06-18-2019 - Item 18 - Adoption of the City of West Covina Fiscal Year 2019-20 Annual Operating and Capital Improvment Program BudgetAGENDA ITEM NO. 18
AGENDA STAFF REPORT
City of West Covina | Office of the City Manager
DATE:June 18, 2019
TO:Mayor and City Council
FROM:David Carmany
Interim City Manager
SUBJECT:ADOPTION OF THE CITY OF WEST COVINA FISCAL YEAR 2019-20
ANNUAL OPERATING AND CAPITAL IMPROVEMENT PROGRAM
BUDGET
RECOMMENDATION:
It is recommended that the City Council approve the Fiscal Year 2019-20 Proposed Operating and
Capital Improvement Program Budget as amended by adopting the following resolution:
RESOLUTION NO. 2019-49 – A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF WEST COVINA, CALIFORNIA, ADOPTING THE OPERATING BUDGET
FOR THE CITY OF WEST COVINA, WEST COVINA PUBLIC FINANCE
AUTHORITY, WEST COVINA HOUSING AUTHORITY, THE SUCCESSOR
AGENCY TO THE FORMER WEST COVINA REDEVELOPMENT AGENCY AND
THE CAPITAL IMPROVEMENT PROGRAM FOR FISCAL YEAR 2019-20
BACKGROUND:
On February 11, 2019, the Finance Department held a Fiscal Year (FY) 2019-20 budget kickoff
meeting with City of West Covina staff to begin the development of the FY 2019-20 budget. All
department budgets were to be submitted to the Finance Department by March 7, 2019 and reviewed
with the City Manager over the course of the following weeks. The Finance Department is
responsible for the development of the preliminary and final budget preparation.
As part of the FY 2019-20 Operating and Capital Improvement Program (CIP) Budget preparation,
the budget was presented to the City Council on June 4, 2019, a presentation was given to
the Finance & Audit Committee on June 5, 2019, and one Community Budget Workshop was held
on June 10, 2019.
Included in the budget document is a pre-payment of the CalPERS unfunded liability in the amount
of $11,833,502. By paying this lump sum amount by July 31, 2019, the City will save $421,582 over
the course of the year. The General Fund savings is approximately $379,424.
The budget also includes recommendations for not funding nine (9) vacant positions and nine (9)
filled positions. A list of those positions is attached to this report as Attachment 1 and 2. In addition,
the City is exploring contracting for provision of Building & Safety and Engineering functions. The
result of contracting these services with a consultant results in the reduction of six (6) employees.
There are also three (3) Administrative I positions that are not funded in the budget.
DISCUSSION:
This item was first presented to the City Council at the June 4, 2019, meeting.
The development of the Proposed FY 2019-20 Operating and Capital Improvement Project (CIP)
Budget presented many challenges for the City Council, staff, and the community. As previously
discussed during other budget presentations, General Fund expenditures continue to outpace revenue
growth and many tough decisions had to be made to achieve a balanced budget for the 2019-20
Fiscal Year. The balanced budget is based on credible numbers and restructuring of operations.
At the Finance & Audit Committee meeting held on June 5, 2019, there was discussion to fund the
Human Resources Director position. Attachment 4 of this report is a memo from the committee
summarizing the discussion. A vote of the committee members was taken with four (4) votes to ask
for the position to be funded in the budget, one (1) vote to abstain, and one (1) member was absent.
If the City Council decides to include this position, it would add approximately $150,163 for salary
and benefits.
Since the budget was issued on June 4, 2019, minor formatting revisions have been made to the
document with no changes in the proposed budget. In addition, City staff has received notification
of additional funding in Community Development Block Grant funds and the budget has been
updated for those changes (pages 106-107, 280-281, and 284). Finally, the Capital Improvement
program budget has increased by $800,000 for the Citywide Lighting and Maintenance District for
the following projects:
• Street Trees Master Plan - $200,000
• Tree Grant Match - $300,000
• Tree Sidewalk Projects - $300,000
Closing the Gap
The financial challenges discussed at the budget presentations listed above, required staff to re-
evaluate services and workflow at all levels of City operations, and find ways to make significant
budget cuts, while minimizing the impact on the community. Over the course of the budget
presentations, staff gained valuable feedback from the City Council and the residents of West
Covina. It is important to note that a portion of the budget gap is being funded with one-time
monies.
As mentioned above, expenditure cuts were implemented, including: contracting out the Building &
Safety and Engineering functions, not funding vacancies for nine (9) positions that touches almost
every department in the City, (i.e. elimination/reduction of vacant positions) layoff of eight (8)
employees, shifting some eligible salaries and benefits to special funds, and using fund balance in
the debt service fund to make bond interest and principal payments that affect the General Fund.
Future Challenges
While staff was successful in closing the operating deficit for Fiscal Year 2019-20, there are still
several significant challenges ahead that need to be addressed.
