City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council receive an overview presentation on the Fiscal
Years 2009-10 & 2010-11 Proposed Budget from the Chief Financial Officer.
DISCUSSION:
This first budget study session is an overview and summary of the Fiscal Years
2009-10 and 2010-11 Proposed Budget. The Chief Financial Officer will give a
presentation to City Council, which will include a discussion of current economic
conditions and provide financial highlights for each of the City’s major funds. For
reference, a copy of the City Manager’s Budget Message is attached to provide
some general budget and economic information.
ATTACHMENTS:
1. City Manager’s Fiscal Year 2009-10 and 2010-11 Budget Message
MOTION:
That the City Council:
Receive a presentation from the Chief Financial Officer.
Meeting Date: 05/26/09 Item Number: A-1
AGENDA ITEM: Budget Study Session – Fiscal Years 2009-10 & 2010-11
Proposed Budget: Budget Overview
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: []
Public Notification:
Master E-Mail Notification List (05/20/09); Published Notice of Meeting in the Culver City
News and Culver City Observer on 5/21/09.
Department Approval:
Jeff Muir (05/19/09)
City Attorney Approval:
Carol Schwab (by H. Baker) (05/19/09)
Chief Financial Officer Approval:
Jeff Muir (05/19/09)
City Manager Approval:
Jerry B. Fulwood (05/20/09)
MEETING DATE: 5/26/09
AGENDA ITEM: Budget Study Session – Fiscal Years 2009-10 & 2010-11
Proposed Budget: Budget Overview
ATTACHMENTS
Pages
1. City Manager’s Fiscal Year 2009-10 and 2010-11 1
Proposed Budget Message
ADMINISTRATIVE OFFICE
9770 CULVER BOULEVARD, CULVER CITY, CALIFORNIA 90232-0507
(310) 253-6000
•
FAX (310) 253-6010
JERRY B. FULWOOD
City Manager
____________________________
Culver City Employees take pride in effectively providing the highest levels of service to enrich the quality of life for the
community by building on our tradition of more than seventy-five years of public service, by our present commitment,
and by our dedication to meet the challenges of the future.
PRINTED ON RECYCLED PAPER
May 13, 2009
Honorable Members of the City Council:
PROPOSED FISCAL YEAR 2009-10 AND 2010-11 BUDGET
INTRODUCTION
In accordance with Section 801 of the City Charter, I am submitting the proposed 2009-
10 and 2010-11 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, 2009. We are targeting June 22,
2009 for the Public Hearing and budget adoption.
A YEAR OF CHANGES
Much has changed since the preparation of the Proposed budget a year ago. In April of
2008, three new members were elected to the City Council. The City Council has heard
and considered a number of controversial items related to development and City policy.
Additionally, after six years with Culver City, I announced my retirement effective in
June. After an extensive search process, the City Council has named Mark Scott as the
next City Manager for Culver City. In fact, Mr. Scott will be on board with the City
beginning in June and will see this proposed budget through to adoption.
Perhaps the biggest change, however, is the unprecedented collapse of our nations’
economy. Whereas last year we referred to an economic downturn, at this time our
nation is experiencing its greatest financial crisis since the Great Depression, with
projections that the situation will still worsen before it improves. The value of the stock
market, even with a recent rally, has dropped by a third in the last twelve months. The
recession is impacting all segments of the economy, including local, state, and national
governments. The development of this year’s budget could not be approached as
business as usual. As will be discussed in more detail, this is a transition budget.
Several years ago, the City identified a looming problem of a structural deficit, where
ongoing revenues would not keep up with ongoing costs. The pressures of the
economy have both moved this problem forward and intensified it. Although this
proposed budget seeks to weather the storm, it does not address the underlying
problem. Within the time period covered by this budget, the City will have to enact an
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action plan to address the structural deficit either through significant revenue increases
or significant expenditure (and service) reductions. In order to provide the time needed
to make and implement these decisions, this proposed budget will not meet the City’s
financial policy of a budget that uses ongoing revenues to fund ongoing expenditures.
