TO: Mayor Alan White and Members of the Town Council
FROM: Charles L. Rough, Jr., Town Manager
SUBJECT: SUBMITTAL OF THE PROPOSED FISCAL YEAR
2008/09 BUDGET
Introduction
The proposed Fiscal Year 2008/09 Budget is respectfully submitted for your
review and consideration.
The Town Council is well aware that this proposed budget has been
developed in an atmosphere of great uncertainty concerning the economy,
and the looming state budget deficit crisis.
There clearly is no consensus at this writing as to how long, and how deep
this economic slowdown will go before it starts to turn around for the
better. However, we know that various economic factors (i.e. the sub-prime
mortgage crisis & housing downturn, rising fuel, energy & food prices,
etc.) have affected people’s pocketbooks, as well as started to affect our
local economy, the Town’s tax base, and our own cost of doing business.
This next year, those challenges include among other things a lower rate
of growth in property tax revenues (and redevelopment tax increment
revenues), an estimated reduction in sales tax revenues, higher fuel costs
for our Town’s vehicle fleet vehicle, and a continuing decline in building
activity.
Compounding this serious situation is the $ 15+ billion state budget
deficit. Thus far, the governor and state legislature have failed to
resolve a budget crisis that has profound implications for the state as a
whole. If the past is any indication, we don’t expect an adopted state
budget in the foreseeable future. Needless to say, this doesn’t help
cities as we attempt to complete our budgets and get them adopted on time.
Right now, we know that it appears favorable that the allocation of $
100,000 that we receive annually from the State COPS grant (and that funds
our lease purchase of police patrol vehicles) will not be affected.
However, the issue over continued state
reimbursement of police booking fees remains unresolved, so we have
included it in this proposed budget as a non-reimbursed expense.
We are beginning to hear of possible proposals that might further
adversely affect local government. For example, there is a possibility
that the state might look at ways to delay, or defer our payments from the
state (i.e. motor vehicle in lieu, sales tax, gas tax, etc). The Town
Council is aware that the state deferred a portion of this current fiscal
year’s gas tax funds for the Town to September 2008. Another situation
that is developing is a proposal in the state legislature to suspend for
two years Proposition 42 Funds for counties and cities. If this proposal
were to take place it would devastate our streets maintenance program
which already has limited funding, and cause even greater financial
problems for our Gas Tax Fund. A fund that is already in trouble (as well
as significantly supported by the General Fund). Please, refer to the Gas
Tax Fund section of this budget message for more detail.
Therefore, the impact of the economic downturn on our own local economy;
and the possible impact of the state budget crisis on our community and
Town government, pretty much dictated that your management team and their
respective departments approach this next year’s budget with the same
cautious, fiscally conservative, and “business smart” approach that a
municipal government of our limited means must pursue in good, or in bad
times.
More specifically, it meant positioning ourselves financially as best we
can without knowing for certain how these circumstances will ultimately
play out. This cautious and prudent approach involved the following
actions:
1. The Town Council supported and approved a series of mid-year budget
adjustments that resulted in our being able to end this current fiscal
year with a balanced general fund budget. These actions also ensured that
we would conclude the current year with a positive ending balance that
strengthened our General Fund “rainy day” reserve going into Fiscal Year
2008/09. By strengthening our reserve, the Town is better positioned us
for unanticipated impacts that might occur this next fiscal year as a
result of the economic slowdown and/or state budget crisis.
2. Again, with the Town
Council support and approval, our Town arranged for $
1,185,000 in short term public financing (that we pay back at very little
interest
within the same fiscal year) to buffer our normally tight cash flow during
the first
six months of the new fiscal year.
3. Prior to the budget
process beginning, I instructed our departments that there wouldn’t be any
consideration of hiring additional full or part-time personnel as part of
the proposed FY 2008/09 proposed budget. This was to underscore the very
tight budget year we faced. Finally, and most importantly, it involved our
presentation to you of a balanced general fund budget, and a reasonable
“rainy day” reserve for this next fiscal year, which we’ve done.
While the proposed budget is conservative on both the income and spending
side, by no means does it represent a budget that retreats from the Town’s
commitment to a number of programs and projects that continue to advance
the quality of life in Paradise.
