Recommendation to receive and file a budget update from the City Manager with updated budget shortfall projections and recommendations for addressing the FY17 projected shortfall.
Communication from Mayor Garcia recommendation to receive and file a budget update from the city manager with updated budget shortfalls, projections and recommendations for fiscal year 17. Thank you. I will have some comments at the end of the presentation. But I do want to just begin by saying that we all know that we've known for a while that we have some some years where because of what we're paying into our largely unfunded pension liabilities that we had had some deficits. We've been planning for those. We've been working hard to make investments. And through economic development, I think our team has been doing a great job at at eliminating that and lowering that deficit as much as possible. And so I think what you're going to hear tonight is, is some good news that we're moving in the right direction and that while we still have a challenge, the challenge is even a little more manageable than we thought it was a few months ago. And so I'm really happy to hear and I think the council will be happy to hear tonight's presentation. Mr. WEST Thank you, Mayor and council members. We've been asked to update you tonight on the most recent projections for the fiscal year 16 budget through fiscal year 18. The past three years we've experienced budget stability. However, fiscal year 17 and fiscal year 18 have been projected to have shortfalls. Therefore, we have been closely monitoring revenues and expenses, and we do have a preliminary, preliminarily updated outlook for the next three years. The good news is that even though the price of oil is continuing to decline, other revenues have offset this reduction. And so instead of facing a $7.5 million shortfall for next year, our preliminary outlook is that we are now looking at a shortfall of 5.1 million. We will be taking steps to proactively address this shortfall, which, while difficult, is. Manageable compared to the deficits of the past when we were cutting 20 million to $38 million each year. I will now turn it over to Assistant Finance Director Lisa Erickson, who will describe the changes to the three year outlook and the approach we plan to take to address the budget shortfalls. Lisa. Good evening, Mayor and members of City Council. First, I'm going to start with a review of the current year that for the FY16 budget that we just passed last year, two months ago, it was based on an improving economy and it was balanced as a result of discipline and prudent decisions. It contained no service reductions. It also included funding for both police and fire academies. And we are working to maximize the police academy and in fact, are working to conduct two academies in police academies this year. Real quickly, I'm sorry, when the announcement it didn't make a case you were here for item 24. Is that item 24 has been withdrawn? I didn't mention that. So I don't want anybody waiting. So 24 has been withdrawn. Leah, continue. We've also continued to work on outstanding financial issues and cost savings, and the budget included a projected structural surplus of $675,000 and that does appear to be on target. We are carefully monitoring this budget, though, for key revenue and expense items that are impacting the outlook for this year and the next two years. So on the revenue side, we have positive revenue impacts that are helping the outlook. Our sales tax is stronger than projected due to economic growth and also due to some economic development agreements, including CRC Services, Office Depot, Human and Worthington. We've also had a stronger transit occupancy tax performance due to economic growth and our property tax has higher residual property tax growth from the RTA dissolution. We have the new fee implemented for first responder fee that's helping the revenue. And then also we have stronger electric duty and lease revenue from the pike. On the negative side for revenues, our property tax is also being hurt though by low oil prices, which is reducing the value of oil related properties. And also our uplands oil revenue is coming in lower because of the reduced price per barrel. On the expenditure side, we have positive expense impacts, including our open space bond debt service, which was going to be a general fund obligation is now going to be paid by RTA city loan repayments per the state. And also we are proposing to make our CalPERS stabilization fund contribution in FY 17 by using one time revenues from 15 year end surplus rather than structurally building it in the budget. Negative expense impacts are the R&D termination is causing increase expense in the fire department. However, we are anticipating that that would be covered by the first responder fee and if needed, the 15 year end surplus. And then also we have some county park fund funded maintenance. That is because of the ballot initiative. Failing last year is now a general fund expense starting in up by 17. We have some assumptions and uncertainties used in this outlook, including the fact that we're assuming CalPERS costs are locked through FY18 and the low investment returns of last year, though, will mean that we are going to be needing to draw down or CalPERS stabilization fund in 18. We're continuing to assume that the economy is good, but that is uncertain and difficult to predict. We are now assuming oil at $45 a barrel for 16 instead of 55, which was what the budget was based on. And we're looking at $50 a barrel for 17 and 18 instead of 60 and 65. This is also very uncertain and difficult to predict. We're also continuing not to assume any raises or takeaways due to current or upcoming labor negotiations. And I should note that the projection will change based on the 6xy 16 status as the year continues and along with any new information. So as as the city manager mentioned, the outlook has improved. We had a surplus in 16 both years and we were looking at a seven and a half million dollar shortfall in 17 and an additional $7.8 million shortfall in 18 for a cumulative 15.3 million. We're now looking at a 5.1 million shortfall in 17 and 5.2 million in 18 due to all those revenue and expense impact changes that I described before. So that's a $10.3 million cumulative shortfall, which is 5 million better than originally projected. And the fact that we did not spend the 16 temporary temporary surplus does mean that the 17 deficit was reduced from 5.8 to 5.1 