This budget assumes the use of several one-time funding sources, fund reserves, as
well as cost savings to be achieved through agreements with the various City bargaining
groups. These measures are proposed to avoid immediate service reductions and
layoffs while the City determines the path it will follow to close the structural deficit.
Regardless of the financial difficulties we have faced, the City has continued to move
forward and there have been many achievements in the past year. Departments have
worked hard to tighten their belts and do more with less. The City Council has faced a
number of critical issues throughout the year. The City has taken an increased
leadership role in several regional issues. Culver City is fortunate is have strong
leadership and superior staff.
ECONOMIC OUTLOOK
During the writing of last year’s adopted budget message, there were definite signs of
difficult economic times on the horizon. The depth as to what ultimately occurred is
something no one anticipated. During this past year, unemployment rates have hit
record highs at all levels. Large banks and businesses previously regarded as “too big
to fail” have filed for bankruptcy or required financial support from the federal
government. Businesses of all kinds – large and small – have closed. Auto dealers
have seen sales drop to record low levels and dealerships are closing all over the
country. The credit markets have essentially frozen. Forecasts estimate it will take
years for the economy to turn around, and when it does it will most likely stay at the
bottom for a period before slowly rising. Recovery will be slow and it is doubtful we will
regain the level of financial security we experienced for these past several years
anytime soon – if ever.
The State set a record this past fiscal year for the latest budget adoption in its history.
To help balance the budget, funds were taken from Transportation and Redevelopment
Agencies. The initial budget included a take-away of $350 million from Redevelopment
Agencies, and Culver City’s share of this is $2.25 million. A subsequent lawsuit by the
California Redevelopment Association claiming that the take of Redevelopment Agency
funds is constitutionally illegal was successful in obtaining a court ruling enjoining the
State from collecting those funds, which means that the State will have a bigger gap to
close. State Transportation Assistance (STA) funds for the third and fourth quarters
were originally held, and ultimately diverted to the State’s general fund. The loss to
Culver City of STA funding is over $1 million. This funding source has now been
eliminated for use by local jurisdictions.
Just days after the adoption, the State announced a significant shortfall, which grew to
over $42 billion for the remainder of fiscal 2008-09 and through June 30, 2010. The
spending plan that was approved to close this gap included several revenue generating
items, transferring of funds from other sources, and reduction of services. Some of the
more significant items were: increasing of the state sales tax by one percent on April 1,
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2009 (generating $5.8 billion); raising the fee for licensing vehicles from 0.65 percent to
1.15 percent (generating $1.5 billion, of which a portion will be dedicated to local law
enforcement); raising the state personal income tax rate (potentially generating $3.7
billion); reducing education spending by $8.6 billion over two years; $1.4 billion in
savings from continued state employee furloughs; and approving a plan to borrow $5
billion against the value of future lottery revenue.
Several of the gap closing measures listed above are dependent on a special election
that will take place Tuesday, May 19, 2009. There are six Propositions on the ballot
that directly relate to these items, and while some items have already been
implemented (i.e. increases in sales tax, VLF, and Personnel Income Tax), their
longevity depends on the passage of these Propositions. Early poll results look rather
grim, though, for the passage of these Propositions, and if they do not pass, the State is
already making alternative plans to balance the budget for the remainder of this year
and into the next. According to the latest statements from the Governor, these
alternative plans include borrowing funds from local government.
Local governments have been informed that the State may divert approximately $2
billion in property tax under the guidelines of Prop 1A, which was approved by voters in
2004. For Culver City, this equates to approximately $850,000. The State is required to
pay this amount back within three years with interest. There is also talk of Prop 42
funds (Traffic Congestion Relief Funds) being diverted.
