Fiscal Year 2016-17 City of Corona – Budget WorkshopMay 26, 2016

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Mission and values of effective budgeting

Accountability

TransparencySustainability

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Goals and objectives of effective budgeting

Communication“Feedback and direction”

Monitoring“Reporting and evaluation”

Preparation“Cost control, priorities and

planning”

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What are the goals of effective budgeting?PreparationPreparationCost Control and Prioritization• Zero-based budgets

• Detailed substantiation

• Recurring needs

• Prioritization / allocation of limited resources

Financial Planning• ‘Two Year Budgeting’ -

Prior Year, Current Year, Next Year, Next Year + 1

• Long-range planning

Monitoring

MonitoringReporting• Useful, timely, and

complete

• Creates dialogue, action, and transparency

Evaluation • Informed decision-

making by City Council

• Performance measures – are budgetary investments bearing fruit?

CommunicationCommunication• City Council

Members

• Internal stakeholders (departments)

• External stakeholders (public)

• Open Data Corona

Feedback• Policy and direction

for next year

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Zero-Based Budgeting

Goals of Zero-Based Budgeting

• Budget for ordinary and necessary business needs for the upcoming year- What is the ‘Base Budget’ - Elimination of arbitrary ECB targets which can lose

relevance as services expand and contract over time

• Substantiate, prioritize and build the budget each year from the ground up

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‘Zero-based’ versus ‘Expenditure Control (Target-based) Budgeting’

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Other Budget Procedural Changes

Promoting effective budgeting and fiscal sustainability

Comprehensive review of revenues- 10 years of historical data - Segregating recurring revenue from non-recurring revenueTransition to multi-year planning- Promotes fiscal sustainability and better decision-making- Setting the foundation for a two-year vs. annual budget process- Five year forecastingChanges to budgetary reserves, controls and amendment policies- Personnel (or savings) will no longer offset non-personnel costs- Budgetary controls for capital projects and change

orders- Emergency Contingency Reserve Target from 60 to 90

days of operating expenses

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Economic OutlookFiscal Year 2016-17

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Economic Outlook for Fiscal Year 2016-17

Assumes similar economic conditions experienced in 2015-16.

National and statewide growth in personal incomes, jobs and GDP- Lower rates of borrowing, lower cost of fuel, higher personal incomes and take-home pay affordability of livingLocally, gains in jobs / job quality in the Inland Empire and local real estate developments create opportunities and positive outcomes

Source: Beacon Economics, April 2016

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Economic Outlook for Fiscal Year 2016-17Jobs forecast data for the Inland Empire reflect positive trends. (April 2016)

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• Inland Empire unemployment rate at 6.0% (April 2016)

• Lower than 6.8% rate reported in April 2015

(UC Riverside, Center for Economic Forecasting & Development, May 2016)

Economic Outlook for Fiscal Year 2016-17However, how long will economic growth continue?

Differing opinions among economists and local business leaders (March 2016 – Corona Business Confidence Survey)- The last recession was in 2007-2009- But economic indicators reflect otherwise (for now)- Are historic year-over-year gains realistic in the long-

term?10

Economic Outlook for Fiscal Year 2016-17However, how long will economic growth continue?

Recessions happen over time (rather than ‘overnight’)- Slowdown Continued economic stagnation = ‘Recession’

City staff will continue to monitor significant indicators (such as sales tax receipts, quarterly economic reports, TOT) in the short-term - Fiscal sustainability, flexibility and long-term financial planning are our primary defensive strategies 11

General FundFiscal Year 2016-17

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Major General Fund Revenue Sources

Property and Sales Taxes account for 61% of General Fund Revenue.

ActualAdopted Budget

Mid-Year Forecast Proposed Growth %

2015 2016 2016 2017 (FY16 Forecast)Revenue CategoriesProperty Tax 38,896,951$ 40,087,695$ 40,237,000$ 41,363,000$ 2.80%Sales Tax 38,565,868 42,827,500 42,275,268 42,199,000 -0.18%

Economically sensitive and therefore, volatile- Property taxes +$2.5M in budgeted revenue (since 2015)- Sales taxes +$3.6M in budgeted revenue (since 2015) These general fund revenue sources are tied to:- Property taxes tied to changes in ownership and new construction- Sales tax revenues tied to autos; building and construction; general consumer goods; business and industry

+$6.1M compared to YTD receipts in June 2015

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Property Tax RevenueRevenue estimate assumes 2.8% growth compared to 2015-16 projected year-end revenue.

Modest growth due to:- Higher real estate values due to

lower cost of borrowing- Lower cost of borrowing improves

affordability for existing homeowners and spurs real estate development

- Lower rates of foreclosure- Competitively priced compared to

Los Angeles and Orange counties

Combined with:- However, supply exceeds demand- Average days on market have

reached 90 days (early 2016)14

Sales Tax RevenueRevenue estimate is flat compared to projected year-end fiscal year 2015-16.

