enhanced Employee Wellness Program. Staff believes a successful
wellness program will improve employee morale, and over the long run may reduce
workers’ compensation claims and healthcare costs in the City’s budget.
The City Clerk’s Office successfully managed the 2008 election process. Also, effective
April 9
th
and pursuant to the approved City Charter change in 2006, the elected City
Clerk position was eliminated and the duties have been transitioned to appointed staff.
The office will be focusing on an upcoming reorganization to further improve counter
services on the first floor, City-wide public notification efforts and document
management.
The Fire Department, in addition to ensuring continued quality fire suppression and
paramedic services after another year of a record-breaking number of incidents, has
achieved a number of accomplishments. The long-awaited ground breaking of the new
Station #3 took place, and construction is well underway. The Department successfully
coordinated another City-wide Disaster Drill and also put on a successful Disaster
Preparedness Fair. Culver City continues to serve as the chair of the board for the
Interagency Communications Interoperability System (ICIS) Network Joint Powers
Authority.
The Police Department successfully implemented Connect CTY, a citizen notification
system that allows city officials to inform the public of any activities that may impact the
citizens of Culver City including safety advisories, traffic incidents and street closures.
The Police Department, in conjunction with the Fire Department, is also in the midst of
implementing a new Computer Aided Dispatch and Records Management System. This
system will allow police officers to decrease the amount of time inside the station writing
reports, and increase the amount of time on patrol. The Police Department also
acquired a new forensic laser that enables technicians to find and identify trace
evidence such as fingerprints and DNA, allowing the unit to identify several violent
criminals over the past year.
The Parks, Recreation and Community Services (PRCS) Department provided a myriad
of contributions to the recreational opportunities available to Culver City residents and
visitors. The Parks and Recreation Master Plan, which will serve as a blueprint for open
space and recreational planning for many years, reached 75% completion. In
conjunction with Public Works, the completion of the Skateboard Park was achieved
and the Culver West Alexander Park Project was begun. The Department continues to
oversee the maintenance of 110 acres of Culver City parkland and medians, and offer a
slate of recreational services and classes to the City’s youth, teens and adults. The
Culver City RSVP program celebrated its 35
th
year and their volunteers contributed
more than 130,000 service hours to the community. Staff and volunteers served or
delivered over 30,000 senior meals.
The Transporation Department continues to operate the City’s award-winning bus transit
system and provide quality maintenance and service to the City’s entire fleet of vehicles.
Culver City has implemented the new SmartBus System on all of its buses, and is
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actively in the process of implementing the new Universal Fare System. Because of the
Culver City commitment to environmentally friendly vehicles, the Compressed Natural
Gas Station was successfully expanded. A new bus service line (Line 7) was started
from Culver City to Marina Del Rey, and expansion of this line to service on Robertson
is planned. The Department also worked closely with the Fire Department in purchasing
four new fire units to ensure consistency and easier maintenance of the fleet.
The Public Works Department was instrumental in the management of many capital
improvement projects, maintenance of City infrastructure and operating a variety of
environmental programs. The Department, with the PRCS Department, played a key
role in the completion of construction of the Skateboard Park, is actively managing the
construction of Fire Station #3. Construction of 1.8 miles of new sewer main and 4.7
miles of street resurfacing was completed. A new in-house graffiti crew was instituted
and is now operating seven days a week. A reorganization that created a new
Environmental Programs and Operations Division was also implemented. The
Department was able to successfully obtain a PLACE Grant from the County of Los
Angeles for creation of a City-wide Bicycle and Pedestrian Master Plan.
The achievements of the Community Development Department over the past year were
numerous. The West Washington Area Improvement Plan (AIP), a new demonstration
project using interdepartmental resources to seed change around redevelopment sites,
was begun. A new Code Enforcement Division with new staff, work programs and a
new operations manual was integrated into the Department. An Administrative Citation
Ordinance has been adopted to support the Division’s work. A well-attended public
workshop on mixed-use development was conducted in August. A new Solar
Photovoltaic Ordinance was drafted and adopted by City Council, requiring mandatory
installation of solar photovoltaic systems in all new construction and substantial
rehabilition projects that meet a threshold of 10,000 square feet. A Comprehensive
Housing Strategy report which provides a blueprint for providing affordable housing
opportunities into the future was developed and presented. An immense effort went into
the development and ultimate approval of revised Mixed Use Development Standards.
