Selasa, 22 Juni 2010

City Manager 10/11 Budget Transmittal to the City Council

Each year the City Council considers a budget that allocates resources toward the accomplishments of community goals. On June 14, 2010, the City Council approved the budget for 2010/2011, which starts in July 2010. Following is 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 2010/2011 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 residents and business community of Fontana.

The State continues the struggle to close their increasing budget deficit. The Governor’s Proposed Budget released in January of this year identified a FY 2010-11 budget gap of $19.9 billion, more than one-fifth of the State’s General Fund. The Governor’s May Revise shows a budget deficit of $19.1 billion, comprised of a current year shortfall of $7.7 billion, a budget year shortfall of $10.2 billion, and a modest reserve of $1.2 billion. The January budget proposed $18.5 billion of budget solutions, nearly half of which will not materialize due to delays in adoption, less than expected federal funding, and determination that some are not feasible. To close the current gap of $19.1 billion, the Governor is proposing $12.4 billion in spending cuts, $3.4 billion in Federal funding, and $3.3 billion in other measures. No new taxes are proposed and scheduled business tax cuts are not repealed. No additional shifts or borrowing from local governments are proposed. The Governor stated he will not sign a budget unless it includes budget, tax and pension reform. Be prepared for a prolonged budget stalemate which will leave the State in financial limbo all summer.

General Fund Budget

The proposed budget was developed using conservative yet realistic revenue projections. It reflects declines in the estimates of many of the City’s major General Fund revenue sources from the amounts adopted for FY 2009-10, but is very similar to the adjusted FY 2009-10 estimated revenue amounts when one-time adjustments are eliminated. The only major recurring revenue source reduced from the adjusted FY 2009-10 estimates is Property Tax In Lieu of VLF which has been reduced by $350,000 to reflect an estimated decrease of 2.5% in city-wide assessed valuations.

The Fiscal Year 2010-11 Operating Budget projects an overall General Fund revenue reduction of 3.5% from the FY 2009-10 adopted budget, and 1.24% from the current year adjusted budget. The recommended General Fund expenditure budget reflects a reduction of 2.87% from the FY 2009-10 adopted budget, and 0.94% reduction from the current year adjusted budget.

In anticipation of a slow economic recovery, a number of cost-saving measures adopted by the City Council during the current fiscal year will be carried forward into the new year. These measures include the elimination of vacant positions, early retirements and across-the-board departmental expenditure reductions. Additional reduction measures included in the FY 2010-11 Operating Budget include:

■ Elimination of cost of living adjustments (COLAs) as employee bargaining groups voted to forego or defer such increases, or extend their current contracts without increases;
■ Reduction of annual leave cash out estimates to reflect historical use; and
■ Reduction of workers compensation funding to the self insurance fund to more closely match historical expenditures.

In order to maintain $5 million of funding of annual pavement rehabilitation costs which are so critical to the community, the budget includes funding of $1.3 million from the General Fund and proposes the continued shift of another $4.0 million to other funds including Solid Waste Mitigation, Gas Tax (Proposition 42 replacement funds), and Community Development Block Grant (CDBG).

Due to the prudent fiscal policy direction of the Mayor and City Council, the City of Fontana is positioned to endure the current economic conditions better than most. The FY 2010-11 Operating Budget maintains critical public safety services, quality of life services including recreational programs and graffiti removal, and the 15% contingency reserve.

City-Wide Budget

Revenues for all entities city-wide have been estimated at $270.9 million, with expenditures projected at $264.8 million.
Other General Funds include City Technology, Facilities Maintenance, Self Insurance and Retiree Medical Benefits and are funded primarily through operating transfers from the General Fund. They are maintained separately for accounting purposes only and are reported as part of the General Fund in the Comprehensive Annual Financial Report (CAFR). The reduction in revenues reflects the $1 million reduction in Workers Compensation funding to the Self Insurance Fund (General Fund reduction measure) to more closely match historical expenditures. Higher expenditures in the current year adjusted budget are due to one-time claim payments from the Self Insurance Fund.

