Topic: Costa Mesa’s Fiscal Year 15/16 Annual Budget
The Budget covers July 1, 2015 – June 30, 2016
CM4RG recommendations are listed at the end of this report.
City revenues continue to improve as the overall economy improves. Revenues for the General Fund (the primary fund that keeps the City functioning) is budgeted at $114.0 million, up $4.0 million from last year and up a significant $24.5 million or 27.4% from the recession year of FY 09/10. Revenue at $132.3 million is a little less than last year but still running at all time highs. Expenses are budgeted at $144.8 million up $10.4 million or 7.7% from last year. Included in the expenses are Capital Projects of $25.8 million. Capital Projects are the fastest growing portion of the Budget. Note that Expenditures are larger than revenue. The difference is made up by using money set aside from prior years.
|$ Dollars||FY 15/16||FY 14/15||FY 11/12|
Capital Projects are budgeted at $25,763,929. This represents a sizeable 33% increase from last year’s budget and an astonishing 206% increase from FY 11/12! This shows that in the past five years Capital Projects have been a priority of the City, mostly for streets/sidewalks/alleyways. Streets must be maintained and improvements made but now that all or most all of the projects delayed due to the recession have been completed it is time to turn the focus to other priorities. Although the Budget has been adopted, the City can and needs to redirect money from Capital Projects to other issues facing the City.
Please see Attachment A for a detailed list of Capital Project recommendations.
FUND BALANCES / RESERVES
The amount of financial reserves the City maintains is very important. Reserves provided the City a lifeline during the Great Recession and the City should make it a priority to maintain adequate reserves. Costa Mesa is fortunate to have several large sources of sales tax revenue but this also makes the City more vulnerable in economic downturns. It is important that the City build reserves while the economy remains positive.
It is difficult to identify reserves from other fund balances in the City’s budgets and financial statements. The City needs to specifically label reserves. In February 2015, at a Council study session the City stated reserves equaled $42.8 million and at the same time established a reserve goal of $52.0 million. This means the City needs to increase reserves $9.2 million to reach the goal. When the City established the reserve goal it also authorized annual additions of up to $1.5 million to the reserve fund. The annual additions are not mandatory. In fact, in the latest (Oct. 2015) 5 year plan to the City Council no further additions to the reserve fund are planned. We recommend annual additions of a minimum of $1.5 million to reserves be included in the 5 year plan.
FULL TIME HEADCOUNT
Over the past several years the City has continually over budgeted for employee salaries and benefits because it plans to hire significantly more employees than it actually does. This overstates the budget. An adjustment factor is included in the Budget to help mitigate this issue but the adjustment is not enough to cover the overstatement. Usually at midyear, when it becomes apparent that the City is under-running the Budget it becomes easier to redirect the already budgeted ‘extra’ money to other uses. The chart below illustrates the headcount issue.
To reach the Budget headcount, the City would need to add 67 (478 – 411) employees in FY 15/16. As shown, in recent years the City has not come close to reaching its headcount budget and based upon this, the City will not meet its FY 15/16 hiring goal. We recommend the City begin using more realistic headcount budgets starting with the next budget cycle.
At the time of this writing the Police and Fire Departments do not have labor contracts with the City. Both contracts have expired and the City has not put a priority of negotiating new agreements. The Council majority does not hide their disdain for organized labor as reflected in their actions and comments and in the lack of new labor agreements.
In addition to the difficulty in attracting and retaining quality personnel, the City is losing financial savings. The police, for example, were contributing 5% of their salary towards their pensions. Without a contract the City is losing these cost savings and by negotiating a new contract the City could obtain more than a 5% contribution rate. The Council majority needs to reduce their animosity towards the employee associations for the betterment of the City and its residents. Negotiate in good faith and finalize these contracts. The City and its residents will be better off. Put in date of expired agreements
The headcount forecasting issue mentioned above is exemplified in the Police Dept. Most Costa Mesans know that the Police Dept. continues to have a very difficult time hiring new officers. The Council has approved a force of 136 sworn police officers. To reach that goal the Budget includes the hiring of 27 additional officers which is a significant 20% (27 of 136) of the force. It is unreasonable to expect 20% of the force to be hired in one year! Moreover, more than 27 would need to be hired to compensate for retirements. Again, CM4RG recommends the City use more realistic headcount forecasts in its budgeting process.
In May 2013, a Reorganization Plan (the Plan) for the Fire Department was submitted to the City Council. The plan contained many recommendations. Two with significant financial impact are the closure of Station 6 and transport to hospitals by City owned Fire Department ambulances.
- Station 6 is north of the 405 Fwy in the South Coast Metro section of the City. North of the 405 contains the largest concentration of retail, office, and hotel space in the City AND the Segerstrom Center for the Arts (we are the City of the Arts). Since the closure of station 6 was approved, there has been additional development and substantially more is planned for north of the 405 in the near future. The City’s largest concentration of people and largest source of revenue must have responsive paramedic and fire protection. Closing station 6 will add to response times and put people and property at an unacceptable level of additional risk.
- The Plan also calls for Fire Dept. ambulances to begin transporting patients to hospitals. Currently, Fire Dept. ambulances respond to emergencies but transport is through a private subcontractor. This makes no sense. The city could be receiving from $1.0 – $2.0 million in revenue by transporting patients to the hospital. Frequently, City paramedics have to accompany patients to hospitals in the private ambulance and the Fire Dept. ambulance follows to bring the paramedic back to the fire station. In addition, the City recently spent $1.6 million for six new state of the art ambulances and they are being underutilized because they are not used for hospital transport.
