TO: MEMBERS OF THE FINANCE ADVISORY COMMITTEE

FROM: DENNIS McLEAN, FINANCE DIRECTOR

DATE: MARCH 27, 2002

SUBJECT: 2002 FIVE-YEAR FINANCIAL MODEL

Staff Coordinator: Kathryn Downs, Accounting Manager

BACKGROUND:

Overview

The Five-Year Financial Model (the "Model") is a financial schedule prepared by the Finance Department under the supervision of the City Manager. City Council Policy No. 18 requires preparation of the Model. The 2002 Model includes all funds of the City and its component units (Redevelopment Agency and Improvement Authority). The Five-Year Infrastructure Plan, prepared by the Public Works Department, has been incorporated into the 2002 Model. The 2002 Model is labeled as Attachment "A" accompanying this staff report.

Utility Users Tax

Section 3.30.180 of the Municipal Code requires the City Manager to submit an analysis of revenues derived from the City’s Utility Users Tax (UUT) in connection with the preparation of the City’s annual budget. The 2002 Model includes the projection of UUT revenue, as well as all other revenues and expenditures for the City and its agencies.

The UUT rate has always been 3% since its inception during FY 1993-1994. The City Council may vote to decrease or eliminate the UUT rate at any time. In the event the rate is decreased, the City Council may elect to increase the rate at a later date, but not to exceed 3%. As a result of the 1996 municipal election, the UUT rate may only be increased in excess of 3% with the majority vote of the people.

DISCUSSION:

Format of the 2002 Model

The 2002 Model includes the presentation of actual FY 2000-2001 revenue, expenditures and ending fund balances for all funds. The City’s independent auditors expressed an unqualified (clean) opinion regarding the fair presentation of the FY 2000-2001 financial statements as a result of their audit. The 2002 Model includes projections of revenues, expenditures and ending fund balances for FY 2001-2002. The proposed budget for FY 2002-2003 is the basis for the first year of the 2002 Model.

The 2002 Model includes the segregation of funds as follows:

• General fund – The General fund balance represents the City’s unrestricted reserve monies. These monies may be used for any City expenditure, including general operations of the City.

• Funds restricted by action of the City Council – The fund balances of these funds represent monies restricted by City Council action for a particular purpose. The funds were formed with transfers from the General fund. These monies may be returned to the General fund or used for other purposes (e.g. infrastructure projects) upon the action of the City Council.

• Funds restricted by law or external agencies – The fund balances of these funds represent monies restricted by law or external agencies, such as the Federal Government, State of California, or Los Angeles County. These monies can only be used for the purpose outlined by the restricting agency in accordance with the terms and conditions set by legislation and voter ballot measures.

A brief description of the nature and purpose of each fund is provided in Attachment "B" accompanying this staff report.

Significant Assumptions Considered during the Preparation of the 2002 Model:

General assumptions

• Most expenditure items have been increased annually using a factor of 3.0% beginning in FY 2002-2003 and continuing through FY 2006-2007. A 4% factor was used during the preparation of the 2001 Model; however, a 3% factor was used during the preparation of Models prior to 2001. Staff temporarily increased the factor for the 2001 Model in light of anticipated increases of contractor costs (resulting from the increase of the California minimum wage rate) and an increasing trend of the Los Angeles area Consumer Price Index (CPI) during calendar year 2000. For the 2002 Model, staff has returned to a 3% factor due to the current decreasing trend of the CPI.

• Most revenues have been increased annually using various factors, including: a general increase of 2% for most revenue categories, projected changes in permit activity and retail sales, and staff’s expectations. The factors (% rate of change) are presented on Page 1 of the 2002 Model using an alphabetical index (a through l) and are referenced throughout the 2002 Model.

• It is assumed that the State will not reduce Vehicle License Fee (VLF) revenue. The City’s share of VLF revenue has been "back-filled" by the California legislature in conjunction with the state legislated reduction of VLF costs for consumers. In light of the State’s financial burden created by the energy crisis and economic recession, the future back-fill of VLF revenue (currently 67.5%) is less certain. Motor Vehicle in Lieu Fee revenue is nearly 20% of total General fund revenues.