On the contrary, this proposed budget, especially with respect to our CDBG
and HOME grant-funded housing programs, and our
redevelopment/revitalization housing and business assistance programs,
underscores our strong belief that it is precisely at times of an economic
slowdown that we should increase our efforts to do what we can to
stimulate our local business economy.
Furthermore, the Town will see the completion of the Southeast Specific
Plan this year and the beginning of our General Plan update. Both
processes are very important in planning for the future of this community.
The General Plan update, itself, will include a broad-based public
participation and input process.
This proposed budget also represents the organization’s efforts to
integrate a number of “business smart” no cost/low cost recycling and
energy conservation measures that are meant to reduce or contain
operational costs. We will also be discussing with the Town Council some
of our ideas with respect to various “greens” policies that would also be
beneficial.
Total Proposed Budget
The total proposed Town budget (all funds) for Fiscal Year 2008/09 is $
19,748,461, which is 2.8% higher than Fiscal Year 2007/08. Approximately,
$ 2,369,657 of the proposed budget represents capital projects.
Personnel:
Due the financial challenges our Town presently faces, and the increasing
financial challenges we may very well face in the future, this proposed
budget contains no increase
in full or part-time personnel, except with one exception. This one
exception is to bring our IT administration and technical computer systems
support in-house as an employee of the organization, rather than to
continue as an outside professional contracted service. This recommended
action represents a considerable savings to the Town.
Overall, Town personnel-related costs in the proposed budget (all funds)
amounts to $ 11,295,550, or 57.197% of the total Town budget.
General Fund Budget
We anticipate that the Current Fiscal Year 2007/08 Budget will conclude
the year with a balanced General Fund budget, a net operating balance of $
239,338, and a positive ending balance (reserve) amounting to $ 1,341,335.
F. Y. 08/09 Revenues:
Overall, the estimated general fund revenues for this next year (not
including transfers into the general fund) represent a 2.5% increase over
the current fiscal year.
While we are estimating growth in secured property tax revenues next
fiscal year, we are estimating that the growth will be at a much smaller
rate (3%) than in previous years. This is reflective of the housing
situation that includes reduced overall sales, a decline in single family
residential development, increased foreclosures and reappraisals.
Likewise, we are conservatively estimating a slight reduction in retail
sales and retail sales tax receipts for next year. This reduction
represents what we expect will be drop in disposal income spending as a
result of the economic slowdown. However, a combination of increased fuel
prices and more localized spending by residents (rather than driving to
Chico) could offset this downward trend.
We are estimating a slight increase in franchise fee revenues over this
year. The big increase was realized during this current year as a result
of the new franchise with Northern Recycling & Waste Systems, which
included a higher franchise fee, a portion of which we apply to our
franchise oversight and enforcement program.
The projections for the Motor Vehicle In Lieu fees represent estimates
provided us from the State Controller’s Office. This state revenue source
is our second largest revenue source for the general fund, and is
likewise, the most potentially vulnerable to the state budget crisis. Any
significant reduction, deferral or delay of payments would necessitate our
revisiting the budget in a special Council session.
TOT revenues for next fiscal year are not expected to be much greater than
the current year. We will be monitoring closely our TOT receipts to
determine if the higher fuel prices will make any real difference – either
positively or negatively on local tourism.
Interest earnings that we earn through the Local Agency Investment Fund
are expected to be slightly less than the current year.
We fully expect that this will be an active fire season throughout
California, and that some of our firefighting personnel will be sent to
assist in major fires that threaten other
areas of the state. We do this as reciprocation for the many times in the
past (and just this week) when fire units from our region, as well as
other parts of the state have responded to major fire emergencies
threatening Paradise. We also receive federal and state reimbursement for
the assistance we provide in terms of personnel and equipment. This next
year we anticipate federal and state reimbursements totaling $ 220,000
which we applied as an offset to our estimated overtime costs in the fire
department.
This year, we also approved a one-time 35% reimbursement of the total
workers compensation and liability insurance refund due us (which the
NCCSIF Board ratified) which represents a transfer into the General Fund
of $ 271,600.
Total estimated General Fund revenues for Fiscal Year 2008/09 are $
10,444,564. Total transfers into the General Fund are an additional $
755,956. Therefore, total General Fund resources are $ 11,200,520. It
should be noted that $ 100,000 of the transfers into the General Fund are
from the General Plan Fee Fund to support the cost of the General Plan
update.
