“Three things cannot be long hidden: the sun, the moon, and the truth”
This page summarizes the key takeaways from Palos Verdes Estates City Council Meetings. If you’d like to be notified when new minutes are posted, please sign up to our mailing list, click here
For an Archive of other City Council Meetings, click here.
June 9, 2020 PVE City Council Special Meeting - Budget Workshop by Zoom Teleconference
For the Agenda with links to documents - click here
For the video of the session, click here
The official Minutes of the meeting will appear here (once published)
ROLL CALL - All Council Members Present
(CA Hogin reminded all that roll call must be taken when meeting is by teleconference.)
APPROVAL OF AGENDA
[Approved 5-0]
COMMUNICATIONS FROM THE PUBLIC
• Dawn Murdock (Appealed to new CC members, who campaigned on commitment to financial integrity and fiscal prudence, to “live up to their promises.” Asked them to reject proposed Budget which calls for close to a $1M increase in spending compared to Projected CFY.)
REVIEW OF PROPOSED BUDGET FOR FY 2020 - 2021
Notes:
The following abbreviations will be used throughout this summary:
CA, City Attorney
CC, City Council
CCM, City Council Member
CDF, Community Development Fees
CM, City Manager; ICM, Interim CM
FY, FYE, Fiscal year and fiscal year-end, respectively (Note that the City’s financial calendar runs from July 1 to June 30. FY20 refers to the FY ended June 30, 2020; FY21 refers to the FY ended June 30. 2021.)
CFY, PFY, NFY, Current, prior and next fiscal year, respectively
FAC, FM, Finance Advisory Committee and FAC member, respectively
FD, Finance Director
GF, General Fund
M, MPT, Mayor and Mayor pro tem, respectively
OT, Overtime
WC, Workers Compensation (insurance)
YOY, Year-over-year.
Unless otherwise noted:
“Budgeted” or “Proposed” refer to proposed FY21 budget presented at this meeting.
“Projected” refers to the revised forecast for the CFY (FY 20).
“Adopted,” refers to the originally approved FY budget.
“Adjusted,” refers to the FY20 revised budget approved in December 2019.
M McGowan asked ICM Rukavina to present the Proposed Budget, section by section, and requested questions be held until completion of one or two sections.
ICM Rukavina made the following introductory comments prior to beginning his PowerPoint presentation:
Acknowledged Budget Workshop was “a little late” compared to usual schedule; would normally be held at end of May.
Expressed optimism that “after today, we’ll have a Budget to approve,” (prior to the start of next FY) and commented that he felt good about numbers he had to present.
Believes a lot has been accomplished, with help from interim FD, despite absence of a full time FD since December. Filling FD position has been on hold pending appointment of a new CM.
Pleased to report that Proposed GF Budget revenues exceed expenses by approximately $130K.
Revenues
Next, ICM Rukavina discussed revenues for the coming FY. Highlights:
Budgeted revenues for FYE 6/30/2021 of $19.1M, less than Projected CFY revenues of $19.5M (2%) and PFY (audited) revenues of $21.0M (8%).
Budget is intentionally conservative due to expected economic impact of COVID-19; staff compared notes with peers other from cities in deliberating direction to take.
Property taxes, most significant component of revenues, projected to increase approximately 2.5% in FY21.
Other revenue sources, notably Community Development Fees and Concessions & Rent (Golf, Tennis, Beach Clubs and Stables), projected to decline significantly, as follows (amounts in $ thousands):
In March/April, COVID shutdown almost halted construction, reducing CDF to near zero. While there was an uptick in May, ICM Rukavina decided to retain more conservative number.
Also due to COVID-19, Golf Club is expected to see steep drop in bookings for banquets, weddings, other events. PVGC management projects revenue reduction of 20% to 25%, but staff has Budgeted a 34% decrease, again in the interest of conservatism.
Safety Fines also likely to be down due to “stay-at-home” behavior.
Franchise Fees projected to be flat.
Council/FAC Questions & Discussion:
M McGowan asked for comments and questions from Council and FAC Members.
M McGowan then asked if development fees from SB-2 were considered in projecting revenues.
ICM Rukavina responded that $119K had been included in projections.
MPT Kemps noted he was given an earlier estimate of $160K for SB-2 income, versus $119K. ICM Rukavinaresponded he would need to confirm correct amount.
