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01-25-1993 - Long-Range Financial Planning - City RevenuesTO FROM SUBJECT: E 'A 'N L) ITEW', N City Council City of Wert Covina Memorandum City Manager January 25, 1993 Long -Range Financial Planning - City Revenues Summary: This .City Council Study Session isthe third of several sessions focusing on the development of a long-range strategic financial plan. The City Council will be reviewing the City's General. Fund revenues and sources for enhancing those revenues. The City Council has also requested public participation and input regarding the City's.revenues. BACKGROUND The City Council has undertaken an evaluation of the City's future fiscal challenges in meeting the service needs of the community and consideration of alternatives for overcoming those challenges. The culmination of this evaluation process will be the development of a long-range, strategic financial plan for the City of West Covina. To this end, the City Council has held two study sessions, with this evening session being the third. The first session provided an overview of the City's current financial status and established baseline fiscal projections to be used in showing the impact of different decisions which maybe taken by the Council. .One change to the original projections is the potential loss of $1 million or more as part of the State's budget action, which is. discussed in further detail below. The baseline projections show that if the City takes no action, all of our reserves will be consumed by Fiscal Year 1996-97. This is due in part to the projected loss of $5 million in revenues with the closure of the landfill in 1995. However, with the continued loss of other revenues to the State and the slow economy, the general trend of expenditures growing at a faster rate than revenues is one that the City must begin to address. S The second session focused on the impact of an aggressive economic development program on the creation of jobs, enhancement of business opportunities and generation of revenues for the City. It is anticipated that the primary. impact of the City's economic development program will be to maintain the existing level of economic activity over the next couple of years with a growth in activity occurring in the following three years." In addition to J 1 providing economic stability for West Covina, these efforts are projected to generate nearly $2 million in revenues by 1997. This impact has now been incorporated into the 10-year financial projection enclosed, and which.we will discuss during the revenue study. A fourth study session is scheduled for March 8, 1993 at which time an in-depth review of the expenditure side of the fiscal equation will be undertaken. As the City Council works through the financial planning process, the following guidelines have been established: - That every effort be made to give full open disclosure of financial information to the City Council and public. - That there be a concentrated effort to openly discuss issues and alternatives and strive for agreement and acceptance of assumptions, 'estimates and policy direction for each component in the planning process. That there be no "sacred cows" in consideration of alternatives for meeting future challenges, even though eventually a number of alternatives will be considered unacceptable. That every effort be made to make this a truly public process by encouraging, listening,' and utilizing citizen input and participation throughout the planning process. PROJECTED STATE BUDGET IMPACT The City has received some preliminary analysis of the Governor's proposed budget for FY 1993-94. Frankly, it is not good news for cities. It appears that we will once again lose a greater share of our property tax revenues to the State. The loss will be to both the Redevelopment Agency and the City. To the extent that the Agency cannot absorb the loss it will fall on the City. The total shift in property tax revenues from cities, counties and special districts may range from $1.1 to $2.6 billion. Initial projections for the City show a reduction in property tax revenues of 20 to 30 percent, which represents a loss of $1.2 to $1.7 million to the City. This action is on top of the 9% reduction imposed by the State last year. As noted above, we have incorporated a loss of approximately $1 million in property tax revenues into the fiscal projections for the coming years. The other significant reduction in property tax. revenues will be in the Redevelopment Agency. The Governor's proposed budget takes $380 million State wide from redevelopment agencies. This would mean a loss to the West Covina Redevelopment Agency of $1.4 million. A -loss of this level which continues beyond 1993-94 will require that 2 the Board review the Agency's level of projected activities and current fiscal obligations including the level. of the payment being made to the City. If this happens, the projected General Fund financial picture will worsen. As in the past two years, it is anticipated that the State Budget process will not be easy, nor is it likely that any final decision will be made in a timely manner, although there seems to be pressure to settle the budget by April when the State will again have to issue registered warrants. There is little doubt that the State's actions will once again have a significant impact on our revenues. The action