The City may be able to cover this one-time diversion of funds with reserves, but it puts
our fiscal health in further peril. Over the past year or two Culver City has lost two auto
dealerships (Albertson Oldsmobile Chevrolet and Hooman GMC/Pontiac), one major
electronic store (Circuit City), a medical supply manufacturer (Karl Storz Endoscopy),
and countless other businesses. The Westfield Mall is still in the renovation phase,
although a bright spot on the horizon is that it looks to be on track to finish later this
calendar year with a new Target Superstore as a tenant. While there have been new
businesses moving into the City, nothing has opened that can offset the significant sales
tax loss of the businesses mentioned previously.
Sales Tax estimates for fiscal 2009-10 have been dramatically reduced compared to
prior years due to the lower receipts currently being received and continued poor retail
activity expected this next year. Business License estimates have also been reduced
as this revenue source typically mirrors sales tax activity.
New development activity has basically come to a standstill, as developers have been
unable to secure financing in order to move forward with their projects. Many
development projects have gone through the permit and entitlement process and been
approved, but the lack of funding has brought them to a halt. There is little hope that
things will change the remainder of this calendar year. Fees and charges estimates
attributable to this activity were reduced accordingly for fiscal 2009-10.
Property Tax has not taken the hit that other cities have experienced, in part because
Culver City receives a low percentage of the property tax paid by residents (Culver City
receives 10 cents for every property tax dollar paid by residents compared to the state
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average of 20 cents on the dollar) and assessed values on the Westside have not
dropped as dramatically as other areas of the state. Estimates for this source are being
kept relatively flat for fiscal 2009-10, with a small growth in fiscal 2010-11.
LONG-TERM CITY ISSUES
Beginning with the audited financial statements ending June 30, 2009, the City is
required to disclose the unfunded portion of its actuarially determined Other Post
Employment Benefits (OPEB) per Government Accounting Standards Board Statement
No. 45 (GASB 45). The OPEB liability that will be reported consists primarily of retiree
medical insurance premiums, which are currently funded on a pay-as-you-go basis. If
the City were to fully fund this liability, i.e. pay for the benefits already being received by
current retirees as well as set aside funds for active retirees who may receive this
benefit in the future, an additional $3.5 - $4 million would be needed annually. At this
point, the City is only legally required to report the liability, not fund it. However, best
financial management practices dictate that the City begin setting aside funds and
developing a plan to fund this liability on an ongoing basis.
Due to the current economic conditions and the operating deficit faced by the City in
fiscal 2009-10, fully funding this liability is not financially feasible. However, the
Proposed 2009-10 Budget includes a number of measures to begin setting aside funds.
As an initial step, the non-General Fund funds (i.e. Sewer, Refuse, Transportation,
Redevelopment Agency, and Housing funds) will be setting aside 30% of their total
share of the OPEB liability. That percentage is planned to be increased over a period of
three years until those funds are fully funding their OPEB obligation. Further erosion of
the economy could affect the City’s ability to meet this goal.
In fiscal 2007-08 and 2008-09, the City Council approved setting aside $100,000 each
year for OPEB from the General Fund. Additionally, the General Fund will begin setting
aside a portion of the total user fees and charges receipts, which are primarily driven by
personnel costs, toward OPEB. Although all of these actions represent a step in the
right direction, they will not generate nearly enough ongoing revenue to fully fund the
City’s obligation.
In the long-term, the City will need to build this liability into ongoing personnel costs and
adjust personnel levels accordingly, limit the liability by restructuring the current retiree
medical benefit, or some combination of the two.
Sufficient funding for deferred maintenance continues to be an ongoing struggle for
Culver City. While the City has been able to appropriate some funding from the General
Fund Fund Balance for one-time deferred maintenance projects, there is still no stable,
ongoing revenue stream to fund necessary deferred maintenance projects. Public
Works and Parks have both conducted studies to identify how much the City needs to
set aside each year to meet future facility and infrastructure maintenance needs for
streets, streetlights, City buildings, and park facilities. The studies identify the funding
necessary for immediate repair and replacement projects, and an estimated annual
amount to establish set aside funding for routine costs such as roof and carpet
replacement. The table below reflects the estimated needs identified by those studies:
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Total Est.
