City of Lompoc

General Fund2013-2015 Budget Workshop

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Projected Income and ExpensesRevenue EstimatesExpenditure ChallengesPension ChallengesReserve TrendsRDA DissolutionOther

City of Lompoc

Increase of or (use of) reserves

Original presentation from 2-10-2011 budget kickoff meeting

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City of Lompoc

The 2011-2013 approved budget was adopted without appropriations of reserves and included $1,200,000 of employee concessions

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City of Lompoc

The 2013-2015 preliminary budgeted revenues are:• $5,051,390 higher than the 2011-2013 original budget (10%)• $3,792,273 greater than the projected 2011-2013 actual revenues4

Preliminary 2013-2015

City of LompocCouncil actions subsequent to the adoption of the 2011-2013 budget

1. Approval of NCRCCPC services – committed to June 30, 2013 –potential 13-15 cost - $110,000.

2. Funding of Adult Literacy program – 2 year cost (presumed 2013-2015 State funding) – $42,372.

3. Outfitting costs for SAFER grant positions - $30,600.4. Approved employee concession reductions – 2013-2015 budget cost

– $275,000 per year and $550,000 for 2 yrs.___________________________________________________________________________________________________________________

Total potential 2013-2015 cost of extending these funding commitments.a. The status quo appropriations in the slide above includes 1. 2.

and 4. above as ongoing programs of $702,372.b. 1. and 2. have no commitment beyond 6-30-2013 of $152,372.c. 3. is a one-time cost and has no ongoing 13-15 obligation.

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City of Lompoc

State actions subsequent to the adoption of the 2011-2013 budget

1. Elimination of VLF – 2011 & after2. Passage of AB X1 26 & AB 1484 – dissolution of

Lompoc RDA – 20113. Passage of Prop 30 – 20124. No increases in State’s proposed 2013-2014 budget

except for Schools

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City of LompocGrant activity subsequent to the adoption

of the 2011-2013 budget1. Police Department received a four year hiring grant for three

officers. The grant funds three years of costs and City is required to fund the fourth year.

2. Fire Department receive a two year SAFER grant for six firefighters. City has no obligation beyond the grant expiration date.

3. Potential 2013-2015 City costs of extending the grant funded positions to 6-30-2015 – range of costs from about $60,000 to $375,000. The appropriations included in the status quo estimate is $180,000.

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City of Lompoc

Citywide initiatives Council initiatives

a. Economic Development d. Accountabilityb. Public Safety e. Code Enforcementc. Efficiencies f. Miscellaneous

Potential long-term initiatives - 2013-2021a. Replacement of the Citywide legacy financial management

software.b. Implementation of a Citywide electronic infrastructure internal

service fund.c. Funding of existing accrued salary liabilities.d. Replacement of City’s free use of Comcast’s fiber system –

Franchise and free use expires 1-1-2015.

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City of Lompoc

Anticipated improvements for 2013-2015 (some good news)

1. Sales Tax receipts continue to climb –compared to prior years & to projections.

2. Police and Fire hiring grants – provides some breathing room.

3. PERS contribution increases are slowing (but not receding).

4. Prop 30 passage may reduce the continued takes from the State.

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City of LompocProperty Tax Valuations (000’s)

Primary Revenues

The County Assessor’s office is anticipating no change in assessed values for 2013-2014 as compared with the 0.73% actual decline in 2012-2013 valuations.

However, the State’s Proposition 13 CPI adjustment for 2012-2013 is 2% and is expected to be 2% for 2013-2015.

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City of Lompoc

$6,606

$6,944

$7,222$7,070

$6,630$6,637

$6,510$6,822

$6,536$6,667

$5,500

$6,000

$6,500

$7,000

$7,500

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

2014-2015

Actual Actual Actual Actual Actual Actual Actual Proj Est Est

Property Tax Revenues (in $1,000’s)

Primary Revenues

The County Assessor’s office is anticipating only the Prop 13 cost of living adjustment of2% for 2013-2014 without any growth projection. Projected amounts include only the 2%

increase for 2014-2015 as well. The 2012-2013 revenues include a one-time estimated $350,000 from City’s share of

dissolution of RDA and approximately $47,000 of ongoing RDA reallocations.

$6,421(w/o RDA)

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City of Lompoc Property Tax Revenues

ChallengesA similar slide was provided in 2007-09 and 2009-11 showing 8% annual growth. The information here is specific to Lompoc and revised to include up to 2013.

The revised 30 year average growth is about 3% per year.

Modest growth of no more than 2% is expected for the 2013-2015 and future cycles.