Station 6 should remain open and hospital transport should be implemented. The Council majority states closing station 6 is a budget issue but their action puts people and property at unacceptable risk. At the same time, the Council forgoes additional revenue from hospital transport that could be used to help fund station 6 and help pay off the cost of the new ambulances. These decisions are not in the resident’s best interest.
CM4RG will issue a separate position paper on Pensions. Here is a brief summary.
Like most other cities in the state, pensions have become an increasing expense for Costa Mesa. Pension expense will be about $24 million in FY 15/16 and will continue to increase for the next 20+ years and consume an increasing share of the City’s budget. The amount the City owes to the pension fund (unfunded liability) is currently $217 million and this will also increase in the years ahead before it starts to decrease. It’s important to note that the unfunded liability will not decrease due to additional outsourcing or layoffs.
The City currently makes additional modest payments to the pension fund to payoff the unfunded liability quicker, thus decreasing its overall expense (similar to paying a mortgage quicker). These additional payments should continue and could be increased. The City also has additional options to reduce the unfunded liability and CM4RG recommends these be analyzed and implemented by the City.
- Redirect Capital Project spending (street & sports fields) and redirect spending to items such as reducing the pension liability, homelessness solutions, public safety, fire stations, and library.
- Rebuild reserves at a faster rate.
- Use more realistic headcount forecasts in budget process.
- Reduce animosity between City and Police and prioritize hiring of additional police officers.
- Keep fire Station 6 open and implement Fire Dept. transport to hospitals.
- Implement additional options to pay off the unfunded liability quicker.
ATTACHMENT A – CAPITAL PROJECTS
There were 113 projects originally considered for inclusion in the budget. The final budget includes 51 projects. Each project was prioritized I – IV. The prioritization of the 51 projects breakdown as follows:
Some priority I or II projects were bumped in favor of III or IV projects. Half the approved projects (by dollar amount) are rated III or IV. Further analysis shows that 92% of category III and IV projects are new projects where work has not begun making it easy to redirect the funding from Capital Projects as CM4RG recommends.
|Storm Drain||Roads/Sidewalk/Traffic||Bldg/Equip Maint||Police Comm System||Library & Fire Station||Park Dev/Bike Trail||Sports Fields||Grand Total|
- The Capital Budget includes $4.4 million for sports fields. This equals 17% of the Capital budget and is comprised of six projects. The six projects include Jack Hammett Field and five NMUSD fields to convert to artificial turf and/or installation of lights. The Jack Hammett field cost is $2.5 million alone and the five school fields cost $1.9 million.
- Cancel the Placentia medians project (#2) funded at $400,000 by Gas Tax. This is a beautification project and other projects have a higher priority. Use the Gas Tax money from this project to help fund the Bear Street portion of project #3.
- Defer the Bear Street Rehabilitation portion of project #3. Bear Street is still in good enough condition that this portion of the project can be deferred for higher priority projects. Using $400,000 from project #2 (above) will free up about $800,000 of Capital Improvement money.
- Project #4 is for multiple Citywide Street Improvements costing $4.6 million. The funding includes $175,946 from Community Development Block Grants (CDBG). Improving streets is not an appropriate use of CDBG funds. CDBG funding should be transferred from this project and used for one of several ADA projects that did not make the final Budget. (Preliminary projects #39, #40, or #42).
- Delete Bus Bench Replacements (project #10) and replace with School Bicycle Rack Improvements (Preliminary project #13). Both projects cost $50,000 and use General Fund funding so it is an easy transfer between projects. The Bus Bench project does not solve the problem of homelessness. Plus, the City wants to encourage more bicycle use and adding bicycle racks at schools will help achieve this goal.
- Defer Newport Blvd Landscape Improvements (#24). This project’s cost is $100,000 in FY 15/16 and a significant $1.1 million in FY 16/17. Funding is by the General Fund. Wait on this project until the Bikeway and Walkability Committee reports to the Council with a citywide integrated network of bike lane and walkway recommendations. Plus this project uses water and we are in a drought. Replace this project with Storage at Jack Hammett Fields (Preliminary project #56) $40,000 and recommendation #7 below.
- TeWinkle Lakes Bed Liner Repair (Preliminary project # 30). This project is NOT in the Budget but should be. This is a no brainer. The lake bed liners leak and we cannot afford to waste water. Fix it! Cost is $50,000, and funding comes from deferred item #6 above.
- Defer the Harbor Blvd Bike Trail Improvements (#22). Cost is $625,000, funded by the General Fund. I support improved bike and walkways however, this project beautifies an existing Class I bike trail. Better to use this funding to expand Costa Mesa’s limited bike network or improving bicycle safety within the City. Recommend withholding use of this funding pending review of other possible bikeway/walking projects or return to the General Fund.
There are safety concerns that many in the sports community have with artificial turf fields. Injuries increase on artificial turf and during the recent women’s FIFA championships field temperatures were measured at 120 – 130 degrees! The City needs to thoroughly research the use of artificial turf and report back to the City Council prior to any installations.
Within the $1.9 million, one project (#50) dominates at $1.6 million. Its description is “NMUSD Field Improvements”. There is no other description provided. It’s clear this project is nothing but a place holder and indicates to me the City is looking for ways to spend money. At a minimum, project #50 should be cancelled and the money set aside for the Library/Fire station project.