• It is assumed that the City's share of property tax will remain constant at 6.2% of the one-percent rate assessed by the County. Property tax revenues have been increased at the rate of 4% annually beginning in FY 2002-2003 and continuing through FY 2006-2007. The 2001 model assumed annual property tax increases of 0% and 1%. The current estimated increase of 4% is based upon a five-year actual trend of 6% increases annually.

• It is impossible to accurately project future UUT revenue through FY 2006-2007. The 2002 Model assumes the continuation of the 3.0% utility user tax through FY 2006-2007. Based upon recent discussions with utility providers, staff has chosen to increase UUT revenue at the rate of 1% annually beginning in FY 2002-2003 and continuing through FY 2006-2007. The estimated annual rate of increase included in the 2001 Model was 2%.

• Revenue from the proposed hotel and golf course at Long Point has not been included in the 2002 Model, nor was it included in the 2001 Model.

• The 2002 Model assumes that the RDA - Portuguese Bend projects will continue to be funded by General fund loans and no additional developer revenue will be received by the City to offset future project costs. The Improvement Authority will continue to fund the maintenance of improvements developed in the Portuguese Bend section of the RDA.

Assumptions specific to the 2002 Model

• In prior Models, the entire project budget for CIP projects was presented in the current fiscal year column, with the knowledge that unexpended amounts for uncompleted portions of such projects would be carried forward to the next fiscal year. Beginning with the preparation of the 2002 Model, staff will present project costs in the fiscal year columns in which they are likely to occur. For example, the PVIC Expansion project is currently budgeted at almost $3,200,000. Due to required soil remediation efforts, staff anticipates the Expansion project will be delayed until the summer of 2003. Therefore, staff has presented half of the project budget in the FY 2002-2003 column and the remainder in the FY 2003-2004 column. Staff has elected to change this method of presentation to more accurately project the effect of the timing of project costs on the estimation of the City’s cash flows and interest earnings.

• Annual transfers to the CIP fund in excess of $380,000 are included in FY 2002-2003 and FY 2003-2004 for the Environmental Excise Tax (EET) fund. These transfers represent partial funding of the PVIC Expansion project.

• A transfer to the CIP fund of $350,000 is included in FY 2002-2003 for the Measure A Maintenance fund. This transfer represents the funding for Forrestal Open Space improvements and drainage.

• Staff anticipates substantial savings for 4 currently budgeted CIP projects, as follows:

• PVIC Soil Remediation savings of approximately $1,300,000;
• 25^th Street Settlement Reconstruction savings of approximately $280,000;
• Forrestal Open Space Trail and Drainage savings of approximately $250,000; and
• Citywide Street Overlay savings of approximately $750,000.

The Forrestal Open Space project savings of $250,000 will enable EET reserves to be used for the PVIC Expansion project. Total savings are expected to provide a favorable $2,000,000 impact on the General fund balance, generally offsetting about $2,000,000 of unfavorable FY 2001-2002 budget adjustments

• Staff has included costs for a traffic signal to be added every other year, beginning with FY 2002-2003.

• The County of Los Angeles sent a letter to the City’s Public Works department, dated March 28,2001 (see Attachment "D"), informing the City of new regulations developed by the Environmental Protection Agency (EPA) to ensure that sanitary sewer system owners take a pro-active approach to minimize sanitary sewer overflows. Adoption of the new regulations, as currently proposed, are expected to occur during 2003, and will require the City to:

• Apply for a National Pollution Discharge Elimination System (NPDES) permit;
• Evaluate the physical condition of all sewer facilities;
• Identify and develop corrective action plans to address deficiencies;
• Implement new programs for monitoring and reporting sewer overflows; and
• Develop a Capacity Management Operation and Maintenance program.

The letter clearly states that the City is legally responsibility for compliance with the new regulations.

Staff is in the early stages of assessing the impact of the new regulations, especially the development of a revised sewer maintenance plan, the City’s role vs. the County’s role in continued maintenance of the sewer system and the possibility of establishing additional user fees. In anticipation of the new regulations, staff has included estimated costs totaling $2,895,000 for sewer cleaning, filming, repairs, and system evaluations over the five years of the 2002 Model. Staff will consider this matter in conjunction with the development of a financing plan associated with the preparation of the 2002 Model and the assignment made by the City Council.

