City of Culver City, California
City Council Agenda Item Report
PH2-1
RECOMMENDATION:
Staff recommends the City Council receive a report on the upcoming 2009-10/2010-11
budget process, discuss budget priorities, receive public input, and direct staff as
deemed appropriate.
BACKGROUND/DISCUSSION:
During the 2008-09 budget process, City Council expressed a desire to provide input
on budget priorities prior to the budget kickoff and give the community the opportunity
to provide input. Tonight, staff will provide a brief preliminary overview of the
upcoming 2009-10/2010-11 budget process and, considering the financial challenges
facing the City, staff would also like to give the City Council and the community an
initial opportunity to share their thoughts prior to the public meetings that are typically
held starting in late April.
As has been discussed in greater detail in the other financial reports on this evening’s
agenda, the national economy is in the midst of a historic economic recession that is
deeper and more widespread than has been experienced since the Great Depression.
The economic downturn began in the residential housing market and initially hit
financial institutions that had invested in mortgage-backed securities, causing a near-
collapse of the financial markets, including many large Wall Street firms. Since the
wealth of most Americans is in their home’s equity and/or invested in the stock market,
the combination of declining home prices (40% plus in the hardest hit areas) and
declining stock market (also 40% plus over the last year) has significantly impacted
Meeting Date: 03/09/09 Item Number: PH-2
AGENDA ITEM: Preliminary Budget Kick-Off Presentation and Budget Priorities
for Fiscal Years 2009-10 and 2010-11.
Contact Person/Dept.: Jeff Muir, Chief
Financial Officer
Phone Number: 310-253-6016
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [X] Action Item: [] Attachments: []
Public Notification:
Master E-Mail Notification List (03/04/09); Culver City Employees Association, Culver
City Management Group, Culver City Fire Management Group, Culver City Firefighters
Local 1927, AFL-CIO, Culver City Police Officers Association, Culver City Police
Management Group on 03/05/09; Mail notice through USPS to Culver City Homeowners
Associations, and Culver City Civic Organizations on 03/04/09.
Department Approval:
Jeff Muir (03/03/09)
City Attorney Approval:
Carol Schwab (by H. Baker) (03/03/09)
Chief Financial Officer Approval:
Jeff Muir (03/04/09)
City Manager Approval:
Jerry B. Fulwood (03/05/09) City of Culver City, California
City Council Agenda Item Report
PH2-2
the financial position of almost every American. Additionally, the unemployment rate
has been increasing steadily over the last few months as many companies are
experiencing losses and need to cut expenses. As a result, Americans have pulled
back dramatically in their spending habits, which have put the consumer driven
American economy in turmoil.
The passage of Propositions 13 and 218 has severely limited California cities’ ability to
raise revenues, especially property taxes, to fund basic municipal services. Most
cities must rely on more economically sensitive revenue streams, such as Sales Tax,
Business Taxes, and development related fees and taxes. Therefore, many cities
throughout California have been hit hard by this current recession. Culver City is
fortunate to have a healthy reserve, which gives the City some flexibility in options for
dealing with the current downturn. Many other cities do not have as strong a reserve
policy and have already had to implement mandatory furloughs, layoffs, and one city
has filed for bankruptcy during the last year with several others dangerously close to
fiscal insolvency.
That said, Culver City is facing a potential operating shortfall of $500,000 in the
current fiscal year in the General Fund. Sales Tax revenue, which makes up
approximately 20.5% of total budgeted General Fund revenue, is expected to be
approximately 8.0% less than last year’s receipts and Commercial Industrial Tax
revenue, which is a one-time tax collected on commercial renovations and new
commercial development, is expected to fall short of projections. Real Property
Transfer Tax is also lagging due to the downturn in the real estate market.
Unfortunately, the economy is expected to continue contracting through 2009 and is
not expected to begin to turn around until late 2009/early 2010 at best. Additionally,
economists expect a slow recovery that may last two or more years after the economy
hits bottom. Consequently, staff expects that the City is facing at least two more years
of substantive financial difficulties. In fact, based on current expenditures and
projected revenues as of this date for the General Fund, a budget deficit of
approximately $4 million is estimated in 2009-10 and approximately $4.5 million
(which may grow) in 2010-11. In order to close the deficit for fiscal 2009-10, some
difficult decisions will need to be made.
In addition to the difficulties facing the City, the State of California is facing difficulties
of its own. Although it recently approved a Spending Plan and Budget for the
remainder of 2008-09 and the full year of 2009-10 that closed an approximate $42
billion deficit, there are still uncertainties in some of the decisions made. Cities and
counties were left relatively unscathed in this Plan, but schools and transportation
were hit hard. A few of the revenue generating items placed in the Spending Plan and
Budget, such as the one percent sales tax increase and Vehicle License Fee (also City of Culver City, California
City Council Agenda Item Report
PH2-3
known as the “Car Tax”) increase, are also dependent upon voter approval at a state-
wide special election to be held on May 19, 2009.
Redevelopment Agencies did have funding taken, and Culver City’s share is $2.25
million. The remainder of 2008-09 State Transit Assistance (STA) payments will not
be received, and beginning in fiscal 2009-10, this funding will be permanently diverted
to the state. The MTA has promised to back-fill the 2008-09 loss of funds for Transit
Agencies. For 2009-10, additional Measure R monies the City will begin receiving will
help offset this loss.
