HomeMy WebLinkAbout22 - Fiscal Year 2007-2008 BudgetCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 22
March 13, 2007
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: City Manager's Office
Homer Bludau, City Manager
949/644 -3000 or hbludau @city.newport- beach.ca.us
Administrative Services Department
Dennis C. Danner, Administrative Services Director (949) 644 -3123
dd an ne r@ city. newport- beach. ca. us
SUBJECT: Fiscal Year 2007 -2008 Budget
ISSUE:
Does the City Council want to provide additional direction to the City Manager outside of
Council Policy F -3 regarding the Fiscal Year 2007 -2008 Budget?
RECOMMENDATION:
Offer additional direction to City staff regarding budget issues.
DISCUSSION:
City Council Policy F -3 directs staff on the adoption and administration of the City's
annual budget (attached). Based on that policy, preparation of the Fiscal Year 2007-
2008 Budget is well underway. During the last several months, City staff has completed
financial projections for the current (2006 -07) and upcoming (2007 -08) fiscal years and
their relative impacts on City reserves. As a result of those forecasts, input from
department directors, and discussions with the City Manager's office concerning the
level of reserves and strategic savings plans, target budget ceilings were developed for
each of the departments.
Departments were then directed to prepare their budgets at or below their given
department ceilings, including only their base complement of employees and approved
budget ceiling adjustments. Budget ceilings represent the maximum amount a
department may submit for consideration without the submission of a supplemental
budget request. Budget ceilings are derived primarily from the prior year's operating
budget, plus or minus any approved ceiling adjustments. Target budget ceilings are
revised upward based on newly approved initiatives and contractual obligations which
are thought to be beyond the department's control. Ceilings are revised downward
Fiscal Year 2007 -2006 Budget
March 13, 2007
Page 2
based on previously approved short-term initiatives. For example, budget ceilings for
Fiscal Year 2007 -08 include the newly approved employee contracts for Police
employees, Fire employee costs associated with the contracts due to expire in
December 2007, all scheduled step increases, increases to service contracts, and
decreases for one -time expenditures or at the end of a contract.
On February 16, 2007, the Departments submitted their preliminary budgets to
Administrative Services. These budgets are based on their target budget ceilings. In
addition, the Departments submitted supplemental budget requests which the
Departments deem important enough to ask the City Manager's permission to add to
the budget he submits to the City Council.
These supplemental requests may include the addition of full -time and part-time staff,
funding of new programs, and this year, in particular, additional funds needed for
operational expenses at several new facilities including the Newport Coast Community
Center and Fire Station #7 (Santa Ana Heights). Accounting staff is currently in the
process of compiling all the submittals for use by the City Manager during the City
Manager's budget review meetings (occurring the week of March 19, 2007).
As the FY 2007 -08 preliminary Budget looks today, all mandated reserves are funded
as required by Council Policy F -2. The General Fund's Capital Project component is
proposed to be budgeted at a historic high of $5.0 million. Although the budget includes
all negotiated employee contracts (Police and Fire), the departmental submitted
budgets do not include any employee contracts (MOUs) yet to be negotiated, nor any
supplemental budget requests.
After reviewing each department budget submission in detail, the City Manager then
directs Administrative Services to prepare the preliminary budget for Council review.
Our target date for distribution of the preliminary budget is April 27, 2007. The public
hearing is currently scheduled to be conducted June 12, 2007 with the final budget
adoption scheduled for June 26, 2007. City Council study sessions would ordinarily
commence in May 2007.
This Agenda Item. This agenda item seeks the Council's early guidance, if it chooses to
provide such guidance, on the proposed FY 2007 -08 Budget and on the manner in
which we prepare it.
Submitted by:
lr Homer C. Bludau, City Manager
Attachment: Council Policy F -3
Bennis Danner, Adminis a Services
Director
BUDGET ADOPTION AND ADMINISTRATION
PURPOSE
F -3
To establish the policy for the preparation, adoption, and administration of the City's
Annual Budget.
