Hermosa Beach Community Dialogue: Phase II - Finance Subgroup

Community Dialogue: Phase II

1

Finance Subgroup:

A Report on the Financial/Fiscal

Condition of Hermosa Beach

The team

Community Members

Rick Sowers

Ruben Jubinsky

Stacey Armato

Glen Payne

Justin Schnuelle

Erika Seward

Mary Campbell

Robert Fortunato

Manny Serrano

With assistance from:

Tom Bakaly

Wil Soholt

Viki Copeland

2

Overview

• Our approach / goal was to understand and communicate the City’s “Financial

Picture” in a clear, understandable manner.

• Community Dialog Finance Team looked only at the City’s budget / fiscal status

• We took a comparative approach and looked at how our City compares to other

“like” cities. There was no scientific approach to choosing the comparable

cities – each was similar in demographics or geography and serve as a

representative sample

• Finance Team divided the City’s budget / fiscal status into three questions:

1. What is the City’s current financial condition and how does it compare

with similar cities?

2. What are the City’s legal financial obligations and what are its “wants”?

3. What are the City’s future opportunities and possibilities?

• Next Step: Merge the answers with the input and values from Community

Dialog Quality of Life Team to create a “tool” by which to approach and

understand important community decisions

3

Context

• Summary prepared by volunteer team, under a tight timeframe

• Dollar amounts and figures are based on best information and/or

estimates

• Figures are based on 2013/14 budgets

• (Excluding City of Solana figures, which are based on 2012/13

budgets)

• Estimates and analyses are preliminary in nature and are not meant to

be an all inclusive picture

• Based on our analysis, we believe there are significant opportunities to

explore

4

Question 1 - Current Financial Condition

General Gov'mnt

9%

Fire 13%

Police 28%

Public Works 10%

Comm Serv 8%

Other GF 5%

Special Funds 27%

Sales Tax 6%

Property Tax 31%

Hotel Tax (TOT)

5%

Utility Tax (UUT)

6%

Special Funds 20%

Other GF 32%

REVENUES

$40 million – Total

($32 million in GF)

EXPENSES

$41 million

($30 million in GF)

Hermosa Beach Budget (2013/14)

“Other GF” Include: Licenses & Permits,

Service Charges, etc.

“Special Funds” Include: Lighting &

Landscaping, Gas Tax, Tyco, Prop A, C, Grants

Funds, etc.

“Other GF” Include: (Some) Capital

Improvement, Community Development, etc.

“Special Funds” Include: Sewer, Insurance,

Equipment Replacement Funds, etc.

5


Five other cities evaluated for comparison are generally based on:

• Size

• Composition of Residents & Businesses

• Coastal location

Not all cities provide the same type or level / quality of services; thus the

comparisons are not always apples-to-apples:

• Manhattan, RPV & Solana have big box stores and large shopping malls;

Manhattan also has oil revenue

• Manhattan, Laguna & Solana have major capital improvement projects

funded outside of the General Fund

• Hermosa and RPV are the only cities with no debt

• Manhattan has a Water Utility Dept.; Laguna invests heavily in water quality

programs

• RPV, Sausalito & Solana contract out their Police and/or Fire services

• Hermosa has the highest crime rate; RPV the lowest

6


City Population Land Area

(square miles) Annual Budget*

Hermosa Beach 19,700 1.4 $41 million

Laguna Beach 23,100 8.9 $77 million

Manhattan Beach 35,400 3.9 $128 million

Rancho Palos

Verdes 42,100 13.5 $36 million

Sausalito 7,100 1.8 $25 million

Solana Beach 13,000 3.5 $25 million

Comparison City Stats

* All funds 7

Revenue & Expenses Per Capita (per person)

$2,038

$3,384

$3,188

$862

$3,540

$2,313

$2,099

$3,642 $3,602

$864

$3,935

$2,428

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes

Sausalito SolanaBeach

Revenue

Expenses


8

Revenue Per Capita


$2,038

$3,384

$3,188

$862

$3,540

$2,313

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes


Sales Tax Property Tax Hotel Tax (TOT)

Utility Tax (UUT) Other GF Special Funds

OBSERVATIONS

• Hermosa has lower

revenue per capita

than all cities with

the exception of

RPV

• The City has lower

sales tax revenue

than the

comparison group

• Special use funds

are less than 25%

of the majority of

the other cities

9


Type of GF Revenues (portion of each individual city’s revenue)

OBSERVATIONS

• Hermosa has lower

general tax collection

than the comparison

cities (UUT, TOT, Other)

• The City has higher

service charges and

fines and penalties.

