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Home My WebLink About2009/01/08 Item 1CITY COUNCIL AGENDA STATEMENT ~1 ~ ~~f // CITY OF '~ CHULA VISTA JANUARY 8, 2009, Item ~ ITEM TITLE: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA DECLARING A FISCAL EMERGENCY SUBMITTED BY: FINANCE DIRECTOR ~~Nt1~ REVIEWED BY: DEPUTY CITY GER~ CITY MANAGER 4/STHS VOTE: YES ~ NO ^X SUMMARY Over the last few years the City of Chula Vista has experienced a precipitous decline in revenues due to the slumping economy, the housing crisis, and the slowdown in development activity. The City had made significant program and personnel reductions during this time in order to bring expenditures in line with a lower revenue base. However, the City's financial outlook has continued to deteriorate and is facing a $3.9 million deficit in fiscal year 2008-2009 and an estimated $20.0 million deficit in fiscal year 2009-2010 for the City's operating fund. ENVIRONMENTAL REVIEW The Environmental Review Coordinator has reviewed the proposed action for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because the action only involves fiscal issues which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. RECOMMENDATION That City Council approve the resolution. BOARDS/COMMISSION RECOMMENDATION Not Applicable. 1-1 JANUARY 8, 2009, Item Page 2 of 4 DISCUSSION As previously reported to Council, the City is projecting budget shortfalls of $3.9 million in the current fiscal year and $20.0 million annually beginning in fiscal year 2009-2010. Over the last few years the City of Chula Vista has experienced a precipitous decline in revenues due to the slumping economy, the housing crisis, and the slowdown in development activity. The City had made significant program and personnel reductions during this time in order to bring expenditures in line with a lower revenue base. Despite these reductions the City's financial outlook has continued to deteriorate. General Fund revenues are currently projected to come in $5.5 million dollazs below budget (3.9%) in fiscal year 2008-09 and are projected to drop another $3.1 million (2.2%) in fiscal year 2009-10. The anticipated shortfalls are primarily due to significant decreases in the City's top revenue sources -Property Taxes, Motor Vehicle License Fees, and Sales Taxes. • Property Taxes - In developing the budget for the current fiscal yeaz, property tax revenues were projected to increase 3.9%, however, due to declining assessed property values and the slow down in new home construction, the actual growth is only 2.2%. Through January 2008 the City's aggregate property values have dropped $1.1 billion as a result of reassessments. In the current year the impact of the decline in assessed values was partially mitigated by the addition of the SR 125 with an assessed valuation of $600 million. However, based on the most current information provided by the County Assessor's Office, property tax revenue is projected to decrease by 3.9% in fiscal yeaz 2009-2010 as a result of the continued decline in housing values and additional requests for reassessments of residential properties. • Motor Vehicle License Fees -Motor Vehicle License Fees are based on the ownership of a registered vehicle and are administered through the State of California. In 1998, the State Legislature reduced the fee from 2% to 0.65%, resulting in a negative impact to local governments. The State replaced those funds with offsetting property tax revenues, resulting in MVLF being susceptible to changes in assessed value. Combined with property taxes, 36% of the City's total revenues are now susceptible to fluctuations in property assessed values. • Sales Taxes -Decreases in sales tax revenue reflect historical lows being reported for consumer confidence. The ongoing housing and credit crisis combined with continued job loss do not point to a quick recovery in this revenue source. The fiscal year 2008-2009 budget assumed a moderate 2% increase for sales tax revenue. However, due to the worsening economic condition coupled with poorer than expected sales tax numbers in the most recent quarter, sales tax revenue is now projected to decrease by 5% in the current fiscal yeaz and an additional 2% decrease next fiscal yeaz. 1-2 JANUARY 8, 2009, Item Page 3 of 4 In fiscal yeaz 2008-2009, budget savings of $1.6 million have been identified to help mitigate the projected revenue shortfall of $5.5 million, which reduces the estimated budget deficit to $3.9 million. For fiscal year 2009-2010, the base budget is projected at $154.2 million, an 8% increase over fiscal yeaz 2008-2009, and includes full funding for all Council approved positions, all scheduled step increases and cost of living adjustments, no budgeted salary savings, higher flex insurance costs, increased equipment replacement costs, higher fleet maintenance and fuel costs, and higher public liability expenditures. The increase in expenditures coupled with a declining revenue base result in a projected budget gap of $20.0 million for fiscal yeaz 2009-2010. As reported in the first quarterly financial report, the General Fund reserves as of July 1, 2008 total $9.3 million. Should the City take no corrective action in the current fiscal year to address the projected budget gap, the reserves would drop to $5.4 million. The remaining reserve level would not be sufficient to offset the projected deficit of $20.0 million in fiscal yeaz 2009-2010. The five-yeaz revenue and expenditure forecast indicates that the projected budget deficit is an ongoing structural issue that requires permanent solutions -one time revenues and short term expenditure reductions are not practical solutions to address this issue. The table below summarizes the five-yeaz fiscal outlook (in millions) for the General Fund. 2008-04- "2009-10 2010-11- 2011-12 2012-13 