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LTC 187-2010 Analysis of Budget to Actual Revenues & Expenses ending 3/31/10m MIAMI BEACH ~=~~~~~l~~~ OFFICE OF THE CITY MANAGER 2~ ~ 0 ~~~- ! Z P~ Z' 3 NO. LTC# 187_2010 LETTi~~~TO~f~1~~lON TO: Mayor Matti Herrera Bower and Members of the City Commission FROM: Jorge M. Gonzalez, City Manager DATE: June 30, 2010 SUBJECT: ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND The purpose of this LTC is to provide the Mayor and Commission with the status of the FY 2009/10 budget to actual revenue and expenses at the end of the second quarter with projections through September 30, 2010. Summary Based on the review, it is projected that, overall, there will bean operating budget shortfall of $2.3 million (approximately 1 %) in the General Fund, an improvement from the first quarter projection of a $2.8 million shortfall and less than the $3.5 million from the General Fund component of the FY 2009/10 budgeted employee givebacks which were uncertain at the beginning of the fiscal year. It is important to note that this shortfall is despite a projected revenue shortfall of $0.3 million and despite the fact that only $720,000 of the $3.5 million in budgeted employee "give-backs" have been achieved at this time. This $720,000 in employee giveback savings achieved to date is due to the merit increases frozen effective October 1, 2009 for GSA, unclassified and "other" employees only. The 2% pension contribution for GSA, unclassified and "other" employees will accrue to FY 2010/11 as explained further in this memo. While we have made solid progress with our unions, we do not yet have ratified contracts in place, and therefore, the projections do not include savings from the remaining unions at this time. To the extent the City is successful in nepotiating similar emalovee "aivebacks"with the other barvairnn4 arouas ~n the near future. this shortfall will be reduced. Further, the City will continue to work to address. the shortfall, including pursuing further contracts savings by rebidding expiring contracts, holding off on hiring for non-essential positions, etc., in order to close-out the fiscal year in a position better than what is projected from the second quarter information. As we are now mid-way though the fiscal year, our projections begin to become more firm, however, there are still areas which we are continuing to refine, including our first year understanding of data regarding red-light cameras, the unusual impact on taxes from the delays in completing appeals for the prior fiscal year and the current fiscal year property tax revenues, changing utilization of our golf courses, General Fund fee revenues related to the Building Development Process, etc. This information is still developing and will be continue to be refined in later projections. Those assumptions, as well as our continued effort at managing the City's resources and continued adjustments to revenues and expenditures line items throughout the year will affect our projections going forward. LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SfX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 2 Overview An analysis of the actual six month operating revenues and expenditures for the period October 1, 2009 through March 31, 2010, reveals an operating surplus of $30,988,163. While the surplus as of March 31 St seems unusual as compared to the shortfall projected for the year ending on September 30"', it should be noted that the City receives a greater percentage of its revenues in the first half of the year, Ad valorem tax revenues representing approximately 51 of total revenues have been almost 78% received, a similar level as of the second quarter of last fiscal year. The remaining 49% of revenues are approximately at the 43% level as of March 31 S as compared to 52% as of the first half of last fiscal year. The projected year-end operating revenues and expenditures through September 30, 2010, is, therefore, a more realistic snapshot of anticipated shortfall at this point in time. Further, while the actual revenues and expenditures presented are as of March 31, 2010, the projections have incorporated more recent information, as available. A summary of preliminary projected General Fund Revenues and Expenditures as of September 30, 2010 is as follows: Budget FY Projected Sept. Budget/Projected General Fund 2009/10 30, 2010 (Over/(Under) Revenues $ 226,336,026 $ 226,046,532 $ (289,494) Expenditures 226,336,026 228,369,266 2,033,240 Surplus/(Deficit) $ - $ (2,322,734) $ (2,322,734) While property tax revenues were significantly