TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Bruce Moe, Finance Director
Henry Mitzner, Controller
Libby Bretthauer, Financial Analyst
SUBJECT:Title
Budget Study Session #2: Fiscal Year 2017-2018 Proposed Operating Budget (Finance Director Moe).
RECEIVE REPORT; DISCUSS AND PROVIDE DIRECTION
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council receive a report on the Proposed Fiscal Year (FY) 2017-2018 Biennial Operating Budget, and discuss and provide direction.
Body
FISCAL IMPLICATIONS:
The fiscal implications are discussed within this report.
BACKGROUND:
The City Council held its first Budget Study Session on May 4, 2017, and directed staff to return at the May 30th Study Session with information on the following topics:
1. All Departments:
a. Identify potential budget reductions that would total $500,000, $1 million, and $1.5 million, and the associated impacts (Attachment #1)
b. Separately, provide potential revenue enhancements (Attachment #2)
c. Provide costing information for Work Plan priorities identified during the City Council retreat on May 3rd (Attachment #3)
2. Parks and Recreation Department:
a. Review General fund supported activities and staffing from art exhibitions and special events
b. Discuss staffing for revenue-generating programs, classes and camps
c. Discuss revenue potential and return on investment with the ceramic classes relative to the purchase of replacement kiln
d. Review opportunity for more P&R revenue. What the fee structure would be compared to other cities in the region, particularly the club fees that are paid.
3. Community Development:
a. Review the staffing model to potentially merge and consolidate some part-time with full-time personnel, which may provide greater value and greater institutional knowledge and stability for the department.
DISCUSSION:
General Fund Budget Reductions/Revenue Enhancements
City Council requested that staff identify reductions in General Fund expenditures at three levels: $500,000, $1.0 million and $1.5 million. The Council provided the City Manager with discretion to identify the sources and activities for the potential reductions. Given that reductions always carry some impact to a constituency, internal and/or external, staff determined that the most useful way to present reductions is by impact category. To that end, reductions have been sorted into three impact levels:
1 Moderate impact to the community/organization (includes internal efficiencies and savings). Total Value: $336,523
2 Moderate to significant impact to City operations and community service levels. Total Value: $506,319
3 Significant and sustained impacts (over time will deteriorate services, programs or facilities). Total Value: $610,005
Attachment #1 includes 68 budget reductions impacting the General Fund either directly, or indirectly such as reductions in internal service funds (Insurance, IT and Building Maintenance) that flow through to the General Fund. Additionally, three reductions are included in Other Funds that although do not impact General Fund Expenditures do impact either General Fund transfers or funding for capital improvements.
Revenue Enhancements are also provided with this report as Attachment #2. These options are provided across several funds and total as follows:
General Fund $4,528,770
Storm Water Fund 2,055,000
Parking Fund 1,568,000
Street Lighting Fund 275,000
CIP Fund 150,000
Public Arts Trust Fund 100,000
Total $8,676,770
Work Plan Priorities
City Council also requested costing for the priorities established during the Council retreat on May 3rd. Attachment #3 lists priorities along with a brief description of what may be necessary and the estimated fiscal implications.
Parks and Recreation Department
Overall, the Parks and Recreation department brings in over $3 million annually from revenue generating programs, with net profits historically ranging from $100,000 to over $300,000. For FY 2017-2018, Parks and Recreation revenue generating classes and activities are projected to produce an overall profit of $96,644 (see Attachment #5). Revenue generating program areas include: facilities and reservations, special classes, special events, tennis operations, arts education classes, concerts in the park, sports leagues, sports classes, swimming activities and older adult activities.
Each program area includes staff costs directly related to a specific program area, including a percentage for registration staff (prorated based on registration numbers). Based on community input and need, programs are continuously evaluated for relevance and pricing. Pricing is market driven and determined by the activity. Examples of new programs in 2017-18 include: expansion of the afterschool program, new and additional offerings for art camps, ceramics studio classes, science, technology and specialty camps, and family art workshops.
Currently, the Arts Education classes are scheduled to run a $135,526 deficit for FY 17-18. This category of classes includes Ceramics, Drawing and Painting, Art Camps, Music and other art classes. The overall deficit in this category is primarily due to two factors within the Ceramics classes: the one-time $45,000 budgeted kiln replacement, and application of the direct on-going salary of the ceramics supervisor ($95,000). The latter is the direct result of the full time ceramics supervisor position approved by the City Council in FY 2015-2016. As a side note, a deficit of $87,000 in Arts Education Classes was projected for FY 16-17 in last year’s budget also mainly due to the added position. To further enhance revenues, Staff has increased fees where appropriate and added new class offerings.
The return on investment for the kiln purchase will be generated through a combination of new programming and operational efficiencies. The new kiln is more energy efficient and “fires” ceramic pieces in approximately half the time of the old unit, saving $4,000 annually in staff time and natural gas. More importantly however, without the new kiln, existing programming and revenues cannot be sustained, greatly reducing existing classes and associated revenues. In an effort to improve profitability, open lab pricing will be increased on July 1, 2017 from $10 per session to $15 per session, generating approximately $30,000 in additional revenue. Finally, if City Council approves the CIP project for the new ceramics studio space, the revenues will increase significantly, more than doubling from $120,000 to approximately $250,000, with estimated net profit of approximately $90,000.
