Budget Transmittal Letter FY 2013 - Assignment Example

? Proposed Budget FY May HONORABLE MAYOR AND COUNCIL of Long Beach California FiscalYear 2013 Proposed Budget The Fiscal Year 2013 (FY 13) Proposed Budget reflects a number of years of review. It involved a reassessment and re-examination of the priorities of the City. The way in which business is being done has also been re-examined in order to determine how to reduce inefficiencies and in so doing reduce costs. We have been entrusted with the role of being stewards for the public funds and at this time revenue projections are not quite what we expected. The financial constraints over the past five years have allowed us to be more disciplined while still exercising some level of prudence. This is so as we ensure that we do what we have agreed to get done in the interest of serving the community. The Proposed Budget for Fiscal Year 2013 which is hereby transmitted takes into consideration the fundamental needs and the priorities that will help to improve or maintain the quality of life of the people in the community. The strategies that have been employed in preparing the Fiscal Year 2013 Proposed Budget has taken the approach of reducing departmental expenditures, government reform and new sources of generating revenue to boost shortfall. Each department will receive an amount that is proportional to the expenses that are expected to be incurred. We continue our quest and commitment to sustainability and this has been demonstrated in the time that has been spent examining and assessing priorities relating to the costs and services that can be reduced. A high level of fiscal discipline on the part of stakeholders is still encouraged as in previous years. The approach that was taken in preparing the Proposed Budget for Fiscal Year 2013 is as follows: i. The submissions from all the departments recommended reductions that were large enough to facilitate some level of flexibility in terms of the programs that should be recommended. ii. All the operating funds from the departments included reduction targets that are reflective of the difficult budget and the General Fund. iii. The departments took the necessary steps to identify the likely effect of the reductions on the services to be affected. After all the above were accomplished, had the task of recommending the reductions that would facilitate the balancing of the budget in order to ensure its consistency with the overall goals of the City Council. There are still challenges even though we are recovering from the recession. In the previous Fiscal Year we identified structural deficits relating to that period, the current period and Fiscal Year 2014. Structural deficits have now been identified for Fiscal Year 2013 to the tune of $16.4 million. Departments are still encouraged to review their operations to determine where possible any additional cost reductions that might be possible. In taking a strategic approach which we established starting with the Fiscal Year 2012, we have been looking at the solutions that may be possible for the next three to five years. The operating budget is expected to be around $700 million and from this over $20 million is expected to be cut in order for the district to remain fiscally stable (Puente 2012). See Appendix 1 and 2 for some of the reductions that have been proposed. The increased cost of employee retirements continues to represent a major part of the deficit and uncertainties still abound in respect of the California Public Employees Retirement System (PERS). The investments are not likely to recover what was expected in the initial period and so pension reforms are likely to continue until a surplus is generated. The returns on pension investments are expected to be about 7.75% and will not be able to cover the costs of pensions fully. There are continuing efforts to get employees to contribute more to their pension costs. There are some groups that have decided to increase their contributions. These include employees in the police department and this is important as most of the budget is spent in this department. It is our hope that others will follow suit. This will reduce the number of layoffs and other reductions that might be necessary. There has been a decline in the projected expenses for FY2013. The last projection was $9.4 million. This was due mainly to the pension reform which has become so critical to balancing the budget. However, the projections for revenues are down $11.8 million since our last projections. Table 1 shows the annual deficit and cumulative deficit for FY 2013 to FY 2015. General Fund Deficit Description FY 2013 ($m) FY 2014 ($m) FY 2015 ($m) Annual deficit 16,442 7,054 2,571 Cumulative deficit 16,442 23,497 26,067 Source: City of Long Beach Fiscal Outlook 2012 Table 2 indicates that the annual deficit for the Fiscal Years 2013, 2014 and 2015 are projected to be $16.4 million, $7 million and $2.6 million respectively. The cumulative deficit which takes into account the annual deficits for the Fiscal Years 2013, 2014 and 2015 is projected to be $16.4 million, 23.5 million and $26.1 million respectively. Therefore, if no actions are taken the General Fund deficit is expected to grow to $26.1 million by FY 2015. The reductions that are necessary as per the annual deficits may be worst than expected. It therefore means that service priorities have to be determined. This includes a review of the police staffing levels, including when it would be necessary to conduct an academy. The action that is required includes: reducing expenditures and increasing