• For the 2001 Model, estimated interest income for all funds was based on a 5% investment interest rate. Currently, the LAIF investment interest rate has fallen to less than 3%. For the 2002 Model, staff has used an investment interest rate of 3% increasing to 4.5% to estimate interest earnings. The estimated upward trend represents a return to normal interest rates based on an improved economy in the future.

• FY 2001-2002 projected golf tax revenue reflects the amount received to date. Due to the Ocean Trails Chapter 11 bankruptcy proceeding, future cash receipts remain uncertain. A conservative annual revenue estimate of $150,000 is included in the 2002 Model for FY 2002-2003 continuing through FY 2006-2007.

• Projected building maintenance expenditures for the current fiscal year are expected to reach approximately $350,000. The increase from prior years’ activity is related to increased maintenance costs, as well as the addition of "one-time" projects such as replacing the air conditioning unit in the computer server room and repainting the exterior trim on City Hall. One-time projects are included for the remaining years of the Model, with an approximate initial $40,000 decrease in FY 2002-2003 from FY 2001-2002.

• It is anticipated that expenditures for legal fees may reach $1,000,000 during FY 2002-2003. If this occurs, it will be an increase of approximately $200,000 over the previous year. The cost of legal services in prior years was approximately $500,000 annually. The significant expenditure increase is a result of ongoing litigation (i.e. Abrams antenna and the Echevarrieta view ordinance lawsuits). Based upon the recent unfavorable decision rendered in the Federal District court regarding the Abrams antenna matter, and the City Council’s recent decision to appeal the decision, staff has included $1,000,000 in FY 2002-2003 and FY 2003-2004 for the costs of continued litigation. The 2002 Model includes $750,000 in the remaining fiscal years in anticipation of litigation activity.

• The City Council recently decided to form an Emergency Preparedness Committee. Upon appointment of its members, staff anticipates that the Committee will work closely with staff, the Peninsula Emergency Response Team, and public safety officials to improve the coordination of the City’s emergency plan with the entire Peninsula community. Approximately $100,000 has been added to the program cost in FY 2002-2003 continuing through FY 2006-2007 for the cost of staffing and supporting the Committee.

• The City Council recently began the process of updating the City’s General Plan, Coastal Specific Plan and other related master plan documents of the City. An estimate of $200,000 has been included in FY 2002-2003 and 2003-2004 to pay for the cost of updating these master plans.

• The 2002 Model includes a FY 2002-2003 transfer of $500,000 from the General fund to the Building Replacement fund. For the remaining years of the 2002 Model, an annual transfer of $250,000 has been included.

• During the Budget Policy Workshop in 2001, the City Council directed staff to include a transfer of $200,000 from the General fund and $100,000 from the Recycling fund during FY 2001-2002 to the newly formed Roadway Beautification fund. The same transfers have been included for the remaining years of the 2002 Model.

• During the Budget Policy Workshop in 2001, the City Council directed staff to include a transfer of $225,000 from the General fund to the newly formed Utility Undergrounding fund during FY 2001-2002. The same transfers have been included for the remaining years of the 2002 Model.

• The 2002 Model includes new State one-time revenue sources as follows:

• "Trees for the Millennium" grant of $50,000; and
• Parks "Per Capita" grant of $488,000.

• Gas Tax fund revenue sources include approximate averages of $800,000 for State apportioned Highway Users tax, $300,000 for 1972 Act fund operating transfers, $130,000 for State apportioned Traffic Congestion Relief funding, $110,000 for Proposition C fund operating transfers, and $20,000 for Sidewalk repair fees. The remainder of the approximate average annual expenditures of $2.2 million is funded with General fund operating transfers of more than $800,000 annually.

• FY 2000-2001 recycling revenues exceeded $200,000, and current fiscal year revenues are expected to exceed $200,000. Based on recent activity, staff has increased the annual recycling revenue estimate from $80,000 to $200,000.

• Staff has included an assumption that approximately $1.1 million will be spent from the Affordable Housing Set-Aside fund in FY 2003-2004 for an affordable housing project. The project may include use of the Crestridge property purchased with RDA Housing Set-Aside funds in FY 1999-2000. The City Council has recently scheduled a joint workshop to be held on May 7, 2002 to discuss the use of the Crestridge property.

