Community Dialogue: Phase II

Finance Subgroup:
A Report on the Financial/Fiscal
Condition of Hermosa Beach

1
The team
Community Members
Rick Sowers
Ruben Jubinsky
Stacey Armato
Glen Payne
Justin Schnuelle
Erika Seward
Mary Campbell...
Overview
• Our approach / goal was to understand and communicate the City’s “Financial
Picture” in a clear, understandable...
Context
•

Summary prepared by volunteer team, under a tight timeframe

•

Dollar amounts and figures are based on best in...
Question 1 - Current Financial Condition
Hermosa Beach Budget (2013/14)
REVENUES
$40 million – Total
($32 million in GF)

...
Question 1 - Current Financial Condition
Five other cities evaluated for comparison are generally based on:
•

Size

•

Co...
Question 1 - Current Financial Condition
Comparison City Stats
City

Population

Land Area
(square miles)

Annual Budget*
...
Question 1 - Current Financial Condition
Revenue & Expenses Per Capita (per person)
$4,500

$3,935

$4,000

$3,642

$3,602...
Question 1 - Current Financial Condition
Revenue Per Capita
$4,000

$3,500

OBSERVATIONS
• Hermosa has lower
revenue per c...
Question 1 - Current Financial Condition
Type of GF Revenues
(portion of each individual city’s revenue)
100%

OBSERVATION...
Question 1 - Current Financial Condition
Tax Revenue By Type
100%

OBSERVATIONS
• Hermosa has comparable
property tax reve...
Question 1 - Current Financial Condition
City Expense Detail (Per Capita)
$4,500

OBSERVATIONS
• Hermosa has lower costs
o...
Question 1 - Current Financial Condition
General Fund Expenditures by Program
100%

OBSERVATIONS
• Hermosa has lower costs...
Question 1 - Current Financial Condition
Other Metrics
Crime Index*
City

(Safer than X% of US
Cities
Higher is better)

R...
Question 1 – Current Financial Condition
Takeaways
•

Annual Budget of $41 Million

•

No Outstanding Debt

•

No Structur...
The Three Questions
1. What is the City’s current financial
condition and how does it compare
with similar cities?

2. Wha...
Question 2 – Obligations & “Wants”
City’s Legal Obligations vs. “Wants”

The City has two legal obligations to pay for:
1....
Question 2 – Obligations & “Wants”
Pension & Retiree Health Care Obligations
•

Pensions cost is $3.7 million / year or ab...
Question 2 – Legal Obligations
Oil Settlement Summary
• Vote Against Lifting the Oil Drilling Ban
• $17.5 million settleme...
Question 2 - Future “Wants”
Capital Improvements Rough Cost Estimates
Project

New Sewer System
Storm Water Upgrades
Hermo...
Question 2 – Obligations & “Wants”
Takeaways

• Reasonable pension costs due to action
taken in prior years
• Oil Settleme...
The Three Questions
1. What is the City’s current financial
condition and how does it compare
with similar cities?

2. Wha...
Question 3 - Opportunities & Possibilities
Choices Currently Being Considered
•

Increase Fees/ Taxes

•

Increased Height...
Question 3 - Opportunities & Possibilities
Some Possibilities
Description

Increase
Revenues

Increase
Efficiencies

Quali...
Question 3 - Opportunities & Possibilities
Some Possibilities
Description

Increase
Revenues

Increase
Efficiencies

Quali...
Question 3 - Opportunities & Possibilities
Some Possibilities
Description

Increase
Revenues

Increase
Efficiencies

Quali...
Question 3 - Opportunities & Possibilities
Takeaways
• Many opportunities and possibilities
• Only limited by our ability ...
Next Steps
• Incorporate these ideas into your Strategic
Planning session to differentiate our City in a
way that is a mea...
Appendices

29
Question 1 - Current Financial Condition
About City Budgets

Budgets usually include a “General Fund” and
several “Special...
Question 1 - Current Financial Condition
What has the City done to cut expenses?
•
•
•

•

•

Cut City staff costs by 11% ...
Question 1 - Current Financial Condition

Appendix

Personnel costs have been reduced

Year

2010

2011

2012

2013

Reg S...
Question 3 - Opportunities & Possibilities
Other Considerations
Raising taxes generally requires between 50.1% 66.7% vote ...
Question 3 - Opportunities & Possibilities

Project Fund

Debt - Annual Costs ($MM, Bonds)

$

15,000,000
20,000,000
25,00...
Question 3 - Opportunities & Possibilities
Credit Ratings impact interest rates
Prime
High Grade

Upper Medium Grade

Lowe...
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Hermosa Beach Community Dialogue: Phase II - Finance Subgroup

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A report on the Financial/Fiscal Condition of Hermosa Beach

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Hermosa Beach Community Dialogue: Phase II - Finance Subgroup