efficiencies in the operations of the City; expanding the revenue base and in so doing revenues are expected to increase. In reducing expenditure it is expected that the growth in expenditure will be reduced. Additionally, a long term financial plan needs to be developed in order to improve the economic as well as the financial health of the City. 1. Reducing expenditure and increasing efficiencies In addition to staff cuts and reducing expenditure on materials and supplies, the City has put some solutions in place and it is hoped that these will reward in terms of improved efficiency in its operations. BMC announced on May 2, 2012 that the City has improved its delivery of IT services and workload automation solution. Smart Grid (2012) indicates that: ‘With the new solution in place, the City can better manage and control its scheduled workloads across a hybrid data center to efficiently streamline processes, detect issues and improve service.’ This should also facilitate a reduction in expenditure in many ways including reduction of overtime for some employees and reduce the number of employees required to perform certain functions. Therefore, it may not be necessary to recruit new employees when some of the current employees retire. This will therefore have a positive effect on the budget. The City continues to reduce expenditure proportionately based on the share of the total budget. As resources for services continue to decline it is now extremely important to review this method of adjusting the budget. If this adjustment is considered to be critical and therefore will allow the City to achieve its goals then it will be undertaken. Table 2 shows a three year target based on proportionate share. Three Year Targets Based on Proportionate Share Department FY 2013 ($m) FY 2014 ($m) FY 2015 ($m) Cumulative 3-Yr Reduction Police 8.9 4.1 1.0 14.0 Fire 1.1 1.3 1.1 3.5 Public Works 1.7 0.5 0.2 2.4 Parks, Recreation and Marine 1.8 0.4 0.0 2.2 Mayor and Council 0.3 0.1 0.0 0.4 Library Services 0.9 0.2 0.0 1.1 All Others 1.7 0.5 0.2 2.4 Total 16.4 7.1 2.6 26.1 Table 2 The police department is expected to bear the greatest level of reduction in budgetary expenditure of $8.9 for FY 2013. This suggests that the police department gets more than 54% of the City’s Budget. Parks, Recreation and Marine receive approximately 11%, Public Works 10% and Fire 0.67%. It therefore means that these departments have some level of significance. 11. Expanding the revenue base There are really no new revenues that we could think of. In expanding the base references may be made to increasing the sales tax and animal license fee. However, increasing the sales tax could lead to a reduction in income from this particular revenue stream. The animal license fee is currently $95. It was last increased in September 2011 from $90 (Long Beach Government 2011). A 5 to 10% increase in this fee is definitely part of this necessary process. The City cannot rely on revenue from increases in oil prices as these prices are highly volatile. 111. Reducing Expenditure Growth In order to be successful the growth in expenditure has to be reduced. Pension costs and a few other expenses are expected to grow at an increasing rate over the next three years. However, if pension reforms are accepted by all groups then this reduction in expenditure growth will be possible. Most of the cuts are expected from the fire and police department which together account for well over 60% of the budget. 1V. Long Term Financial Plan Over the next three years a reduction of $1.1 million is expected from library services department. This is equivalent to the operating expenses of 3 of the 11 branch libraries (City of Long Beach Council 2012). A reduction of $2.3 million is also expected over the next three years in the public works department. This would represent 50% of the program dealing with repairing sidewalks and 100% of the expenses on the contract relating to the trimming of trees, the removal of graffiti as well as any infrastructure funding that is discretionary (City of Long Beach). If the expenditure for the Parks and Recreation Department is reduced by $2.2 million this would be equivalent to a complete elimination of program cost relating to 5 of the 10 neighborhood parks and 5 of the 11 community parks. These parks provide both after school and summer programs for youth and teenagers. It would also lead to a reduction in the operations of the pool, senior programs and sports for youths – youth sports. Both the Fire Department and the Police Department have academies which replace staff that leave the service for various reasons. City of Long Beach Council (2012) indicates that management has initiated the Fire Academy because it will not result in staffing above the budgetary levels that have been projected. However, City of Long Beach Council (2012) also indicates that management has not initiated the Police Academy because there is no certainty in relation to the funding of such an academy within the budget that has been projected for the department. The need for pension reforms Sunshine Review (2011) indicates that Long Beach has been impacted by eight continuous years of budget cutting and during that time $188 million. It has also been suggested that the City could benefit to the tune of $100 million from the pension plan. The current fiscal crisis that the city faces came about as a result of the granting of pension benefits to employees n government service who were granted pension benefits retroactively in 2002 (Long Beach Post 2011). In terms of pension reform, the