End of Triple Flip – Jan 2016- Normalization of revenue

collections and new State accounting procedures

- No additional one-time revenues

Growth in receipts = + 3.8%- Low population growth and a

lack of flagship shopping centers create ceilings for growth

- Growth in consumer goods slightly higher than inflation

Low cost of borrowing creates opportunities- Largest sector increase in

Building & Construction +6.8%

Fiscal Year 2016-17 Estimated Sales Tax Revenue by Industry Group (% of Total)

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General Fund Revenue RecapOverall, General Fund budgeted revenue is flat compared to the 2015-16 year-end projection.

- Rents and leases includes analysis of current and recently renegotiated tenant agreements

- Includes revised cost-based and market-based fees established as part of recent Cost Allocation Plan and User Fee Study

- Transient Occupancy Tax assumes average daily room rates of approximately $51/night

- Interest income considers average monthly cash balances, weighted average earnings rate of 1.39% 16

General Fund Budget (*compared to 15/16 forecast) Actual

Adopted Budget

Mid-Year Forecast Proposed Growth %

2015 2016 2016 2017 (FY16 Forecast)Total, General Fund Revenue $134,261,466 $131,190,995 $135,588,853 $136,200,085 0.45%

5.58% -2.29% 3.35% 0.45%

Total Personnel Costs (87,916,024)$ (91,446,849)$ (93,581,000)$ (97,535,469)$ 4.23%1.82% 4.02% 2.33% 4.23%

Total Non-Personnel Costs (28,437,388)$ (32,395,544)$ (32,400,227)$ (33,736,440)$ 4.12%14.31% 13.92% 0.01% 4.12%

Total Operating Expenses (116,353,412)$ (123,842,393)$ (125,981,227)$ (131,271,909)$ 4.20%2.09% 6.44% 1.73% 4.20%

Operating Revenue 17,908,054 7,348,602 9,607,626 4,928,176 -48.71%

Non-Operating ActivitiesDebt Service (CPFA) (4,518,303) (4,532,230) (4,532,230) (4,528,070) -0.09%Capital Projects Funds (CPF) (8,170,122) (4,413,739) (7,241,000) (3,556,543) -50.88%Total Non-Operating Activities (12,688,425) (8,945,969) (11,773,230) (8,084,613) -31.33%

Interfund Transfers In (Out) 1,897,722 1,331,962 2,011,218 3,168,869 57.56%

Change in Fund Balance 7,117,351$ (265,405)$ (154,386)$ 12,432$ -108.05%

Personnel costs will increase +4.23%

Non-personnel costs will increase +4.12%Debt service will be flat, but due to favorable market conditions, the City will refinance debt in which will result in budgetary savingsCapital Projects will receive $3.6M in new funding from the General Fund, to supplement needs for ongoing and new projects

Projected budgetary 16/17 surplus of $12K to be deposited in contingency reserve 17

General Fund – Personnel Cost Breakdown

Includes the impact of current MOU’s only. No forward assumptions were made.

Increase in PERS rates, *except for Fire due to payoff of side fund liability. Savings of $552K due to July 1 prepayment.

OPEB annual required contribution (ARC) increased by +$1.9M

Health care = +8% January 1

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General Fund – Non-Personnel CostsThe General Fund non-personnel budget is increasing by a modest 4.1% compared to the 15/16 mid-year forecast.Bureau of Labor Statistics - Los Angeles CPI was 1.7% (March 2016)- E.g. service level agreements, cost of program supplies

and intangibles such as software and subscriptions- Prevailing wages (Department of Industrial Relations) for

tree cutting services - + 31%Identification of budgetary needs and / or savings

- Opportunities identified due to new ‘zero-based’ approach - Savings offsets cost of new needs – e.g. Elections, audits,

finance system upgrades, maintenance agreements- Re-allocation of costs to reflect true cost of providing

serviceMost increases in funding are accompanied by a related increase in revenue- E.g. Pass through costs such as plan checks

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Citywide Positions – Proposed 2016-17 Updates

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General Fund - Service Changes + Capital Outlays Relate to new funding for service level changes and/or small capital

outlays in the 2016/17 Proposed Budget.