POLICY
A. Revenues and Expenditures. With rare exceptions, the City's policy is to identify
and separately budget and account for revenues and expenditures. However, in
some cases the Administrative Services Director may determine that certain
funding coming in to the City is more properly reflected as abatement to an
expense than as revenue; or that certain expenditures of funds are more properly
reflected as abatements to revenue than as expenses. The Accounting Division
will keep note of all such entries, and maintain the ability to separately identify
the component transactions. Examples of transactions where such recording is
often appropriate are earnings on compensating balances, which directly offset
the City's expenditures for banking services; and credit card processing charges,
which decrease actual revenue received.
B. Organization and Development of the Annual Budget. Each year the City shall
prepare and adopt, by formal Resolution, an annual budget as required by the
City's Charter and as provided for in the City's Budget Instructions.
The Annual Budget is published in three volumes, the Resource Allocation Plan
(RAP), the Budget Detail and the Capital Improvement Program (CIP). The RAP
provides an overview of each department's mission, functions, statistical
information, and budget. It also provides summary information regarding the
Capital Improvement Program, as well as summary information for budgeted
and historical overall City revenues, expenditures, and fund balances. The
Budget Detail contains line by line information regarding operating expenditures
for the prior year, current year and budget year. The CIP document provides a
summary of current and future planned projects, basic descriptions of each
project, the funding source and the scope of work to be performed.
The City programs expenditures into four classifications. These are Salaries and
Benefits, Maintenance and Operations, Other Charges, and Capital Expenditures.
Capital Expenditures are subdivided into Capital Outlay, which is generally
used for items of operating equipment or other purchases in excess of $500, and
1
F -3
Capital Projects, which generally deal with Public Works related improvements
for a distinct and identifiable purpose and function. Policy guidelines regarding
budgeting for upkeep and improvement of City buildings are as follows.
• Cleaning, maintenance, and minor repair expenses are funded within
departmental Maintenance and Operations budgets. This includes
janitorial, limited painting, and routine electrical, plumbing, and minor
structural repairs.
• Most capital equipment outlays are also budgeted at the department level.
These include expenditures for furniture (free- standing and most built -
ins), carpet replacement, and electronic equipment.
• Building expenditures that are for a more substantial and relatively
infrequent purpose are funded as Capital Improvement Projects above the
departmental level. These include such items as roof replacements,
significant plumbing and /or electrical upgrades, or remodels involving
structural changes.
Budgeted Expenditures for all four classifications are aligned in the Budget
Documents by Department Budget Units, which usually coincide with Operating
Divisions within the City's organizational structure; and, separately, by Capital
Projects. Therefore within each Division Budget, there will be sections for
Salaries and Benefits, Maintenance and Operations, Other Charges, and Capital
Outlay.
During December of each year, the Administrative Services Department shall
prepare preliminary fund balance estimates for the current year and preliminary
revenue estimates for the next fiscal year. In January of each year, the
Administrative Services Department shall prepare a budget calendar and issue
budget instructions and expenditure detail to each department for use in
preparation of the next year's City budget. Included in these instructions will be
budget guidelines and appropriation limits for each department. These
guidelines will be developed by the Administrative Services Director and
approved by the City Manager. In accordance with City Council Policy F -2
(Reserves/ Designations of Fund Balance), the status and possible changes in
Reserve Accounts shall be addressed as part of this process.
P4
F -3
After submission of revenue and expenditure appropriation requests by each
department, the Administrative Services Department shall summarize the
requests for review by the City Manager and Department Heads. After review
by the City Manager and Department Heads, the Administrative Services
Department shall prepare the City's proposed budget for the next fiscal year and
shall submit said proposed budget to the City Council. Thereafter, the City
Council shall hold as many budget study sessions as it deems necessary. Council
budget study sessions shall be recorded. All proposed Council changes in the
City Manager's proposed budget shall be added to a budget checklist.
Subsequent to Council review and prior to its final adoption, the City Manager
shall provide each Council Member with an itemized list of all proposed changes
to permit a roll call vote by the City Council on each item during a Council
meeting.
The City Council shall hold a budget hearing and shall adopt a budget on or
before June 30 as required by the City Charter.