A report containing a number of revenue enhancement and cost reduction options is
included as an appendix to the Comprehensive Financial Plan (CFP), which is also
being presented tonight. However, many of these options are long-term financial
solutions and will not make an immediate impact. Although the implementation of
some of the options presented in the CFP are imperative to the long-term financial
health of the City, immediate actions must be taken to balance the 2009-10 and 2010-
11 budgets.
Under the leadership of the City Manager, the strategy being recommended for the
upcoming budget includes a number of options to ‘weather’ the economic storm over
the next two fiscal years and try at all costs to avoid employee lay-offs and significant
program reductions or eliminations. These options will not fix the problem, they will
only prolong the inevitable. As we approach the end of 2010, it is hoped that the City
will have a much better idea of where the economy will stabilize and how much of a
rebound we may actually see.
The following are items currently being analyzed to bridge the deficit for FY 2009-10
and 2010-11:
• A ‘hard’ hiring freeze (except sworn public safety positions) and holding positions
vacant. (The approved 2009-10 budget already includes a 4% vacancy
assumption, meaning we are only budgeting 96% of the cost of positions.)
• Reduction of temporary agency employees.
• Reduction in casual part-time employees
• Significant reductions to budgets for training, education and conference
attendance.
• Reductions in usage of contract staff / consultants.
• Negotiating rate reductions or rate freezes with necessary contractors and
consultants.
• Reducing Employee Service Awards budget.
• Requiring developers to pay mandated public notification costs. City of Culver City, California
City Council Agenda Item Report
PH2-4
• Implementing a charge for special event permits like yard sales, sidewalk sales,
and other special events.
• Reduction of some enhancement items previously approved for 2009/10.
• Deferral of the General Plan update project.
• Deferral of some 2009/10 Capital Improvement Projects (CIPs), and de-allocation
of some existing CIPs that have not started.
• Personnel costs savings measures such as furloughs.
• Implementation of a Retirement Incentive Program in order for organizational
restructuring opportunities.
• Transfer of Innovation Fund balance back to General Fund.
• Transfer of a portion of Equipment Replacement Fund balance to General Fund.
• Potential use of General Fund reserves in excess of Reserve Policy as a sinking
fund for emergency projects.
A combination of the items above will be incorporated in the proposed 2009-10 and
2010-11 budget to address the deficit for Council consideration.
It is important to note that most of the items above are only one-time, short-term
measures that can be implemented over the next year or two. They do not solve the
ongoing projected structural deficit problem. By the time the 2011-12 budget planning
process starts, the City will have to implement on-going, longer-term solutions. The
bottom line is that this means a dramatic increase in revenues, or a dramatic decrease
in expenditures.
The City’s General Fund budget is approximately 80%+ personnel costs. To achieve
dramatic expenditure reductions would mean eliminating positions and reducing or
eliminating programs and services. Solving a deficit of several million dollars through
such reductions would drastically reduce programs and services for Culver City
residents, businesses and visitors, and layoffs alone have not worked in the past.
Introducing a dramatic revenue increase in the City would most likely mean one or
more items on the ballot to address the structural deficit. Some major items for
consideration are:
• Consideration of a City-wide Assessment District for Landscaping, Streetlighting,
Median Maintenance, Park Maintenance, Tree Trimming and Ficus Tree
Replacement, and Graffiti Abatement. The City spends over $4 million annually
on these items.
• Increase Transient Occupancy Tax from 12% to 14% (approximately $420k).
• Create a Parking Tax of 10% (approximately $110k).
• Increase Sales Tax by 0.25% (approximately $3.5 to $4 million). City of Culver City, California
City Council Agenda Item Report
PH2-5
• Paramedic Assessment to add additional paramedic unit and cover future cost
increases (approximately $1 to $1.5 million, but would offset new costs)
• Implementation of a cafeteria plan for employee benefits, with a tiered system
and lower benefit for new employees.
• Consideration of a two-tier pension program.
• Increasing parking meter rates.
• Extending parking meter hours in certain areas.
The City must decide if it wishes to pursue any (or more than one) of these options
during this budget process in order to prepare for the 2010 general election.
Considering the importance of this issue to the entire Culver City community, staff has
put forth an additional effort to receive input from members of the community by
placing an ad in the local newspapers and setting up an email address dedicated to
receiving community input, budget.priorities@culvercity.org. Additionally, the
presidents of the City’s six bargaining units, Culver City Homeowners Associations,
and Culver City Civic organizations have been notified via email. With City Council
direction, staff can also create a survey on our City website, similar to what the City of
Los Angeles has done, to receive community input in that manner.
FISCAL ANALYSIS:
There is no immediate fiscal impact for this report. Based on the strategies outlined,
and the City Council direction received, staff plans to return with a preliminary budget
in late April.
ATTACHMENTS:
None
MOTION:
That the City Council:
1. Receive and file the 2009-10 and 2010-11 preliminary budget kick-off
presentation; and,
2. Direct staff as deemed appropriate.