F.Y. 2008/09 Expenditures:
Overall, Fiscal Year 2008/09 proposed expenditures are $ 11,133,374
(excluding transfers out from the general fund). This represents a 6.9%
increase in expenditures over last year.
Personnel-related costs (salaries & benefits) in the General Fund amount
to $ 9,386160, or 84.307% of the total General Fund Budget.
Among other General Fund expenditures, the proposed General Fund budget
includes the first year lease payment for the new fire engine, a
replacement SUV (hybrid) for a Fire Division Chief, funding for the first
phase of the General Plan update, the second phase of our communications
repeater system upgrade, improvements to our Emergency Operations Center
capability, and an emphasis on specialized employee training that is
required, as well as training that is necessary to our operations.
The proposed budget also includes a recommended two-phased approach to
Fire Station #3. The Town Council is well aware that a variety of
alternatives, options, and costs were evaluated concerning Fire Station #3
after the Town was forced to close it down due to mold problems.
While this evaluation was underway, and with the cooperation of Cal-Fire,
the Town relocated our Fire Station #3 operations to a temporary facility
that we had established at the Cal-Fire station on Forest Service Road.
Last year, at this time, staff with Fire
Department support, recommended to the Town Council to establish Fire
Station #3 permanently at the Cal-Fire station location. This option was
viewed at the time as representing a move that would greatly benefit the
Town and department both in the short term.
First and foremost, we viewed this option as the most cost effective when
talking about the potentially favorable ground lease terms, the station
operational needs and relatively low cost for further improvements, as
well as shared facility opportunities with Cal-Fire. Both the Town and
Cal-Fire enjoy a very close and positive working relationship, and we also
saw this option as being a real catalyst for a possible combined fire
station operation when Fire Station #2 is eventually relocated and
expanded.
This option also was ideal in terms of its ability to adequately serve (in
terms of effective response time) that part of our community so long as
the Town was able to punch through a road connection west to Skyway.
However, as time progressed it became evident that the timing and cost of
that road connection meant that the benefits from such a relocation would
not be realized in the short term. In fact, there were growing concerns
within the fire department concerning its ability to meet our standard
emergency response times. Based on those concerns, the department has
recently requested that the permanent relocation of Fire Station #3 to
Forest Service Road be viewed as a long term, second phase simultaneous to
working on the road connection.
In the meantime, the department (with my support) is recommending for the
short term that we proceed with remediation of the mold in the closed down
facility on Wagstaff, as well as some minor upgrades. Based on their
recommendation, we have included in this proposed budget lease financing
for $ 80,000 to cover those costs so that by Fall, 2008, the closed down
facility, on Wagstaff, can be manned and operational.
Cost-of-Living Increases:
The proposed budget contains the last year of contractually approved
cost-of-living
increases for those employees that are members of the
Mid-Management/Confidential
and Fire Mid-Management employee units. The proposed budget also includes
“merit”
step increases for those eligible employees. However, because of the
Town’s financial
situation, the proposed budget doesn’t include any cost-of-living
increases for the
rest of our Town employees. The Town is presently in, or beginning,
contract
negotiations with the remaining five employee units.
Medical Insurance:
The one bit of good news for our employees and the Town this next year is
that medical insurance rates, (and the amount of the Town’s and the
employee’s contribution) (based on the PERS Choice Plan) will remain the
same as this current year.
Workers Compensation & Liability Insurance:
The Town of Paradise is a member of the Northern California Cities
Self-Insurance Authority (NCCSIF), an insurance authority comprised of 19
other cities. Our Town has our workers compensation and liability
insurance coverage through NCCSIF. Our proposed budget for next year
represents an actual anticipated reduction in our premium
costs for worker’s compensation coverage ($18,071) and liability insurance
coverage ($17,550).
Fuel Costs:
The Town of Paradise buys the fuel for its vehicle fleet wholesale,
however, just as consumers buying retail are currently experiencing, the
Town has incurred unexpectedly rapid increases in wholesale fuel prices
during this current fiscal year. In fact, at this writing, our wholesale
price of fuel is only $.20 cents cheaper per gallon than retail, and that
gap may be narrowing.