Special Revenue Funds account for specific revenues legally restricted to expenditures for particular purposes such as 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 $11.6 million and $11.2 million, respectively. Current year revenues include one-time allocations to Community Development Block Grant (CDGB) and other programs. The reduction in expenditures results from one-time projects from accumulated funds in the current year.
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). Both revenues and expenditures are approximately the same as the current year adjusted budget.

Capital Project Funds are used to account for the acquisition and construction of major capital facilities and 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 $11.2 million reflecting a reduction in development activity and one-time funding. Projected expenditures are less than the current year which includes one-time projects from funds accumulated over time.

The City’s only Internal Service Fund is used to accumulate 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 replacements. Revenues remain relatively flat, while expenditures have decreased primarily reflecting a reduction in replacement vehicle purchases as a cost saving measure.

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 billing and collection of sewer charges, and for the operations, maintenance and construction of the City’s sewer system. An increase in the IEUA pass-through rate increases both revenues and expenditures, with the increase to revenues offset by a decrease in one-time revenues.

The Fontana Redevelopment Agency utilizes tax increment received through 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. Tax increment revenues were projected at the same level as the current year.

The Agency was required to shift $33.5 million for FY 2009-10 to the Supplemental Educational Revenue Augmentation Fund (SERAF) after the California Redevelopment Association (CRA) received an adverse ruling on their lawsuit opposing the raid by the State. The Agency will be required to shift an additional $6.9 million for FY 2010-11. State-wide, the two-year shift is a devastating $2.05 billion. A November 2010 ballot measure, the Local Taxpayer, Public Safety and Transportation Protection Act of 2010, includes additional constitutional protections to prevent the state from making future redevelopment raids.

Because of the additional $6.9 million SERAF shift due in FY 2010-11, the uncertainty of a reduction in FY 2010-11 assessed valuations, and the $23 million owed to the Low/Mod Income Housing Fund for the current and previous raids, the Agency is effectively shut down for the next five years deferring projects such as the Duncan Canyon Interchange, the Downtown Façade Program Phase III, and possibly Fire Station 71. Assessed valuation growth and voter approval of the ballot measure in November 2010 would have a positive effect on this forecast.

The Fiscal Year 2010-11 budget includes funding for environmental work, design and property acquisition for Central Park and Sierra Avenue design (Sierra Corridor Project Area) and two Low and Moderate Income Housing projects, Juniper Family Housing Phase II and Toscana Apartments project.

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 have been reduced from the current year adjusted amount to reflect continuing reductions in assessed valuations city-wide. Expenditures reflect a contractual agreement with the County of San Bernardino and City overhead costs.

The Housing Authority utilizes funding from the Fontana Redevelopment Agency’s Low and Moderate Income Housing Fund as well as Federal Department of Housing and Urban Development (HUD) grants to improve and develop quality neighborhoods and housing opportunities throughout the City. Revenue reductions reflect uncertainty regarding RDA funding due to State takeaways which results in expenditure reductions.

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.
Capital Improvement Program

The seven-year Capital Improvement Program (CIP) is a companion volume to this document. A planning tool, the CIP identifies the capital improvement needs in a manner that assures the most responsible and efficient use of resources. The proposed capital budget for Fiscal Year 2010-11 is $23.2 million which represents funding for new and ongoing projects. Again, any funding identified from Redevelopment sources will be revisited when the new assessed valuations are received from the County in early August. Some of the projects include:

■ Pavement rehabilitation – funds $5.3 million from various funds for street overlay and rehabilitation, and construction of new and replacement sidewalks, curbs and gutters

■ Pacific Electric Trail Segments 3B and 4 – funds $400,000 from AQMD and Landscape Improvement funds to be combined with the $2.345 million Federal Transportation Enhancement Grant for the last two segments of the Pacific Electric Trail from Almeria to Cherry

■ Central Park – funds $850,000 from Sierra Corridor Capital Project Fund for Environmental Impact Report (EIR), design and additional property acquisition

■ Foothill median from Sierra to Mango – funds $96,000 from Landscape Improvements funds to be combined with $858,000 Federal Highway Safety Improvement Program grant funding to install a raised median, including pavement rehabilitation and traffic signal modification