  1. 1. Community Dialogue: Phase II Finance Subgroup: A Report on the Financial/Fiscal Condition of Hermosa Beach 1
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. Question 1 - Current Financial Condition Hermosa Beach Budget (2013/14) REVENUES $40 million – Total ($32 million in GF) EXPENSES $41 million ($30 million in GF) Sales Tax 6% Property Tax 31% Other GF 32% Special Funds 20% Hotel Tax (TOT) 5% Utility Tax (UUT) 6% “Other GF” Include: Licenses & Permits, Service Charges, etc. “Special Funds” Include: Lighting & Landscaping, Gas Tax, Tyco, Prop A, C, Grants Funds, etc. Police 28% Fire 13% General Gov'mnt 9% Public Works 10% Comm Serv 8% Special Funds 27% Other GF 5% “Other GF” Include: (Some) Capital Improvement, Community Development, etc. “Special Funds” Include: Sewer, Insurance, Equipment Replacement Funds, etc. 5
  6. 6. Question 1 - Current Financial Condition 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
  7. 7. Question 1 - Current Financial Condition Comparison City Stats 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 * All funds 7
  8. 8. Question 1 - Current Financial Condition Revenue & Expenses Per Capita (per person) $4,500 $3,935 $4,000 $3,642 $3,602 $3,540 $3,384 $3,500 $3,188 $3,000 $2,500 $2,313 $2,428 $2,038 $2,099 Revenue Expenses $2,000 $1,500 $1,000 $862 $864 $500 $- Hermosa Beach Laguna Beach Manhattan Beach Rancho Palos Verdes Sausalito Solana Beach 8
  9. 9. Question 1 - Current Financial Condition Revenue Per Capita $4,000 $3,500 OBSERVATIONS • Hermosa has lower revenue per capita than all cities with the exception of RPV $3,540 $3,384 $3,188 $3,000 $2,500 $2,313 $2,038 $2,000 $1,500 • Special use funds are less than 25% of the majority of the other cities $862 $1,000 • The City has lower sales tax revenue than the comparison group $500 $0 Hermosa Beach Laguna Beach Manhattan Beach Rancho Palos Verdes Sausalito Solana Beach Sales Tax Property Tax Hotel Tax (TOT) Utility Tax (UUT) Other GF Special Funds 9
  10. 10. Question 1 - Current Financial Condition Type of GF Revenues (portion of each individual city’s revenue) 100% OBSERVATIONS • Hermosa has lower general tax collection than the comparison cities (UUT, TOT, Other) 80% • The City has higher service charges and fines and penalties. Parking and related enforcement is the largest portion of this. 60% 40% 20% 0% Hermosa Beach Laguna Beach Manhattan Beach Taxes Fines and Penalties Intergovernmental Revenues Other Revenues Rancho Palos Verdes Sausalito Solana Beach Licenses and Permits Use of Money and Property Service Charges 10
  11. 11. Question 1 - Current Financial Condition Tax Revenue By Type 100% OBSERVATIONS • Hermosa has comparable property tax revenue 80% • The City has lower Sales & Use Taxes and TOT (Hotel tax) 60% 40% 20% 0% Hermosa Beach Laguna Beach Manhattan Beach Rancho Palos Verdes Sausalito Solana Beach Property Sales & Use TOT Business License UUT Franchise Property Transfer Other 11
  12. 12. Question 1 - Current Financial Condition City Expense Detail (Per Capita) $4,500 OBSERVATIONS • Hermosa has lower costs on General Government than half the comparable cities $3,935 $4,000 $3,642 $3,602 $3,500 $3,000 $2,428 $2,500 $2,099 $2,000 • Sausalito and Rancho Palos Verdes do not operate a fire department $1,500 $864 $1,000 $500 $0 Hermosa Beach Laguna Beach Manhattan Beach Rancho Palos Verdes • “Other funds” is a large portion of expenditures in other cities Sausalito Solana Beach General Gov'mnt Fire Police Public Works Comm Service • Solana Beach outsources their police force (this is likely in special funds) Other GF Special Funds 12
  13. 13. Question 1 - Current Financial Condition General Fund Expenditures by Program 100% OBSERVATIONS • Hermosa has lower costs on General Government than half the comparable cities 80% 40% • Public Safety is the largest component of expenditures (56% of budget) 20% • The City has the lowest expenditures for community development 60% 56% 53% 58% 24% 39% 62% 0% Hermosa Beach Laguna Manhattan Rancho Beach Beach Palos Verdes Sausalito General Government Community Development Public Safety Public Works Solana Beach 13
  14. 14. Question 1 - Current Financial Condition Other Metrics Crime Index* City (Safer than X% of US Cities Higher is better) Residents per City Employee** Schools (2012 Base API Higher is better) 946 (Primary) General Prop Tax Supplemental for K-12 Education Hermosa Beach 21 136 916 / 858 (MC/RU High) Laguna Beach 28 60 923 1.019 – 1.048% Manhattan Beach 32 127 940 1.091% Rancho Palos Verdes 66 523 924 1.077% Sausalito 29 119 740 1.074% (Primary Only) 0.055% Solana Beach 43 217 944 1.027% (Primary Only) 0.023% 1.039% 0.018% 0.016% 0.070% 0.023% 14 * http://www.neighborhoodscout.com/ca/los-angeles/crime/ **Per Full Time Equivalent
