Sabtu, 13 Juni 2009

City Manager 09/10 Budget Transmittal to City Council

Each Year the City Council considers a budget that allocates resources toward the accomplishment of community goals. On June 15, 2009, the City Council will review and consider the proposed budget, make changes they deem necessary, and approve the budget for the next fiscal year which starts in July 2009. Following is an abridged version of my transmittal letter for the proposed budget which outlines a number of policy opportunities and challenges:

I am pleased to present for your review and consideration the Fiscal Year 2009/2010 Proposed Operating Budget for the City of Fontana, the Fontana Redevelopment Agency, the Fontana Housing Authority, the Fontana Community Foundation, and the Fontana Fire Protection District. This budget has been developed with the guidance provided by the Mayor and City Council to provide the highest level of service to the resident and business community of Fontana.

The proposed budget has been prepared during a recession that has negatively impacted virtually every sector of the business and government community. The worldwide economy continues to worsen with historically high unemployment, job losses across most major sectors, a crippled housing market, weakening taxable sales, and a catastrophic credit market at the heart of the problem.

The State continues the struggle to close their increasing budget deficit. The Department of Finance has prepared a May Budget Revision option for the Governor to consider that borrows eight percent of local governments’ property tax revenues estimated at just over $2 billion statewide, approximately $2 million from the City of Fontana.

The proposed budget reflects declines in most of the City’s major revenue sources. Additionally, the Utility User’s Tax with a value of approximately $4.7 million expires on June 30, 2009. While the City has not depended on this revenue source to support recurring expenditures for some time, the tax did provide funding for vital pavement management projects.

In anticipation of the continuing decline of the economy, a number of the cost-savings measures were adopted by the City Council during the current fiscal year and will carry forward into the new year. These measures include layoffs, the elimination of vacant positions and various other expenditure reductions. Additional reductions have been included in the proposed budget. The City is also offering an early retirement incentive program.

The proposed budget is based on a conservative estimate of recurring revenues and stresses cost containment. It addresses the ongoing requirements of maintaining the service levels to the existing community and provides sufficient resources to open and operate the new Senior Community Center scheduled to open early in 2010. Additionally, it addresses a number of priorities identified by the City Council at their goal setting meeting earlier this year including:

Central Park
Driven by the growth of the community and the push for a healthier Fontana, Central Park will be located just north of the Pacific Electric Trail between Cypress and Oleander. This centrally located park will serve the core of the community and enhance connectivity and the use of the Pacific Electric Trail. Funding for the conceptual design of this park in the amount of $300,000 has been included in the Sierra Corridor Capital Project Fund.

Reclaimed Water
The City generates approximately 1,000 acre feet of tertiary treated water each month. The construction of a conveyance system is needed to utilize this valuable resource for irrigation and water basin replenishment. The construction of a recycled water pipeline in the Southridge area will allow the City of Fontana to irrigate City owned landscape and school properties at a reduced rate while conserving potable water for other uses. Although no new funding is provided, $500,000 for design services will be carried over into the new year.

Police Facility Expansion
The objective of this project is to expand usable space within the Police Department for the next five to ten years, plus build an underground shooting range. The current 26,000 square foot underground parking garage and adjacent office areas will be remodeled to expand the locker rooms, weight room, report writing area, sergeant’s office, and property/evidence storage area; to create a new ingress/egress to access the jail from the street; and to add new storage areas, shooting range, armory, and office space. This will be the first major renovation and addition of space since the facility’s occupancy in 1988 and will allow the return of personnel to the main facility who are currently being housed off site. The proposed budget includes $3.15 million to complete funding of this project; $3 million as part of Capital Reinvestment from the proceeds of the sale of the Park and Ride property, and $150,000 from the Police Capital Facilities Fund.

Valley Boulevard Transition District
An overlay ordinance will be used to amortize illegal and nonconforming land uses and development standards, provide a common “theme,” and incentivize participation from business and property owners to transition Valley Boulevard into a corridor reflective of Fontana’s high standards. Key to this endeavor is relating this process to the planned I-10 freeway improvements and the Southwest Industrial Park Specific Plan update. Although no new funding is provided, $300,000 included in the current year budget to complete the Environmental Impact Report (EIR) process will be carried into the new year.