■ Miller Park Amphitheatre – funds $325,000 from CDBG for design

■ Sierra Avenue from Foothill to Baseline (design only) – funds $200,000 from Sierra Corridor Capital Project Fund for preparation of “shelf ready” plans for ultimate width allowing for three lanes of travel in each direction including storm drain system

■ Traffic signals – funds $1.5 million from Measure I for three new traffic signals at Merrill & Palmetto, San Bernardino & Juniper, and San Bernardino & Palmetto

■ Juniper Family Housing Phase II – funds $6.3 million from Low and Moderate Income Housing Fund for gap loan pursuant to Developer Disposition Agreement (DDA)

■ Toscano Apartments project – funds $4.9 million from Low and Moderate Income Housing Fund for gap loan for this 71-unit affordable family-oriented multi-family apartment community and learning center

City Council Priorities from Goal Setting Meeting

As a result of the January 8, 2010 goal setting meeting, the City Council identified a number of budget priorities. The following identifies each priority and its status:

Downtown Façade Phase III
With Phase III of the Downtown Façade Renovation Program, the City Council will complete a multi-phase, multi-year commitment to improving the aesthetic of the downtown business district. Construction is currently on hold as there is not sufficient funding in the Downtown Redevelopment Project Area.

Recycled / Reclaimed / Storm Water
Staff is developing an action plan that will explore opportunities to stabilize water rates and maximize the potential use of recycled water for direct re-use and recharge applications. Staff will work with all three water companies that serve the city to identify all water sources available and compare this to the City’s need for water at ultimate build out.

Expanding Redevelopment Areas along Valley Blvd
This project would determine the viability of either expanding an existing redevelopment area along the Valley Boulevard Corridor or creating a new one. Either strategy would ensure that more money is invested into the Corridor’s infrastructure to promote economic growth and long-term competitive viability in the region.

Animal Control Joint Powers Authority (JPA)
Fontana currently has a contract with the City of San Bernardino to provide sheltering services until July 2011. The police department is actively working with the City of San Bernardino and other neighboring cities to establish a Joint Powers Authority (JPA) to provide an animal shelter. In March of 2010 the City of San Bernardino retained a management firm for this purpose and members of the Fontana Police Department have already met with them. In addition to Fontana, the management firm will speak to several neighboring municipalities about the possibility of being a part of the JPA. Staff is confident that the City of Fontana will be a partner in a JPA for animal sheltering before July 2011.

Duncan Canyon Interchange
This I-15 interchange is necessary to accommodate the projected growth of residential, commercial and industrial traffic in north Fontana including the Arboretum Specific Plan and Corporate Corridor. The construction will create approximately 1,000 jobs, and the access off the freeway created by the interchange will stimulate development and therefore the economy. The project has an approved environmental document and is currently in the final design and right-of-way phase. It is anticipated that the project will be ready for construction by the end of calendar year 2010. Construction funding will probably not be available for at least five years due to the SERAF payments required by the State and the possible reduction in assessed valuations for FY 2010-11.

Pacific Electric Trail completion
The FY 2010-11 budget includes $400,000 from AQMD and Landscape Improvement funds as a portion of the match for $2.35 million Federal Transportation Enhancement Funds grant awarded by SANBAG in April 2010 to complete the last two segments of the Pacific Electric Trail. It is anticipated that another $1 million may be required to complete the project.

Compass Grant for Sierra/Valley
This proposal would seek grant funding from SCAG to study this important intersection for eventual re-use, rehabilitation and public and private reinvestment, to promote new economic development and a more attractive gateway to the community.

Chaffey College Phase IV
Chaffey College is planning to expand their current extension center into a full-service community college campus with most if not all of the classes offered at both the main Rancho Cucamonga Campus and the satellite Chino Campus. Economic Development is working with Chaffey to identify the required land and a potential funding source; will assist in identifying any potential off-site facilities such as Culinary Academy and Nursing Programs with Kaiser; and will assist in completing the required application for funding of the construction through the State of California.

Central Park
The Central Park project area is adjacent to the Pacific Electric Trail and Cypress Community Center in the core of the Community. The FY 2010-11 budget includes funding for the Environmental Impact Report (EIR), design and additional property acquisition.