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City of LompocSales Tax Revenues (in $1,000’s)

Primary Revenues

The growth estimate is between 3.55% and 4.16% for 2013-2015 compared to approximately 10% per year for 2011-2013. The State’s method of calculating the “triple flip” causes year to

year fluctuations such as the 2009-2010 result that is artificially depressed because of the State’s remittance practices.

Two year increase of $800,000

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City of LompocTotal General Fund Revenue (in $1,000’s)

Primary Revenues

The two year revenue growth is estimated at about 7.3% and results in approximately $3.8M in additional revenues for the 2013-2015 budget over the preliminary results the for 2011-2013 cycle. At the revenue growth rate since 2009, GF revenues will return to the 2007-2008 level in 2017-2019. 14

6.2% 8.5% -3.8% -8.4% 2.4% -1.7% 4.8% 4.0% 1.6%

City of LompocGeneral Fund Expenditure Challenges

Significant expenditure categories that will impact the 2013-2015 budget cycle:

• RDA dissolution

• Pension and other retiree costs

• Workers Compensation program cost increases

• Accrued salary liabilities

• Potential grant obligations

• Possible continuation of programs funded after June 2011

• Restoration of funding for programs reduced in prior budgets

• Increase in costs for network infrastructure15

General Fund Administrative Expenditure Allocations

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21%

12%

14%16%

19%

17%

General Fund Solid Waste Wastewater Water Electric Other

City of Lompoc

For the General Fund divisions that support other City activities (Administration, Human Resources, City Clerk, City Attorney, Treasury, Facilities Maintenance, Finance, Information Services, Purchasing, etc.), approximately 21% of those costs are associated with the General Fund with the remainder spread to all the other divisions based on the City’s Cost Allocation Plan.

In some of the following slides I may refer to net costs or gross costs. These references are based on this allocation of costs. Gross costs includes the various “administrative” costs at 100% of the divisional costs while the net costs takes this allocation process into account.

City of Lompoc Expenditure ChallengesRetirement costs – All City activities

Furloughs and PERS contribution rate decreases contributed to the drop in absolute cost reductions between 2008-2009 and 2010-2011 as well as in 2012-2013.

Approximately $500,000 (gross) and $400,000 (net) of total increases between 2011-2013 and 2013-2015 are in the General Fund.

Bartel & Associates is in the process of updating their 2011 study to project the City’s Safety and Miscellaneous contribution rates up to 2019 taking Tier 3 (AB340 - PEPRA) into account

as well as the second tiers implemented in 2011.

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City of Lompoc Expenditure Challenges

Retirement cost challengesCalPERS has already imposed assumption changes on both the Safety and Miscellaneous plans of our retirement system – the City will begin to pay CalPERS for retirement benefits based on these assumption changes on July 1, 2013 with a two year phase in by CalPERS.

1. Miscellaneous plan employer costs changed from 18.265% to 19.797% or the equivalent of 1.5% salary increase.

2. Safety plan employer rate changed from 31.499% to 33.130% or the equivalent of a 1.6% salary increase.

3. Will add about $500,000 to the City’s General Fund pension costs in 2013-2015 over what is expected to be paid in 2011-2013. The Citywide increase is about $750,000.

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City of Lompoc Expenditure Challenges

Retirement plan costs (as a % of salary)

New return is 7.5% effective 2013-2014

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City of Lompoc Expenditure Challenges

Retirement cost challenges• At the time of the 2011-2013 budget, it was speculation that

CalPERS would change the expected rate of return assumption of 7.75%.

• CalPERS did change the rate to 7.5% and the change is going to be effective for the 2013-2015 budget.

• Pension reform was enacted with the passage of AB 340 in 2012. Prior to the passage of AB 340, the City enacted second tiers in 2011 for both Safety and Miscellaneous employees.

• The combination of these two changes will be positive in the long run but will not generate any material savings in the overall pension costs for the City during the 13-15 budget cycle.

• There is little expectation that costs will decrease in the foreseeable future for the two retirement plans.

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City of Lompoc Expenditure Challenges

Retirement cost opportunities1. The City’s Tier 1 plans for safety members was pooled with other like

plans across the state in 2003 at the time CalPERS adopted pooling.The City’s plan was relatively less funded than the plan as a whole.

2. CalPERS adopted a “side fund” for all members to equalize all plansincluded in the safety pool. Our “side fund” has grown from 2003 to beapproximately $5,563,552 at 6-30-2013 and will be paid off in 26 years.

3. During 2011-2013, the Finance Division investigated an opportunity toreduce the City’s long term cost of paying down the side fund. Theunderlying concept is that the City could borrow funds for less than the7.5% assumed rate of return that the side fund charges annually.