Deferred Maint.
Cost
Estimated Annual
Cost
Proposed 2009-10 Funding
(From all funding sources)
Streets $18,000,000 $2,200,000 $709,380
Streetlights* $11,000,000
Total estimated cost to
replace old high voltage
lights with new low voltage
lights
N/A $100,000
City Buildings
General Fund only
$3,650,000 $440,000 $190,000
Park Facilities $1,800,000 $225,000 $430,000
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 various financing
options to address the City’s short-term and long-term financial issues for City Council
consideration.
PROPOSED BUDGET SUMMARY
For the first time in several years, Departments were asked to reduce their operating
and maintenance budgets. The 3% CPI increase that was initially included in last year’s
approved fiscal year 2009-10 budget was also rolled-back. In order to balance the
budget for the next two fiscal years, many one-time options have been incorporated in
the budget. These include significant one-time transfers of monies from other funds;
still to be determined personnel cost reduction measures from the City’s six bargaining
groups; reduced operating and maintenance expenditures mentioned earlier; and two
position reductions through retirement incentives.
The decision to balance the budget using these measures was to give the City time to
evaluate the current economic climate, and see where we are in a year when the
economy is expected to recover. There is little doubt, though, the City will be looking at
dramatic reductions, most likely in personnel services, if revenues do not recover soon
and new revenue sources are not found.
Necessary enhancements were also kept to a minimum and those which were approved
have been included in the recommended budgets for fiscal 2009-10 and 2010-11. 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;
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• Increase accountability;
• Result in cost savings;
The total combined City expenditure budget is $154,503,765. The City’s largest funds
remain the General Fund (54%), the Transit Fund (22%), the Sewer Fund (10%) and
the Refuse Fund (8%), as represented by the graph below:
CAP ITAL
IM P ROV
3%
GE NE RAL
FUND
SERVICES
54%
TRANSIT
22%
RE FUSE
8%
SEWER
10%
GRANTS
1%
SECTION 8
HOUSI NG
1%
PROP A & C
1%
General Fund revenues are projected to be $82.7 million in fiscal 2009-10. This is a
reduction of approximately $4.7 million from fiscal 2008-09. It also includes one-time
transfers from the Equipment Replacement Fund ($1,250,000) and Innovation Fund
($550,000) that are necessary in order to cover expenditures for fiscal 2009-10.
The proposed 2009-10 General Fund appropriations total $82.8 million, which includes
a transfer out of approximately $100,000 to fund the recommended Capital
Improvement Projects and $150,000 to fund Computer Equipment Replacement.
For the first time in the City’s recent history, funds from the General Fund reserve will
need to be used to balance the operating budget. For fiscal 2009-10, approximately
$117,000 will be earmarked to close the gap between revenues and expenditures. Gap
closing measures for fiscal 2010-11 currently show a slight surplus, but this could very
possibly change as the year progresses and plans begin for next year’s budget process.
Proposed fiscal 2010-11 General Fund revenues are projected to be $84.4 million. The
proposed General Fund appropriations total $84.3 million, which includes a transfer out
of $620,000 to fund the recommended Capital Improvement Projects and $150,000 to
fund Computer Equipment Replacement. Fiscal 2010-11 also includes a transfer of
$750,000 from the Equipment Replacement Fund to help reduce the gap for that year.
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The appropriation level for fiscal 2009-10 and fiscal 2010-11 is 96.0% in order to help
close the gap between revenues and expenditures. Meeting this target will mean
holding many positions vacant, which will have an effect on services and achieving work
plans. 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. This will not continue to be the case, though, as our five year
projections show the structural deficit quickly depleting reserves in future years. I stress
again, the City has to make significant decisions in order maintain this reserve level.