Prototype Middle Schools
Staff plans to work with Fontana Unified School District to create a model middle school campus that offers after-school enrichment opportunities for not only students but also to benefit the community as a whole. Almeria Middle School has been selected for this project because a Boys and Girls Club already exists at the site.

Valley Boulevard Specific Plan
This project would create a Specific Plan for the Valley Boulevard Corridor to help the area update uses, modernize development standards, and transition newly annexed areas to City standards successfully to lay the groundwork for future development to build on the Corridor’s viability as a regional economic engine.

Even with the struggling economy and resulting budget constraints, the City of Fontana saw a number of significant events during this past year.

Significant Events of FY 2009-10

■ Hilton Gardens Inn grand opening
■ Fernandez Park grand opening
■ Shops at Sierra Lakes opened
■ Jurupa Avenue widening
■ New city website unveiled
■ KFON moved into a new studio
■ Fontana Community Senior Center grand opening
■ Automated agenda management system implemented
■ City-wide outreach efforts in support of the 2010 Census
■ Grand opening of Plaza at Sierra, Senior Housing Phase IV
■ Assumed enforcement and licensing aspect of animal control
■ License Plate Scanner system implemented on one police vehicle
■ Completed construction of Pacific Electric Trail Segment 3A from Tokay Avenue to Almeria Avenue
■ Established an emergency operations backup site for the City’s financial system in case of disaster
■ Rolled out the City Manager Blog posting 25 articles to improve communication with the community
■ Completed Downtown Façade Phase II, east side of Sierra Avenue from Valencia Avenue to Arrow Boulevard
■ Reverse 911 Broadcast calling system to notify citizens of an emergency situation in their neighborhoods implemented
■ Partnered with the Auto Club Speedway to host the July 4th Celebration with more than 15,000 people in attendance including 9,000 Fontana residents
■ Fontana Aquatics Center, in partnership with the Fontana Aquatics Club (Sea Horses), hosted its first ever US Regional Swim Meet with more than 500 swimmers and 2,500 spectators

While new funding for the coming year is limited due to budget constraints and the uncertainty of potential State actions, a number of projects that were funded in prior years will be completed in Fiscal Year 2010-11.

What to Look for in FY 2010-11

■ Cypress I-10 Overcrossing
■ Police Department building expansion (1)
■ City Hall parking lot reconstruction (1)
■ Fire Station 71 construction / renovation (1)
■ Pacific Electric Trail Segments 3b and 4
■ Pacific Electric Trail Segments 5b and 6
■ San Bernardino Avenue Phase I reconstruction
■ Auto Mall loop road
■ Ceres Way Apartments project groundbreaking
■ Paseo Verde Apartments groundbreaking
■ New traffic signals at:
o Merrill & Palmetto
o San Bernardino & Juniper
o San Bernardino & Palmetto

(1)These projects could be delayed depending on outcome of California Redevelopment Association (CRA) pending appeal against State SERAF shift.

Challenges Ahead

While the City of Fontana is positioned to ride out the current economic storm and take advantage of the slow recovery, a number of challenges remain on the horizon.

State Budget Deficit
First and foremost, fiscal problems at the State level continue to hang over the City like a dark cloud. Many funding opportunities must be evaluated as “what if?” scenarios because of the ever-present possibility that the State will once again attempt to solve their problems through the borrowing or taking of local funds. The question seems to be not if, but when and how much. As stated previously, the FY 2010-11 Operating Budget makes no provision for potential State takeaways.

Property Value Reassessments
Proposition 8 allows a temporary reduction in assessed valuation when a property suffers a decline in value. Additionally, for the first time since the enactment of Proposition 13, the annual Consumer Price Index (CPI) adjustment which provides the basis for changes in assessed valuations state-wide is negative. True economic recovery for the City of Fontana rests on strong and continuing growth of base values.

Investment Losses
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 their bankruptcy filing, this security is currently trading at 23 cents on the dollar and has a market value of approximately $2.3 million. Current estimates for recovery through bankruptcy proceedings are from 20-40 cents on the dollar. Based on the estimated level of recovery, the loss to the City would be somewhere between $6 and $8 million. 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 FY 2010-11 Operating 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.