reduced in FY 2008/09 (2.3% of budget at year- end), we are continuing to project full collections this year. The FY 2008/09 property tax revenues were impacted by appeals that continued into the current fiscal year. These outcomes from these appeals are therefore accruing to the FY 2009/10 fiscal year and may increase current property year tax revenues. On the other hand, there may be an impact from FY 2009/10 appeals that will result in revenues that will not be collected until FY 2010/11, however, the extent and amount of the impact is still unknown. It is important to note that a component of the projected year-end revenues is, once again, due to Building permit revenues in excess of budget (Licenses and Permits). This is due in part to the ongoing review of permits at closeout, as well as the increased revenues from elevator inspection due to a catch up from prior year collections and increased elevator inspection fees adopted February 1, 2010. It is anticipated that these additional revenues will be at least partially offset by additional expenses in the Building Department as a result of increased elevator inspections to eliminate past due inspections, as well as the continuation of process improvement initiatives being implemented. However, the General Fund budget had also assumed an increase of $1.5 million in revenues outside of the Building Department due to the implementation of the new fee structure for Building Development Process Fees. The fee restructure was approved in January 2010 and became effective on February 1, 2010, thereby reflecting 7 months under the new fee structure instead of the 12 months budgeted, and projects that were initiated under the old process will continue to be in effect for some time. Further, building permit demand has decreased from prior years. While improved from the first quarter projection, but still too early LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 3 to project with any level of accuracy, the projections reflect a decrease from budget in the revenues from General Fund fees related to the Building Development Process. In addition, the projections continue to assume increased telephone and electricity franchise taxes (Other Taxes), slightly increased sales tax revenues (Intergovernmental Revenues), and increased Fire-Rescue Transport revenues, at least in part due to increased Fire-Rescue Transport fees approved by the Commission in February, 2010. We are continuing to assume that these increases will be partially offset by decreases in golf course revenues, fines and forfeit revenues, interest earnings, and miscellaneous revenue. However, unlike the first quarter projection that reflected red light camera revenues at budget, we are now projecting that red light camera collections for the current fiscal year will be significantly less than budgeted. This is primarily due to new legislation which provides that the state receive $83 of each fine from red light camera infractions leaving the City $75 rather than $125 in revenue. The legislation also includes restrictions of fines related to turning right on a red light that will likely reduce the overall number of citations issued. In addition, it is now anticipated that full deployment of all 15 cameras will not occur until July of this year as a result of no position yet from FDOT on how it will grant permits on their right of way usage. The expenditure projection continues to reflect the impact of proactive initiatives by the City to reduce expenses below the adopted budget given the continued deterioration of economic conditions and the resulting impacts on the City's FY 2009/10 budget and for several years to come. These initiatives included the continuation of a modified hiring freeze, delayed hiring of other positions, re-bidding of contracts where appropriate to take advantage of the more competitive economic environment, close scrutiny of major purchases, and continuous evaluation of opportunities to reduce costs in all departments. However, these savings are offset by approximately $2.8 million from the impacts of merit and step increases as well as pension costs not included in the FY 2009/10 budget. SpecificaAy, the operating budget assumed approximately $3.5 million in employee givebacks including an increased employee pension contribution of 2 percent ($2.055 million impact to the FY 2009/10 General Fund Operating Budget) and elimination of merits and steps across all salary groups (approximately $1.4 million). Half of the budgeted salary savings from merits and steps has been achieved through implementation for the GSA bargaining