Equally resource-consuming was the processing of the EIR and entitlement applications
for the Entrada Office Project. The Additionally, the Department worked extremely hard
on processing a number of large projects, including Westfield, Sony, Symantec, Parcel
B and others.
The Redevelopment Agency has made significant contributions to the City over the past
year. A new Business Resource Center that was established to promote economic
development through permit assistance for new business relocations and expansions
and a new Business Assistance web site was developed to help businesses navigate
the permit process. A variety of cultural affairs programs were successfully planned and
executed, greatly improving the availability of affordable and local music, dance, theatre
and art events to the community. A DDA for the Baldwin site, a LEED certified project
which will include creative office, retail and restaurant space, as well as public parking
spaces was successfully negotiated and approved. The Redevelopment Agency
approved a revised design for the Parcel B site, which will include an office development
with ground level retail and restaurant with outdoor,dining as well as expansion of the
site to provide a public performance space and other improvements. Additionally, the
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Redevelopment Agency approved a concept design for the projects at
Washington/Centinela, which will include a very creative design for a LEED certified
mixed-use office, retail and residential pedestrian oriented development; and renovation
and expansion of the Westfield mall, which is well underway.
The IT Department launched a new City web site that greatly enhances our ability to
conduct business on a twenty-four hour, seven-day-a-week basis. One of its primary
features is a citizen relationship management application which allows citizens and
businesses to lodge complaints, make service requests, or compliment city staff. This
application is being used to ensure that all contacts with citizens are tracked and
responded to in a timely manner.
The Human Resources Department has conducted an almost record number of
recruitment processes over the past year, due to retirements as well as positions that
were added to the 2007-08 budget. Human Resources continues to assist other
departments in adding talented employees to Culver City’s quality workforce. The
Department developed and/or revised a number of employee policies, and established a
Health Benefits Committee to work collaboratively on solutions for the burgeoning costs
of benefits, especially active and retiree medical insurance coverage.
The City Attorney’s Office has worked closely with departments to provide sound legal
advice and services.
The final changes to the City Charter approved in April 2006 also included the formal
transitioning of the duties of the elected City Treasurer to an appointed position. The
City has hired its first Chief Financial Officer, and effective April 9th the new and unified
Finance Department began. This Department will include both the areas of accounting,
payroll, accounts payable, accounts receivable, investment management, cashiering
and business and local tax enforcement that were part of the City Treasurer’s Office,
and the areas of purchasing, central stores and budget management that were formerly
under an appointed City Controller.
As evidenced by all of the examples given above, the City has been consistently moving
forward over the last number of years. The City Manager, together with City Council,
has set a number of goals to continue to move the City forward over the next few years.
Unfortunately, there have been great changes in the economic outlook for the nation,
the State and even the City since our last budget was created. These economic factors
have reduced the projected resources available to the City from prior projections.
These factors will be discussed in more detail, but because of the tightening economy
this budget strives to maintain the resource allocations necessary to provide the current
high levels of service to the community. I am confident that by taking a conservative
approach over the next several years, Culver City can survive this economic downturn
without service or staff reductions in the short-term. However, the City will once again
be battling a structural deficit in future years, and decisions will need to be made over
the next year as to how the City will address this long-term financial problem.
V
ECONOMIC OUTLOOK
One year has made a significant difference in the economic reality and outlook we face.
The dramatic shift in the housing market is a driving force in the economic downturn that
has occurred. Rising interest rates coupled with a huge number of “unconventional”
sub-prime mortgages with adjustable rates that are now resetting have caused a
‘foreclosure crisis’ for many individuals who purchased homes using these loans. An
all-time record number of homes are in foreclosure status. Home prices are declining in
most areas. Many large financial institutions are taking huge losses based on their
investments in sub-prime mortgages, which has had significant negative impacts on the
stock market. Oil and gasoline prices continue to increase, which is correspondingly
increasing the cost of many other goods. The housing problem coupled with increasing
fuel/energy costs is impacting peoples wealth and spending power. Consumer
confidence is reported to be at a 26 year low. GDP growth has been slow or stagnant
and unemployment is reported to be increasing, which together are a key indicator of
the economy being in a recession.