As previously discussed, this budget strives to maintain the existing levels of City
services in light of the economic downturn. Therefore, there were no additional
positions included in the proposed budget for fiscal 2009-10 or 2010-11. There were a
two positions recommended for elimination or reduction through the retirement incentive
option. Additionally a vacant Accounting Division Manager position in the Accounting
Operations division of the Finance Department was eliminated, as were Laborers/RPT
(1.96) in the Refuse Services division. The first three positions are General Fund
positions, and the Laborer positions are funded by the Refuse Fund.
ENTERPRISE FUNDS
Refuse Fund
Over the last several years, the Refuse Fund has performed exceptionally well by
paying down its negative operating balance from $1.4 million to $79,700 (period ending
June 30, 2008); and based on current revenue and expenditure projections, the Fund
will become positive during fiscal 2008-09. 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 based on information from the County Sanitation District, as
local landfill capacity is depleted. This may not occur, though, as quickly as had
previously been estimated. The current economic condition has a direct affect on the
amount of refuse sent to landfills as the decrease in development activity and consumer
spending translates to less trash being transferred to landfills. Thus, the capacity will not
be depleted as quickly as originally forecast, but will still occur.
In order to smooth this eventual transition as local landfill space is depleted, 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 4% to
5% 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, equipment
maintenance, equipment replacement, and funding the retiree medical liability.
As a result, the Refuse Fund will be increasing rates by 5% in 2009-10 and another 3%
for some categories in 2010-11 to balance revenues with expenditures. In addition to
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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 cover operating
expenses in 2009-10 and 2010-11. Any 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 or 2014, and assist in paying for any uncontrollable
increases in operating costs such fuel prices.
Transportation Fund
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
primarily include sales taxes and gas taxes. Both the State and the County are
projecting significantly 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. Public transit funds were diverted at unprecedented levels in the fiscal
2008-09 State budget. While last year’s budget set the record with $1.3 billion in Public
Transportation Account (PTA) funds diverted, this year the total was even higher at
$1.67 billion. The diversion is primarily due to record gasoline prices that drove up the
Spillover — a calculation that is triggered when gasoline prices grow at a faster rate
than the overall economy. There is little doubt that fiscal 2009-10 will again see some
type of diversion or take-away of funds by the State from Transportation related funding
sources.
Transportation had a rough year during fiscal 2008-09 in regards to funding, mainly due
to the State taking, diverting and eliminating funds the Department relies on. One of the
largest sources of funding the state took during fiscal 2008-09 is the State
Transportation Assistance (STA) funds, and ultimately eliminated this funding to local
municipalities beginning in fiscal 2009-10. A bright spot, though, was MTA agreed to
back-fill the lost amount for fiscal 2008-09.
Measure R, the ½ cent sales tax increase which was approved by LA County voters in
November 2008 and will go into effect July 1, 2009, will add some additional monies to
the Transit Fund. Fiscal 2009-10 will not show a full year of this additional source as
sales tax lags several months, and early estimates are fiscal 2009-10 receipts will be
$1,084,147 and fiscal 2010-11 will be $2,115,801.
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, which allows Transit
Operators to raise their fares without being penalized by the formula. Culver CityBus
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will be analyzing its current fare structure in fiscal 2009-10 and proposing new rates that
are similar to rates of surrounding municipalities.
Sewer Fund
An audit on sewer charges from the City of Los Angeles for use of the Hyperion
Treatment Plant and Los Angeles sewer transmission lines was performed in fiscal
2008-09, and indicated that Culver City had overpaid for the last three years. A credit
was applied to the fiscal 2008-09 payments, which ultimately resulted in covering almost
the entire payment amount. Over the last few years the amount year-to-year has
fluctuated significantly, which makes it difficult to budget at a steady rate. Although
charges were minimal for fiscal 2008-09 due to the credit, 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 2009-10,
and proposed operating costs are currently covered by recommended operating
revenues.