C. Administration of the Annual Budget. During the budget year, Department
Heads and their designated representatives may authorize only those
expenditures that are based on appropriations previously approved by City
Council action, and only from accounts under their organizational responsibility.
In addition, budget expenditures may only be authorized in the year
appropriated. Any unexpended appropriations, except valid encumbrances,
expire at fiscal year end unless specifically reappropriated by the City Council
for expenditure during the new fiscal year. Department Heads are responsible
for not authorizing expenditures above budget appropriations in any given
expenditure classification within their purview, without additional
appropriation or transfer as specified below.
1. New Appropriations. During the Budget Year, the City Council may
appropriate additional funds for special purposes by a City Council
Budget Amendment. The City Manager has authority to approve requests
for budget increases not to exceed $10,000 in any Budget Activity or
Capital Project. (This must be specifically included in each year's Budget
Resolution to remain valid.)
2. Grants & Donations. The City Manager may accept grants or donations of
up to $30,000 on behalf of the City. However, if a new or additional
appropriation is required, the City Manager's authority to create new
appropriations is limited to $10,000 as stated above. The City Council will
3
F -3
be formally notified of such actions on a quarterly basis by way of the City
Manager newsletter to the City Council. (This provision must be
specifically included in each year's Budget Resolution to remain valid.)
Additionally, grant appropriations approved by City Council may be
carried forward to the following fiscal year(s) as long as the grant terms
remain valid, the expenditures are consistent with the previous Council
authorization, and the funds would otherwise need to be returned to the
granting or donor agency. Also, see Council Policy F -25 for specific grant
acceptance and administration procedures.
Grant contracts and restricted donations in excess of $30,000 must be
specifically approved by the City Council. Occasionally, the terms and
conditions of a grant are approved by City Council in a year prior to when
the program activity will take place and therefore, the funds are not
appropriated to carry out the grant at that time. In such cases, the City
Manager may appropriate the funds when they are received, provided the
expenditures clearly meet the amount, terms, nature and intent of the
grant or donation previously approved by City Council.
3. Assessment District Appropriation. Assessment district projects are
typically funded by property owner contributions and bond financing
secured by property assessments. City staff will initially seek
appropriation to advance City resources for the assessment engineering
and the design work related to a proposed assessment district. Since the
City's advance is at risk until a district is formed at a public hearing, the
appropriation related to advanced resources shall be subject to the normal
budget policies. However, once the district has been formed at a public
hearing, the City Council will adopt a "project- length" budget for the
district and City staff will be allowed to roll the appropriations forward
into future fiscal years without rebudgeting the project through the formal
CIP process.
When assessment bonds are issued to finance the improvements, the bond
issuance costs are estimated at the maximum amount that would be
required to complete the improvements because it is not known how
many property owners will opt to pay the assessment in full during the
cash collection period. Finance staff will also have the authority to reduce
Council appropriations (related to bond issuance costs) after bonds are
resized and sold.
n
F -3
4. Transfers. During the fiscal year, actual expenditures may exceed budget
appropriations for specific expenditure line items within departmental
budgets. If a total departmental budget, within a specific Classification, is
not exceeded, the Administrative Services Director has the authority to
transfer funds within that Classification and Department, to make the
most efficient use of funds appropriated by the City Council. (Salaries
and Benefits, Maintenance and Operations, Other Charges, and Capital
Expenditures are the City's four Classifications.)
S. Realignments. Further, funds may be realigned between one Department
Budget Activity and another, within the same Classification, with City
Manager approval. For example, if a Fire Department function and the
employee who accomplishes it are replaced by a slightly different function
assigned to the Police Department, the City Manager may authorize the
transfer of appropriate funds to support this function.
6. Reprogramming. Any reprogramming of funds among the four
Classifications (Salaries and Benefits, Maintenance and Operations, Other
Charges, and Capital Expenditures) within a given fund requires the City
Manager's approval. Any budget revision that changes the total amount
budgeted for any fund (other than the minor provisions contained in
paragraphs C.1. and C.6.b.) must be approved by the City Council.