Fund Department Description FY2016-17 Proposed

Comm Dev Reclassify 1.0 FTE Planning Tech. to 1.0 FTE Assistant Planner $4,500Comm Dev Supplemental Funding for Code Enforcement Support 10,000Fire Emergency Medical Dispatch (EMD) Accreditation 9,400Fire Records Management System (RMS) Mobile Project 120,000Legal/Risk Mgmt New 1.0 FTE Paralegal I (Risk Management) 93,000Maint Svcs Solar Powered Trash Cans (Grant Funded) 45,000Police New 1.0 FTE Crime Analyst 114,000Police New 1.0 FTE Public Safety Dispatcher I/II 95,000Police Emergency Medical Dispatch (EMD) Accreditation 39,500General Fund Total $530,400

*Emergency medical dispatch accreditation is one-time

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*

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Department of Water & PowerFiscal Year 2016-17

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DWP Funds – Operating Revenue and Expenditures

Water Reclaimed Water

FY 2015-16 Adopted

FY 2016-17 Proposed

$-

$20

$40

$60

$80 $58.9 $59.9

$55.8 $47.8

Revenues

FY 2015-16 Adopted

FY 2016-17 Proposed

$-

$2

$4

$6

$8

$10

$3.0

$8.4

$4.5 $4.1

Revenues

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Assumes a 6% rate increase in October 2016, or $2.0M in additional revenue

Assumes 12% rate increases in fall 2016 and January 2017, or $650K in additional revenue as well as $4.4M in grants and reimb. from county flood control (RCFCD)

DWP Funds – Breakdown of Operating Costs

Water Reclaimed Water

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Operating expenses include $11.9M in raw and treated water purchases as well as $8.9M in ‘fixed’ costs for rent and electricity

Largely, a status quo budget which has declined by $0.3M due to department-identified budgetary savings

DWP Funds – Operating Revenue and Expenditures

Water Reclamation

Electric

FY 2015-16 Adopted

FY 2016-17 Proposed

$-

$10

$20

$30

$40 $33.4 $32.8

$26.6 $24.2

Revenues

FY 2015-16 Adopted

FY 2016-17 Proposed

$-

$5

$10

$15

$20 $17.1 $17.7 $16.5

$17.4 Revenues

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Change in revenue is due to decline in capacity fees offset by increases in miscellaneous revenue

Largely a status quo budget is proposed

DWP Funds – Breakdown of Operating Costs

Water Reclamation Electric

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Largely, a status quo budget which has declined by $2.4M due department-identified budgetary savings. Continued funding for sewer main cleaning and video, odor control, cleaning, and sewer main maintenance

The operating budget has increased by $0.9M which is mainly attributable to anticipated cost of wholesale energy purchases

DWP Water & Water Reclamation RatesThe City plans to present revised rate schedules for public inspection and possible adoption by the City Council during fiscal year 2016-17.

Identify, calculate and allocate cost of service (Proposition 218)- Fairly and equitably establish volumetric and fixed rate

charges

New challenges create uncertainty in rate-setting- Governor’s declared drought emergency – is the end

near?- Impact of water conservation on development of a

prudent per-unit charge and 3 year rate schedule- Spring + summer consumption data in analysis- Impacts on cost of purchased water from other

agencies- Potential revenue impact from Local Resource Program

(LRP)

Surveys indicate that escalation factors are 2-5% for personnel costs, utilities, chemicals, supplies and construction

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Capital Improvement PlanFiscal Year 2016-17

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Major Categories of Citywide CIPThe Proposed Budget includes $50.8 million in new funding for needed capital investments and infrastructure needs.

The City has categorized a myriad of discrete projects into 6 major categories to facilitate public understanding of city capital investments.

Subprograms roll up to each category.According to the Engineering News Record (ENR), the construction cost index was 3.4% as of May 2016.

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New Funding by CIP CategoryThe Proposed Budget includes $50.8 million in new funding for needed capital investments and infrastructure needs.The Proposed Budget includes $50.8 million in new funding to support critical capital investments and infrastructure needs.

*in millions

Breakdown of New CIP Funding

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Major Highlights of General Fund CIPThe Proposed Budget includes $50.8 million in new funding for needed capital investments and infrastructure needs.New CIP funding from the General Fund is $3.6 million, which includes $1.98M in one-time transfers for development-related projects from the Dwelling Development Tax Fund.

Police / Fire Computer Aided Dispatch (CAD) and Records Management System (RMS) - $1.8 million

Upgrades and integration of records and data for public safety. Last update was in 1989. Facilitate crime analysis, community policing, information sharing, mobile data, field reporting, mapping, automatic vehicle location, records and jail management.

General Plan & Climate Action Plan Update - $929K

Comprehensive technical update which guides policy and decision-making with respect to growth and land development.

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Major Highlights of General Fund CIPThe Proposed Budget includes $50.8 million in new funding for needed capital investments and infrastructure needs.

Fire Station Alerting System - $223K

Implementation of a new modern fire station alerting system allowing crew notification at time of dispatch to increase efficiency and meet response time objectives. Required to meet standards of the National Fire Protection Association.

Citywide ADA Improvements - $615K

Projects as identified to ensure compliance with the American with Disabilities Act (ADA). Includes replacement of front door at Animal Shelter with automatic doors, installation of ADA-accessible sidewalk ramps throughout the City, and an ADA-accessible walkway at Jamison Park.