We clearly expect more of the same next fiscal year, and the proposed
budget reflects that alarming reality. There are a number of steps that we
are taking to minimize the impact of these rising fuel prices and they all
involve reducing our fleet’s fuel consumption. We will be discussing these
measures in more detail during the upcoming budget session.
Tourism Funding:
Despite this very tough year, the proposed budget includes a slight
increase over last year in recommended TOT funding for the Paradise
Chamber of Commerce, the Gold Nugget Museum and the Paradise Performing
Arts Center. This level of funding is based on the following: 1) Our
continued support for the tourism-generating programs, events,
performances and activities that the three community-based organizations
organize, promote and sponsor 2) Our continued support for the effort that
these three organizations make to further enhance and improve tourism in
our community and 3) Our recognition that their tourism-generating efforts
- past, present and future - directly benefits our Town’s tax base.
Youth Council/Youth Intern Program:
The Town Council is aware that after three years of the program, the Town
is taking the time to evaluate the Youth Council Program, and to identify
how we can better improve the program to make it a more meaningful
experience for the youth participating in the program.
The Town Council’s consideration of this program will be taking place in
the very near future. Because the program is under evaluation, the program
was not included as part of this proposed budget. Clearly, under the
Town’s current financial situation, it cannot provide more than the
in-kind assistance that the Town provided before. However, the budget can
certainly be amended later after its adoption, depending on the Council’s
decision, and the ability for the Town to secure another grant to provide
the primary funding for the program, We have received strong encouragement
from the S.H. Cowell Foundation, in San Francisco, that they are
interested in continuing grant assistance for the program once a direction
for the program has been determined by the Town Council.
Development (Building) Services Fund:
The decline in residential and commercial development is definitely having
an impact on the user fee-based revenues and income for this enterprise
fund. As a consequence, overall building fees collected during FY 07/08
fell far short of what was anticipated at this time last year. Our
estimates for next year, which are above actual revenues collected this
year, are still lower than 06/07, and are based on more commercial, rather
than residential development, anticipated for this next year.
For now, I fully intend to maintain current staffing levels in our
building division. At some point, I anticipate that the housing situation
will eventually turnaround, and based on past experience, it is a very
difficult and time consuming process to restore staffing levels and
operational proficiency in a building services operation. Likewise, our
building services division has over this last year moved most plan
checking activity in-house, which represents a real cost savings to the
division.
While we anticipate that the Development Services Fund will end Fiscal
Year 08/09 with an $ 89,365 deficit, it is important to remember that the
fund has an asset of $ 359,000 from three outstanding interest-bearing
loans made to the General Fund. These were loans taken out during the last
state budget crisis to keep the General Fund afloat as a result of state
funding cutbacks to local government. The General Fund is making annual
payments on those loans (on a scheduled payment plan) to the Development
Services Fund. This next year’s payment is $ 66,796.
Town Manager’s Budget Message
Onsite Wastewater Management Fund
While our Onsite Wastewater Management program is held in high regard both
at the federal and state level, this program’s enterprise fund’s major
problem is that it doesn’t presently generate enough revenue to sustain
the level of staffing and operations both expected by the state, or
required to maintain its effectiveness over the long term.
The primary revenue problem is the annual $ 14.40 operating permit fee,
which is charged per septic tank, and has been at the same rate since it
was adopted in 1993. Clearly, the annual operating fee permit needs to be
increased in order to sustain what is a very cost effective program for
the businesses and residents of this community (as compared to what they
would pay in terms of sewer connection fees and a monthly sewer utility
bill with a sewer system).
If the annual operating permit had been increased at the same rate other
fees in the division were increased since 1993-94, then the operating
permit fee would be today in the neighborhood of $ 56 per septic tank, or
operating system.
Therefore, in order to ensure that the current level of this highly
effective program is maintained, and not reduced, staff will be submit to
the Council early in the fiscal year, in the context of our Master Fee
Schedule, a proposed annual regulatory fee for the implementation and
enforcement of the Onsite Manual. This annual fee will probably be in the
neighborhood of $ 12 -$15, which combined with the $ 14.40 annual
operating permit will provide the necessary funding necessary to support
our onsite wastewater management program.
Without this action, we anticipate that the Onsite Enterprise Fund will
end Fiscal Year 08/09 with a fund balance deficit of $ 210,613.