  15. 15. Question 1 – Current Financial Condition Takeaways • 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 15
  16. 16. The 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? 16
  17. 17. Question 2 – Obligations & “Wants” City’s Legal Obligations vs. “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. 17
  18. 18. Question 2 – Obligations & “Wants” Pension & Retiree Health Care Obligations • 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 18
  19. 19. Question 2 – Legal Obligations Oil Settlement Summary • 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 19
  20. 20. Question 2 - Future “Wants” Capital Improvements Rough Cost Estimates Project New Sewer System Storm Water Upgrades Hermosa Ave Infiltration South Park Infiltration Park Upgrades Community Center Reno. CC – Theater Upgrades New Maintenance Yard New Police Building New Fire Station New City Hall Remaining Life (Yrs) Total Budget (Millions) Limited $14.0 2 2 Varies -18 $1.0 $6.0 $15.8 $29.2 (total redo) $6.2 $10.0 - $18.8 (w/ parking) $10.8 $5.0 $10.8 5 5 5 10 TOTAL Ongoing Improvements Sewer Improvements Street Improvements TOTAL • $108.7 - 117.5 million Remaining Life (Yrs) Limited Varies Annual Budget (Millions) $1.0 $0.7 ~$1.7 million annually Some capital improvements required just to maintain current level of core services 20
  21. 21. Question 2 – Obligations & “Wants” Takeaways • 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 21
  22. 22. The 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? 22
  23. 23. Question 3 - Opportunities & Possibilities Choices Currently Being Considered • 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 23
  24. 24. Question 3 - Opportunities & Possibilities 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
  25. 25. Question 3 - Opportunities & Possibilities Some Possibilities Description Increase 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
  26. 26. Question 3 - Opportunities & Possibilities Some Possibilities Description Increase 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
  27. 27. Question 3 - Opportunities & Possibilities 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
  28. 28. 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
  29. 29. Appendices 29
  30. 30. Question 1 - Current Financial Condition About City Budgets 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 30
  31. 31. Question 1 - Current Financial Condition What has the City done to cut expenses? • • • • • 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.) 31
  32. 32. Question 1 - Current Financial Condition Appendix Personnel costs have been reduced Year 2010 2011 2012 2013 Reg Salaries $10.4 MM $10.0 MM $9.7 MM $9.5 MM Personnel Cuts in 2011 and 2012: • • • • • • • • Assistant Fire Chief Community Resources Director Human Resources Director Police Officers (3) Paramedics (3) Public Works Inspector Planning Associate Associate Engineer • Combine Code Enforcement Officer and Sr. Building Inspector • Recreation Coordinator • Court Liaison • Office Assistant • Maintenance I • Associate Engineer • Senior Equipment Mechanic 32
  33. 33. Question 3 - Opportunities & Possibilities Other Considerations Raising taxes generally requires between 50.1% 66.7% vote depending on type of tax, and end use Increasing taxes may reduce demand – i.e. increasing sales tax can marginally impact local sales 33
  34. 34. Question 3 - Opportunities & Possibilities Project Fund Debt - Annual Costs ($MM, Bonds) $ 15,000,000 20,000,000 25,000,000 30,000,000 40,000,000 50,000,000 3.0% 4.0% $ 800,000 $1,000,000 1,100,000 1,300,000 1,400,000 1,600,000 1,700,000 1,900,000 2,200,000 2,500,000 2,800,000 3,200,000 Interest Rate 5.0% 6.0% 7.0% $1,100,000 $1,200,000 $1,400,000 1,400,000 1,600,000 1,800,000 1,800,000 2,000,000 2,300,000 2,200,000 2,400,000 2,700,000 2,900,000 3,300,000 3,600,000 3,600,000 4,100,000 4,500,000 Approximate annual costs, based on 30 year bond 34
  35. 35. Question 3 - Opportunities & Possibilities Credit Ratings impact interest rates Prime High Grade Upper Medium Grade Lower Medium Grade Speculative Highly Speculative Substantial Risks In Default / Little Chance for Recovery AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ & Below AAA: Santa Monica AAA: Pasadena AA+: Manhattan Beach, Sausalito AA-: Solana Beach Laguna Beach, RPV, Hermosa Beach not rated, no direct “City” debt Non-Investment Grade Stockton Vallejo 35

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