2013-14 Revenues $ 137.30 $ 134.25 $ 135.04 $ 137.55 $ 140.21 $ 142.88 Expenditures $ 141.30 $ 154.22 $ 157.90 $ 161.31 $ 160.18 $ 163.63 Deficit $ (4.00) $ (19.97) $ (22.86) $ (23.76) $ (19.97) $ (20.76) The City Manager has prepared a budget reduction plan that addresses the projected deficit for fiscal yeaz 2008-2009 and fiscal year 2009-2010. This plan includes the elimination of 166.5 positions and may result in as many as 129 layoffs. The recommended program and personnel reductions impact all departrnents and bargaining groups and will result in significantly lower levels of service being provided to the community. Due to the factors highlighted above, it is recommended that the Council move to declaze a fiscal emergency and recognizes that the fiscal emergency is a stmctural imbalance that cannot be addressed through the use of reserve funds. DECISION MAKER CONFLICT Staff has reviewed the decision contemplated by this action and has determined that it is not site specific and consequently the 500 foot rule found in California Code of Regulations section 18704.2(a)(1) is not applicable to this decision. 1-3 JANUARY 8, 2009, Item I Page 4 of 4 FISCAL IMPACT The City is currently facing a projected budget deficit of $3.9 million in fiscal yeaz 2008- 2009 and $20.0 million in fiscal year 2009-2010. The City Manager has prepared a budget reduction plan that corrects the annual ongoing structural budget deficit of $20.0 million. The budget reduction plan includes the elimination of 166.5 positions and may result in as many as 129 layoffs. The recommended program and personnel reductions impact all departments and bargaining groups and will result in significantly lower levels of service being provided to the community. In order to give the City Council greater flexibility in establishing remedial measures to resolve the City's budget deficit, it is recommended that the Council declare a fiscal emergency. 1-4 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL FOR THE CITY OF CHULA VISTA DECLARING A FISCAL EMERGENCY WHEREAS, at the time the 2008-2009 Budget was enacted it reflected budget reserves for Fiscal Year 2008-2009 totaling $9.3 million; and WHEREAS, at that same time, as a result of spending requirements embedded in law and increased program costs as a result of inflation, workload and population-driven program growth, the Finance Department projected shortfall between revenues and expenditures in Fiscal Yeaz 2008-2009 would be $3.9 million and for Fiscal Year 2009-2010 would be approximately $20.0 million; and WHEREAS, since the enactment of the 2008-2009 Budget, the City has faced the same economic challenges that are affecting the rest of the state and nation, in lazge part as a result of a slowing housing mazket, down-turn in the economy and financial instability; and WHEREAS, these economic challenges have resulted in a $5.5 million reduction in the General Fund revenue forecast for Fiscal Year 2008-2009 below the revenue forecast used when the 2009 Budget was enacted, and WHEREAS, expenditures from the General Fund during Fiscal Year 2008-2009 are projected to be lower than the original adopted budget by approximately $1.6 million resulting in a projected budget deficit of $3.9 million; and WHEREAS, the Finance Director now reports that this combination of lowered revenue receipts and projections and anticipated expenditure savings has resulted in a projected budget shortfall far Fiscal Yeaz 2008-2009 of $3.9 million, as well as a cumulative budget shortfall in Fiscal Yeaz 2009-2010 of $20.0 million; and WHEREAS, due to the significant projected budget shortfall, City Council has reviewed and discussed this matter, and has taken public input, at noticed public meetings on November 17, 2008 (Council Budget Workshop), December 4, 2008 (Council Budget Workshop), December 9, 2008 (Council Meeting), December 16, 2008 (Council Meeting) and January 6, 2009 (Council Meeting); and WHEREAS, the City is negotiating with all of the City's bargaining groups in an effort to reduce expenditures and declaring a fiscal emergency will assist-in said negotiations; and WHEREAS, this declazation of a fiscal emergency is being made to give the City Council greater flexibility in establishing remedial measures including identifying potential state and federal grants or other funding sources; and 1-5 WHEREAS, the Finance Director further reports that the available General Fund reserves for Fiscal Year 2008-2009 would be reduced to $5.4 million and that for Fiscal Year 2009-2010 there would be insufficient reserves to offset the projected deficit in Fiscal Year 2009-2010. NOW, THEREFORE, the City Council of the City of Chula Vista does hereby fmd and declaze that a fiscal emergency exists and identifies the nature of this fiscal emergency to be the projected budget imbalance and reduced available General Fund reserves for Fiscal Yeaz 2008- 2009 and insufficient available General Fund reserves to offset the projected budgetary deficit in Fiscal Year 2009-2010, which are anticipated to result from the lower than estimated General Fund revenues in Fiscal Yeaz 2008-2009 and increased Fiscal Year 2009-2010 expenditures. Presented by Approved as to form by James D. Sandoval City Manager ~ B Miesfie ~ City Attorney PASSED, APPROVED, AND ADOPTED by the City Council of the City of Chula Vista at its meeting held on the _ day of , 2009, by the following roll call vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COLTNCILMEMBERS: CHERYL COX, MAYOR ATTEST: DONNA NORRIS, CMC CITY CLERK I, City Clerk of the City of Chula Vista, do hereby certify the foregoing to be a true and exact copy of Resolution No. - A Resolution of the City Council of the City of Chula Vista Declaring a Fiscal Emergency CITY CLERK J: WttomeyNM1ichaelSh~BudgePFiscalFmergencyResolution-Final.doc 1-6