The federal budget, based on the economy and war spending, is being reduced in many
areas. This means reductions in many of the federally supported city progams, such as
Community Development Block Grant as well as public safety grant allocations.
The governor is scheduled to release his revised State budget proposal May 14 that
accounts for updated tax revenue numbers. His January plan assumed the deficit would
be $14.5 billion. Legislative Analyst Elizabeth Hill later upped the number to $16 billion.
Lawmakers then authorized more borrowing, delayed some debt payments and made
other fixes to close the gap to about $9 billion for the fiscal year that begins July 1. The
governor said that number has grown by at least $1 billion. While the proposed budget
did not include significant, direct revenue diversions from cities, the budget process for
the State is far from over. History tells us it is likely that cities will be affected, even with
the protections of Proposition 1A. It is unclear if Proposition 1A protections even apply
to the Redevelopment Agency, which could make it an easier target. We will not know
the effect of the State budget until after our budget is adopted.
LONG-TERM CITY ISSUES
The City contracted with AON Consulting to perform an actuarial study associated with
the implementation of Governmental Accounting Standards Board (GASB) Statement
No. 45. The primary purpose of this study was to determine the long-term costs of the
City’s medical insurance for retirees. The draft report was recently provided to the City
and presented to the Budget & Finance Subcommittee. The report analyzes the cost to
provide the benefits currently offered over the next thirty years, based on current active
and retired employees, and using actuarial assumptions and trends. The City currently
funds this benefit on a pay-as-you-go basis, and the estimated amount for Fiscal Year
2007-08 is $3.7 million. The report shows that this cost will continuously rise at a fairly
significant rate, doubling from the current amount by 2017 and reaching almost $14
million per year at the end of the thirty years. If the City wanted to pre-fund this benefit
today, it would need to invest $105 million with a 7.75% rate-of-return (similar to what
CalPERS assumes for their portfolio), or $208 million if it earned 4% (the approximate
VI
earnings rate for the City’s investment portfolio). If the City chose to fund the benefit
pursuant to GASB 45 over the thirty years, and deposit funds annually into an
irrevocable trust fund, it would require $7.4 million annually in a trust earning 7.75%
(lower earnings would require a higher amount). This means basically doubling the
current amount the City pays. While there is not a legal requirement to fund this
amount, the problem is that in about ten years this is the amount the City will need to
fund on a pay-as-you-go basis, and it will only go up from there. Additionally, the City
will be required to report the difference between the Actuarily Required Contribution and
what it actually funds on its financial statements.
There are only two legitimate ways to control the future costs of retiree medical
covereage. Prefunding these future costs or limiting liability. There are several ways
the future liabilities can be limited: curbing (reducing) benefits, capping employer
contributions, converting to a defined contribution plan or increasing vesting
requirements. For reference, the average present value of the current retiree medical
benefit is almost $200,000 per employee. The City has formed a Health Benefits
Committee consisting of staff from HR, Finance and the City Manager’s Office, along
with representatives from the City’s bargaining groups to discuss this issue. The
Proposed 2008-09 and 2009-10 Budget only includes $100,000 towards pre-funding
this benefit. Further pre-funding of the existing benefits will require identifying
significant new revenues or expenditure reductions in other areas.
Sufficient funding for deferred maintenance continues to be an ongoing struggle for
many cities, including Culver City. While the City has been able to appropriate some
funding from the General Fund Fund Balance for one-time capital improvement projects,
a long-term plan to fund outstanding deferred maintenance is still in process. A study
was conducted earlier this year that identified how much the City will need to set aside
each year to enable it to meet future facility and infrastructure maintenance needs for
streets, streetlights, City buildings and park facilities. It identified the funding needs for
immediate repair and replacement costs to bring the City current in its deferred
maintenance, and an estimated annual amount to fund routine costs and future reserve
requirements. The table below reflects the results of the study:
Total Est.