FM Young restated concerns about CDF he had expressed in several prior FAC meetings, even before impact of COVID-19; repeated request for research into impact of earlier recessions (2000-01 and 2008-09) on CDF.
Large decline in CDF will drive even more serious, and earlier, structural problems in City’s finances compared to forecast presented by FAC in December.
ICM Rukavina noted early 2000s recession had resulted in 25% CDF reduction.
M McGowan asked that staff follow up with research requested by FM Young. Also drew attention to downward impact a reduction in CDF revenues will have on expenses; asked that this be addressed.
FM Nendick commented that any private sector company would welcome a mere 2% decline in forecasted revenues for the coming year.
Applauded conservatism of revenue Budget.
Asked if, as would be the case in corporate America, sufficient consideration had been given to cost reductions that would better position City through the downturn and beyond.
FM Greenberg asked why 20% decline in Real Estate Transfer Tax and if rate could be increased.
She has received questions from RE professionals about why very low versus neighboring cities.
ICM Rukavina noted decline reflects conservatism based on economic downturn. He suggested rate was statutory; CA Hogin confirmed not within our control.
CCM Lozzi asked that budgeted revenues, especially CDF and Concessions, be reviewed in September rather than waiting until mid-year. ICM Rukavina agreed.
CCM Kao reiterated FM Nendick’s comment about PVE’s modest revenue decline and relatively good fortune compared to cities that depend much more on sales tax and other commercial sources of revenue.
CCM Davidson called City’s dependence on property tax revenue a “double edged sword.” While revenues remain relatively stable in a downturn, limited sources of revenue also limit ability to cover increasing costs. Costs are currently down due to loss of 25 City employees but at full staffing “We’ll be in trouble.” “We need to find a way to get more money into PVE,” he stated.
Expenses
ICM Rukavina moved to discussion of expenses for the coming FY, providing following overview:
Proposed Budget of $19M in expenses for NFY; 5.5% higher than Projected CFY expenses of $18M, 2.1% higher than CFY Adjusted Budget of $18.6M.
Major drivers of YOY increase:
Fire Contract increase of $423K, or 7.7% versus Projected CFY.
Full staffing assumed for entire NFY, based on most recently approved organization chart.
UAL increase of $139K, up 15.7% from Projected CFY.
Significant YOY expense fluctuations in certain departments are due to change in method used to allocate JPIA Insurance premiums (both WC & Liability). PFY allocations were based on square feet; allocations in Proposed Budget for FY21 are based on payroll and claims history.
Focus of Budget presentation is on the General Fund. Required 50% reserve in GF will increase by $500K due to $1M expense increase in Proposed Budget.
Reviewed staffing noting 12 vacant positions versus approved latest Org Chart, 6 of these are in the Police Dept; CM position will be filled this coming Monday (6/15).
Next, ICM Rukavina reviewed key items from each departmental budget.
Police
No increase in salaries or benefits budgeted for full time staff as a new MOU has not yet been negotiated with the Union; amount of increase, if any, unknown.
$22K increase budgeted for part time (non-Union) salaries due to full staffing and significant accrued vacation.
OT and sick leave budgeted at same level as Adjusted Budget for CFY and significantly less than Projected CFY amounts. Actual OT costs for CFY much higher due to staff vacancies, whereas Proposed Budget assumes full staffing (with less OT).
Projected CFY salaries do not fully reflect staff vacancies due to retirement payouts to Chief Velez and one other. These payouts were not accrued or budgeted in PVE as they would be in private sector accounting, so full expense is recorded in year of payout.
CCM Lozzi questioned why total Police Budget was $7,224K on one slide and $7,337K on another. Explanation: higher amount is full Budget (all funds); lower amount is GF only.
ICM Rukavina continued:
Workers compensation (WC) and liability insurance increase due to change in allocation method.
Heath benefits increase due to full staffing assumption.
Contract services increase due to Stillman (dispatch) $5K, Black Night (Via Corta traffic control) $37K and background investigations for new hires.
PERS increase due to new formulas.
M McGowan asked if School Resource Officer was included in Police Budget. Answer: no; has been included in City Manager Budget.
CCM Davidson asked for total cost of extra OT and salaries resulting from CFY retirements and other departures not yet backfilled. Info not readily available. He will call ICM Rukavina to discuss.