Unfunded Liability
Governmental Accounting Standards Board (GASB) Statement No. 45 requires public-sector employers to recognize the cost of post-employment benefits over the active service life of their employees rather than on a pay-as-you-go basis. GASB 45 does not require the City to fund this benefit, only to report the liability and the funding progress. The annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB 45, represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. The ARC for the City of Fontana is currently calculated to be $4.1 million per year. The FY 2010-11 Operating Budget includes funding of $3.25 million. The City has been steadily increasing the annual funding over the past several years and plans to achieve the $4.1 million annual funding by FY 2012-13.

California Public Employees Retirement System (CalPERS)
The City makes bi-weekly payments on behalf of its employees to be invested by CalPERS. When CalPERS investments do not achieve their targets, the payments made by cities are increased to achieve the target levels. Conversely, when investment earnings exceed target levels, the payments are reduced. Rates have remained stable for Fiscal Year 2010-11, and are projected to remain stable for FY 2011-12. However, recent investment losses sustained by CalPERS could cause an increase in employer rates although they are considering a number of approaches to mitigate some of the impact. Several years ago, the City Council approved a PERS Rate Stability Reserve to help smooth out rate spikes and $800,000 of that reserve has been used to balance the FY 2010-11 Operating Budget.

Animal Control
In 2007, the City entered into a three-year agreement with the City of San Bernardino for animal control services for $650,000 per year. In April of 2009, the City of San Bernardino notified the City of Fontana that, effective July 1, 2009, they would no longer be providing these services. A portion of the savings achieved through the early retirement incentive program was reprogrammed to fund Animal Control services to be provided by the City. The sheltering contract with the City of San Bernardino expires on June 30, 2011. The police department is actively working on a JPA with the City of San Bernardino and other neighboring cities to provide an animal shelter.

Capital Reinvestment Program
Since 1996/1997, the City Council has been investing a portion of the annual General Fund budget back into the community in the form of capital projects (streets, parks and facilities). While the actual annual investment has varied, the goal has been to reinvest 10% of the total General Fund budget back into the community. Due to budget constraints, the FY 2010-11 Operating Budget contains funding from the Economic Uncertainty Reserve of only $1.3 million or 1.8% of recurring expenditures, short of the City Council’s goal. To supplement that amount, $4.0 million from other funds have been allocated to this critical area.

Proposition 218
On November 5, 1996, the California electorate approved Proposition 218 affecting a change to the California State Constitution by making numerous changes to local government finance law. This measure impacts the generation and use of many fundamental revenue sources including fees, charges, assessments, and taxes. This proposition also changes the methods by which certain assessments and taxes are challenged by the electorate. The FY 2010-11 Operating Budget fully complies with the provisions of Proposition 218.

Services and Growth
The City of Fontana has experienced significant growth over the past several years. With this growth comes the need to service a growing community. The funding sources for these additional services are revenue growth and the Municipal Services Fiscal Impact Fee Program (MSFIF).

The Fiscal Year 2010-11 Operating Budget as proposed is fiscally balanced and continues to support services, maintenance, facilities and infrastructure. The budget is comprised of three separate volumes: Operating Budget Summary which provides a high-level overview of activities and programs; Operating Budget Detail which provides detail information at the object code level; and Seven-Year Capital Improvement Program (CIP) which presents the City’s comprehensive capital spending plan.

I am pleased to report that the City of Fontana has received distinguished budget awards from the Government Finance Officers Association (GFOA) and the California Society of Municipal Finance Officers (CSMFO) for its Fiscal Year 2009-10 Operating Budget for the seventeenth consecutive year. These awards are presented to cities whose budget documents meet program criteria as a policy document, operations guide, financial plan and communications device.

I would like to take this opportunity to thank the Mayor and City Council for their outstanding leadership and clear direction in building this budget document, as well as the staff members and community partners who have taken the time to participate in this very important process.

I would also like to thank the employee bargaining groups who all voted to either forgo or defer scheduled wage increases, or to extend expiring contracts without increases, in light of the economic challenges being faced by the City. This speaks to the caliber of employees that we are fortunate enough to have at the City of Fontana.

Respectfully submitted,

Kenneth R. Hunt
City Manager

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