• Staff estimates the Proposition A fund will build a reserve of almost $800,000 by FY 2006-2007. A proposed FY 2006-2007 sale of Proposition A funds in the amount of $700,000 has been included in the 2002 Model. Based on the 1999 sale of Proposition A funds to the City of Torrance, staff has estimated the FY 2006-2007 sale will be exchanged for approximately $455,000 of unreserved and undesignated General fund monies.

• The 2002 Model does not include a provision for other projects currently discussed within the community, including:

• Additional athletic fields;
• A permanent home for the Peninsula Seniors;
• Improvement to Upper Pointe Vicente Park (surrounding City Hall);
• An Equestrian facility; and
• Improvements to the City Hall facility.

• While preparing this report, staff has become aware of the possibility of the need to increase the cost of the City’s contribution to the Calpers retirement system in the later years of the 2002 Model. There is not sufficient information available at the time of the preparation of this report to determine whether additional amounts will be necessary. Staff will review this development further and make its determination prior to the completion of the final version of the 2002 Model presented to the FAC.

It should be noted that future economic activity, legislation and policy decisions, as well as any other unforeseen circumstances could affect the City's revenue stream and expenditures during any of the years presented in the 2002 Model.

Significant Variances from the 2001 Model:

A detailed reconciliation of the material variances between the 2001 Model and the 2002 Model is presented in Attachment "C" accompanying this staff report. The 2002 Model reflects a decrease of combined fund reserves of the City of approximately $6.2 Million since the preparation of the 2001 Model. A condensed summary of the variances between 2001 and 2002 follows:

Condensed Summary of Significant Variances From the 2001 Model:

The most significant portion of the FY 2001-2002 CIP Budget Adjustments totaling $2,095,665 as of the date of this report were related to additional costs associated with the San Ramon drainage and slope stabilization project in the amount of $1,360,000 and the additional costs of the Hawthorne Crenshaw road rehabilitation project totaling $532,655.

As presented in the previous table (Condensed Summary of Significant Variances From the 2001 Model), the net effect of expected CIP project savings vs. budget, compared with the expected cost of future CIP projects is an unfavorable amount of $1,174,185 in the 2002 Model when compared with the 2001 Model. A further explanation of details of the most significant projected savings for several pending CIP projects are as follows:

Schedule A:

A further explanation of details of the most significant future projects creating additional CIP project costs as follows:

Schedule B:

As presented in the previous table (Condensed Summary of Significant Variances From the 2001 Model), the net effect of expected additional General fund expenditures over the five years of the 2002 Model compared with the 2001 Model is an unfavorable increase of $2,995,560. Following is a list of significant items contributing to the projected increases of projected General fund expenditures:

Schedule C:

FAC Assignment – Formation of a Financing Plan:

During its January 31^st meeting, the City Council assigned the following task to the Finance Advisory Committee (the "FAC"):

Consideration of the use of long-term ("LT") financing of infrastructure and securing other revenue sources leading to a strategic schedule prior to April 30^th workshop.

The staff report titled "TIMELINE AND PROCESS - CONSIDERATION OF LONG TERM FINANCING OF INFRASTRUCTURE AND SECURING OTHER REVENUE SOURCES", dated February 13, 2002 includes the expectation that Finance Staff and the City’s Financial Advisor, Joe Aguilar, will present a broad overview of a financing plan at the April 10^th meeting of the FAC. Finance Staff expects to present the overview of financing plan alternatives during the April 10^th meeting.

Respectfully submitted,
Dennis McLean
Finance Director

TO: HONORABLE CHAIR AND MEMBERS OF THE FINANCE ADVISORY COMMITTEE

FROM: DENNIS McLEAN, FINANCE DIRECTOR

DATE: MARCH 27, 2002

SUBJECT: ISSUES TO BE DISCUSSED AT THE JOINT MEETING WITH THE CITY COUNCIL AND PLANNING COMMISSION CONCERNING THE CRESTRIDGE PROPERTIES

BACKGROUND AND DISCUSSION:

Request to Attend Joint Workshop, May 7, 2002

At their March 11, 2002 meeting, the City Council decided to hold a joint workshop between the City Council, Planning Commission and Finance Advisory Committee (the "FAC") on May 7, 2002 at 6:00 p.m. The City Council also requested that in preparation of that meeting, Staff identify issues of discussion pertaining to the Crestridge properties. Additionally, Staff should obtain input from the City Council, Planning Commission and the FAC prior to the May 7^th workshop.