4. The borrowing would be classified as a “Pension Obligation Bond”which is considered more risky than a revenue bond, for instance.

5. Preliminary estimates suggest that the City could reduce overall pensionobligations by about $30,000 to $40,000 per year by refinancing thisoutstanding debt.

6. California Special Districts Association has a program that is availablefor all California governments in CalPERS. 21

City of Lompoc

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

FY Ending

General Fund Reserves

Cash Reserves (in $1,000’s)

Target is set at 25% of either appropriations or expenditures

Reserves include cash balances in the General Fund, the Economic Uncertainty Fund and AB 702 balances.GF: $ 3,000,000EUF: 2,000,000702: 1,550,000Total: $ 6,550,000

Blue diamonds and line shows total cash on hand at June 30

Pink boxes and line shows a target reserve level at June 30

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City of Lompoc

1. Historically, the Agency annually provided approximately $189,000 of support to the City in:a. Direct allocations of staffing costs - $149,000b. Indirect allocation of administrative overhead - $40,500

2. Remaining tax increment reallocated to all taxing entities in the same proportions as general property taxes – the City’s share is estimated at about $55,000 – $60,000 annually.

3. Programs previously funded from Agency resources include:a. Blight removal program at approximately $41,000 annually.b. Economic development programs at approximately $50,000 annually.c. Reduced general fund interest income of approximately $8,000 annually.

4. Estimated net cost to General Fund - $97,000 – $187,000 annually plus a portion of reallocated overhead.

2011-2013 Budget WorkshopGovernor’s successful proposal to

eliminate redevelopment agencies will significantly affect the City

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City of Lompoc Other challenges

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1. The Governor’s tax initiative (Prop 30) passed and was implemented on 1/1/2013.

2. The Governor’s preliminary budget does not restore any City funding previously taken away in prior budgets.

3. The take away of City VLF funds to pay for the continuation of the $100,000/year COPS funding (a net loss of $132,000 per year to the City) has not been corrected in the budget or by the courts.

4. Internet tax legislation (Amazon) will help the state this year but will not have a substantial impact on sales tax in the City.

5. City facilities are covered for a variety of losses but are not covered for earthquake damage.

City of Lompoc GF Summary & conclusions

• Most revenues are beginning to recover from lows experienced in the 2008-2010 time frames.

• Revenues will not recover to 2006-2008 levels for several cycles – projected in 2017-2021.

• PERS imposed retirement rates will continue to rise for the foreseeable future and will likely outpace increases in revenues for some time.

______________________________________________________

• We are not unique in the Central Coast or throughout California in respect to lagging revenue growth or increasing retirement costs; however,

• The City has retained reserves while others have utilized substantial reserves in the last few years.

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City of Lompoc GF Summary & conclusions• 13-15 budgeted revenues expected to be $3,800,000 greater than

expected 2011-2013 revenues and $5,050,000 greater than 2011-2013 original budget.

• Hiring grant reimbursements make up about $1,600,000 of the increase.• New or higher expenses (or less revenue) that are known (committed

and proposed) at this time include: Low High__ State takeaway of VLF in 2011 $300,000 $300,000Pension cost increases 400,000 500,000Dissolution of RDA 200,000 400,000 Council approved additions 550,000 700,000Hiring grant funding to 6-30-2015 60,000 375,000Workers’ Comp program costs 500,000 650,000Discontinuation of bargaining concessions 1,200,000 1,200,000

Estimated total additional expenditures – range $3,210,000 $4,125,000

Range of net expenditure over revenues: Budget to Act Budget to BudgetRevenue increment range $3,800,000 $5,050,000Identified expenditure increases 3,210,000 4,125,000 Hiring grant costs 1,600,000 1,600,000Initial projected expenses over revenues ($405,869) 26

City of Lompoc

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Statewide and Central Coast elections –results of past 6 election tax measures

Majority vote sales tax – 79% of 77 50% of 62/3 vote sales tax – 45% of 22 none of 1Parcel tax – 51% of 97 50% of 2TOT – 68% of 62 100% of 5Business License – 79% of 39 no votesCharter City – 67% of 9 100% of 14 of the 5 TOT votes increased TOT from 10% to 12% in 2012 and the 5th

affirmed the 10% rate for SB County in 2010. All votes in TOT category are in SB County.Legislation is proposed to expand the 55% majority vote to municipal elections (currently restricted to school district applications).

Statewide Central Coast

Statistical information provided by the League of CA Cities since 2009.

City of Lompoc

Thank you for your consideration.

Questions?

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