unit as well as Unclassified and "Others" effective October 1, 2009 (approximately $700,000). While significant progress has been made in negotiations with other bargaining units (IAFF, FOP, AFSCME and CWA), ratification of contracts are still pending and savings would not be achieved until July, at the earliest. As a result, the projections do not assume savings from these bargaining units for FY 2009/10, at this time. To the extent they are achieved, the projected deficit would be reduced. The departmental projections reflect salary increases that have occurred through the end of April, 2010, while the amounts that are anticipated to occur over the balance of the year are reflected separately. Similarly, the additional deduction of 2% from salaries for the employee pension contribution for all active GSA members who participate in the Miami Beach Employees' Retirement Plan (MBERP), as well as the Unclassified and "Others" employee groups simultaneously with the GSA salary group became effective with the pay period that began on January 18, 2010 (together, anticipated to generate approximately $500,000 during FY 2009/10). However, as part of the terms and conditions of the Agreement with the GSA, the additional 2% pension contribution was to be placed in an Agency Account (where the City acts on behalf of the LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 4 employee in collecting the funds and transmitting those funds to the appropriate agency) until such time as the employee contribution for all members of the Miami Beach Employees' Retirement Plan is finalized. Given that the City makes its employer annual required contribution (ARC) to the pension fund on October 1St of each year, the timing of negotiations has resulted in the City already making its required contributions for FY 2009/10 in full on October 1St , 2009. Should the additional 2% contribution also be collected from the employees in the CWA and AFSCME bargaining units, then the entire amount that is held in the Agency Account through September 30, 2010 shall be contributed to the MBERP effective October 1, 2010, thus reducing the use of other City funding sources to fund the City's ARC for FY 2010/11. As a result, while the City may realize pension savings from the 2% contributions already implemented for the GSA, Unclassifieds and "Others" salary groups should the remaining bargaining units agree to do the same, the savings to the City realized from these contributions would then occur in FY 2010/11 rather than FY 2009/10. In addition, no agreement has been reached with the FOP and IAFF salary group regarding pension contributions to the Fire and Police Pension Fund. Thus the $2.055 million in savings from the additional 2% contribution across all departments has been removed from the department projections resulting in each department showing greater expenditures than would otherwise have been. Despite this impact, the excess expenditures across all departments is projected at only $2 million (approximately 0.9% of budget). In essence reflecting savings initiatives of approximately $0.8 million across all departments, net of the previously assumed personnel cost reductions of $2.8 million which are no longer assumed to accrue to FY 2009/10. It is important to note that this projection continues to assume that the Citywide operating contingency of approximately $1 million will be fully spent. To the extent that it is not, the shortfall will be reduced. In addition, the City will continue to work to address the shortfall, including negotiations with the remaining unions (IAFF, FOP, CWA, and AFSCME) to help address the FY 209/10 shortfall in a timely manner and to be able to affect the City's contribution requirement for FY 2010/11. For a detail of General Fund Revenues by category and Expenditures by Department, see attached schedule. Detailed comments on those revenue and expenditure categories with significant variances over $300,000 are shown below. General Fund Operating Revenues As of March 31, 2010 revenues collected were 61% of budget or $138,267,231. Historically, the City receives a greater percentage of its revenues in the first half of the year, which must be considered when analyzing actual revenues and formulating year-end revenue projections. Year-end projections through September 30, 2010 which total $226 million indicate that revenues will be below budget by $0.3 million or approximately 0.4%. 