Building, Planning, Parklands
Building – Professional services fees down (HR Green) due to decrease in CDF. Insurance down due to refigured insurance allocation. Contractual services up due to SB2; however, these costs are fully recovered.
Planning/Parklands - Landscape maintenance up $129K due to end of prior contract. Work bid out; new vendor proposed (Stay Green) to replace Venco Western. Insurance down due to new allocation method based on payroll/claims. Since HR Green staff is used instead of City employees, Green provides coverage. Salary increase due to filling (1) vacant position, Permit Tech. Projected Tree Maintenance down CFY due to COVID.
M McGowan noted Tree Bank is self-funding.
MPT Kemps asked for detailed listing of all maintenance contractors and related spend. Suggested open position be put on hold.
CCM Lozzi asked to postpone filling vacancy until after Budget review in September. Pointed out that, with building activity and CDF down, there should be less need for Permit Tech.
MPT Kemps recognized ICM Rukavina for his hard work in an area not his expertise. Nevertheless, can’t approve Budget with only $100K difference between revenue and expense. No contingencies or backup plan. No acknowledgement in Budget of pension debt, which will only get worse if all vacant positions are filled.
CCM Lozzi agreed. Disconnect between $600K (2%) decline in revenues and $1M (5%) increase in expenses. Budget is $1M too high – thought last year’s budget was already $1M too high. Asked for flat Budget compared to Projected FY21. Suggested much of $1M needed reduction can be found by looking at headcount. Requested recalculation of employee related expenses based on realistic timing of new hires. Asked that two Police vacancies be left open for now.
CCM Davidson does not think hiring delay will be enough to offset $1M spending increase. Reiterated his plea to increase staff and look for more revenues instead.
ICM Rukavina thanked MPT Kemps for his acknowledgement but appealed strongly for staff increases. Without more staff, expectations need to be reduced. Noted that proposed hires are mostly more junior/less expensive than employees being replaced.
MPT Kemps responded that constraints on spending are real; funds are just not available. Approving Proposed Budget would be irresponsible. Need to focus on budgeting for next three months, not rest of year. Welcomed CM Davidson to share his ideas for new revenue sources.
ICM Rukavina described ongoing efforts to evaluate and implement an incremental Transactions and Use (TUT – SEE NOTE) tax and restructure Police. Noted revenues are high priority for new CM.
Public Works
ICM Rukavina pointed out this department relies mostly on GF but receives some transfers from other funds. Much of Budgeted increase is due to insurance reallocation. While serving as acting CM, his salary has remained in this department. Increase in contractual services in CFY due to rental of barriers and signs in compliance with COVID mandates. Reduction in contractual services NFY due to completion of project (SARP study) for which grant was received. Increase in (non-MOU) NPDES is for contractor to help with grant application for new storm water permitting process.
NOTE: Proposed tax would allow PVE to add an additional amount to tax already imposed by the State; this would allow PVE to collect revenues from, among other transactions, internet sales and vehicle purchases.
M McGowan suggested revisiting insurance allocation method and asked incoming CM to comment on this and in general.
Incoming CM Guglielmo believes new insurance allocation method is more reasonable than previous method. Asked if perhaps Budgeted revenues are too conservative. Suggested Budgeting for full year of no vacant positions was unrealistic; acknowledged current staffing level is very lean but encouraged staggering hires and factoring in some turnover.
Administration
City Manager - Budgeted increase in salaries and benefits reflects hiring new CM. Increase in professional services for communications consultant (contract) to help with outreach on matters such as finalizing City Strategic Plan and new revenue proposals. Risk management account is for paying small claims and other miscellaneous items.
City Clerk - CC salary was previously split between CM and CC budgets; 100% now in CC Budget.
MPT Kemps stated that the classification “Professional Services” is not very descriptive; more specificity would improve clarity and reduce questions. ICM agreed.
City Attorney - Budgeted at same amount as PFY. Hard to predict.
Finance – Increase reflects filling now vacant positions: FD and Senior Accountant. Interim FD Walker leaves this month after closing books for May. Have asked Robert Half to assist with finding another interim person. One Payroll Clerk and one AP Clerk have been hired.
Fire & Paramedic Contract
7% increase, which does not include overage yet to be billed for prior year.