Sierra I-10 Landscape @ Boyle
The proposed budget includes $71,000 in the Landscape Improvement Fund to install new landscaping on the Sierra/I-10 overpass at Boyle Avenue.

210 Sports Park
The Fontana Sports Park will be a first class facility similar to a “Field of Dreams.” The facility will provide adult softball/baseball field space unlike anything else in the Inland Empire and is expected to draw tournament level play from as far away as Colorado. The project theme is to take players back to an era when baseball was at its peak and provide a family friendly venue for local residents and travel teams to enjoy. Funding of $1.5 million for drawings and specifications is included in the North Fontana Capital Project Fund.

Green Policies
Another project that ranked high on the City Council’s list was the development of “Green” policies for the City. All departments will be working together to develop and implement the City of Fontana’s “Green Plan” pursuant to State regulations. We are off to a good beginning by reducing the number of budget documents printed this year from 65 to 25.

Citywide Budget
The proposed budget provides resource planning, performance measures, and controls which permit the evaluation of the City’s performance. It assures the efficient, effective and economic uses of the City’s resources, and sets the direction for the City, adhering to the City Council’s Budget Development Guidelines and top priorities:

o Economic development
o Public safety
o Investment in infrastructure
o Community-based recreational and cultural services
o Public services and Public Works projects
o Long-term financial stability
o Investment in newly annexed areas
o Legislative advocacy

General Fund
General Fund revenues have been projected at $81.8 million and operating transfers in at $6.8 million. Expenditures are projected to be $75.1 million and operating transfers out are $19.5 million. Staff is recommending that the Contingency Reserve be increased by $0.9 million to equal 15% of the current recurring expenditures per City Council policy, and that the budget be balanced by using $6.9 million from various reserves.

The proposed budget contains a “structural” deficit between recurring revenues and recurring expenditures of $1 million which represents the difference between the City’s actual PERS obligation for the year versus the City’s obligation calculated under the “level” rate assumption. That deficit has been closed by the use of the PERS Rate Stabilization Reserve, a mechanism that was adopted for just that purpose. However, due to the concern that even larger rate increases will be seen beginning with Fiscal Year 2011/2012, it is recommended that any savings realized as the result of the early retirement incentive program be placed into the PERS Rate Stability Reserve to offset future increases.

Revenues
The current General Fund revenue budget includes one-time revenues of $4.271 million, as well as the Utility User’s Tax of $4.7 million which expires as of June 30, 2009. When the current revenue budget is adjusted for these two revenues, the proposed budget reflects a decrease in revenues of $2.0 million reflecting a reduction in most major revenue sources including property tax, interest, business tax and development related revenues. Reductions are partially offset by increases to recreation revenues and cost allocation from component units.

Expenditures
The General Fund expenditure budget has decreased from the current fiscal year budget by $2.3 million primarily due to the full year effect of cost saving measures including layoffs and elimination of vacancies.

Reserves
The General Fund Contingency Reserve has been increased by $0.9 to the policy level based on the proposed budget, with an offsetting decrease to the Reserve for Future Projects and Commitments. The Economic Uncertainty Reserve has been reduced by $1.5 million to fund a portion of the capital reinvestment goal, which will leave it at $6.0 million or 7.5% of recurring revenues. The difference between the actual PERS rate and the City’s “level” rate was approximately $1 million and was funded from the PERS Rate Stability Reserve leaving a balance of $4.8 million.

Other General Funds
Other general funds include City Technology, Facilities Maintenance and Retiree Medical Benefits. They are funded primarily through operating transfers from the General Fund and are maintained separately for accounting purposes only. They are reported as part of the General Fund in the Comprehensive Annual Financial Report (CAFR). Revenues are projected to remain relatively flat. The reduction in expenditures compared to the current budget is primarily due to cost saving measures and project carryovers.