Deferred Maint.
Cost
Estimated Annual
Cost
Proposed 2008-09 Funding
(From all funding sources)
Streets $18,000,000 $2,200,000 $1,900,000
Streetlights* $11,000,000
Total estimated cost to
replace old high voltage
lights with new low voltage
lights
N/A $200,000
City Buildings
General Fund only
$3,650,000 $440,000 $440,000
Park Facilities $1,800,000 $225,000 $97,000
Carryover of prior year funds
VII
Similar to the retiree medical benefits, funding the deferred maintenance issue will
require either identifying significant new revenue sources or expenditure reductions in
other areas.
Over the coming months, the Chief Financial Officer will be presenting updates to the
City’s Comprehensive Financial Plan with various financing options to address the City’s
short-term and long-term financial issues for City Council consideration.
PROPOSED BUDGET SUMMARY
While departments were not asked to reduce their budget as part of this year’s process,
they were asked to keep enhancement requests to a minimum. After several years of
budget reductions prior to 2007-08, there were still a number of requests made. All
requests were carefully evaluated and recommendations were made based on whether
the request meets the following criteria:
• Enhance community and/or staff safety and/or security issues;
• Improve organizational efficiency;
• Consolidate and/or centralize a service function;
• Increase accountability;
• Result in cost savings;
Unfortunately, due to funding constraints, very few enhancements could be approved.
The total combined City expenditure budget is $143,156,030. The City’s largest funds
remain the General Fund (60%), the Transit Fund (16%), the Sewer Fund (9%) and the
Refuse Fund (8%), as represented by the graph below:
TRANSIT
16%
RE FUSE
8%
CAP I TAL
IM P ROV
4%
GE NE RAL
FUND
SERVICES
60%
SEWER
9%
SECTION 8
HOUSING
1%
GRANTS
1%
PROP A & C
1%
VIII
General Fund revenues are projected to be $87.0 million in fiscal 2008-09. This
includes ongoing revenue of $820,000 from adopted increases in fees approved by City
Council beginning in Fiscal 2007-08, and $1.5 million in one-time revenues from new
development impact and permit fees. The projected revenue also includes the second
and final payment, including interest, for the sale of the Warner Parking Lot
($2,947,174). This final payment was originally scheduled to be received in fiscal 2007-
08, and is needed to cover capital projects approved in the prior and current fiscal
years.
The proposed 2008-09 General Fund appropriations total $85.1 million, which includes
a transfer out of approximately $1 million to fund the recommended Capital
Improvement Projects and $150,000 to fund Computer Equipment Replacement.
Proposed fiscal 2009-10 General Fund revenues are projected to be $86.4 million. This
also includes a projection of $1.8 million from one-time new development impact and
permit fees. The proposed General Fund appropriations total $86.3 million, which
includes a transfer out of almost $1 million to fund the recommended Capital
Improvement Projects and $150,000 to fund Computer Equipment Replacement.
The appropriation level for fiscal 2008-09 remains at 96.5%. For fiscal 2009-10, the
appropriation level has been decreased to 96% in order to help close the gap between
revenues and expenditures. Budget staff will continue to monitor the monthly
expenditure pattern to ensure the budgetary control.
It is projected that the City’s General Fund reserve will remain above the 30% policy
reserve level at the end of the two-year budget cycle. Receipts from new development
activity the last few years have been very beneficial in enabling the fund to remain
above this threshold.
It has become apparent that the cost of construction is increasing. As a result, a
number of recent construction bids for capital projects have been higher than
anticipated. There is a potential for large project cost overruns, which may necessitate
the use of General Fund reserve money to fund the gap and complete the project. In
the past the Fund has been able to cover these overruns and transfer needed funds, but
it may not be able to sustain future transfers. Staff is currently exploring alternate
funding sources to relieve some of the pressure on the General Fund.