7. Capital Projects. The Department Head having primary responsibility for
a Capital Project (usually the Public Works Director) is authorized to
encumber and approve subsequent expenditure of City funds for Capital
Projects. However, contracts in excess of $30,000 require specific City
Council authorization at the time of contract award. In addition, any
contracts not of format and wording already approved by the City
Attorney require specific City Attorney review and approval prior to
contract award.
Once a contract has been awarded, change orders may be approved by the
Public Works Director, or other Department Head having responsibility
for the Project, so long as the net total amount committed to the Project
remains below 110 percent of the original contract award amount; and so
long as the original amount appropriated for the Project by City Council is
not exceeded.
5
F -3
Change orders exceeding the above thresholds may be approved by the
City Manager as follows:
a. Total spending for any single contract may not exceed 125 percent
of the original contract award amount without City Council
approval. In certain situations the Public Works Director and the
City Manager may determine that a change order exceeding this
125 percent threshold is needed, and that the timing is such that a
work stoppage or other undesirable consequence will result if
approval of the change is delayed until the next City Council
meeting. In those instances, the City Manager may approve a
change up to 150 percent of the original amount. However, the
City Manager will notify all City Council Members individually if
this situation develops, and if there are any objections to the
increase, a special meeting of the City Council will be called to
address the issue.
b. The total amount authorized for a capital improvement project may
be increased by transferring funds from one Project to another or
by reprogramming funds from any of the other three classifications
(see C.6), so long as the new total does not exceed 110 percent of
the original amount appropriated by Council.
C. In the event that the transfer or reprogramming action in C.7.a. or
C.7.b. above would result in a material reduction in the scope of the
capital project or other City activity from which funds are to be
withdrawn, City Council authorization is required. For example,
the movement of five percent (5 %) of the funding from one large
project to another large project of the same general category could
be approved by the City Manager, whereas the elimination or
significant reduction of two small, unrelated projects to provide
funds for a five percent (5 %) increase in a much larger project
would require City Council approval.
In all instances, notification of any changes to capital project contract
amount or budget authority must be communicated to the Administrative
Services Director.
All unexpended and unencumbered capital projects will be canceled on
June 30 of each fiscal year. The appropriation balance of these canceled
6
F -3
projects will be recorded in the Reserve for Capital Improvements or
another appropriate Reserve Account by the Administrative Services
Director at fiscal year end (see also paragraph D.2. below).
8. Reserves. Funds from unappropriated contingency reserves may be
transferred to active Classification accounts only by City Council Budget
Amendment.
D. Additional City Council, City Manager, and Administrative Services Director
Responsibilities. The Administrative Services Director is responsible for
checking purchase requests against availability of funds and authorization as per
the approved Budget. The City Manager is responsible for approving
expenditures which do not conform to the approved Budget, but which fall
within the exceptions noted in this policy statement. It is the responsibility of the
City Manager to administer the City's budget within the framework of policy.
and appropriation as approved by the City Council.
1. Special City Council Expenditure Approval. Once the final Budget has
been approved by the City Council, specific City Council approval to
make expenditures consistent with the Budget will not be required, with
two exceptions (see also Purchasing and Accounts Payable Procedures):
a. Capital Projects in excess of $30,000.
b. Consultant Contracts in excess of $30,000.
All other budget administration actions, including the routine filling of
vacancies in staff positions authorized within the Budget, will not require
further City Council approval. However, new positions and other new
expenditures do require City Council approval, and the City Council and
City Manager reserve the right to impose any special fiscal control
measures, including a personnel hiring freeze, and other spending
controls, whenever circumstances warrant. Since the annual Budget is
approved by formal Resolution, a request by a City Council Member for
review of a portion or portions of the Budget, with a view toward
changing amounts appropriated or the purposes for which they were
appropriated, requires a majority vote of the City Council.