New CIP funding from the General Fund is $3.6 million, which includes $1.98M in one-time transfers for development-related projects from the Dwelling Development Tax Fund.

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Program SubprogramFY 16/17 Funding

(New $)Water and Reclaimed Water

Transmission and Distribution $11,699,580Quality, Supply and Storage 1,880,526 General Safety, Maintenance and Other Improv. 3,547,000 Pump Stations 1,250,342 Supervisory Control and Data Acquisition (SCADA) 331,500 Subtotal 18,708,948

Water Reclamation (Sewer)Treatment 1,016,463 Pump Stations and Lift Stations 5,039,270 Sewer Main Rehabilitation 1,078,178 Pipeline Rehabilitation 3,152,950 General Safety, Maintenance and Other Improv. 920,217 Subtotal 11,207,078

Grand Total, FY2016-17 Proposed CIP $29,916,026

Major Highlights of Utility-Related CIPThe Proposed Budget includes $50.8 million in new funding for needed capital investments and infrastructure needs.New funding for Water, Reclaimed Water, and Sewer CIP programs totals $30M broken down by the following subprograms:

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The Proposed CIP plan now assigns discrete and varied utility projects to Subprograms in order to combine similar projects into several broad categories. No new money has been allotted for Electric CIP.

General Fund 5 Year ForecastFiscal Year 2016-17

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General Fund Five Year Forecast

Long-Range Financial Planning using Sensitivity Analysis

- Scenario-based and sensitivity analysis - Adjusting a few variables allows us to gauge the City’s

financial flexibility and risk

What is the impact to the General Fund if we alter our most significant variables (and hold other items constant)?- Sales Tax is the top General Fund revenue source in

Fiscal Year 2015-16.- Personnel is the top General Fund expense in Fiscal Year

2015-16.- How sensitive is the General Fund to the above items? 35

General Fund Five Year ForecastAssumptions are required to provide clear context.

Assumes pre-recessionary environment (affects sales tax)- Governor’s May Budget proposal assumes a flattening

in sales tax revenue beginning in 2018, and a slow decline thereafter

Assumes salaries and most personnel-related costs remain constant except for: OPEB, health care, and PERS

Assumes funding for most important CIP projects

Assumes no debt refinancings

No use of one-time budget balancing measures for operating needs

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General Fund Five Year Forecast

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Mid-Year Forecast

ProposedBudget Forecast Forecast Forecast Forecast

Description 2016 2017 2018 2019 2020 2021

Total Revenues 135,588,853$ 136,200,085$ 137,881,770$ 139,181,000$ 138,839,000$ 139,368,000$

Expenditure CategoriesPersonnel Costs (93,581,000) (97,535,469) (99,529,000) (101,621,000) (103,760,000) (105,160,000)Operating Costs + Capital Outlays (32,400,227) (34,260,321) (34,977,000) (35,672,000) (36,381,000) (37,103,000)Debt Service (CPFA) (4,532,230) (4,539,000) (4,528,600) (4,530,600) (4,522,300) (4,518,000)Capital Projects Funds (CPF) (7,241,000) (3,556,543) (3,000,000) (3,000,000) (2,000,000) (2,000,000)Interfund Transfers In (Out) 2,011,218 3,703,680 1,539,600 1,437,000 1,384,000 1,382,000Total Expenditures (135,743,239) (136,187,653) (140,495,000) (143,386,600) (145,279,300) (147,399,000)

Change in Fund Balance ($154,386) $12,432 ($2,613,230) ($4,205,600) ($6,440,300) ($8,031,000)

SWOT analysis – a risk-based approachStrengths +

WeaknessesPreparationStrengths• Established fund balance

reserves for unknowns and ‘rainy days’

• Increase to Emergency Contingency Reserve (60 to 90 days)

• Conscientious budget procedures

• Transparency and monitoring

Weaknesses• Economic volatiliy of revenues

• Ceiling for future growth in revenue

• Performance measurement and evaluation of investments

Opportunities + ThreatsOpportunities• Real estate and commercial

development

• Favorable affordability gap between Inland Empire and Orange County

• Economy and jobs growth still positive

• Refinancing of debt

Threats• PERS rates and retirement costs

• Dependence on fee for service

• Timing of next recession is unknown38

Fiscal Year 2016-17 Budget DeliverablesAccomplishments with respect to goals and objectives are:Open Data Corona- A highly interactive tool to engage the public and their

understanding of City funds- Open Budget and Checkbook modules with enhancements

coming soonZero-Based Budgeting- Phase out of target-based budget procedures in favor of a comprehensive approach which builds/identifies annual base budget needs

Brand New Budget Book- Accompanies and complements Open Data Corona- Transparency requires readability- Better define what we do as a City, who does what, and

what it takes 39