INTERNAL SERVICE FUNDS
Self-Insurance Fund
The Self Insurance Fund (SIF) has had to face a number of significant challenges over
the past few years and the Fund’s cash balance has experienced some volatility. 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 significantly
reduced the SIF’s available cash balance from approximately $5 million on June 30,
2007 to approximately $1.8 million on June 30, 2008.
Despite the lawsuits that caused the fund balance to decrease, the Self Insurance fund
is expected to increase by approximately $1 million by the end of fiscal year 2008-09.
This is due in part to reduced salary continuance costs resulting from an effective
modified duty and return to work program as well as staff’s efforts to receive
approximately $800,000 in Federal Emergency Management Agency funding to offset
some of the costs associated with repairing the Cranks/Tellefson hillside. .
In the current economy, the General Fund cannot absorb the dramatic increase in
internal service charges necessary to restore the fund to previous levels, so it will take
time to fully restore the fund’s cash balance. However, staff will continue efforts to
reduce costs by implementing preventative safety and wellness programs, training staff
in proper safety and employment practices, and participating in low-cost insurance
solutions that properly mitigate the City’s risk.
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Equipment Replacement Fund
The purpose of the Equipment Replacement Fund is to establish a means of
accumulating funds for vehicle and equipment replacement costs, communications
system replacement costs, and technology related replacement costs. Funding for
vehicles within the Equipment Replacement Fund continues to be adequate.
In 2009-10, twenty-four (24) vehicles are scheduled to be replaced and/or upgraded
using Equipment Replacement funds and include: seven (7) public safety vehicles,
three (3) vehicle for Parks, three (3) vehicles for Paratransit, one (1) vehicle for
Housing, seven (7) Automated Front Loaders for Refuse Transfer Station service, two
(2) Utility Trucks for Public Works, one (1) Heavy-Duty Forklift for Refuse. The total
replacement amount for vehicles in fiscal 2009-10 is estimated to be $2.71 million. The
total amortization charge to all departments is approximately $1.6 million for each
budget year.
Capital Projects Funds
In fiscal 2008-09, the City continued efforts to address deferred maintenance issues
identified in two comprehensive assessment studies were conducted in fiscal 2007-08 –
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 2009-10 and 2010-11 proposed Capital
Improvement budget.
The total proposed allocation for all Capital Projects in all funds in fiscal 2009-10 is
$8,919,788 and fiscal 2010-11 is $8,375,241 (excludes carryover funds from prior fiscal
year). The following table provides a summary of a few recommended projects:
Project Type 2009-10 2010-11
Public Art Projects (Art Fund) $122,500 $122,500
Building & Property Improvements (I & A Fund) 190,000 265,000
Technology Enhancements (I & A Fund) 212,058 125,000
Parks & Park Facilities Projects (Parks/I & A Fund) 430,000 120,000
Sewer Improvement Projects (Sewer Fund) 5,050,000 5,000,000
Stormwater (NPDES/TMDL) (I & A Fund) 100,000 100,000
Traffic Signal & Lighting Projects (I & A/Gas Tax Fund) 195,000 270,000
Street Improvements (I & A/Gas Tax Fund/Grant Funds) 709,380 470,000
Other Grant Funding 180,850 172,741
Transfer to Operating Divisions 1,730,000 1,730,000
TOTAL $8,919,788 $8,375,241
As part of the plan to close the City’s projected $6.5 million budget gap, proposed
funding for projects from the Improvements and Acquisitions Fund (I & A Fund), which is
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funded using available one-time General Fund reserves, was significantly reduced. In
some cases, project funding was shifted from the I & A Fund to other Special Capital
Funds, such as the Parks Facility Improvement fund or Special Gas Tax fund.