following changes have been considered: i. All new employees will be required to pay the full 8% of their salaries. The current level s now at 2% ii. All new employees will obtain a benefit of 2% on retirement – down from the current 2.5% that is being paid. iii. All new employees will not be eligible for retirement until age 60 – up from the current 55 years. iv. The final compensation for all employees will be based on an average of the last three years salary and not the year in which they had the most earnings. The need for pension reform is a real issue and if our pension system is not sustainable then it will present challenges for the City (Long Beach Post 2011). Bradley (2011) indicates that the Mayor Foster ‘hailed the deals as major steps toward getting a budget surplus by Fiscal Year 2014. Appendix 1 and 2 shows cost reduction for FY 2013. These approximate to $16.4 million and the majority of the reductions are borne by the police department.. Conclusion The Proposed Budget for Fiscal Year 2013 is the result of a series of meetings with various departments to determine where reductions are possible. Several groups have decided to bear a higher share of their pension cost while others have agreed to the elimination of various programs. Without the cooperation of these groups we would be faced with a precarious situation. However, the fact that they have agreed to pension reforms indicates that some people are willing to play their part to ensure the proper and orderly operations of the City. Respectfully submitted A Consultant City Manager References Bradley, E. (2011). LB leads way in pension reform. Retrieved from: http://www.presstelegram.com/news/ci_19128707. Last accessed 2 May 2012 Fiscal Year 2012: Adopted Budget. Retrieved from: http://www.longbeach.gov/finance/budget/documents/. Last accessed 2 May 2012 City of Long Beach Council. (2012). Fiscal Outlook: Challenges and Decisions. Puente, K. (2012). Head Start program to end in Long Beach Unified. Retrieved from: http://www.mercurynews.com/california/ci_20525540/head-start-program-end-long-beach-unified. Last accessed May 1 2012 Smart Grid (2012). CUSTOMER SUCCESS: City of Long Beach Cost-Efficiently Streamlines Municipal Processes with BMC's Workload Automation Solution. Retrieved from: http://smart-grid.tmcnet.com/news/2012/05/02/6285749.htm. Last accessed 1 May 2012 Sunshine Review (2011). California public pensions. Retrieved from: http://sunshinereview.org/index.php/California_public_pensions. Last accessed 2 May 2012 Long Beach Post. (2011). City Council Will Consider Employee Pension Reforms. Retrieved from: http://www.lbpost.com/news/ryan/11073. Last accessed 2 May 2012 Appendix 1 General Fund Impact on Deficit ($) Positions City Attorney Reduce budgeted expenditures for materials and supplies (5,785) City Auditor Reduce personnel services budget to eliminate the ability to fill a vacant position (10,067) City Clerk Reduce budgeted expenditures for contractual services the Records Center (12,656) City Manager Reduce budgeted expenditures for contractual services in Intergovernmental (11,688) City Prosecutor Reductions (21,348) Citywide Activities Reduced budgeted interdepartmental expenditures Elimination of Head Start preschool program Custodial Services (68,383) (225,000) (74,800) Civil Services Reduced budgeted expenditures for advertising, office equipment, printing, and contractual (8,912) Development Services Reduction in rent as a result of new lease agreement that combines the office spaces of Code Enforcement and Neighborhood Services staff. Eliminate a portion of a Special Project Officer position (management). Increase revenue from Code Enforcement property maintenance activities. (9,500) (34,344) 25,405 (0.25) Fire Department Staffing on the General Funded engines will be reduced from four to three and substitute staff where necessary from other sections. Other reductions - including those related to pension reform (550,870) (550,000) (5.00) Library Services Reduction in costs and use of less overtime staff 900,000 Police Department Pension reforms and reduction in expenditure (8,900,000) Parks, Recreation, and Marine Reduce budgeted expenditure on materials and supplies and operate more efficiently Increase animal licensing revenue (1,800,000) (17,000) Public Works Eliminate three Tymco sweepers, three flat bed trucks and one parking control vehicle Other reductions not yet decided (157,736.6) (1,542,300.0) Total (14,874,985) Appendix 2 City Attorney Impact on Deficit ($) Positions General Fund Eliminate one (1) position – do not replace retiree if possible Reduce budgeted expenditure for contractual services, material and supplies (133,392) (57,566) (1.00) Employee Benefits Fund Reduce budgeted contractual services, materials and supplies Eliminate one (1) position - use retiree if possible (57,566) (124,804) (1.00) Insurance Fund Eliminate 3 take home vehicle Eliminate two (2) position – do not replace retirees if possible (30,000) (127,788) (2.00) City Auditor Eliminate one (1) position – do not replace retiree if possible (74,573) (1.00) City Clerk Eliminate one position and split the work between a lower level and a higher level employee (60,000) (1.00) City Prosecutor Eliminate three (3) positions – do not replace retirees where possible (142,250) (3.00) Civil Service Eliminate two (2) positions – do not replace retirees where possible (131720) (2.00) Mayor & City Council Reduce expenditures for personnel, supplies and administrative costs (288,384) Other Miscellaneous reduction in expenses 300,000 Total (1,528,043) (11) Read More