1. Other Taxes -This category includes franchise and utility taxes on services. Projections indicate that year-end collections will exceed budget by 5% or $1.2 million. This is primarily due to an increase in revenues from phone services and electricity. LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 5 2. Charges for Services -Non Golf Course Revenues Projections indicate that yearend collections will be above budget by 10% or $390,000. This is due to recently implemented increases in transport fees. 3. Charges for Services -Golf Course Revenues Projections indicate that year-end coAections will be below budget by 7% or $410,000. This is mainly due to lower than expected revenues which reflect the decline in visitor and group business for the Miami Beach and the Normandy Shores Golf Clubs as well as an unusually cold and rainy winter. However, this amount is projected to be offset by similar savings in golf course expenditures. 4. Fines and Forfeits -Projections indicate that year-end collections will be below budget by 27% or $861,000. This is mainly due to lower than budgeted fines from red light cameras. 5. Interest -Projections indicate that year-end collections will be below budget by 15% or $817,000. This is mainly due to reduced investment returns from long term investment vehicles that are maturing in the current fiscal year and will be reinvested at lower interest rates. 6. Miscellaneous -This category includes concessions, planning fees, and other reimbursements. Projections indicate that year-end revenues will be 4% below budget or $357,000. This is due primarily to lower than anticipated revenues as a result of savings in the CIP Department and therefore lower cost allocations to capital improvement projects. General Fund Operating Expenditures As of March 31, 2010, actual expenditures were 47% of budget or $107,279,068. Year-end projections through September 30, 2010 indicate that expenditures will be $228.4 million, approximately 0.9% over budget. Significant variances to budget in excess of $300,000 by General Fund department are explained below: 1. Building Budget Projected Budget/Projected FY 2009/10 Sept. 30, 2010 Over/(Under) $8,601,507 $9,396,534 $795,027 As outlined in the first quarter projection, in addition to the impacts from unbudgeted FY 2009/10 merits and steps incurred through March 2010, and approximately $115,000 from the pension contribution impact, the Building Department is projected to exceed its budget due to professional services fees for increased elevator inspections (offset by increased revenues), the impact of not outsourcing permits clerks as of this time, as well as the ongoing space reconfiguration initiative as recommendations by Watson Rice as part of their performance and organizational review of the Building Department between 2008 and 2009. The space configuration project includes reconfiguration for electronic plan review on the second floor, records management, LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PROJECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 6 and reconfiguration of the lobby to be more customer friendly. Building Permit revenues in excess of budget ($0.9 million) are more than sufficient to offset these additional expenditures. 2. Parks 8ti Recreation -Golf Courses Budget Projected Budget/Projected FY 2009/10 Sept. 30, 2010 Over/(Under) $6,295,105 $5,859,324 ($ 435,781) Approximately $435,000 (7% of budget) is also anticipated from savings in expenditures at the City golf courses as a result of several cost savings measures introduced in response to reduced demand and corresponding reduced revenues at the golf courses. 3. Parks 8~ Recreation -Other Budget Projected Budget/Projected FY 2009/10 Sept. 30, 2010 Over/(Under) $22,764,119 $22,187,507 ($ 576,612) Despite the impacts from unbudgeted FY 2009/10 merits and steps incurred through March 2010, and approximately $205,000 from the pension contribution impact, approximately $577,000 in savings (2.5% of budget) is anticipated in the Parks and Recreation Department from the rebidding and continued management of contracted landscaping cycles, as well as salary savings and savings across multiple operating accounts in the Recreation division. 4. Police Budget Projected Budget/Projected FY 2009/10 Sept. 30, 2010 Over/(Under) $81,127,849 $82,262,351 $1,134,502 The Police Department is expected to overspend its budget by approximately $1.1 million (1 % of budget), of which $740,000 is from the 2% pension contribution impact and the balance is primarily due to step increases that have occurred through March. 