As previously discussed, this budget strives to maintain the existing levels of City
services in light of the economic downturn. Therefore, there are a limited number of
additional positions included in this proposed budget. In the General Fund for fiscal
2008-09, there are 5.81 net new positions. These include: Administrative Clerk – City
Manager’s Office; Executive Assistant to the City Council (0.6) – City Manager’s Office;
Graphic Services Assistant (0.63) – Graphic Services; Sr. Financial Systems Analyst –
Finance Administration & Budget; Deputy PR&CS Director – Parks, Recreation &
Community Services; Jailer – Police Department; Sr. Management Analyst – Police
Department; Building Engineer – Police Department; Emergency Preparedness
Coordinator – Fire Department.
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Also included in the fiscal 2008-09 are positions recommended to be eliminated. These
include: Associate Analyst – City Manager’s Office; Veterans Memorial Complex
Manager – Veterans Auditorium; Two Police Lieutenants – Police Department.
In Non-General Fund Departments there are 12.1 net new positions. These include:
Bus Operators (7 full-time, 3.6 part-time) – Transportation; Sub-drain Worker – Sewer
Operations; Welder (Increase from 0.5 to 0.98 RPT) – Refuse Services.
There is only one recommended new position in fiscal 2009-10, which is a Mechanic –
Equipment Maintenance & Fleet Services.
ENTERPRISE FUNDS
Refuse Fund
Over the last four fiscal years, the Refuse Fund has performed exceptionally well by
paying down its debt from $1.4 million to $197,000 (period ending June 30, 2007); and
based on current revenue and expenditure projections, the Fund will become positive
during fiscal 2007-08. It is anticipated that from this point on the fund balance will
remain positive. Staff is still anticipating significant future solid waste disposal cost
increases, though, based on information from the County Sanitation District, as local
landfill capacity is depleted.
In order to smooth this transition, the disposal charges for the City’s refuse that is taken
to Sanitation District landfills (which handles the majority of the City’s refuse) will
increase at a rate of approximately 7% to 8% per year over the next twenty years.
Additionally, like all City funds, the Refuse Fund is facing significant increases to critical
operating costs, including fuel, which has increased significantly in recent months,
equipment maintenance, and equipment replacement.
As a result, the Refuse Fund will again need to increase its rates by 10% in 2008-09
and another 10% in 2009-10 to balance revenues with expenditures. In addition to
regular rate adjustments, the Refuse Fund continues to engage in revenue expanding
opportunities. In order to help offset the amount of refuse taken to landfills, the City
increased its successful bi-weekly residential recycling program to weekly beginning in
January 2008.
The rate increases are expected to generate enough revenue to provide operating
surpluses in 2008-09 and 2009-10. These surpluses will be used to build a reserve to
lessen the impact of significant increases in operating costs that will result from landfill
closures anticipated in 2013, and assist in paying for any uncontrollable increases in
operating costs such fuel prices. It will also assist in paying for some much needed
upgrades to the Transfer Station infrastructure scheduled in 2008-09.
X
Transportation Fund
Transportation continues to play a major role, not only in providing public transit
services, but also overseeing Culver City’s involvement with the Exposition Light Rail
Line and other regional transportation initiatives.
The primary funding concern for the Transit Fund is the “threat” on the State’s and the
County’s multiple sources of transit funds which make up the majority of the operational
funds for the Culver CityBus. The sources of the State and County transit funds include
sales taxes and gas taxes. Both the State and the County are predicting lower sales tax
receipts for the next year, which in turn, lowers the allocations of funds that Culver
CityBus can expect.
Each source of voter approved transit funding comes with its own set of rules and
regulations and is subject to the interpretation of political leaders in the setting of the
State budget. Last year, the Legislature and the Governor diverted nearly $1.3 billion
from Transit Funds and permanently added some General Fund expenses to the
account set aside for Transit Funds. This means a smaller percentage of those funds
are now available for traditional transit fund purposes. Also, the Governor’s current
budget proposes selling only half of the Proposition 1B Transportation Bonds as it did
last year, which also means less funding available for Capital Transportation projects,
such as the Aerial Station for the Exposition Light Rail.
Over the past few years, the Municipal Transit Operators and MTA have been
discussing a revised Fare Allocation Plan (FAP) formula to distribute the County’s
transit subsidies. A new FAP formula was finally approved several months ago, which
allows Transit Operators to raise their fares without being penalized by the formula.