Planning Department Staff Report Written By Gregory Pfost, AICP, Deputy Planning Director, Dated March 26^th

The Planning Department has prepared a staff report, written by Gregory Pfost, AICP, Deputy Planning Director, dated March 26^th, that (at the time of the preparation of this report) is expected to be presented to the Planning Commission on such date. The Planning staff report, including a chronological overview of the events that have led to the joint workshop, is presented herein below:

TO: Chairman and Members of the Planning Commission

FROM: Director of Planning, Building and Code Enforcement

DATE: March 26, 2002

SUBJECT: Issues to be Discussed at the Joint Workshop with the City Council and Finance Advisory Committee Concerning the Crestridge Properties

Staff Coordinator: Gregory Pfost, AICP, Deputy Planning Director

RECOMMENDATION

Identify issues pertaining to the Crestridge properties that the Planning Commission would like to discuss at the joint workshop between the City Council, Planning Commission and Finance Advisory Committee on May 7, 2002.

BACKGROUND

Last year, at meetings on March 27, 2001, May 8, 2001, May 22, 2001 and June 26, 2001, the Planning Commission reviewed a proposed senior affordable housing project to be constructed on a vacant parcel at the northwest corner of Crestridge Road and Crenshaw Boulevard. The City's Redevelopment Agency (RDA) owns the vacant site, and at that time, the RDA had entered into an Exclusive Negotiating Agreement with a Developer to build the proposed project. At the June 26, 2001 Planning Commission meeting, the Developer requested to change the project from 52 apartment units to 40 or 42 condominium units. The Commission felt that, given the Institutional zoning designation of the parcel, the issue of changing the project to condominiums needed to be addressed by the RDA (City Council) before the Planning Commission could take any further action on the development proposal. Subsequently, the Planning Commission tabled the item until the RDA (City Council) addressed the issue of whether or not the Developer could file a Tentative Tract Map for a Condominium development on the RDA owned site.

On August 21, 2001 the RDA considered various issues pertaining to the proposed project including the issue of condominiums and whether or not to enter into a new Exclusive Negotiating Agreement (ENA) with the project developer. The RDA Board decided: (1) not to approve the Exclusive Negotiating Agreement between the RDA and the development company (Indian Ridge Crest Gardens, LLP); and (2) not to grant a "buy-back" provision to the developer Charles Brumbaugh; and (3) to direct staff to consider other options for the property, including the feasibility of a park.

On October 12, 2001, a development company, Standard Pacific, submitted a request for a use determination for the vacant parcel located immediately adjacent to and west of the Agency owned property located on Crestridge Road. The request was for a determination that senior condominiums are similar to and no more intensive than other conditionally permitted uses in the Institutional zoning district. Standard Pacific was considering purchasing the property from its current owner, Crestridge Estates llc, and pursuing an application for a 104-unit senior condominium project on the site. On October 26, 2001, the Director issued a determination that senior condominiums are not consistent with the Institutional zoning district. On November 12, 2001, the developer filed an appeal of the Director’s determination. On December 11, 2001, during the hearing of the appeal, the Planning Commission expressed a concern that a condominium use may not be consistent with the Institutional zoning district. Not wishing to have a negative vote, the applicant withdrew his application at the meeting. Although the applicant withdrew the application, the Planning Commission felt this was an important topic that needed further discussion. As such, the Planning Commission recommended that the City Council and Planning Commission conduct a joint workshop to hear public input on what the community believes to be appropriate uses for the subject property at the same time the City Council would be addressing the Redevelopment Agency owned property. Further, the Planning Commission requested that the workshop address the issue of the needs for and appropriate location of senior housing throughout the peninsula.

At the December 18, 2001 City Council meeting, based upon the Redevelopment Agency's direction at the August 21, 2001 meeting, the City Manager reported on various options for the use of the Agency-owned Crestridge property. At that meeting, after considering the Planning Commission's recommendation, the City Council directed Staff to schedule a joint workshop, with the Council, Planning Commission and Finance Advisory Committee to consider potential land uses on the Agency-owned Crestridge property and the adjacent privately owned Crestridge property.