by the State only highlights the need for the City Council to continue with their long-range financial planning effort, but at the same time look to actions that can_ be taken in the short term to offset the impact of the State budget. CITY REVENUES Monday evening's study session will be focusing only on the revenue l side of the financial equation and how changes in revenues will impact the projected "gap" in the General Fund. The. attached information provides an overview of the magnitude of the "gap" that needs to be addressed and suggests that it will not be easy to fill by enhanced revenues alone. An overview of the City's General Fund revenues by major category is also provided. This information should help to put in perspective the importance of the different types and sources of revenues received by the City. As we evaluate the City's revenue base it is important to keep the following parameters in mind: - At this time we are focusing only on the General Fund operating budget and will need to address capital needs at a future.date. - Staff has attempted to present a wide range of revenue alternatives and at this time is not recommending any one option be adopted by Council, but only that Council consider the achievability and priority of the various categories and specific types of revenues. At a subsequent Council meeting in early February we will want to narrow our focus to more specific revenue alternatives so that further analysis can be done. . - A number of the revenue alternatives presented may not be readily available or may require extensive and time consuming efforts to implement, however, this does not mean that any given option should not be pursued: 3 - Several of the alternatives presented are gross estimates and will need further refinement before a hard dollar amount may be incorporated into the financial projection model. - Additional analysis of suggestions from the public may be necessary before they can be quantified or incorporated into the planning process. - The focus of this session is only on the revenue side of the financial equation and that the expenditure side will be the focus of the March 25, Council Study Session. Revenue Enhancements Options for enhancing the City's revenues presented by staff have been developed based on a review of legal information governing the City's ability to impose or increase fees and taxes and from ideas submitted by City Staff. Some of the more innovative options presented for enhancing City revenues came from City employees and are included in the attached material. Comments received in response to the special edition of "Today" on the City's budget are also attached for your review. As part of the planning process I requested that all employees submit suggestions for enhancing revenues and/or reducing expenditures. Each department head was also requested to review their departmental operations for additional ideas. Several employees have responded and a number of the ideas presented tonight are a direct.result of their input. Those ideas submitted which impact the expenditure side will be presented as part of a the March study session. To provide an orderly and comprehensive approach to evaluating the alternative revenues we have broken them into seven categories as follows: 1) Revenues from,development activities 2) Revenues from departmental entrepreneurship activities. 3) Non -recurring revenues 4) Revenues from new or increased fees and charges 5) Revenues from new or increased assessments 6) Special tax levies 7) General tax levies. An overview of each of these categories is provided in the attached material and will provide the context for the majority of the staff presentation. Frankly, one of the more exciting areas is that of "D•epartmental Entrepreneurship" and I encourage you to review.the ideas presented and to consider additional areas that may allow the City to become more efficient in our use of resources and more business like in our approach to providing services. 4 Under each category there are four areas identified for Council discussion: 1) The general principle governing the use of the revenue source; 2) A number of policy issues which impact the City's use of the revenue source; 3) A listing of example sources of revenues and potential revenues which may be generated; and 4) What it will take to implement the various revenue options. The time frame provided is to give Council an estimation of when staff believes that the revenues identified may begin to be received. The listing 'of specific revenue sources under each, category is not meant to be exhaustive and additional sources may be identified by Council, the public and staff. RECOMMENDATION We are not necessarily expecting to arrive at any conclusions Monday evening, but only to explore different alternatives, discuss the impact and acceptability, and receive public input. We will schedule an evening in early February to meet and discuss the results of the study session and receive City Council direction on the revenue portion of the planning effort. However, if there are. specific revenue sources that the Council agrees should definitely be pursued,,at this time, staff can begin that process. James E. Starbird City Manager v, 5 • City of West Covina • . Financial Planning Process City Revenues - January 25, 1993 Working Agenda I. Financial Planning Process A. Strategic Planning - Purpose and,Goals 1. Current Focus - General Fund 2. Future Focus - Infrastructure 3. Need for Short- and Long- Range Fiscal Planning B. Past Study Session - Recap 1. Revised Financial Baseline Data a. Adjusted for projected State cut ($1 million) b. Impact of Economic Development 2. Remaining Council Study Sessions 3. Process for Review of City Revenues II. City Revenues A. Definition of General Furid,"GAP" 1. Revenue & Expenditure Trends - Fund Balance 2. Projected Annual Deficits B. General Fund Revenues 1. Revenue by Major Category 2. Impact of Projected State Cut III. New and/or Enhanced Revenues A. Development Activities B. Departmental Entrepreneurship 1. Organizational Review - Departmental 2. Employee Suggestions C. Non -Recurring Revenues D: New and/or Increased Fees E. New and/or Assessments F. Special Tax Levy G. General Tax Levy 1. Discuss general principle for using revenue source 2. Discuss policy issues for using/increasing revenue 3. Discuss specific areas for generating revenues 4. Discuss implementation / time frame for..revenues. IV. Public Input /•Council - Staff responses Long -Range Financial Planning. rocess Current Financial Trends I Baseline- Financial Projections Impact of Economic Development City's Revenue Base n 1 City of West Covina Financial Planning 1993 General Fund Operating Budget Deficits , Revised Baseline Fiscal Projection' Fiscal Year Projected Deficit Revenues From RDA Activity Net Deficit General Fund Balance 1993/94 <$1,574,972> Maintains Existing Revenues <$1,574,972> $8,678,804 1994/95 <$2,048,873> Maintains Existing Revenues] <$2,048,873> `S ' $6,629,931 / 1995/96 <$5,034,018> $1,060,000 <$3,974,018> $2,655,913 1996/97 < $7,788,494> $1,474,000 < $6,314,494> < $3,658,581 > 2 1997/98 < $8,264,606 > $1,891,700 < $6,372,906 > < $10,031,487 > 1998/99 < $9,007,573 > $1,986,285 < $7,021,288 > < $17,052,775 > 1999/00 <$9,587,947> $2,085,600 <$7,502,347> <$24,555,122> 1) A projected State reduction of $1 million in property tax revenues has been incorporated into the baseline projections. 2) While the chart depicts a negative General Fund Balance, the City is required to adopt a balanced budget each year. The negative balances are shown to reflect the magnitude of the challenge facing West Covina. 2 City of West Covina . Financial Planning Revenue & Expenditure Trends Millions 40 r- 3 2 1 ---------------------- 1992/93 1993/94 1994/95 1995/96 1996/97 Revenues -*- Expenditures -4,- Fund. Balance i City of West Covina General Fund Revenues by Major Category FY 1992-93 ` Miscellaneous 19.4� $5, 854,126 State Revenues 11.E $3,443,000 BKK Bus. Lic. Fee 15.9% $4,800,000. RDA Loan Payment 5.5% $1,652,500 Property Tax 19.3% $5,826,238 Total General Fund Revenues: $30, 205, 040 t,I Sales Tax 25.8% $7,799,176 ueveiopment Fees 2.7% $830,000 DEVELOPMENT ACTIVITIES Principle: While significant development opportunities are limited in West Covina, due to the lack of vacant land, there still exists the ability to construct developments which may enhance -the economic stability and vitality of the City. Proposed projects of significant nature must be carefully considered and thoroughly reviewed as to their impact and benefit to the community before giving approval. Policy Issues: 1) Are proposed development activities in accordance with the City's general ° plan and City goals? i o 2) Does the project provide additional jobs and services for West Covina residents and generally enhance the economic base and stability of the City? 3) What role should the City and Redevelopment Agency play in encouraging development? Example Areas for Consideration r Potential Development Projects Potential General Fund Revenues Time Frame Material Recovery Facility Up to $2.5 million. 95-? BKK - surrounding area and post -closure activities $25,000+ 95-? South Hills Homes $100,000 ($1.6 Million 1 time) 94-03 Projected Redevelopment Projects* $1,750,000 95-97 Implementation: The ability to implement a development project will. vary depending on the complexity of the project, the number of agencies involved, and economic feasibility. *Note - information previously given 5 DEPARTMENTAL ENTREPRENEURSHIP Principle: For an agency providing public services opportunities exist to expand the provision of those services to a greater number of clientele within the City and to other public or non-profit agencies. Policy Issues: 1) Will this activity achieve economies of scale whereby the unit cost of providing public services is reduced? 2) Does this activity maximize the use of existing City resources, thereby maximizing potential revenues to the City? 3) Will the implementation allow for the provision of services to West Covina residents to be maintained or enhanced? 4) To what extend should the City provide new or additional services which may incidentally or directly compete with the private sector? Examule Areas for Consideration Service Potential General Fund Revenue Time Frame Provide City Services to other Public Agencies $30,0004100,000 93-96 Establish a "City Store" $50,0004100,000 93-96 Provide City related services to residents $10,000450,000 93-96 .Establish areas/media for public advertising $10,000450,000 93-95 Expand the rental or lease of public facilities $20,000-$50,000 93-95 Implementation: Providing services to other agencies may require formal or administrative agreements, additional staff (the cost of which would be covered by the charge for service). Other services may be provided with existing staff and may be implemented administratively or require council action. In most cases these items may be implemented in a relatively short time frame. 