Culver CityBus will be analyzing it’s current fare structure in the upcoming year.
In FY 09, the Transportation Department is looking to increase transit service. Culver
CityBus is evaluating some service proposals to better provide service for our riders,
such as an increase in service on Line 7 which would connect Culver City to the West
Hollywood area and provide service to Cedar-Sinai Hospital and the Beverly Center.
Metro currently runs that route and is intending to drop the route, however, it is also
expected that Line 7 will eventually play a key role in transporting passengers to the
Exposition Light Rail Station in Culver City. Another planned increase in service will
also add Culver CityBus’ first Bus Rapid program on the current Line 6. This service will
allow transit riders to move more quickly along Sepulveda Boulevard by skipping less
frequented stops. It is hoped that this service will provide better service to Culver
CityBus passengers as well as attract new transit riders as gas prices continue to rise.
Sewer Fund
Sewer charges from the City of Los Angeles for use of the Hyperion Treatment Plant
and Los Angeles sewer transmission lines will decrease for 2008-09. Each year the
City receives communication from the City of Los Angeles as to the amount of charges
they will be issued. Over the last few years the amount year-to-year as fluctuated
significantly, which makes it difficult to budget at a steady rate. Although charges have
XI
decreased for fiscal 2008-09, increases in sewer charges are expected to pick-up again
after this fiscal year. Additionally, the City must continue to comply with new Waste
Discharge Requirements set by the State Water Resources Control Board.
Currently, there is no recommendation to increase sewer charges for fiscal 2008-09,
and proposed operating costs are currently covered by recommended operating
revenues. A 4% increase on sewer charges is proposed and included in the revenue
estimates for 2009-10.
The City is continuing to explore the possibility of future savings by removing itself from
the Amalgamated Cities Agreement with Los Angeles and joining the LA County
Sanitation District. Membership in the LA County Sanitation District would also provide
the City with representation that it currently lacks under the Amalgamated Cities
agreement. This idea is still in the conception phase. Staff is currently studying this
option and more specific cost information will be available in the future. Continuing to
maintain a healthy fund reserve, though, is critical in case the decision is made to
initiate the change between agencies.
INTERNAL SERVICE FUNDS
Self-Insurance Fund
The Self Insurance Fund (SIF) has had to face a number of significant challenges
during fiscal year 2007-08. The SIF began the year with a relatively healthy fund cash
balance of approximately $5 million. The purpose of having a healthy cash balance in
the SIF is to safeguard against the General Fund taking a significant financial hit
resulting from a particularly expensive lawsuit or workers’ compensation claim, or a
dramatic unforeseen increase in insurance premiums (like was seen after 9/11 and
hurricanes Wilma and Katrina). Unfortunately, in both 2006-07 and 2007-08 the City
experienced a number of lawsuits that will significantly reduce the SIF’s available fund
balance. In fact, the fund balance is projected to decrease by approximately $4 million.
This will leave the SIF with a cash balance of approximately $1 million.
Staff will work to restore the fund balance over the next five years. However, it will take
time as the fund’s revenue source is an internal service charge to operating
departments. In the current economy, the General Fund cannot absorb a dramatic
increase in internal service charges. Staff will continue efforts to reduce costs by
implementing preventative safety and wellness programs, train staff in proper safety and
employment practices, and participate in low-cost insurance solutions that properly
mitigate the City’s risk. However, it should be noted that the cost of a liability claim or a
worker’s compensation case may be unpredictable, and it would be prudent for the City
to continue to maintain an adequate fund balance.
Equipment Replacement Fund
The purpose of the Equipment Replacement Fund is to establish a means of
accumulating funds for technology related replacement costs, communications system
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replacement costs, and vehicle and equipment replacement costs. Funding for vehicles
within the Equipment Replacement Fund continues to be adequate.
