CITY OF RANCHO PALOS VERDES
MEETING OF THE
FINANCE ADVISORY COMMITTEE
FEBRUARY 13, 2002
- Roll Call.
- Approval of Agenda.
- Approval of Minutes for the meeting conducted January 17,
- Status report of economic trends that may have an impact on the City
(if any) (Downs).
- Assignment by the City Council, Consideration of Long Term
Financing of Infrastructure and Securing Other Revenue Sources (McLean).
- Public Comments.
HONORABLE CHAIR AND MEMBERS OF THE FINANCE ADVISORY
McLEAN, FINANCE DIRECTOR
FEBRUARY 13, 2002
OF LONG TERM FINANCING OF INFRASTRUCTURE AND SECURING OTHER REVENUE
During the City Council
meeting on January 31, 2002, the City Manager presented a plan for the FY
2002-03 budget process.
City Council Staff Report,
January 31, 2002, Proposed Fiscal Year 2002-03 Budget
To provide the members of the
Finance Advisory Committee (the "FAC") with additional background
regarding the assignment made by the City Council on January 31, 2002, I
have copied the staff report written by the City Manager
HONORABLE MAYOR & COUNCILMEMBERS
DATE: JANUARY 31,
SUBJECT: PROPOSED FISCAL
YEAR 2002-03 BUDGET PROCESS
Approve a budget process for review
and adoption of the second year (FY 2002-03) of the current Two-Year
For the first time, in early 1999
the City Council approved the preparation of a two-year budget. The
budget period was July 1, 1999 through June 30, 2001. In June 1999 the
Council adopted the first year of the two-year budget after extensive
workshops and hearings. In June 2000 the Council adopted the second year
of the budget after only one workshop session. In adopting the
multi-year budget, the City of Rancho Palos Verdes was consistent with
other local governments with relatively small budgets that are heavily
weighted toward recurring expenses. The primary advantage of adopting a
two-year budget is forcing the staff and Council to think ahead further
and make long-range plans for revenues and expenditures. A second
advantage is saving of City Council and staff time that is required to
prepare the budget and present it at numerous workshops and hearings,
most of which are very lightly attended. A typical budget process starts
in January and is not complete until June. For a City with only 42
employees, the level of effort required to do an annual budget
completely dominates the four to five month period of preparation and
The success of the first multi-year
budget led to the preparation of the current two-year budget in June
2001. The budget process involved three "budget outreach" workshops held
at different locations throughout the City in February and March. These
workshops provided residents an overview of where City revenues came
from and how they were spent. Residents were encouraged to suggest new
programs. In late March, the City Council spent all day on a Saturday in
a goal-setting session with a facilitator. In April the Council hosted
another all day Saturday budget policy session. The City Council heard a
presentation of the preliminary budget document at an adjourned meeting
in May and adopted the first year of the two-year budget after a public
hearing at a regularly scheduled Council meeting in
The second year of the current
two-year budget will guide City expenditures for the period of July 1,
2002 until June 30, 2002. It would be appropriate for the City Council
to decide what process should be utilized to finalize the Fiscal Year
City staff would like to utilize the
existing two-year budget document with its existing narratives, charts
and graphs and department operating budgets. We do not anticipate
preparing a new budget document or initiating the full budget
preparation and hearing process unless the City Council feels that a
fresh start is required.
Staff believes that the following
budget documents need to be reviewed by the City Council prior to
adoption of the Fiscal Year 2002-03
- An updated Capital
Improvement Plan that reflects three different
- The State does not
reduce VLF backfill or take other City revenues.
- The State takes
$800,000 (or ½) of City VLF revenue.
- The State takes
$1,600,000 (all) of City VLF revenue.
- An updated 5-Year
Financial Model (to be heard by the Finance Advisory Committee on
March 13, 2002).
- Updated Fund Balance
The capital improvement plan (CIP)
is prepared and presented as part of the two-year budget. The CIP
included in the current two-year budget is attached for information. The
City Council has previously expressed an interest in re-visiting the
2001 Five Year Model
The attached 2001 Five Year Model
has been updated to include the actual revenue, expenditures and fund
transfers of FY 2001-02. It has also been updated to include the impact
of FY 002-03 budget adjustments to date. No changes have been made to
the underlying assumptions for future years.
Staff anticipates completion of the
first draft of the 2002 Five Year Financial Model for presentation to
the Finance Advisory Committee on March 13, 2002.
Upon completion of the Committee’s
review, Staff anticipates presenting the 2002 Model to the City Council
on or before the proposed Budget Policy Workshop. Staff will revise the
spending plan to eliminate the deficit ending fund balances for the
Environmental Excise fund and LLESS/COPS fund during the preparation of
the 2002 Model.
In addition, staff believes the City
Council should set a Budget Policy Workshop for April 30, 2002 to review
the information described above, hear public testimony and give staff
direction. At the Workshop, the staff will present reports on issues
that the City Council or staff believe are not reflected in the current
two-year budget. Council policy initiates should be made known to staff
as soon as possible in order that they can be heard at the April 30,
Budget policy issues are those
significant new projects, programs or other unanticipated impacts to the
budget that were not considered at the time the two-year budget was
presented. One of the policy issues relates to employee cost of living
wage increases and is normally associated with the March cost of living
index. An unanticipated project, such as a failed roadway, or storm
drain may also be presented to Council as a budget issue. This year the
Council may have to deal with loss of revenues (VLF) as a policy issue.