51 DEPARTMENTAL ENTREPRENEURSHIP Employee Review of Departmental Operations The information provided below was received from City employees in response to a request from the City Manager to submit their ideas for enhancing the City's revenues and/or reducing expenditures and from a review of departmental operations. At this time only those ideas which. are related to revenues are presented. Potential revenues are estimates only and each proposal will need further evaluation to determine actual revenues. Revenue Source Projected Revenue Provide Services to other Agencies: 1) Dog license program for Covina $15,000 2) Personnel Recruitment / Testing / Training 25,000 3) Labor Negotiations 7 4) Financial Services (eg. payroll) 5,000 5) Radio Repair/Maintenance 5,000 6) Printing 5,000 7) Construction Administration 10,000 8) Fire Services Instruction 10,000 9) Joint Bidding of Public Works Contracts ? 10)Pursue Joint Contracts (economy of scale) ? 11)Police Motorcycle Maintenance 10,000 12)Provide Contract LEA services 15,000 Subtotal $100,000 Provide Services to Agencies or Public: 1) Construction Design 15,000 2) Rental / Lease.of Facilities 40,000 (Fair Market Value, include event coordinator) 3) Adult Day Care 10,000 4) Senior Meal Program (other senior services) 5,000 5) Provide Ambulance Services 250,000 6).Provide express and "off -hour" inspections `Provide 35,000 7) express and "off -hour" plan checks 35,000 Subtotal $400,000 VA i I Revenue Source Proiected Revenue Miscellaneous Projects: 1) Permit Advertising: - City publications - Reader boards - Baseball fencing Bus Shelters - On City Property (eg. freeway parcels) 2) Rental of office space: - SGVCCC - Civic organizations 3) Allow Bingo at Senior Center 4) Create non-profit corporation to provide certain senior and recreation services 5) Create senior foundation for fund raising 6) Establish "Pay & Play" recreation facilities 7) Request School _District to Share Cost of Crossing, 3uards and School Resource Officer Subtotal Total all Potential Revenues 40,000 10,000 ? 100,000 10,000 30,000 $200,000 $700,000 M IF- NON -RECURRING REVENUES Principle: From time to time opportunities are available to receive special "one-time" revenues which require the disposition; exchange, or transformation of City assets. Policy Issues: 1) Will the, use of these resources be for a one-time need or an on=going service? 2) Is there an immediate need to utilize one-time funds (e.g. use of reserves) in order to leverage other resources or to allow time for other resources to become available? 3) Is it desirable to optimize the flexibility of the revenue stream by disposing of restricted assets (funds, .real property, or enterprise activities)? 4) Are there important equity or other non -financial policy issues to be considered in each potential. opportunity? Example Areas for Consideration Revenue Source Potential General Fund Revenue Time Frame Exchange of Prop. A Funds for General Funds $1,000,000+ 93-94 Sale of City assets (eg. land, equipment, buildings) Unknown 93-96 Use of City Unrestricted Reserves Up to $12 Million 93-94 Implementation: Legislative authority and agreements with other agencies or entities generally would be necessary to effect disposition, exchange, or transformation of the asset. 9 NEW AND/OR INCREASED FEES -AND CHARGES Principle: It is a general principle of financial management that in most cases, user fees and charges for public services should be sufficient to cover the cost of providing the services. When fees and charges generate less than the cost of the service provided it requires taxpayers to subsidize specific activities which may only benefit the persons receiving the service. Services for which fees are charged generally are used voluntarily by a specific group of customers (eg..recreation classes, request for Unclassified Use Permit, etc.). Policy Issues: 1) Should the fee provide for the full -cost recovery of providing services to specific users, including overhead, infrastructure and other indirect costs? 2) Are the fees sufficient to accommodate requests for services while ensuring that taxpayers in general do not incur any residual cost? 3) To what extent does or should the General Fund subsidize services provided to specific classes of customers? Example Areas for Consideration Service New Increase Potential General Fund Time. Fee Fee Revenues Frame Increase Development fees X X $10,000 - 50,000 93-96 and adopt impact fees. Fees for Fire Services X $35,00041,100,000 93-94 Increase fees by annual X $15,000 - $ 20,000 93-94 inflationary factor (3 - 4%) Negligent Cost Recovery: X $ 10,000+ 93-94 Drunk/Drug Driving Negligent.Fires Hazardous Spills Review of Existing Fees for X X $100,000 93-94 full cost recovery and to Establishment of New Fees. $2,000,000 Use of Consultant for in- depth review. Implementation: Fee ,increases require City Council action. Some are restricted by State law and have additional requirements impacting the. implementation process. 