In 2008-09, twenty-four (24) vehicles are scheduled to be replaced and/or upgraded
using Equipment Replacement funds and include; fifteen (15) public safety vehicles,
one (1) vehicle for Recreation, one (1) Automated Side Loader and four (4) Semi-Truck
Line Haulers for Refuse Transfer Station service, one (1) Utility Truck for Refuse, one
(1) Utility Truck for Street Maintenance, and one (1) Utility Truck for Equipment
Maintenance and Fleet Services. The total replacement amount for vehicles in fiscal
2008-09 is estimated to be $1.65 million. In 2009-10, there are only four (4) vehicles
currently scheduled to be replaced. Two (2) Paratransit Vans for Paratransit Services,
one (1) vehicle for public safety, and one (1) vehicles in parks. The total amortization
charge to all departments is approximately $1.6 million for each budget year.
Capital Projects Funds
In fiscal 2007-08, the City continued efforts to identify deferred maintenance issues so
they can be adequately planned for and addressed. Draft versions of two
comprehensive assessment studies were completed – a Facilities Assessment study,
which identified building maintenance issues at each City owned facility, and a Parks
Assessment study, which identified park and park facility maintenance issues. The
results of these two studies have been useful to staff to clearly identify and quantify
deferred maintenance needs and were used in conjunction with the existing Pavement
Management Master Plan and Sewer Video Analysis and Conditions Assessment
Report to develop the 2008-09 and 2009-10 proposed Capital Improvement budget.
The total proposed allocation for all Capital Projects in all funds in fiscal year 2008-09 is
$8,593,000 and fiscal year 2009-10 is $5,428,000 (excludes carryover funds from prior
fiscal year). The following table provides a summary of a few recommended projects:
Project Type 2008-09 2009-10
Public Art Projects (Art Fund) $209,500 $187,000
Building & Property Improvements (I & A Fund) 749,000 245,000
Technology Enhancements (I & A Fund) 251,000 205,000
Parks & Park Facilities Projects (Parks/I & A Fund) 121,000 71,000
Sewer Improvement Projects (Sewer Fund) 3,455,000 2,450,000
Stormwater (NPDES/TMDL) (I & A Fund) 250,000 200,000
Traffic Signal & Lighting Projects (I & A/Gas Tax Fund) 370,000 220,000
Street Improvements (I & A/Gas Tax Fund/Grant Funds) 1,502,000 535,000
Other Grant Funding 551,000 180,500
Transfer to Operating Divisions 1,134,500 1,134,500
TOTAL $8,593,000 $5,428,000
The proposed budget provides significant resources to address deferred maintenance
on City streets ($1.5 million), which includes $656,000 in Proposition 1B funding from
the state. It also provides resources toward building improvements, which will address
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deferred maintenance on City buildings, and sewer improvements ($3.45 million).
However, much of this funding is a result of one-time revenues and one-time grants;
funding drops off considerably in 2009-10. In order to adequately address deferred
maintenance on an on-going basis, staff will need to work with the City Council to
identify an on-going funding source.
FISCAL CHALLENGES AND OPPORTUNITIES
In the first year of the two-year cycle, fiscal 2008-09, there is a projected slight surplus
in the General Fund. However, although the second year budget, fiscal 2009-10, shows
a slight surplus, that is only the result of making assumptions that involve significant
‘belt-tightening’. Fiscal Year 2009-10 includes assumptions of reversing the 3%
inflationary factor normally applied to Operations and Maintenance accounts in the
General Fund, and decreasing the appropriations control from 96.5% to 96%. Because
inflation does not go away, Operations and Maintenance costs will increase in 2009-10
and departments will be faced with making reductions in some areas in order to fund
mandated increases in others. Decreasing the appropriations control, and achieving it,
will likely require a hiring freeze as we approach 2009-10.
The City is faced with an issue that has been discussed many times in previous years,
an operational deficit. Without the assumptions made in 2009-10, the General Fund
would be facing an estimated almost $1 million operational deficit. This trend was
identified when the update to the Comprehensive Financial Plan was presented in
January 2008. In the years following 2009-10, the deficit is projected to grow. The
chart below identifies this trend:
Recurring Expenditures vs. Revenues
(Does not Include Transfers or One-time Receipts)
(Does not include funding for deferred maintenance
or unfunded liabilities)
$79.7
$82.1
$84.5
$77.8
$79.9
$82.5
$84.6
$100.0
$95.6
$91.4
$75.7
$89.5
$93.4
$97.4
$75.0
$85.0
$95.0
2006-07
Actual
2007-08
Estimate
2008-09
Budget
2009-10
Budget
2010-11
Estimate
2011-12
Estimate
2012-13
Estimate
Fiscal Year
Dollar Amount
($ Millions)
Expenditures
Revenues
The increases in costs in the General Fund are outpacing the growth in revenue.