Parking and related

enforcement is the

largest portion of this.

10

0%

20%

40%

60%

80%

100%

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes


Taxes Licenses and Permits

Fines and Penalties Use of Money and Property

Intergovernmental Revenues Service Charges

Other Revenues

0%

20%

40%

60%

80%

100%

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes


Property Sales & Use TOT

Business License UUT Franchise

Property Transfer Other

Tax Revenue By Type


OBSERVATIONS

• Hermosa has comparable

property tax revenue

• The City has lower Sales

& Use Taxes and TOT

(Hotel tax)

11

City Expense Detail (Per Capita)

$2,099

$3,642 $3,602

$864

$3,935

$2,428

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes


General Gov'mnt Fire Police

Public Works Comm Service Other GF

Special Funds


OBSERVATIONS

• Hermosa has lower costs

on General Government

than half the comparable

cities

• “Other funds” is a large

portion of expenditures

in other cities

• Sausalito and Rancho

Palos Verdes do not

operate a fire department

• Solana Beach

outsources their police

force (this is likely in

special funds)

12

0%

20%

40%

60%

80%

100%

HermosaBeach

LagunaBeach

ManhattanBeach

RanchoPalos

Verdes


General Government

Community Development

Public Safety

Public Works

General Fund Expenditures by Program


OBSERVATIONS

• Hermosa has lower costs

on General Government

than half the comparable

cities

• Public Safety is the

largest component of

expenditures (56% of

budget)

• The City has the lowest

expenditures for

community development

13

62% 56% 24% 58% 53% 39%

Other Metrics

City Crime Index* (Safer than X% of US

Cities

Higher is better)

Residents

per City

Employee**

Schools (2012 Base API

Higher is better)

General Prop Tax Supplemental for

K-12 Education

Hermosa

Beach 21 136

946 (Primary)

916 / 858 (MC/RU

High)

1.039% 0.018%

Laguna

Beach 28 60 923 1.019 – 1.048%

0.016%

Manhattan

Beach 32 127 940 1.091%

0.070%

Rancho

Palos Verdes 66 523 924 1.077%

0.023%

Sausalito 29 119 740 (Primary Only)

1.074% 0.055%

Solana

Beach 43 217 944

(Primary Only)

1.027% 0.023%


* http://www.neighborhoodscout.com/ca/los-angeles/crime/ **Per Full Time Equivalent 14

• Annual Budget of $41 Million

• No Outstanding Debt

• No Structural Debt

• Comparatively low sales tax revenue

• Lower property taxes (less revenue for schools)

• Limited special fund revenues - other cities use

special funds for sewer, water, refuse, parking,

special districts, etc.

• Highest crime rate (includes all types) even though

public safety is the largest expenditure

Takeaways

Question 1 – Current Financial Condition

15

The Three Questions

1. What is the City’s current financial

condition and how does it compare


2. What are the City’s legal financial

obligations and what are its “wants”?

3. What are the City’s future

opportunities and possibilities?

16

Question 2 – Obligations & “Wants”

The City has two legal obligations to pay for:

1. Pensions and retiree health care

2. Oil Settlement

The rest of expenses are “wants” even if we, as

a community really, really want it.

• As a community, do we want “1st class level of

services” or something lower?

• The following list of “wants” is supposed to be all

encompassing to give everyone basic info about

each want BUT there is no obligation to do any of

them.