Additionally, project funds that had been carried over for a number of years without
being expended were reviewed and re-allocated to reduce the amount of “new” funding
being recommended. The resulting net impact is that only approximately $100,000 in
new funding is being recommended in the General Fund I & A Capital Fund as
compared to the $700,000 to $1 million that has been allocated over the last few years.
The one-time savings being realized by allocating substantially less to capital projects
will need to be used to cover some of the projected 2009-10 General Fund operating
deficit.
FISCAL CHALLENGES AND OPPORTUNITIES
The City takes great pride in the level of services it is able to offer to residents and
business owners. This level of service sets Culver City apart from many surrounding
jurisdictions. However, the simple reality is that maintaining this level of services comes
at a cost and must be sustainable in the long-term. Based on the current economic
realities of decreasing revenues, the State being on the verge of economic collapse and
steadily increasing expenditure requirements, the City is faced with an issue that has
been discussed many times in previous years, a structural deficit. The chart below
identifies this trend:
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
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. While
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like most cities we are hoping to work cooperatively with our labor groups to limit or
reduce personnel costs over the next year or two, in the long term we must remain
competitive with other cities. The rate of growth in personnel costs are outpacing the
growth of City revenues. In the long-term, the public sector will likely undergo dramatic
change in the area of compensation and benefits, but this change will take time. This
situation is exacerbated in tough economic times such as these, when revenues are
flattening or decreasing and the salary and benefit costs continue to increase.
As previously discussed, this was a very difficult budget to put together and chances are
strong it will need to be amended during the coming fiscal year as the City Council
makes difficult policy decisions dealing with the structural deficit. To follow the City’s
financial policies of adopting a budget where ongoing revenues are used to fund
ongoing expenditures would have meant significant program and personnel reductions.
Prior to such extreme action that would significantly reduce the services that Culver City
prides itself on, I am recommending the City explore the possibility of approaching the
voters with some kind of new revenue measure. This could include options such as a
local sales tax, a parcel tax, assessment districts or other options. Because these
options all require some form of voter approval and the City’s next general election is in
April of 2010, this budget includes a multitude of one-time funding sources to bridge the
gap. Funding has been included for professional polling services to determine the
areas where Culver City residents may support increased taxes to maintain services
and the likelihood of such a measure. Should such a measure be deemed to be
infeasible or ultimately fail at the polls, a plan for significant expenditure reductions
needs to be in place. It is my recommendation that as part of the upcoming budget
presentations and budget approval, direction be provided to the new City Manager and
Executive Staff to develop a specific plan of what expenditure and service reductions
will be required to address the structural deficit, should a new revenue source be off the
table.
While the economy is expected to begin some form of slow recovery by the end of
2010, even at that time Culver City will not be able to grow its way out of the problem.
While there has been tremendous development in Culver City over the past several
years, and there are a number of developments that are on the horizon, our
Comprehensive Financial Plan has revealed that even under very aggressive
development scenarios, we still do not solve the structural deficit. So while smart
growth and development is a key factor for Culver City to close the operational deficit, it
will not address the fundamental problem.
Our vibrant neighborhoods and business districts demonstrate this City’s ability to make
the right decisions. During difficult times such as these, it is important we work closely
with the public to keep them informed of the financial realities we are facing and
collaboratively make these critical long-term decisions. Working together, we are up to
the challenge of ensuring adequate resources to keep Culver City a top-notch
community and destination point.
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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
maintain the high level of services to our community during this unprecedented
economic downturn. This budget is presented to provide the City Council with the time
needed to make the difficult decisions that must be made. 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 effort to prepare the City’s third two-year
budget.
Finally, I would like to especially thank the current and previous City Council members I
have worked with in Culver City during my tenure, as well as the residential and
business communities. It has truly been my honor and pleasure to serve this great City
to the best of my ability. I am confident that great achievements will continue to set
Culver City apart.
Jerry Fulwood, City Manager