For the City Council’s information the staff report for the Fiscal Year
2000-01 budget (the second year of the initial two year budget) is
attached as a sample of what the Council should anticipate.
The proposed budget for Fiscal Year
2002-03 will be presented at a public hearing on June 4, 2002 and may be
adopted at the discretion of the Council. The City Code states that the
City Council will adopt the budget prior to June 30th each
Evans, City Manager
City Council Action, January
31, 2002, Proposed Fiscal Year 2002-03 Budget Process and Assignment to
Upon completion of the City
Manager’s presentation, the City Council discussed the City’s budget
process for FY 2002-03 and took the following actions:
- Scheduled the budget
workshop for April 30th.
- Invited the FAC to attend
the budget workshop.
- Decided to conduct its own
review of the 2002 Five-Year CIP Program in conjunction with the FY
2002-03 budget process.
- Assigned the FAC with the
Consideration of the use of
long-term ("LT") financing of infrastructure and securing other
revenue sources leading to a strategic schedule prior to April
During City Council
discussion, Mayor Pro Tem Stern questioned whether current property
taxpayers should be responsible to pay for the cost of infrastructure
improvements (e.g. storm drain improvements) that have a substantial
future useful life. The genesis of the question appears to be whether
current property tax revenues should be used to pay for the cost of
long-term infrastructure assets. Mayor Pro Tem Stern’s view is to match
taxpayer’s cost to build and repair infrastructure with the timing of the
benefit derived. Accordingly, Mayor Pro Tem Stern suggested, that the City
should consider the use of LT financing to spread out the cost of
infrastructure improvements over the useful lives of such improvements.
The entire City Council concurred and acted to assign the project to the
Except for the 1997 RDA bonds
used to re-finance the original $10,000,000 county bonds in conjunction
with the Horan Settlement, the City has no other debt obligations to other
parties. Though both the FAC and Finance staff has the expertise to
perform the work, staff will retain an independent financial advisor,
experienced with municipal financing, to assist the FAC and staff during
our review of LT financing issues, including the following
- An assessment of cash flow
available for debt repayment.
- Identification of
qualifying infrastructure projects and/or available assets to utilize LT
- Analyze the cost/benefits
of using LT financing (e.g. interest cost, advisor fees and issuance
costs) compared with the current use of operating revenues and fund
balance reserves to finance infrastructure.
- Review other LT financing
The participation of an
independent financial advisor will provide a fresh perspective and more
effectively utilize the time of FAC members and Finance staff.
Securing Other Revenue
Like most municipalities,
each City department is responsible for seeking out, securing and managing
its respective revenue sources. Accordingly, several members of City Hall
staff will assist the FAC and Finance staff with this portion of the
project. Again, to provide a fresh perspective and more effectively
utilize the time of FAC members and Finance staff, an open discussion
regarding this topic is encouraged, including consideration of the
- Retain a financial
consultant, experienced with municipal financing, to evaluate whether
all federal, state and county funding sources have been
- Retain a financial
consultant, experienced with municipal financing, to secure federal,
state and county funding sources on a contingency basis;
- As an alternative,
Councilmember Clark suggested the formation of 2 sub-committees of the
FAC to evaluate whether all federal, state, county and other funding
sources have been maximized. One sub-committee could evaluate federal
and other sources while the other sub-committee could evaluate state and
county revenue sources. If the FAC chooses this alternative, it may wish
to meet with appropriate federal, state and county officials,
appropriate staff of respective City Hall departments and others.
- Arrange for the
participation of appropriate departments to meet with the FAC to provide
an overview and discuss the status regarding the City’s funding
- Other revenue source
Other Significant Factors
Regarding The FAC Assignment
Finance staff believes that
the FAC will want to consider several other significant factors while
conducting this project, including the following:
- The evolution of the FY
2002-03 state budget and its result on the City’s portion of state
- A review of proposed
infrastructure projects included in the 2002 Five Year CIP program,
prepared by the Director of Public Works, to be included in the 2002
Five Year Financial Model. Finance staff expects to present the first
draft of the 2002 Five Year Financial Model during the March
13th meeting of the FAC.
Several other recurring
issues will impact LT financing:
- As a contract city with
limited engineering staff, the number of concurrent CIP construction
projections is limited by the City’s ability to manage multiple
- CIP projects are
inherently delayed by the delayed timing of regulatory approvals. This
timing event provides additional cash flow compared with the
expectations presented in the Five Year Financial Model.
- CIP project costs are
frequently greater than expectations, resulting from unknown factors,
including environmental problems and unexpected geological
complications. Such unanticipated CIP costs will complicate LT financial
The FAC will participate with
the City Council at the April 30th Budget Workshop. The City Council has
asked the FAC to present a strategic schedule regarding its completion of
this project at that time. Finance staff offers the following ideas
regarding the timeline:
- Present the 2002 Five-Year
Financial Model to the City Council on or before the April
30th Budget Workshop.
- Consider the inclusion of
a preliminary recommendation regarding LT financing of infrastructure in
the report accompanying the 2002 Five Year Financial Model.
- Provide the City Council
with a project status report.