The Concerts in the Park program also operates at a deficit. The series of ten concerts, including Salute to the Troops, costs $75,000 to produce including band fees, staging, staffing, sound reinforcement and marketing. These costs are mostly offset by donations ($7,000) and through corporate sponsorships. Sponsorship support is at an all-time high of $60,000, resulting in an estimated deficit of $8,000.
Regarding the City’s field use fees, City Council directed staff to evaluate the current structure for user groups and compare it to other cities in the region. The field rates for Manhattan Beach were generally in-line with other cities; however, there are opportunities for additional revenue (Attachment #6 - Athletic Field Fee Comparison). Hourly rates for non-resident and for-profit groups are below market value and may be increased.
Currently, the fee structure for resident, non-profit recreational based groups is $15 per person. These community-based groups (AYSO, MB Little League, Pony Baseball) provide $104,790 in revenue annually. If the fees were raised to $20 per person, the revenue would increase to $139,720 annually, or to $174,650 for an increase to $25 per person.
Staff would like City Council direction to further discuss the rates of resident-based, non-profit recreational and club groups. In addition to the $15 per person fee, groups have been interested in contributing significant capital donations towards future synthetic turf projects, and some groups have provided additional resources to the City for field improvements. If additional work is needed (infield sod, re-leveling, etc.), staff could explore rate increases in the following areas: 1) per person, 2) hourly field rates, and 3) capital for funding future projects. Based upon City Council direction, staff can focus on one revenue area or take a hybrid approach.
Community Development Staffing
The Community Development Department’s permit processing center serves as a “One-Stop Shop” for permit issuance for all construction activity citywide, as well as permits for the Public Works Department and Fire Department. The permit processing center services over 80 customers a day, issues 8,000 permits per year, and is on track to generate just over $5 million in revenues this fiscal year. Staff has been collaborating with Information Services on the procurement of a new electronic permitting software solution to streamline permit intake and issuance at the public counter as well as options for online permits and electronic plan check submittals, all which will greatly enhance the overall customer service experience for our building community.
With building activity at an all-time high, counter activity is constant throughout the day, resulting in extended wait times for assistance from counter staff. In an effort to provide efficiencies for our customers, counter staff and intradepartmental activities related to the permitting process, the Community Development Department is proposing a full-time Building Supervisor position and the consolidation of three part-time Administrative Clerks to two-full time Administrative Clerk positions.
The proposed Building Supervisor position will manage and coordinate the daily operations of the Department’s One-Stop Shop counter. This includes supervising staff and activities pertaining to the receipt, processing and issuance of permits and applications, building and planning records management, evaluating and updating permit fees and revenues, monitoring customer service delivery and follow-up, and acting as a liaison to provide full-service technical and administrative support facilitating the integration and coordination of permitting activities among various City divisions and departments, thus, providing a seamless process for the construction community. This position will also be key in the implementation and integration of a new electronic permitting software solution. This results in efficiencies for external and internal customers and provides a strong customer service focus which translates into service delivery consistent with the priorities and expectations of the City Council. Because this would be a new position added to the budget, the Building Supervisor position would result in a fiscal impact of approximately $106,400.
FY 2018 budget includes three part-time Administrative Clerk positions totaling 4,108 hours of administrative support for the Administration and Building Divisions. Two full-time employees would work 4,160 hours annually. Due to the volume of work generated at the public counter, the hours allotted for the three positions are currently filled by two Administrative Clerks working 39-40 hours per week, with part-time employment status, with the City paying partial benefits. Consolidating three part-time Administrative Clerk positions to two full-time positions would allow the Department to maximize staff knowledge and experience and increase the value of their training, responsibilities and maintains stability with staffing resources, thereby enhancing the department's services and customer deliverables which translates to excellent City services. Based on the current salary and benefits budgeted for these three positions, this consolidation would result in approximately $32,600 in additional funding.
The staffing realignment would result in an additional impact of $139,000 to the General Fund. However, partial cost recovery can be achieved through the elimination of a budgeted part-time contract Plan Check Engineer. This position is currently vacant and eliminating it would result in savings of $98,800, thus, requiring a total of $40,200 in additional funding for the realignment. Additionally, the next iteration of the user fee study will incorporate the proposed staffing efficiencies for cost recovery.
Next Steps
With the information provided, staff recommends that the City Council discuss the FY 2017-2018 Biennial Operating Budget, and provide direction so that the spending plan may be finalized for adoption at the June 20, 2017 City Council meeting. As it stands now, the approved FY 17-18 budget will be amended as stated in Attachment #4 which was provided to the Council at the May 3rd Budget Study Session. Any further changes directed by the City Council will be added to the list of changes presented on June 20th for adoption.
PUBLIC OUTREACH/INTEREST:
Budget Study Sessions were advertised through the City’s eNews and social media communications.
ENVIRONMENTAL REVIEW
None required.
LEGAL REVIEW
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
Attachment/Attachments:
1. Budget Expenditure Reduction Options
2. Revenue Enhancement Options
3. City Council Work Plan Priorities - Fiscal Implications
4. FY 2017-2018 Proposed Changes to Approved Budget
5. Parks and Recreation Profit/Loss Estimates for FY 2017-2018
6. Athletic Field Fee Comparison
7. May 30th Budget Study Session Power Point Presentation