City’s Legal Obligations vs. “Wants”

17


• Pensions cost is $3.7 million / year or about 12% of

the General Fund

• Other Post-Employment Benefits (OPEB) cost is

~$900,000 / year from the General Fund

• Cost is estimated to rise about 4% or $150,000 per

year for the next 5 years

• Growth of long-term obligations slowed in July 2011

and again in January 2013 by adding tiers

• Please note that city employees are not eligible for

Social Security like private-sector workers

Pension & Retiree Health Care Obligations

18

• Vote Against Lifting the Oil Drilling Ban • $17.5 million settlement payment to E&B

• $6.0 million in insurance reserves already set aside by City.

• City has several financing options to pay the settlement over multiple years.

The best option is still to be determined.

• No potential oil revenues

• Would not bankrupt the City but may affect the quality of service provided at

current revenue rates

• Vote in Favor of Lifting the Oil Drilling Ban • $3.5 million settlement payment to E&B (already set aside by City, expected to be

paid with oil royalties)

• City to pay to relocate/construct new Maintenance Yard and employee parking

• Current estimate is $10.8 - $18.8 million (upgraded facility and parking)

• E&B to loan City $575k+ for temp and new yard (lower of prime rate or 12%,

repaid with royalties)

• Loss of ~$180,000 annual revenue from self storage building

• Potential oil revenues to City in the future

Oil Settlement Summary

Question 2 – Legal Obligations

19

Project Remaining Life

(Yrs) Total Budget (Millions)

New Sewer System Limited $14.0

Storm Water Upgrades

Hermosa Ave Infiltration 2 $1.0

South Park Infiltration 2 $6.0

Park Upgrades Varies $15.8

Community Center Reno. -18 $29.2 (total redo)

CC – Theater Upgrades $6.2

New Maintenance Yard 5 $10.0 - $18.8 (w/ parking)

New Police Building 5 $10.8

New Fire Station 5 $5.0

New City Hall 10 $10.8

TOTAL $108.7 - 117.5 million

Capital Improvements Rough Cost Estimates

Question 2 - Future “Wants”

Ongoing Improvements Remaining Life

(Yrs) Annual Budget (Millions)

Sewer Improvements Limited $1.0

Street Improvements Varies $0.7

TOTAL ~$1.7 million annually

20

• Some capital improvements required just to

maintain current level of core services

• Reasonable pension costs due to action

taken in prior years

• Oil Settlement obligations no matter which

way the vote goes

• Aging City infrastructure

• The current revenue pie is not big enough to

support all infrastructure improvements

(approx. $100 million)

• High service level expectations

Takeaways


21

The Three Questions

1. What is the City’s current financial

condition and how does it compare


2. What are the City’s legal financial

obligations and what are its “wants”?

3. What are the City’s future

opportunities and possibilities?

22

• Increase Fees/ Taxes

• Increased Height / Density

• Decrease Service Levels

• Delaying Improvements

• Financing / Issuing Debt

• Drill for Oil

Priority Should Be Given To:

• Creatively Increasing and Diversifying Revenues

• Creatively Increasing Efficiencies

Choices Currently Being Considered

Question 3 - Opportunities & Possibilities

23

Some Possibilities


Description Increase

Revenues

Increase

Efficiencies

Quality of Life /

2nd Order

Revenue

Fostering business development - reducing

barriers to entry and regulatory friction

Free parking during business hours

Redevelopment of properties / uses

Business retention

Resident / local business attraction

Multiple utilities in shared trenching

Valet, automated parking

Smart parking solutions, congestion pricing

In-town circulation improvements (esp. bike & ped)

Limited height variances & density increases 24

Some Possibilities



Revenues

Increase

Efficiencies

Quality of Life /

2nd Order

Revenue

Carbon neutrality

Bury power lines

Partnerships (i.e. shared use of community

theater w/ schools)

Health & well-being

Roadway beautification

Vacation rental regulation

Eco tourism

Academic innovation / hub

Fire / Police station site configuration

Civic center redevelopment 25

Some Possibilities



Revenues

Increase

Efficiencies

Quality of Life /

2nd Order

Revenue

Recreation attractions / destinations

Enhanced beach services / membership

Additional undersea cable(s)

Incubator, flex & shared space

Oil drilling

Entertainment & art attractions / destinations

Enhancements to schools, STEAM, music and arts

education

26

Takeaways


• Many opportunities and possibilities

• Only limited by our ability to engage this

talented community and think and act

differently

• Paths depend on values, priorities and ability

to innovate

27

Next Steps

• Incorporate these ideas into your Strategic

Planning session to differentiate our City in a

way that is a meaningful attractor to

businesses, tourists and residents who share

our values.