JPIA Insurance
$76K premium reduction
Conclusion of ICM Presentation
Council/FAC Questions & Discussion:
MPT Kemps spoke as co-member of Pension Ad Hoc, with CCM Lozzi. Shared “first recommendation,”from their prelim report: “Need to find ways to squeeze extra funds out of the budget to start slowing creation of new debt.” Using Committee’s recommended 5.4% discount rate, Proposed Budget results in $782K underpayment of pension “Normal Cost” for CFY. Amount is total of Employer Contribution (ER) underpayment of $389K plus Employee Contribution (EC) underpayment of $343K. (See NOTE.) If not addressed, we will face annual debt payment of over $2.5M versus current amount of $1M. Recommended paying down at least ER portion of $389K. Also reiterated need to do a detailed, line-item, review of Proposed Budget; will send ICM Rukavina a list of (11) detailed questions to begin process.
CCM Lozzi asked that evaluation be performed to determine “bare minimum number of people needed to operate the City.” Suggested an “empty chair” analysis be done. Recommended any GF surplus be used to paydown UAL and/or fund Capital Improvement. Noted the less expensive PEPRA pension is already beginning to accumulate debt (currently $30K) and should be paid down immediately. Will support a flat YOY Budget ($18M).
CCM Davidson concerned that before City “falls apart from lack of money, it will fall apart from lack of staff.” Urged looking at other ways to save money. Commended ICM Rukavina and asked that incoming CM Guglielmo develop a relationship with staff and defend them.
NOTE: “Normal Cost” is amount accrued for current FY only, without considering existing debt (principal or interest). These underpayments are not billed in CFY but are presented to the City after-the-fact when CalPERS performs its annual actuarial calculations, replacing actual results with estimated results. Underpayments get added to City’s pension debt, or UAL, (Unfunded Actuarial Liability) and accrue interest, further adding to debt.
CCM Kao expressed concern about short time left to complete Budget. Recommend forming Ad Hoc committee with incoming CM to get as close to flat YOY spend as possible. Noted that to cover cost increases beyond our control, e.g., Fire Contract, money must come out of some other part of the Budget. Acknowledged there is agreement among CC members that City has long-term “structural (i.e., financial) issues” and suggested 50% GF reserve be revisited. Current GFOA guideline is two months of budgeted expenses versus PVE six-month policy. After failure of Measure D, he spent 15 hours on a line item budget review. Described it as “painstaking” but worth it.
M McGowan believes 50% GF reserve needs to be left alone; was supported by recent FAC analysis. Asked ICM Rukavina to take hard look at Q-1 to find savings. Recommended focusing next 2 weeks on approval of a 90-day Budget only, allowing incoming CM to prepare budget for the remainder of NFY.
FAC Chair Forte noted that CIP and other financial challenges remain unaddressed in Proposed Budget and that fixing the budget won’t solve all problems. Stated need for a revised forecast, especially considering recent economic downturn. Urged CC and staff to “engage FAC” in assisting with this, noting their willingness to pitch in. Agreed with CCM Davidson about City’s revenue problem.
FM Young reiterated opinions expressed by several others that basing the Budget on a 2% decrease in revenues and 5% increase in expenses is unacceptable. Suggested Fire Contract be renegotiated with LA County. Encouraged hard look at staffing and all other expenses. Noted Chief Dreiling’s work-in-process on deep dive into Police costs.
FM Nendick described City’s situation as, “A long-term revenue problem and a short-term expense problem.”Given current economic environment, a new tax is out of the question at this time. Need to tighten our belts and “hunker down.” Suggested rethinking insurance allocation method adds no value; restating prior periods using the same method will eliminate variances and related questions.
M McGowan then noted need to conclude Workshop quickly as Regular CC Meeting was scheduled to begin shortly. After discussion, CC members, with input from ICM Rukavina and incoming CM Guglielmo, reached decision to schedule a 2nd Special Meeting Workshop on June 23 to review a revised Budget proposal, incorporating requested modifications. Another Special Meeting could then be scheduled for June 30 to approve a Budget.
CA Hogin noted that, while the City could legally “keep the lights on” if CC did not approve a Budget by June 30, failure to enact a budget by this date would not be in keeping with the community’s expectations.
Adjourned at 6:22 pm until June 23, 2020, at a time to be determined