Approximately 80% of the General Fund is attributable to personnel costs. This is not
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surprising since we are a full-service City. MOU’s with the various bargaining groups
include annual salary increases and benefit levels the City is obligated to pay. The rate
of these annual salary increases coupled with increases in benefits costs are outpacing
the growth of City revenues. This situation is exacerbated in tough economic times,
when revenues are flattening or decreasing and the salary and benefit costs continue to
increase.
Thus, the City is in a precarious financial position. While we have looming financial
requirements for deferred maintenance and retiree medical benefits that require
funding, even the status quo cannot be maintained for long without significantly eating
into our reserves. New programs or services, without specific identified funding, are not
prudent to consider at this time. The City is required to make some difficult long-term
decisions. Do we make the requisite cuts in services and personnel to close the gap,
knowing that over 50% of the General Fund is dedicated to public safety services? Or
do we attempt to educate Culver City residents on the true cost of providing services,
attracting and retaining a competitive workforce and addressing long-term maintenance
needs, and ask them to support some form of higher local taxes or other revenue
measure to put the City on a solid long-term financial path.
Some have raised the question of whether we should be patient and ‘grow our way out
of the problem’. There has been tremendous development in Culver City over the past
several years, and there are a number of developments that are underway or on the
horizon. Unfortunately, our Comprehensive Financial Plan has revealed that even
under very aggressive development scenarios, we still do not solve the operational
deficit. So while smart growth and development is a key factor for Culver City to close
the operational deficit, we still must address the fundamental questions posed above in
some form.
This City has a history of making the right decisions, as evidenced by our vibrant
neighborhoods and business districts. We have made positive progress towards
creating stable revenue streams to support our high levels of service. As already
mentioned, residents approved Measure W in April to modernize the City’s UUT
Ordinance and preserve a vital funding source. The City undertook and implemented a
comprehensive fee study in order to ensure adequate cost recovery wherever possible
which resulted in over $700,000 in additional revenue annually. The City continues to
implement Best Management Practices throughout City departments, such as Strategic
Workforce Planning and evaluating options for employee health benefit cost
containment. The City has undertaken several audits to ensure existing revenue
sources are maximized, and will undertake a Business Tax Compliance program in
2008-09. Staff has worked hard with developers to bring new retail, office and housing
developments that will compliment the community while adding to our tax base.
Working together, we are up to the challenge of ensuring adequate resources to keep
Culver City a top-notch community and destination point.
CONCLUSION
It is important to remember that a budget is a planning and management tool. It is also
a ‘living document’, which can be amended if needed. The emphasis of this budget is to
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maintain the high level of services to our community during this period of economic
uncertainty. Establishing a balance between recurring revenues and recurring
expenditures, while also providing a means of adequately funding capital projects,
building up replacement funds for communications and information technology
equipment, and the replacement or rehabilitation of public buildings, must remain a top
priority of the City Council and staff.
ACKNOWLEDGMENTS
Once again, I would like to sincerely thank all City staff for their outstanding efforts and
extraordinary contributions towards achieving the City’s goals in this fiscal year. I would
like to acknowledge the hard work and guidance of the City Council Budget & Finance
committee, the dedication of the Chief Financial Officer and the Budget staff, and
commend all Departments that put forth the extra effort to plan and prepare the City’s
second two-year budget, which was created on an accelerated time schedule.
Finally, I would like to especially thank the three outgoing Council Members, Alan
Corlin, Carol Gross and Steven J. Rose, for their eight years of dedicated service to
Culver City. I would also like to welcome our three new Council Members, Christopher
Armenta, Micheál O’Leary and Andrew Weissman, who will join Scott Malsin and Gary
Silbiger. I, and the entire City staff, look forward to working with the City Council on
another year of great achievements.