• Have City Government proactively work with

the Community to find creative ways to be

more effective in providing better service

while reducing waste and inefficiencies.

28

Appendices

29


Budgets usually include a “General Fund” and

several “Special Funds”

• General Fund (“GF”) covers general government

operations, typically including City staff, police,

fire, parks, and public works

• Special Funds are restricted funds that can only

be used for specific uses. These uses typically

include water and sewer utilities, storm water

system, and other capital improvements.

• The City’s Special Funds include things like

Sewer Fund, Equipment Replacement Fund,

Insurance Fund, Downtown Enhancement Fund

About City Budgets

30


• Cut City staff costs by 11% from 2010 to 2013.

• No salary or cost of living increases for City staff

since 7/1/2009.

• City negotiated pension obligations lower in 2011.

State negotiated pension obligations lower again in

2013.

• City deferred purchasing ~$900,000+ of new City

vehicles like ambulances, and fire engines that are

only now being purchased.

• City recently rebid major service contracts (i.e.

landscaping, street sweeping, liability admin, etc.)

What has the City done to cut expenses?

31


Personnel costs have been reduced

Year 2010 2011 2012 2013

Reg Salaries $10.4 MM $10.0 MM $9.7 MM $9.5 MM

• Assistant Fire Chief

• Community Resources Director

• Human Resources Director

• Police Officers (3)

• Paramedics (3)

• Public Works Inspector

• Planning Associate

• Associate Engineer

• Combine Code Enforcement

Officer and Sr. Building Inspector

• Recreation Coordinator

• Court Liaison

• Office Assistant

• Maintenance I

• Associate Engineer

• Senior Equipment Mechanic

Personnel Cuts in 2011 and 2012:

Appendix

32

Raising taxes generally requires between 50.1% -

66.7% vote depending on type of tax, and end use

Increasing taxes may reduce demand – i.e. increasing

sales tax can marginally impact local sales

Other Considerations


33

Approximate annual costs, based on 30 year bond

Debt - Annual Costs ($MM, Bonds)


3.0% 4.0% 5.0% 6.0% 7.0%

$ 15,000,000 $ 800,000 $1,000,000 $1,100,000 $1,200,000 $1,400,000

20,000,000 1,100,000 1,300,000 1,400,000 1,600,000 1,800,000

25,000,000 1,400,000 1,600,000 1,800,000 2,000,000 2,300,000

30,000,000 1,700,000 1,900,000 2,200,000 2,400,000 2,700,000

40,000,000 2,200,000 2,500,000 2,900,000 3,300,000 3,600,000

50,000,000 2,800,000 3,200,000 3,600,000 4,100,000 4,500,000

Interest Rate

Pro

ject

Fu

nd

34

Prime

High Grade

Upper Medium Grade

Lower Medium Grade

AAA

AA+

AA

AA-

A+

A

A-

BBB+

BBB

BBB-

BB+

BB

BB-

B+

B

B-

CCC+

&

Below

Non-Investment

Grade Speculative

Highly Speculative

Substantial Risks

In Default / Little

Chance for Recovery

Stockton

Vallejo

AAA: Pasadena

AAA: Santa Monica

AA+: Manhattan Beach, Sausalito

AA-: Solana Beach

Laguna Beach,

RPV,

Hermosa Beach

not rated, no direct “City” debt

Credit Ratings impact interest rates


35

Hermosa Beach Community Dialogue: Phase II - Finance Subgroup

Economy & Finance

Transcript of Hermosa Beach Community Dialogue: Phase II - Finance Subgroup