5. Fire Budget Projected Budget/Projected FY 2009/10 Sept. 30, 2010 Over/(Under) $50,900,788 $52,315,978 $1,415,190 The Fire Department is expected to overspend its budget by approximately $1.4 million (3% of budget), of which $530,000 is from the 2% pension contribution impact and the balance is primarily due to overtime above budgeted levels. LTC ANALYSIS OF BUDGET TO ACTUAL REVENUES AND EXPENSES FOR THE SIX MONTHS ENDED MARCH 31, 2010, WITH OPERATING BUDGET PR0IECTIONS THROUGH SEPTEMBER 30, 2010 FOR THE GENERAL FUND Page 7 6. Citywide Accounts Budget Projected BudgeUProjected FY 2009/10 Sept. 30, 2010 Over/(Under) $10,601,432 $10,230,432 ($371,000) Approximately $371,000 in savings is projected in Citywide accounts, of which approximately $350,000 is due to lower than anticipated overtime usage during the Super Bowl and Pro Bowl. CONCLUSION This analysis of budget to actual operating revenues and expenses for the General Fund with projections through September 30, 2010, provides the status of the FY 2009/10 General Fund Budget as of the first six months of the Fiscal Year. The Administration continues to monitor revenues and expenses and make every effort to close the fiscal year in a positive position with overall revenues exceeding overall expenses. JMG/K /JC FY 2009/10 General Fund Operating Summary Projection Adopted Actual 1Q Projected 2Q Projected Proj-Adptd FY 2009/10 Mar. 31, 2010 FY 2009/10 FY 2009/10 Over/ Under REVENUES Ad Valorem Taxes Ad Valorem Taxes-S Pte Costs Ad Valorem Cap.Renewal & Replace. Ad Valorem Taxes-Norm Shores Other Taxes Licenses and Permits Intergovernmental Charges for Services Golf Courses Fines and Forfeits Interest Rents and Leases Miscellaneous Other -Resort Tax contribution Other -Non Operating revenues Reserve-Building Department Ops. Fund Balance TOTAL REVENUES t~rtnui i urcts Mayor and Commission City Manager Communications City Clerk Finance Office of Budget & Pert Improve. Human Resources/Labor Relations Procurement City Attorney Real Estate, Housing & Comm Dev Community Services Homeless Services Building Planning Tourism & Cultural Development Code Compliance Parks and Recreation Golf Courses Public Works Capital Improvement Program Fire Police Citywide Accounts Citywide Acc-Operating Contingency Citywide Accounts-Normandy Shore Citywide Accounts-Transfers Capital Renewal & Replacement CWA/FOP/IAFF/AFSCME Ste s/Merits TOTAL EXPENDITURES EXCESS OF REVENUES OVER/ UNDER EXPENDITURES $ 103,809,283 $ 80,993,965 $ 103,809,283 $ 103,809,283 9,896,609 7,721,517 9,896,609 9,896,609 2,026,707 1,581,229 2,026,707 2,026,707 95,795 74,737 95,795 95,795 24,040,704 11,089,605 25,247,836 25,239,541 14,526,875 9,318,656 13,800,137 14,837,428 9,172,470 3,956,630 9,299,562 9,374,282 3,961,750 2,029,913 4,125,137 4,352,161 5,731,538 2,807,564 5,366,538 5,321,538 3,182,000 998,054 3,037,200 2,321,274 5,336,000 (2,667,048) 4,751,000 4,519,000 4,578,161 2,776,229 4,288,091 4,631,479 8,590,050 2,665,492 8,197,598 8,233,351 22,465,440 11,232,720 22,465,440 22,465,440 7,375,935 3,687,968 7,375,935 7,375,935 1,546,709 0 1,546,709 1,546, 709 0 0 0 0 $ 226,336,026 $ 138,267,231 $ 225,329,577 $ 226,046,532 $ 1,478,523 $ 711,797 $ 1,487,555 $ 1,473,155 2,293,523 1,121,011 2,322,154 2,322,154 914,249 418,221 914,249 919,972 1,567,479 712,045 1,555,204 1,555,204 4,416,396 2,200,889 4,428,104 4,448,129 1,993,560 998,729 2,040,234 2,033,207 1,764,137 833,654 1,784,877 1,755,101 901,633 440,889. 915,349 916,349 4,227,546 1,976,046 4,319,536 4,177,536 860,446 416,330 871,302 876,302 410,332 209,131 416,403 421,403 673,763 296,574 686,296 688,296 8,601,507 4,480,395 9,396,534 9,396,534 2,983,728 1,388,777 3,004,443 2,921,394 2,644,076 1,278,957 2,628,322 2,644,076 4,094,956 2,017,495 4,201,572 4,166,462 22,764,119 9,590,538 22,274,507 22,187,507 6,295,105 3,144,179 5,924,328 5,859,324 6,545,304 3,008,923 6,565,592 6,501,213 3,843,831 1,675,924- 3,565,443 3,565,443 50,900,788 26,110,121 52,041,978 52,315,978 81,127,849 40,589,294 82,144,010. 82,262,351 10,601,432 3,654,857 9,843,432 10,230,432 1,075,660 0 1,075,660 1,075,660 147,377 0 147,377 147,377 1,182,000 4,292 1,182,000 1,182,000 2,026,707 0 2,026,707 2,026,707 0 0 380,000 300,000 $ 226,336,026 $ 107,279,068 $ 228,143,168 $ 228,369,266 0 0 0 1,198,837 310,553 201,812 390,411 (410,000) (860,726) (817,000) 53,318 (356,699) 0 0 0 0 (5,368) 28,631 5,723 (12,275) 31,733 39,647 14,716 (50,010) 15,856 11,071 14,533 795,027 (62,334) 0 71,506 (576,612) (435,781) (44,091) (278,388) 1,415,190 1,134,502 (371,000) 0 0 0 0 $ 2,322,734 Note: This $2.3 million shortfall is despite the fact that the projection includes only $720,000 of the $3.5 million in budgeted employee givebacks. Had givebacks been achieved as budgeted, the projection would reflect a surplus of $500,000.