Gas Tax Fund
Several years ago, and repeatedly ever since, I have forewarned the Town
Council that the Gas Tax Fund was in trouble. Actual gas tax revenues been
in gradual decline and unfortunately, the projections for this next fiscal
year indicate the same downward path. Further exacerbating the problem is
the State’s deferral of gas tax revenues that the Town experienced during
this last half of Fiscal Year 07/08, and the disturbing news we are
hearing that Proposition 42 funds may be suspended for two years.
There is a direct connection between the Gas Tax Fund and the General Fund
that in this present situation adversely affects the General Fund. Under
the law any deficit in the Gas Tax Fund has to be covered by the General
Fund. What that means in more specific terms is that the General Fund is
covering a projected fund deficit of $ 246,042 for Fiscal Year 2007/08,
and despite cutbacks in street maintenance expenditures, we expect the
General Fund will have to cover a projected fund deficit of $ 216,756 for
Fiscal Year 2008/09. We have arrived at that point where it must be
recognized that the General Fund, as a routine matter of course, will now
have to assume a part of the funding responsibility for our streets
maintenance staffing, programs, materials and supplies. This puts an
additional funding responsibility and burden on the General Fund.
Capital Improvement Projects
Major proposed capital projects (excluding redevelopment) that are
proposed this next fiscal year include the completion of the
Skyway/Wagstaff signalization project, an overlay for Upper Clark Road,
from Wagstaff to Frankie Lane, roadway rehabilitation and storm drainage
repairs on South Libby, from Pearson to the end, Pentz Road drainage
improvements, and the grant-funded extension of the Memorial Trail Way,
from Neal to Princeton.
Redevelopment
As a result of the housing downturn, we are anticipating a smaller
increase in redevelopment tax increment revenues for both the Non-Housing
and Housing Funds for this next year.
Therefore, with respect to Non-Housing property tax increment revenues, we
are shifting our limited tax increment revenues in such a manner as to
more directly benefit the businesses in the Downtown, and RDA Project
Area, and to further stimulate our local economy during this economic
slowdown. For example, the proposed budget includes greater funding levels
for the Agency’s business assistance programs, and some recommended
program changes (that we will initially propose at the RDA Advisory
Committee) which we believe will further ensure positive outcomes for
participating businesses and our economy.
Our Agency’s Housing Fund will continue to serve as an important funding
resource for our housing rehab and mortgage assistance programs. Again, we
view our housing programs as another means of stimulating local economic
activity that benefits our community, and tax base.
We anticipate selling the Agency’s first bond issue in December, 2008 and
retiring (paying off) at least the Agency’s first tax allocation note.
Conclusion
This has to rank as one of the most unique experiences that I’ve
encountered in putting together a proposed budget during my public service
career. Certainly, it’s not the first time that I’ve developed proposed
budgets that deal with significant challenges due to inflationary spirals,
economic slowdowns, or recessions, etc. Nor have I escaped the unique
challenge of formulating a proposed budget that ensured our financial
survival and sustainability from major federal cutbacks, or a state budget
deficit crisis. However, this is the first time that I’ve had to develop a
proposed budget for a city council, in which we were not only contending
with serious economic and state budget issues, but a major fire that
seriously threatened our community.
However, we did meet this unique challenge, and it is due to our fantastic
Town staff and Town government organization. If it were not for the
tremendous dedication and teamwork that exists in this organization, it
wouldn’t be possible for me to propose a budget to the Town Council that
well positions out Town for most of what may occur during this next fiscal
year. Credit for this definitely goes to our management team and
departments, and their cooperation in helping us achieve necessary
financial objectives.
Above all else, this proposed budget would not have been possible without
the tireless dedication, accounting acumen, and attention-to-detail
provided by our Finance Supervisor Shelley Hernandez, the actual physical
formulation of the budget by Assistant Town Manager Dennis Ivey, the
personnel calculations, information and analysis by Human Resources
Manager Denise Farrell, and overall administrative support (including
preparation of the power point presentation for our budget session) by
Assistant to the Town Manager Lauren Gill.
Finally, I want to thank the Town Council for their support of our Town
management team, department managers, and employees. Your sincere support
and continual appreciation for what we do in serving this community means
a great deal to all of our employees.