7
F -3
2. At fiscal year end, the Administrative Services Director is authorized to
realign, reprogram, and /or transfer money among accounts within each
Fund in order to close the books of accounts of the City of Newport Beach
in accordance with generally accepted governmental accounting
principles as established by the Government Accounting Standards Board,
Government Finance Officers Association, and other appropriate
accounting or auditing pronouncements. Any net shortage within a Fund
will be recorded as a decrease in Fund Balance and reported to the City
Council. Any net excess will be recorded as an increase to one or more
appropriate Reserve Accounts as recommended by the Administrative
Services Director and approved by the City Manager. (Information
regarding appropriation of Funds from the Reserve Accounts is contained
in City Council Policy F -2.)
Adopted - January 24,1994
Amended - February 27,1995
Corrected - February 26, 1996
Amended - May 13,1996
Amended - May 26,1998
Amended - August 8, 2000
Amended - May 8, 2001
Amended - April 23, 2002
Amended - April 8, 2003
Amended - April 13, 2004
Amended - September 13, 2005
Amended - October 10, 2006
Formerly F -10, F -11, F -12, and F -21
i
Budget Process Overview&
2007 -08 Progress Update
City Council Meeting
March 13, 2007
•
Budget Preparation Process
• November - Project current year financial forecasts
• December - Prepare preliminary revenue estimates and
balance revenues and expenditures to ensure reserves
are fully funded
• January - Establish budget ceilings
• February /March - Departments submit budgets for City
Manager review
• April - Preliminary budget printed & distributed
• May - City Council begins its review
• June - Public hearings conducted & budget adopted
4
How we Budget
Revenues
Known factors
Historical analysis
State & County issues
Economy
Economic development
Growth expectations
Department input
Expenditures
• Personnel — authorized
positions allocated based
on dept.
recommendations
• Required costs — based
on known or estimated
costs: primarily approved
contracts, utilities,
equipment, etc.
• Controllable costs —
based on department
justification and historical
trends.
2006 -07 Budget vs.
2007 -08 Departmental Budget Submission
General Fund Operating Budget
Category
FY 07
Beginning Budget
%
Total
FY 08
Dept Submittal
%
Total
Dollar
Change
%
Change
Salaries & Benefits
94,228,042
73.4%
96,957,009
73.4%
2,728,968
2.9%
Maint & Operations
32,509,229
25.3%
33,963,118
25.7%
1,453,889
4.5%
Capital
1,608,742
1.3%
1,260,593
1.0%
(348,149)
-21.6%
TOTAL
128,346,013
1100.0%1
132,180,720
1100.0%
3,834,708
3.0%
C!
0
Summary of Included /Excluded
Budget Items
Included:
• Approved Positions
• Step Increases
• Approved Reclassifications
• Ceiling Adjustments
• Known MOU Increases
Excluded:
• Salary Savings
• MOU Increases not yet negotiated
• Supplemental Requests
R
Ceiling Adjustments
• Budget Ceilings represent the Maximum amount a
department may submit for consideration.
• Budget Ceilings are derived from the prior year's
operating budget, plus or minus any approved
adjustments.
• Ceiling Adjustment primarily represent Council approved
bargaining unit MOUs & scheduled contract adjustments
• Upward adjustments are based on newly approved
initiatives and contractual obligations.
• Downward adjustments are based on previously
approved short -term initiatives.
2007 -08 Ceiling Adjustments
• Increases include:
— Utilities, Electrical and Telephone $79,504
—Vehicle maintenance & replacement $441,031
— Fuel $156,932
—General Plan Implementation $150,000
— Contract increases including audit fees,
janitorial services, Newport Coast refuse,
hazard mitigation, treatment chemicals, etc.
$327,041
b
FY 2008 Ceiling Adjustments
• Decreases include:
— Grant to NMUSD for CdM Pool
— End of computer and copier lease
agreements
— Short -term contracts for cost allocation study,
OASIS conceptual study, etc.
— Removal of one -time appropriations related to
the Centennial celebration
— No elections held in FY 2008
Employee Group Negotiations
Employee
Group
CEA
PEA
PMA
Fire
Fire Mgmt
Professional & Tech.