At their March 11, 2002 meeting, the City Council agreed to hold the joint workshop on May 7, 2002 at 6:00 p.m. The City Council also agreed that issues of discussion should be identified, so as to facilitate public input at the joint workshop. To that end, the Council is scheduled to identify issues of concern for the workshop at its upcoming April 2, 2002 meeting. At this time, Staff is also providing an opportunity for the Planning Commission to do the same.

DISCUSSION

The purpose of this report is to identify issues pertaining to the Crestridge properties that the Planning Commission may wish to focus on at the joint workshop between the City Council, Planning Commission and Finance Advisory Committee on May 7, 2002.

The following are issues that Staff believes may be discussed at the May 7^th workshop. The Planning Commission may wish to agree with these issues, modify them or identify additional issues for discussion.

1. Is a residential condominium use an appropriate use for the Institutional Zone?
   
   
2. Should a City Park be built on the RDA owned property?
   
   
3. What methods should the City use to evaluate the various statements of interest from Palos Verdes Art Center, Exceptional Children's Network, Standard Pacific, Affirmed Housing Group, and Corporation for Better Housing's proposed projects?
   
   
4. What are the financial implications to the City and the Redevelopment Agency in choosing a use other than what the RDA purchased the property for, which is affordable housing?
   
   
5. What are the needs for Senior Citizen housing on the Peninsula, and what sites in the City can help accommodate that need?
   
   
6. Should a Specific Plan be created for the Crestridge properties in order to further define the optimum development patterns, physical constraints and potential uses?

ADDITIONAL INFORMATION

Although this item was not publicly noticed, notice of the May 7, 2002 workshop will be sent to the newspaper for publication, all homeowner associations within the City, the interested parties lists for both properties and the Marriott Assisted Living Facility property, potential users that have submitted statements of interest on the RDA owned property, and to all property owners within a 500' radius of the subject properties. In addition, the workshop will be advertised on the City's website and cable reader board.

ATTACHMENTS:

Area Site Plan

END OF PLANNING DEPARTMENT STAFF REPORT, DATED MARCH 26, 2002

The Planning Department is responsible for managing the housing element (including the provisions of RDA low and moderate housing laws). In the event you wish to review the previous discussions and actions of the Planning Commission and the City Council, you may view video streaming replays of the meetings (dates provided above) from the City’s website.

Finance Department’s Role

As you already know, the Finance Director is responsible for the financial reporting of the City, including its component agencies (e.g. the RDA). As a part of its reporting responsibility, the Finance department annually prepares and files the HCD Annual Report of Housing Activity of Community Redevelopment Agencies. The report includes an annual accounting of the RDA’s Housing Set-Aside fund. The Crestridge property was purchased with use of RDA Housing Set-Aside (Low-Moderate Income) fund monies during FY 1999-2000 at a cost of $702,392. Accordingly, the HCD Annual Report includes the presentation of the use of the RDA Housing Set-Aside (Low-Moderate Income) fund monies for the purchase of the Crestridge property. Therefore, the Finance department monitors the use of RDA Housing Set-Aside (Low-Moderate Income) fund monies and the pursuit of low-income housing with it, for future reporting purposes.

RDA Housing Set-Aside (Low-Moderate Income Housing) fund

The RDA was formed in 1984 pursuant to the State of California Health and Safety Code, Section 33000 entitled "Community Redevelopment Law". Its purpose is to finance long-term landslide abatement projects (e.g. dewatering wells, canyon drainage systems and the Abalone Cover Sewer System) in the Abalone Cove and Portuguese Bend areas of the City.

Under the Health and Safety Code, the RDA is required to assist in the production, improvement or availability of affordable housing. The Health and Safety Code requires that 20% of the RDA’s gross tax increment must be set aside and used to increase, improve or preserve the City’s supply of low and moderate income housing.

Restricted Use of RDA Housing Set-Aside (Low-Moderate Income) Fund Monies

It appears that if and when the RDA Board resolves to abandon its pursuit of the use of the Crestridge property for providing low and moderate income housing, it will be required to reimburse the RDA Housing Set-Aside (Low-Moderate Income) fund $702,392 plus interest. Therefore, it appears that if the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, it will be required to pay the fund $702,392 plus interest. Though the Finance Staff defers this matter to the City Attorney, it has confirmed this understanding of RDA law with the City’s auditors based upon its understanding of the facts.

