Study of revenue, expenses, capital projects, and revenue options.

1. Community Dialogue: Phase II
1
Finance Subgroup:
A Report on the Financial/Fiscal
Condition of Hermosa Beach

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. 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. 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. 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

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. Question 1 - Current Financial Condition
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

8. 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
Hermosa
Beach
Laguna
Beach
Manhattan
Beach
Rancho
Palos
Verdes
Sausalito Solana
Beach
Revenue
Expenses
Question 1 - Current Financial Condition
8

9. Revenue Per Capita
Question 1 - Current Financial Condition
$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
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
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

10. Question 1 - Current Financial Condition
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%
Hermosa
Beach
Laguna
Beach
Manhattan
Beach
Rancho
Palos
Verdes
Sausalito Solana
Beach
Taxes Licenses and Permits
Fines and Penalties Use of Money and Property
Intergovernmental Revenues Service Charges
Other Revenues

11. 0%
20%
40%
60%
80%
100%
Hermosa
Beach
Laguna
Beach
Manhattan
Beach
Rancho
Palos
Verdes
Sausalito Solana
Beach
Property Sales & Use TOT
Business License UUT Franchise
Property Transfer Other
Tax Revenue By Type
Question 1 - Current Financial Condition
OBSERVATIONS
• Hermosa has comparable
property tax revenue
• The City has lower Sales
& Use Taxes and TOT
(Hotel tax)
11

12. 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
Hermosa
Beach
Laguna
Beach
Manhattan
Beach
Rancho
Palos
Verdes
Sausalito Solana
Beach
General Gov'mnt Fire Police
Public Works Comm Service Other GF
Special Funds
Question 1 - Current Financial Condition
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

13. 0%
20%
40%
60%
80%
100%
Hermosa
Beach
Laguna
Beach
Manhattan
Beach
Rancho
Palos
Verdes
Sausalito Solana
Beach
General Government
Community Development
Public Safety
Public Works
General Fund Expenditures by Program
Question 1 - Current Financial Condition
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%

14. 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%
Question 1 - Current Financial Condition
* http://www.neighborhoodscout.com/ca/los-angeles/crime/ **Per Full Time Equivalent
14

15. • 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

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. 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

18. Question 2 – Obligations & “Wants”
• 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

19. • 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

20. 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

21. • 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
Question 2 – Obligations & “Wants”
21

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. • 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

24. Some Possibilities
Question 3 - Opportunities & 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. Some Possibilities
Question 3 - Opportunities & 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. Some Possibilities
Question 3 - Opportunities & 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. Takeaways
Question 3 - Opportunities & Possibilities
• 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. 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. Appendices
29

30. Question 1 - Current Financial Condition
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

31. Question 1 - Current Financial Condition
• 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

32. Question 1 - Current Financial Condition
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

33. 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
Question 3 - Opportunities & Possibilities
33

34. Approximate annual costs, based on 30 year bond
Debt - Annual Costs ($MM, Bonds)
Question 3 - Opportunities & Possibilities
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
ProjectFund
34

35. 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
Question 3 - Opportunities & Possibilities
35