million. And that amount is not at the level of the cuts that were that were needed during the Great Recession, as the city manager mentioned, which was 20 million or $38 million, depending on the year. And while this fiscal outlook for 16 and 18 is better than the original projection, this is on top of the already cut cuts of $134 million in almost 700 positions since I was seven. And we're also looking that it looks like likely that the shortfalls will continue through FY 20 due to continued low oil prices and pension cost increases that were planned. And this is a preliminary outlook and it will be updated later and up by 16, and it could change materially at that time. So our approach for the budget is for up 16, we want to be cautious. We are exploring general fund department budget savings targets, which would begin in January in order to ensure that 16 remains in balance and to generate funds for one time purposes, including that second police academy cost, which is likely to also need 15 year end surplus funds as well. And then we're looking. These cuts would be in order to help prepare for FY17 by initiating some savings. Now, that could help to balance fiscal year 17 and beyond. 417 Our approach is to allow no service enhancements without offsetting reductions, to continue to develop efficiencies and cost reductions to focus our one time expenditures on reducing cost and meeting critical needs. To focus on economic development. To continue to grow that our revenue base and identify potential new revenues and develop approaches to meeting any reduction targets that are needed. And we're going to also be working with our employees to secure fair agreements that recognize the value of our employees while also addressing our fiscal realities. So in summary, in our next steps, as Long Beach is projected to do better than earlier anticipated, but we must continue to take steps to address this new economic reality. And we need to reduce our expenditure growth to match that limited revenue growth. And this preliminary budget projected shortfall of 5.1 million equates to 1.3% of the departmental budgets. And while this is difficult, it is manageable due to mayors and city councils, discipline and fiscal restraint. However, we do need to stay focused on our core services given our limited resource capacity. City staff will continue to evaluate our financial projections, and we'll be updating City Council in February with the 15 year end status and will return in March with updated estimates for the 17 through Fy19 outlook. This concludes my presentation and I am available for any questions you may have. Thank you. I'm going to make a couple of couple brief comments and then I'm to turn this over to to the council. Let me just be just begin by saying that I'm really obviously very proud that the council has maintained a level of fiscal responsibility the last few years. It's certainly something that started a few years ago when we were experiencing major deficits. I think if we all remember and think back to 2009, where I think our deficit was close to $40 million for that one year alone. And so to have gone from a $40 million deficit down to we went down to I think it was 28 and then down to in the teens and then continuingly to drop that deficit down to where it were. We had a few years of a small surplus and now back down and to to to a deficit that certainly it's there, it's real. But it's also, I think, manageable. And I think if you think about what that means from a from a fiscal perspective, you're really talking about one point at 1.3% a piece of that general fund budget which listen, we are the services that we currently have in place are all important, they're all valuable. But it is something that we can manage and is not the type of of of tough times that we certainly had five or six years ago. While the budget is better than expected and is going in the right direction, that doesn't mean that we can somehow loosen the belt and and overspend. I think that something it's really important for this council is the reason why our budget continues to improve is because we continue to be fiscally responsible. And so that measure of responsibility needs to continue if we want to continue to see these types of of of better days ahead of us. Let me also just say that one thing we should be considering is if budget trends continue and this deficit has now reduced and we'll get a better picture, you know, when we're in February and March. And obviously we all hope that it keeps going in this direction while 1% is manageable. I think we can all agree that in certain parts of divisions of our city, any type of cut would be devastating. And I think we can think certainly of our police department, which right now, quite frankly, is stretched to the bone. I can't think of a of a of a group of officers anywhere in the country that do as much as our officers do with the resources that they have. And so any kind of cut, I think, to our to the men and women of the police department would be very, very difficult. So this is a real challenge, but I think it's one that will hopefully have a robust conversation over over the course of the next few months. And so we decided to do this budget presentation kind of ahead of the normal budget cycle. Normally you would hear this, I think, in January or February, but in talking to the city manager, I felt it was important that they start getting this information out. Earlier so that we can plan ahead sooner rather than later. And so with that, I'm going to open this up for counsel, comments and input. And it's also, I think our hope that through the BRC there could be some conversations even earlier than we would normally start so that we can address these things sooner rather than later . And so so some good news, but certainly some challenges that we still need to deal with. So Councilman Richardson, who has made the motion to receive and file your first. Thank you, Mr. Mayor, and thank you, city staff and Mayor Garcia for including us in this update. Sooner than than normal. And I would just say it is certainly welcome news that we're trending in the right direction. We definitely should be watchful and careful. But I would I would I know that there's a lot at stake here in terms of our public safety and our core services and our frontline, like our rank and file that we don't want to we don't want to have to cut those core services. I want to just check in and just ask our city manager for a quick update. I know that