AB 1290 – Excess Surplus

The Health and Safety Code also established a requirement that once unexpended or unencumbered fund balance of the RDA Housing Set-Aside (Low-Moderate Income) fund exceeds $1,000,000, the amount in excess of $1,000,000 is deemed "excess surplus". AB 1290 requires excess surplus to be (1) spent, encumbered or transferred to another housing authority within one year; or (2) spent or encumbered within two years.

The RDA Housing Set-Aside (Low-Moderate Income) fund has accumulated reserves since the inception of the RDA in 1984. The 20% allocation of tax increment deposited into the RDA Housing Set-Aside (Low-Moderate Income) fund during FY 2000-2001 was $110,083. The RDA Housing Set-Aside (Low-Moderate Income) fund balance was $931,934 as of June 30, 1999. As stated previously, the Crestridge property was purchased with use of RDA Housing Set-Aside (Low-Moderate Income) fund monies during FY 1999-2000 at a cost of $702,392. Obviously, had the Crestridge property not been purchased in FY 1999-2000, the RDA Housing Set-Aside (Low-Moderate Income) fund balance would have exceeded $1 Million before the end of FY 1999-2000.

Additionally, if and when the RDA Board resolves to abandon its pursuit of the use of the Crestridge property for providing low and moderate income housing or if and when the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, the clock would begin regarding the provisions of AB 1290. As stated previously herein, AB 1290 requires excess surplus (the amount in excess of $1 Million) to be (1) spent, encumbered or transferred to another housing authority within one year; or (2) spent or encumbered within two years.

Based upon a recent discussion with the City’s auditors, the State legislature provided enforcement responsibility to both State and County housing agencies in 1999. Therefore, there is little or no enforcement history to report. Staff will seek further information regarding this matter from the City Attorney prior to the joint workshop on May 7^th.

Possible Discussion Topics:

As stated previously, Planning staff is responsible for managing the housing element affairs of the City, including low and moderate-income housing. Recognizing such, as well as the Finance department’s role, Finance staff offers the following suggestions for discussion topics:

1. In the event the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, will it be required to reimburse the RDA Housing Set-Aside (Low-Moderate Income) fund for $702,392 plus interest? Finance staff believes the answer is YES, but defers the matter to the City Attorney.
   
   
2. In the event the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, assuming the answer to Question 1) above is YES, does the City have sufficient General fund resources to reimburse the RDA Housing fund?
   
   
3. In the event the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, assuming the answer to Question 1) above is YES and the answer to Question 2) above is NO, does the City have other restricted funds available to reimburse the RDA Housing fund?
   
   
4. In the event the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate-income housing, assuming its necessary to reimburse the RDA Housing Set-Aside (Low-Moderate Income) fund, is the determination of excess surplus retroactive to FY 1999-2000? Finance staff believes the answer is NO, but defers the matter to the City Attorney.
   
   
5. In the event the City chooses to purchase the Crestridge property from the RDA Housing Set-Aside (Low-Moderate Income) fund for a purpose other than low and moderate income housing, have environmental and geological investigations of the property been conducted? If so, were the findings satisfactory? Is an update necessary?

RECOMMENDATION:

Finance staff welcomes questions, further discussion and additional ideas from FAC members for inclusion of the discussion topics for the joint workshop on May 7^th.

Respectfully submitted,
Dennis McLean
Finance Director

TO: HONORABLE CHAIR AND MEMBERS OF THE FINANCE ADVISORY COMMITTEE

FROM: DENNIS McLEAN, FINANCE DIRECTOR

DATE: MARCH 27, 2002

SUBJECT: CONCERN REGARDING LOSS OF VEHICLE LICENSE FEE REVENUE – LEGISLATIVE CONTACTS AND SUGGESTIONS

During the Finance Advisory Committee (the "FAC") meeting on March 20^th, members expressed an interest in communicating directly with key State legislators regarding their concerns about the impact on the City resulting from the possible loss of Vehicle License Fee (VLF) revenue during the State’s adoption of the budget for the FY 2002-2003. Staff has attached a Memorandum from the City Manager, Les Evans, dated March 18, 2002 that includes the names of key legislators to contact regarding the possible loss of VLF revenue during the State’s adoption of the budget for the FY 2002-2003.