10 i • .NEW AND/OR INCREASED FEES & CHARGES Employee Review of Departmental Operations The information provided below was received from City employees in response to a request from the City Manager to submit their ideas for enhancing the City's revenues and/or reducing expenditures and from a review of departmental operations. At this time only those ideas which are related to revenues are presented. Potential revenues are estimates only and each proposal will need further evaluation to determine actual revenues. Revenue Source Fire Service Fees: 1) Paramedic Fee 2) Permit/Inspections/Plan Checks etc. 3) Fire Watch/Standby 4) Equipment Use/Rental Subtotal Development Related Fees: 1) Increase Existing Fees 2) Require UUP for new Liquor License 3) Establish Impact Fees 4) Traffic Study Fee Subtotal Human Services: 1) Increase Recreation Fees 2) Senior Programs 3) Increase rental rates Subtotal Environmental Services: 1) Increase Waste Management Fee (1 %) 2) Charge property owners for Graffiti Removal 3) filing Fee for Annexations Subtotal Potential Revenue $1, 000, 000 70,000 5,000 5,000 1,080,000 10,000 3,000 30,000 5,000 48,000 10,000, 3,000 5,000 18,000 10,000 45,000 5,000 65,000 11 Revenue Source Building: 1) Re -inspection fee 2) Annual inspection of rental units 3) Resale & occupancy inspections Subtotal Code Enforcement: 1) Establish fines for repeat offenses 2) Establish real estate sign violation fine. Subtotal Miscellaneous Fees & Charges: 1) Increase returned Check Charge 2) Charge groups for participation in City events 3) Charge for all) City Documents 4) General Increase in all fees (Inflationary) 5) Business License Processing Fee 6) Police False Alarms/Calls 7) License program for cats Subtotal Total all Potential Revenues 12 j Potential Revenue $30,000 50,000 75,000 $1,366,000 NEW AND INCREASED ASSESSMENTS Principle: Specific on -going public services are or may be provided which provide a benefit to identifiable property, for which an assessment may be charged to pay for the service provided. Use of revenues generated through assessments are restricted to specific purposes. Policy Issues: 1) Does the use of the proposed assessments meet the City's criteria for I roviding an equitable means of funding public services and facilities which provide a benefit to properties being assessed? 2) Will the. use of assessments reduce the subsidy of general taxes to provide services which benefit specific properties? 3) Does the assessment provide appropriate level of resources needed to furnish specified services to those properties? Example Areas for Consideration Benefit Assessment Districts New . Fee Increase Fee Projected General Fund Revenues Time Frame Citywide Maintenance X (1 % = $ 27,000) $ 680, 000 93-96 Sewer Assessment X $ 20,000 93-94 1982 Street Maintenance X $335,000 93-95 Graffiti Abatement X $300,000 94-96 Fire Assessment District X Up to $6,000,000 94-96_ Implementation: New and increased assessments require Council action and must comply with mailed noticing, hearing and other statutory requirements, including election under certain circumstances. 13 4 IF- SPECIAL TAX LEVY Principle: Voters may be "requested to consider the adoption of a special tax levy to fund a specific activity. This funding source is generally used when other revenues are not sufficient to maintain a certain, desired lever of public. service. This process allows voters to control or designate the purpose for which these funds will be used. Policy Issues: 1) Should a special tax be used to meet a specific need which is not being funded by other means? 2) What are the types of services, both legally and by City Council direction should be considered to be funded by this revenue source (eg. public safety or infrastructure)? Examule Areas for Consideration Potential Special Tax Potential General Fund Revenues Time Frame Public Safety Up to $22 million 94-96 Infrastructure Street Maintenance $335,000* 94-96 G.O. Bonds or Limited Obligation Bonds (eg. alternative financing for Civic Center) S2+ million 94-96 Implementation: The levy of a special tax requires th City Council to place measure on the ballot and m t receive 2/3 voter ap roval to be enacted. t *Note - only reflects the current cost of thestreet program paid for out of the General Fund. 14 _s 0 GENERAL TAX LEVY 0 Principle: The City Council may consider the, adoption of a general tax levy to fund public services and operations. This funding source is generally used when other revenues are not sufficient to maintain a certain, desired level of public service or it is necessary to meet a significant unfunded need. Policy Issues: 1) Does there exist both the demand for and the lack of any other resources to provide critical public services? 2) Is it equitable to use local taxing authority to assume the financial burden placed on local government by the State's budget actions taken to reduce local revenues? Example Areas for Consideration Potential General Tax Levy Potential General Fund Revenues Time Frame Utility User Tax 1 % = $1,000,000 93-on Increase Franchise and/or TOT As Warranted 93-on Enhance Scope of BKK Bus. Lic.(eg. energy generation, methanol production) $300,000 to $400,000 (Power - 1 % = $24,000) 94-96 Levy Full Business License Tax $50,000 - $100,000 94-95 Increased Business License Tax -Restructure (i.e. move to a gross receipts basis) $30,000 - $700,000 93-96 Implementation: The levy of a general tax requires City Council action and may at the discretion of the Council be put before the voters on an advisory basis. 15.