•Structural deficit still exists. While significant structural changes have been made to the
organization to control future costs, rising pension and medical costs are still increasing
annually and a structural deficit still exists. Further actions to address this structural deficit,
including further cuts to expenditures and seeking new revenues will continue during FY
2019-20.
•Time period for implementation of new staffing models. The longer it takes, the less of a
savings the City will be able to achieve.
•Antiquated business license tax structure.
•Memorandum of Understanding (MOUs) for all nine (9) bargaining groups will need to be
negotiated during FY 2019-20, including MOUs for Police, Fire, and Non-Sworn personnel,
which are currently expired.
•Pension costs are projected to increase by about $2 million a year, through FY 2024-25.
•Sales tax revenues are projected to remain flat over the course of the next few years.
•Aging of the City’s infrastructure (i.e. roofs, heating and air conditioning units, public
restrooms, sports fields, etc.) and vehicles.
•Addressing Homeless Services needed in the community.
•Resolving outstanding Department of Finance issues that are lingering from the elimination of
redevelopment.
FISCAL YEAR 2019-20 PROPOSED BUDGET INFORMATION:
The City Budget is a policy document of the City Council that outlines a plan for the upcoming
fiscal year based on the most current projections of revenues and expenditures available. Staff will
continue to monitor key economic indicators, sources of revenues, and spending levels as part of
ongoing efforts to provide a sound conservative approach. As the budget is a live document, staff
will be constantly evaluating budget performance, financial conditions, and City Council
recommendations, and make adjustments when necessary during the fiscal year. Any adjustments
will be brought forth for City Council approval to keep this live document at the most current state
based on all indicators.
Estimated revenues (including transfers in) on all funds basis are $113,090,058. Many funds make
up the total budget amount, with the largest being the General Fund in the amount of $65,358,773, or
58% of the City’s budget as shown in the graph below.
Estimated expenditures (including transfers out) for all budgeted funds are estimated at
$108,400,697. Many funds make up the total budget amount, with the largest being the General
Fund in the amount of $65,358,773, or 60% of the City’s budget.
Salary and benefits are 55% of the City’s total budget, which decreased in FY 2019-20 by $931,129.
This is due to reductions in work force in the previous year of twenty-one (21) maintenance workers
coupled with an increase in expenditures mainly the CalPERS pension costs, medical, and MOU
costs.
General Fund
The City’s principal financial goal is to provide an appropriate level of municipal services with the
ability to adapt to local and regional economic changes, while maintaining and enhancing the sound
fiscal financial condition of the City. The City’s General Fund has been negatively impacted in the
past number of years by the economic recession and increases in pension costs. This fund is utilized
to provide the basic services to the City (i.e. police, fire, planning, administrative services, parks and
recreation, etc.).
General Fund Revenues:
Total General Fund revenues are projected to be $65,358,773, a decrease of $502,913 or less than
1% from the prior year adopted budget. Although many of the revenue sources of the City are
increasing such as property tax, the decline is largely due to a transfer into the General Fund
budgeted in the previous fiscal year in the amount of $1.9 million.
General Fund Expenditures:
General Fund expenditures for FY 2019-20 are projected to be equal to the revenues or $65,358,773.
This equates to a slight decrease in budgeted expenditures of $67,895 when compared to the adopted
budget for FY 2018-19.
General Fund Reserves:
The General Fund ending unassigned fund balance, or reserve, is equivalent to a “savings account”
to cover unexpected costs or significant economic changes. The intent is to not use this for normal
operating expenses. The General Fund ending unassigned fund balance is projected to be $12
million, which is 18.3% of operating expenditures, which meets the City’s 17% requirement per the
reserve policy of the City.
Capital Improvement Program (CIP):
Staff is recommending a number of CIP projects for FY 2019-20, all of them being funded from
special revenue funds. These projects are listed in the Proposed Operating and Capital Improvement
Project Budget for FY 2019-20 on pages 328-343.
Prepared by: Robbeyn Bird, CPA, Interim Finance Director
Fiscal Impact
FISCAL IMPACT:
The Proposed Operating and Capital Improvement Project Budget for the City of West Covina for
FY 2019-20 is $116,727,840. City Staff is presenting a balanced budget for the General Fund, which
includes appropriations and transfers to other funds in the amount of $65,358,773. This balanced
budget is conditional on implementation and collection of new revenues, timing of department
restructuring, and much more. Close scrutiny and continual review of budget projections
and analysis of ways to economize and restructure will be necessary throughout the entire fiscal
year.
Attachments
Attachment No. 1 - Personnel - Unfunded Vacancies
Attachment No. 2 - Personnel Cuts - Filled Positions
Attachment No. 3 - Resolution No. 2019-49 - Adoption of Budget
Attachment No. 4 - Finance & Audit Committe Report Memorandum