Special Revenue Funds
Special revenue funds account for specific revenues that are legally restricted to expenditures for particular purposes including Gas Tax, Measure I, Asset Seizure funds, Grants, Landscape and Lighting Maintenance Districts, and Maintenance Community Facilities Districts. Current year budgeted revenues and expenditures exceed the proposed amounts by $14.0 million and $23.3 million, respectively. Current year revenues include one-time allocations to Community Development Block Grant (CDGB) and other grant programs. The reduction in expenditures compared to the current year is primarily due to project carryovers.

Debt Service Funds
The Debt Service Funds are used to accumulate resources for the payment of principal and interest on the 2003 Lease Revenue Bonds (Police Facility) and the 2007 Lease Revenue Bonds (Ventana Land Purchase). The reduction in revenue reflects lower investment interest earnings.

Capital Project Funds
The capital project funds are used to account for the acquisition and construction of major capital facilities. They are funded by various sources including development impact fees and community facilities district special assessment bond proceeds. The Capital Reinvestment Fund is funded by transfers from the General Fund. Activity in these funds varies significantly from year to year as resources are accumulated and then used to fund large capital projects. Revenues are projected to decrease by $7.2 million reflecting a reduction in development activity and fees, and the amount of interest earned on cash balances. Projected expenditures are less than the current year as a result of project carryovers. A few major capital projects being funded in the proposed budget include the police facility expansion, the Duncan Canyon storm drain, and several street projects.

Internal Service Fund
The City’s only internal service fund provides fleet services. The fund accumulates costs related to fleet services which are allocated to the benefiting funds and departments through an internal service charge. The fund balance reflects amounts available for future fleet replacement. Projected revenues remain flat; expenses are reduced through cost saving measures.

Enterprise Funds
The enterprise funds account for the City’s business-type activities, operating and capital funds for sewer and water. In recent years, the water fund has been used to account for expenses related to the water rate case study. The sewer funds account for the operations, maintenance, and construction of the City’s sewer system, as well as the billing and collection of sewer charges. Revenues are projected to remain flat. The reduction in expenses reflects project carryovers.

Housing Authority
The Fontana Housing Authority uses funding from the Fontana Redevelopment Agency’s Low and Moderate Income Housing Fund as well as the Federal Department of Housing and Urban Development program grants to actively improve and develop quality neighborhoods and housing opportunities throughout the City. Revenues reflect a reduction in investment earnings and funding from Redevelopment, resulting in a decrease in expenditures.

Redevelopment Agency
The Fontana Redevelopment Agency uses tax increment derived from the City’s five redevelopment project areas to fund infrastructure projects, to increase and improve the City’s supply of low and moderate income housing, and to pay debt service on outstanding tax allocation bonds. Revenues were projected using a conservative estimate of additional tax increment in three of the five project areas, and no additional tax increment in the remaining two project areas. As a result, projected revenues are slightly lower than in the current year. The reduction in expenditures reflects carryover projects. The proposed budget includes funding for Ceres Court Phase II (28 townhome style apartments), drawings and specifications for the proposed Sports Park, and the conceptual design for Central Park.

Community Foundation
The Fontana Community Foundation was established for the purpose of aiding and assisting in the implementation, improvement and maintenance of public services that preserve and promote the health, welfare and education of local citizens. Current activity in this fund reflects library fundraising efforts.

Fire Protection District
The Fontana Fire Protection District was created effective July 1, 2008, to provide fire suppression, emergency medical, fire prevention and education services within the City limits and unincorporated area within the City’s Sphere of Influence. Revenues to the district include property taxes, fees and special assessments from a Community Facilities District and reflect a projected reduction in assessed valuations. Expenditures reflect a contractual agreement with the County of San Bernardino and City overhead costs.

Capital Improvement Program
The seven-year Capital Improvement Program (CIP) is a companion volume to this document which is a planning tool used to identify the capital improvement needs in a manner that assures the most responsible and efficient use of resources. The proposed capital budget for Fiscal Year 2009/2010 is $29.5 million which represents funding for new projects as well as additional funding for existing projects for all categories of capital improvement across all funds. A total of $4.9 million has been allocated to pavement rehabilitation. Some of the other projects include:

o Duncan Canyon storm drain
o Fiber installation on Summit
o I-10 at Citrus Avenue Interchange
o Various street improvements and traffic signal installations
o Ceres Court Apartments Phase III
o Furniture and fixtures for new Senior Center

Challenges Ahead
The City of Fontana has enjoyed many years of increasing resources and opportunities. However, potential challenges in the coming years include the state of the economy, the possibility of county-wide property value reassessments, the loss of the Utility Users’ Tax, sales tax concentration in the Auto and Transportation Sales sector, increasing employee retirement costs, investment losses, cancellation of Animal Control contract with the City of San Bernardino, and the potential for State take aways.