we've had a conversation about and I see that you're tracking the first responder fee and that will have a conversation about a month or so. But how's everything coming so far with the in terms of the first responder fee? How's it looking? Well, Councilman Richardson, we had implemented the first responder fee just last month. And due to collection cycles, we don't have any information on an actual revenue received at this point. Great. So I'm just looking forward to that. I know that we gave it 60 days or so, so that should come back some time in in in December. Thank you so much for the presentation. Okay. Next up is Councilman Andrew. Did you have any you want to speak to your second? Yes, sir. I just wanted to let you know that I'm very pleased to, you know, see the item on the agenda tonight and that you've taken, you know, a large step, you know, to see that, you know, preparedness. But, you know, by 17. So thank you very much. Thank you. Vice Mayor Lowenthal. Just a quick thank you to Ms.. Erickson and Mr. GROSS for preparing this, but also for ensuring that the council priorities are adhered to and observed. And you're very clear that this council does not want to impact services to the residents or negatively impact our employees. And so I thank you for that, and I thank you for the early notice. That's always I, I feel like this is a first in a very long time that we've had a very early report on what we're looking at. So thank you. Thank you, Councilwoman Mongo. I have so much respect and appreciation for Mr. GROSS and Leia and the work that we have done together over the last year. I am just continually impressed by the thoughtful nature of the work that you do. I know that in the beginning we talked about changing the game a little bit, and I appreciate that the council supported me in bringing greater transparency to our sales tax revenues and our business district impact on the revenue of our city. I want to give a special thanks to you'll notice that the report discusses increases in our sales tax revenue associated with Worthington Ford and human Toyota and their partnership. I want to give a special thanks to the Southern California Association of Car Dealers for coming to the table and talking through opportunities and threats to the industry. Staying in Long Beach, what it means to tell the message of of of the great deal of benefit that comes from buying your car and repairing your car in Long Beach. Also, I want to thank the business associations. I think that the new format of the way that we present the sales tax revenue really helps them advocate for bringing additional business to their corridors. I know it's helped us in the fifth District. And then additionally, I really want to thank my colleagues. I have seen in the last 18 months innovation of of opportunities for Long Beach residents to spend their weekends and evenings in Long Beach learning about Long Beach and celebrating Long Beach. And when we do that, our residents stay here and they spend their money here, and we can earn back that leakage in the sales tax revenue that we had before. We don't have specific other businesses on here, but there are a few who were either thinking of leaving or left for a short period of time and came back. And they have 20, 40, 100, $200,000 per entity of impact on the general fund sales tax revenue annually. And I think that what this this really goes to is a collaboration really led and supported by our mayor and our colleagues that has never been seen before in Long Beach. And I know that it was a tough pill to swallow in the beginning because there's a lot of extra work for our finance department. But what gets measured is really what gets focused on, and I think that we've seen that in the results. So a big win for for the finance department and the council for supporting this additional transparency. Thank you. Thank you so much. Thank you. And before I open this up for public comment, I want to say and I say this every time we talk about the budget, but I just really think it's important to remember. And for me, it's an important part of our kind of planning for these deficits, is that Long Beach has these small deficits not because we hired a bunch of employees or because we are all of a sudden overspending. But these are employee these deficits are directly related to the larger pension payment that the city is now making and has been making over the last few years. And so I say that because we are what we're doing now essentially is being responsible about paying down our long term pension obligation, which then creates us managing through these additional deficits. And if the city was not paying what we're paying now and reducing the pension, we wouldn't have these deficits. And so I think that that's it's smart planning. I'm glad that the state went once the city had implemented pension reform, the state followed and is now encouraging other cities to do what we're doing now. But it's long term, it's the smart thing to do. And so while no one likes to have deficits, even when they're small, it does force the city to spend responsibly and to invest in the long term health of the city. And so I wanted to make sure that that that was mentioned again. Is there any public comment on the budget presentation? And then after that, we'll go right into public comment. Good evening, Larry. Do Kirk has the address? Yes. Mr. GROSS and his staff are to be commended for those figures. And I think it argues well argues well for the city to do what I've suggested a number of times is to get a first rate city manager to manage these very difficult times. We cannot rely on a fourth rate. Peter Principal Manager selected because the more qualified assistant city manager could not be lead, would not be bullied. So we ended up with what we have. I think it argues well, also for going back to what works so well for so many years is a part time. They're selected by the city council. We don't need a globetrotting, globetrotting political hack to how to run the city. Thank you. Always instructive. Thank you. Any other public comment on this item? C none members please cast on receive and file. And of course, and thanks again to the finance staff for your work and we look forward to the next presentation at the. Motion carry in. February. Thank you very much. Let's go ahead and go now through. We have public comment and consent. Let me get a motion for consent real quick. Going to get a motion in a second. There's a motion in a second for consent.