Signal Hill financial management estimates the City will see a more than $71,000 surplus next fiscal year, but city officials remain cautious as employee costs are expected to rise and revenue projections are uncertain.
During a budget workshop on Wednesday, May 29, the City Council received an overview of the preliminary budget for Fiscal Year 2013-2014 and gave staff direction on how to proceed with requested expenditures for city departments and capital-improvement projects.
City Manager Ken Farfsing told the Council, “the budget is slowly returning to pre-Great Recession levels after five years of reduced expenditures and reduced revenues,” adding that it’s the “fourth budget in a row where the City has not had to rely on the City’s economic-uncertainties reserve fund in order to balance the budget.”
But he cautioned that city departments were obligated to tighten their budgets given the slow-moving economic recovery and rising employee costs.
“The city’s department heads have been asked to prepare their upcoming budgets without significant increases over their existing expenditures,” Farfsing said. “That’s a difficult task since merit and step increases were granted this year and automatically increase each department’s budget.”
Farfsing said the City forecasts sales-tax revenue of $11.5 million for next fiscal year, which is a decrease of about $190,000 from the estimated sales-tax revenue for the current fiscal year.
Even though auto dealerships, Home Depot and construction-related retailers have reported increases in sales and are reflecting signs of an improving housing market, retailers such as Target and Best Buy have reported losses and have reduced their full-year forecasts, he said. The City is also budgeting a drop in revenue from gasoline sales tax, Farfsing said.
Finance Director Terri Marsh added that it remains uncertain how much revenue the City will receive through a new sales-tax revenue sharing agreement into which Signal Hill and Long Beach entered with Office Depot last year since the office-supplies retailer is merging with OfficeMax and going through a business restructure.
Signal Hill is also projecting $622,613 more in expenditures next fiscal year over the current fiscal year, which Assistant City Manager Charlie Honeycutt primarily attributed to shifting full-time personnel from the now defunct Signal Hill Redevelopment Agency (RDA) to city departments.
He added that the City also anticipates spending $75,000 for the June 5, 2014 special election associated with the “Taxpayers Right to Know and Vote” initiative. City staff is projecting an increase of $39,400 over what the city clerk budget would be for a regular municipal election, with legal costs of $20,000 and additional election costs of $19,400.
Farfsing added that it’s important to address the rising cost of employee retirement pensions. More than 10 years ago, the Council established a reserve fund that would have addressed some of the problems created by the California Public Employees’ Retirement System (CalPERS). Farfsing said a large and growing cost for the City’s budget is the planned increases in the PERS rates.
The City has maintained that for a number of years PERS overestimated their internal rate of return and underestimated their retirement cost, he said. However, in April of this year, the PERS board adopted new actuarial policies, effectively increasing rates beginning Fiscal Year 2015.
With the new proposed rates, Signal Hill city staff estimates that PERS costs will increase by more than $600,000 annually, Farfsing said. “Although the rate increases do not impact the upcoming budget, we need to begin planning for the increases,” he said.
Another large expense the City will be incurring is the cost of meeting new Los Angeles County regional water board requirements for stormwater permits. First-year startup expenses are projected to cost the City more than $750,000, according to Farfsing.
He added that the Signal Hill Water Department’s budget is balanced, and this will be the fourth year in a row that the City has held water rates stable. However, Farfsing said city staff is projecting an increase in water rates next year.
Signal Hill city staff estimates the current fiscal year to end with a balance for general-fund and economic-uncertainties-fund reserves totaling $10.1 million.
It was reported, however, that the State Department of Finance recently requested the City pay nearly $1.5 million in loans the City was owed from RDA. Though it’s uncertain whether the City will challenge the State in court, the Council and city management have agreed to cover the costs through the economic-uncertainties fund.
The new payment will be on top of a more than $2.5 million payment the City was required to pay the State after an audit on RDA housing funds earlier this year.
The Council is scheduled to formally adopt the 2013-2014 budget during its June 18 meeting before the new fiscal year begins on July 1.