Economy
With the current economic downturn, particularly in the housing market, the City now finds itself facing shrinking revenue sources and increasing costs. In prior years, the City Council has adopted prudent fiscal policies such as funding reserves and limiting recurring expenditures to recurring revenues. Because of this, the City should be in a position to weather the economic storm.

Property Value Reassessments
Proposition 8 (1979) allows a temporary reduction in assessed value when a property suffers a decline in value (when the current market value of property on January 1 is less than the Proposition 13 based taxable value). For the 2009/10 annual roll, the San Bernardino County Assessor’s Office is reviewing approximately 235,000 single-family residences and condominiums County wide. Any home or condominium acquired after January 1, 2001, and all property that was reduced under this provision last year will automatically be reviewed and the assessed valuation reduced where necessary. There has been no information provided by the County to project the potential loss in revenue to the City and the Redevelopment Agency. However, the Property Tax in Lieu tax revenue has been projected assuming a 2.5% loss in City-wide assessed valuation for Fiscal Year 2009/2010.

Loss of Utility User’s Tax
The remaining non-residential portion of the City’s Utility User’s Tax will expire on June 30, 2009. Although the City has not depended on this revenue, valued at approximately $4.7 million per year, for recurring operational costs for some time, it has been a source of funding for vital street improvement projects.

Sales Tax Concentration
Approximately 21% of the City’s sales tax revenue for 2008 was generated from Autos and Transportation Sales, compared to 15% statewide. This over concentration in auto sales has been decreasing over the past several years, down from 35% (21% statewide) in 2003, and will continue to decrease as new retail establishments continue to develop in the City.

CalPERS Investment Losses
Investment losses sustained by CalPERS since June 30, 2008 are estimated at 25% and will cause an increase in employer rates beginning in Fiscal Year 2011/2012. CalPERS is considering a number of approaches to mitigate some of the impact of this unique and catastrophic event. Several years ago, the City Council approved a PERS Stability Reserve to help smooth out rate spikes and $1 million of that reserve has been used to balance the FY 2009/2010 Operating Budget.

Lehman Brothers Bankruptcy
On September 15, 2008, Lehman Brothers, the fourth largest investment bank on Wall Street, filed for Chapter 7 (liquidation) bankruptcy protection. The City currently owns Lehman Brothers Corporate Notes in its investment portfolio purchased at a total cost of $10,118,800. As a result of the bankruptcy filing, this security is currently trading at 13-14 cents on the dollar and has a market value of approximately $1.4 million. The current estimates for recoveries through the bankruptcy proceedings are from 20-60 cents on the dollar. Based on the estimated level of recoveries, the loss to the City would be somewhere between $4 and $8 million. The total impact to the City may not be known for years. A group of cities and counties are attempting to acquire Federal bailout money to cover the losses. The City of Fontana has set aside $850,000 to cover a portion of the loss allocable to the General Fund. The proposed budget does not include investment interest revenue projections in most funds in anticipation of the loss that will have to be recorded if efforts to recover the funds are unsuccessful.

Animal Control
In 2007, the City entered into a three-year agreement with the City of San Bernardino to provide animal control services for approximately $650,000 per year. In April of 2009, the City of Fontana was informed that the City of San Bernardino would no longer be providing these services. A search for an alternate provider has resulted in only one willing vendor at a cost of $2 million per year. Alternatives to provide these critical services to the Fontana community continue to be examined.

State Budget Deficit
The Department of Finance (DOF) May Revision projects spending this year and next will exceed available funds by $15 billion in the absence of any corrective action, assuming passage of Propositions 1A through 1E on the May 19 ballot. That number rises to $21 billion if the propositions fail.