Recent Adoption of Legislative Policy and Guidelines by the City Council

Until recently, the City Council advocated (or not) federal and state legislation on a case-by-case basis. During the meeting on February 19, 2002, the City Council adopted Legislative Guidelines for 2002. Staff provides relevant excerpts from the Guidelines as follows:

LEGISLATIVE GUIDELINES FOR 2002

Purpose
The Legislative Guidelines will address issues both at the State and Federal level and recommend positions on anticipated or proposed laws, regulations, rules, policies that may impact the City or the region. The City Council will take positions on significant public policy issues as well as identify issues of concern that they will closely monitor. These Guidelines will enable the Mayor and Council to more effectively respond to and act upon time-sensitive requests for support for any proposed legislation on which the Council has taken a position. City staff will monitor and track relevant legislation and prepare correspondence advocating the City’s position on pending legislation.

The City’s legislative advocacy activities shall be guided by these Guidelines and any amendments to these Guidelines approved by the City Council.

City Council Positions
The City Council of the City of Rancho Palos Verdes has taken positions on the following issues and proposed laws rules, regulations or policies and has authorized the Mayor (or the Mayor Pro Tem in the absence or non-availability of the Mayor) to advocate the City’s position in the form of letters, telephone calls, personal contacts and other forms of communication:

Federal:

Public Safety:
Continuation of Law Enforcement Block Grant programs.

State:

A. Fiscal Impact:
Protection of City’s vehicle license fee revenue base.
Continuation of Citizen Option for Public Safety (COPS) funding.

B. Aviation:
Promote a "regional" approach to airport development and usage and support aircraft noise abatement strategies.

C. Parks:
Proposition 40 (March ballot).

END OF EXCERPT FROM CITY COUNCIL GUIDELINES

As you may already know, the Proposition 40 ballot measure was passed during the March 2002 election. Based upon the Guidelines, the City Council has selected only the four issues (above) that the Mayor may advocate.

Suggestions Regarding the FAC’s Interest in Contacting Legislative Officials

Staff encourages the members of the FAC to contact legislators to express their respective opinions and concerns regarding the possible loss of VLF revenue during the State’s adoption of the budget for the FY 2002-2003. FAC members are invited to refer to their FAC membership, but should not sign the correspondence as representatives of the FAC or the City. In the event the FAC (as a Committee) desires to send correspondence advocating any legislative position, it should request staff to agendize the matter for a future meeting of the City Council to seek their consent. Staff offers the following discussion points for consideration of inclusion in correspondence advocating its concerns about regarding the possible loss of VLF revenue during the State’s adoption of the budget for the FY 2002-2003:

• I am a member of the City of Rancho Palos Verdes Finance Advisory Committee. Recently, the City Council has assigned our Committee the responsibility for reviewing the City’s Five Year Financial Model (a mid-range estimate of revenues and expenditures) and advising them on the financial future of the City.

• Rancho Palos Verdes is a "low property tax" contract city. Our general fund revenues come primarily from property tax (26%), sales tax (8%), utility users’ tax (15%) and vehicle license fees (20%).

• We have been advised by our Sacramento contacts that municipal sources of revenues may be at risk as the State seeks ways to overcome a $8-$14 billion deficit. Our VLF revenue seems to be most at risk, but we have also heard rumors of an ERAF II that would impact our property tax. We have been warned that the Bradley-Burns local sales tax may be manipulated and voter-approved utility users’ taxes may be capped.

• In view of this uncertain financial future we will be probably be advising the City Council to reduce spending from our general fund by some combination of reducing infrastructure maintenance, delaying capital improvement projects and withholding consideration of proposals from our Senior Citizen and Youth Athletic communities until we know how our State legislators’ financial strategy will affect us.

• Fiscal conservatism may be contradictory to what our nation’s economy needs right now, but it is my responsibility to insure that funds are available to continue our daily business of providing for public safety and routine maintenance of existing facilities. It seems appropriate to conserve funds in anticipation of a State raid on local revenues.

• I would appreciate it very much if you could reassure me that my fears are not justified.

• I would at least appreciate your assurance that you will not support a State grab of City funds.

Staff welcomes further discussion of this matter and will assist the FAC members in their legislative advocacy endeavors.

Respectfully submitted,
Dennis McLean
Finance Director

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