LMA
Key & Mc
Part -time
ANBOL
Elected
% of Total
ary & Benefits
7.8%
25.5%
6.8%
15.5%
1.3%
10.5%
13.4%
2.4%
11.5%
3.8%
1.3%
0.2%
100.0%
Contract
Expiration
June 30, 2007
Dec 31, 2009
Dec 31, 2009
Dec 31, 2007
Dec 31, 2007
Jun 30, 2007
Jun 30, 2007
Dec 31, 2008*
NIA
Jun 30, 2006
Mar 31, 2007
NIA
Jan 1, 2007 J
3%
3%
* Pending Council approval and therfore not included in FY 08 budget
fly 1, 2007
Jan 1, 2008
Unknown
Unknown
4%
-
4%
-
2%
Unknown
2%
Unknown
Unknown
Unknown
Unknown
Unknown
2%
-
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
CPI
-
E
0
1
Extraordinary Budget Amendments
& CIP Projects
Corona Del Mar State Beach Improvements
Sunset Ridge Park
Santa Ana Heights Fire Station
Back Bay Science Center
Newport Coast Community Center
General Plan Update
All Other Projects
Total Council Approved General Fund Appropriations
2006
2007
Total
3,219,904
101,750
3,321,654
175,000
2,000,000
2,175, 000
4,542,397
210,170
4,752,567
1,661,164
232,174
1,893,338
2,761,995
0
2,761,995
1,060,131
1429270
1,202,401
3,065,191
1,588,492
4,653,683
16, 487, 788
4,276,863
20, 760, 638
10
Current CIP vs. Normal funding
• 2006 -07 CIP Budget is extraordinarily high
due to previously indicated budget
amendments & high CIP activity levels
• FY 08 CIP budget will return to normal
level - $5 million
11
GENERAL FUND REVENUE AND EXPENDITURE
TRENDS
(thousands of dollars)
160,000
D Revenue
140,000 ■ Expenditures
❑ Salaries & Benefits
120,000 — ❑ M &O and Capital Outlay
❑ Clp
100,000
80,000
60,000
40,000 — —
20,000 —
0 —
2000 2001 2002 2003 2004 2005 2006 2007 2008
12
C,
J
•
General Fund Expenditures by Function
v
C
R
3 $70,000
O
r
~ $60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
feral
emment
lic
aty
nmunity
dic
rks
nmunity
aces
it Service'
13
•
E
-*--Ger
Go%
-Put
Safi
Cor
Deg
--
-9c -Put
Wo
-IE- Cor
Ser
- -
--o- Det
+CIP
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
feral
emment
lic
aty
nmunity
dic
rks
nmunity
aces
it Service'
13
•
E
Fund Balance Trends
General Fund Reserves
60,000,000
50,000,000
• All Other General Fund Reserves
• Capital Improvement Reserve
40,000,000 ❑ PERS Rate Changes
❑ Contingency
30,000,000 -
20,000,000 -
10,000,000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0
40
90,000,000
80,000,000
70,000,000 -
60,000,000
50,000,000
40, 000, 000
30,000,000
20,000.000
10,000,000
(10, 000.000 )
Fund Balance Trends
General Fund & Internal Service Reserves
❑ Retiree Insurance
■ Workers Corn and Gen Lie
❑ Compensated Absences
■ Equipment Fund
❑ All Other General Fund RE
❑ Capital Improvement Reser
❑ Contingency
■ PERS Rate Changes
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0
•
General Fund Operating
Expenditures by Category
General Fund Expenditures
2001
2002
2003
2004
2005
2006
2007
2008
Salanes & Benefits
59,851,612
64,366,948
70,317,379
75,666,519
79,106,291
88,083,985
94,095,088
96,957,009
M &O and Capital Outlay
21,363,539
26,816,667
25,441.067
27,375,362
29,491,839
33,299,620
38,102,382
35,223,711
UP
5,433,285
7,655,747
4,379.362
4,594,096
5,790,097
6,505,345
18,230,031
5,000,000
Grand Total
1 86,648,436
1 98,859,362
1 100,137,808
1 107,635,977
1 114,388,227
127,886,950
150,427,501
137,180,720
•
`119