If Propositions 1A through 1E fail, the contingency proposal includes borrowing from Local Government. The contingency plan proposes to borrow eight percent of the property tax revenues received by cities, counties, and special districts in 2008/09 as authorized in Article XIII of Section 25.5 of the Constitution. Repayment must be made within the next three years. Legislation also is proposed to create a joint powers authority to allow local agencies to borrow against the state repayment as a group. Eight percent of the property tax revenues received by the City of Fontana in 2008/09 is estimated to be approximately $2 million. If the contingency plan is enacted, staff would recommend that this one-time “loan” be taken from the Economic Uncertainty Reserve which was established for this purpose.

Experience Fontana
Some of the projects completed during the prior year include:

Over 30,000 people attended the grand opening of Fontana Park on October 25, 2008. This $60 million project encompasses the 43,000 square foot Jessie Turner Health & Fitness Center, the City’s first aquatics center, the City’s first dog park, a supervised 25,000 square foot skate and BMX park, and a creative park that encourages children to use their imaginations as they play.

The City Hall remodel was completed allowing several moves to take place. The Administrative Services Organization staff relocated to City Hall and the Finance staff shifted into the core of the building providing them with much needed space. The former Economic Development building became the new home of Human Resources and the Police Department reclaimed the portion of their building vacated by Human Resources.

July 25, 2008, marked the first performance for the Center Stage Theater located just south of the Lewis Library and Technology Center. The theater was originally designed by famed architect CH Boller in 1937, and has been used as a movie theater, Elks Lodge, tea shop and stationary store. In 2004, the City purchased the building and began a $6 million expansion and renovation. The City has contracted with a professional production company, Stargazer Productions, to provide performances from Tibbies, a cabaret troupe based in Long Beach. The first performance was Best of Broadway, and similar performances including cabarets and specialty shows will grace the stage throughout the year. Performances include a full course meal. The theater is also a unique venue for corporate events, weddings, receptions and parties.

Fernandez Park, located at the northwest corner of Miller and Locust Avenues, is complete with a grand opening scheduled for June 26, 2009. The park includes playground structures, a picnic shelter structure, a meandering sidewalk, open space for recreational play, a 27 stall parking lot, and a small pre-cast concrete restroom facility for men and women. The land was donated by the family of Benjamin Fernandez and construction was partially funded by a grant from Fifth District Supervisor Josie Gonzales.

The City Council Chambers have been remodeled to include larger viewing monitors, new cameras for improved viewing angles, and speakers for enhanced audio quality, and new wiring and cabling. City meetings are scheduled to resume in the City Council Chambers at the end of June 2009.

Segment 2 of the Pacific Electric Trail was completed from Juniper Avenue west to Tokay Avenue. When all segments are completed, the trail will join with similar ongoing Pacific Electric Trail projects in the communities of Montclair, Claremont, Upland, Rancho Cucamonga, and Rialto.

The San Bernardino Trunk Sewer Project was completed in April 2009. This project included the construction of approximately 19,600 linear feet of sanitary sewer main from Cypress Avenue to Mulberry Avenue and will eventually tie into a regional pump station and force main that will be operated by the Inland Empire Utilities Agency. This system will divert existing sewer flows from Regional Plan No. 1 to Regional Plant No. 4, which will provide an increase in opportunities for recycled water. In addition, it will increase opportunities for future annexations from the County area.

Conclusion
The Operating Budget, as proposed, seeks to maintain a stable, financial environment for the City of Fontana. The conservative decisions made in this budget process continue to emphasize the City Council's Goals and Objectives.

City Council’s Mission Statement
Fontana is a dynamic, thriving community that supports education, growth, safety and a positive community fabric. Our community is creating the opportunities that encourage social and economic investment. Adopted February 7, 2006.

I would like to take this opportunity to thank the Mayor and City Council for your direction and input toward the preparation of the proposed Operating Budget for Fiscal Year 2009/2010. I would also like to thank the staff members and community partners who have taken the time to participate in this very important process. With this support, the City has been able to continue to make significant strides toward securing our financial stability for the future.

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