FINANCIAL OVERVIEW - GENERAL FUND

The 2004-05 Proposed Budget for the City of Monterey presented here is balanced, and fully implements the $4.9 million Budget Reduction Plan adopted by Council last year.

However, as I will describe in this report, this budget is only "barely" balanced and our projections for the out-years show that a new structural imbalance may develop.

Budget Reduction Plan Status
In May of 2003, in response to a significant budgetary imbalance projected for FY 2004-05, Council approved a Budget Reduction Plan that was designed to reduce General Fund operating expenditures $4.9 million, including eliminating or reducing 56 full-time and regular part-time positions. Since it was originally adopted, there have been a few modifications to the plan, but it is largely intact.

Implementation of this Budget Reduction Plan has not been easy to do, but about two-thirds of the plan has been implemented in FY 2003-04. Since one-third of the Plan will take effect in the upcoming fiscal year, in many cases the full impact of the cuts has not yet been felt. For example, some of the additional service reductions that will be implemented in FY 2004-05 as part of the Budget Reduction Plan include: closing Archer Park Community Center; closing the other remaining community centers on Saturdays; eliminating specified recreation programs (e.g. the Easter Egg Hunt, La Posada, the holiday display at Madison & Pacific, and Dennis the Menace Park staff coverage); further reductions in Library hours; reductions in the Library materials budget for books and other resources; and reduced maintenance of streets, parks, trees and other city facilities. While staff has worked hard to minimize the impacts on services provided to the citizens of Monterey while cutting costs to balance the budget in FY 2004-05, every city department is having to reduce the level of service it provides.

Given the "just barely balanced" nature of the FY 2004-05 General Fund budget, staff believes strongly that this is not the time to add back programs lost to the Budget Reduction Plan without a clear funding source. Nor is it the time to start new programs unless there are identified new revenues, expenditure savings, or long-term efficiencies that result from the program. Much of the reason for this strong recommendation is that we are not out of the woods yet. Though FY 2004-05 is precariously balanced, FY 2005-06 creates a new challenge.

Projected FY 2005-06 General Fund Structural Imbalance of $2 million
Although the Budget Reduction Plan approved last year helped bring FY 2004-05 into balance, staff has prepared financial projections for the General Fund for FY 2005-06 and at this early stage, a new structural imbalance of approximately $2 million appears to exist. Much of this imbalance is due to increased costs associated with personnel benefit items such as PERS retirement rates, workers compensation and health care.

Staff is also concerned that the imbalance noted above would be even worse than $2 million if the funding target for the maintenance and replacement of City facilities and infrastructure were what it should be. Funding for the maintenance of buildings, streets, trees and parks projects for example have been cut back significantly in order to balance the budget. In time this will take its toll and potentially create larger costs down the road.

Funding also does not currently exist for the replacement, or major repair, of City facilities. High use buildings such as the Sports Center, Library, and Conference Center continue to age and wear out. There is currently no funding mechanism to pay for major repairs of these facilities. Some funding is available for CIP projects from the loan repayment the Redevelopment Agency makes to the General Fund each year. But this funding stream is not sufficient to fund more than just the "must do" items in any particular year. In the long run, we must increase our investment in the maintenance of our existing facilities. The State take-aways discussed below are dollars that would be used for maintenance if they were available to us.

Staff will continue to monitor revenue and expenditure trends. It is likely, however, that very soon consideration will again have to be given to how to address this structural imbalance in the FY 2005-06 budget. Additional service cuts, through position elimination, or new revenues to expand the revenue base may have to be considered. The Cannery Row Hotel and Ocean View Plaza projects would provide a substantial expansion of our revenue base, but they are not expected to be completed in the near future. If the tax base does not grow through economic development, the Council may have to consider fee increases or going to the voters with various available tax measures, if we are to avoid significant further service cuts.

State Take-aways
As the Council is aware, the Governor and the League of California Cities have reached an agreement regarding how much money will be taken away from cities in the next two budget years. This agreement has not yet been approved by the legislature, and parts of the agreement would require approval of statewide voters in the November 2004 election, but it is the best information we have at the moment. Under this agreement, the City of Monterey will lose approximately $1.2 million in General Fund dollars in each of the next two fiscal years. After that, according to the agreement, the City will receive a one time payment of some of the Vehicle License fee dollars we lost this year (about $500,000), then will enjoy constitutional protection of its revenue sources from further State takeaways from then on.

This $1.2 million take-away for each of the next two years is a bitter pill to swallow. But given the State's history of solving its budget problems on the backs of cities, counties, redevelopment agencies and special districts over the past dozen years or so, the proposed agreement may be for the best in the long-run. In the proposed budget for FY 2004-05, this $1.2 million loss has not been folded into the General Fund operating budget since it is not an ongoing obligation. This take-away does however diminish our ability to fund some of the crucial facilities and infrastructure maintenance and replacement needs mentioned earlier.
 

Return to top

GENERAL FUND REVENUES

General Fund revenues in 2004-05, estimated to be $44.1 million, would be up 5.7% or $2.4 million over the current year's revised estimates. For all funds, operating revenues are estimated to be $74.8 million, up 6.2% from the prior year. As indicated above, these figures do not reflect the $1.2 million State take-away which is being budgeted as a "one-time" non-operating expenditure.

After two consecutive years of declines in Transient Occupancy Tax revenues (TOT), it appears we may have finally hit bottom. In the current fiscal year so far, TOT is up 2% over the same period last year. While this is good news it is still short of the 2.7% growth rate anticipated for FY 2003-04 (see chart below). However, we still hope to end the year on a stronger note as a result of a somewhat better economy and the recent opening of the shark exhibit at the Monterey Bay Aquarium.

Transient Occupancy Tax, though still less than it was just a few years ago, is still the City's largest revenue source. It makes up 25% of the General Fund estimated revenue total for next year. TOT was 31% of General Fund revenues just a few years ago. As shown in the following table (which includes both General Fund and Neighborhood Improvement Program portions of TOT), FY 2000-01 was the last year of strong TOT growth before tourism dropped off. TOT is projected to increase 4% next year.

Another significant revenue is sales tax which is estimated to be $6.9 million in 2004-05, making it the second largest General Fund operating revenue source (16% of projected revenues). This figure includes both the sales tax revenues and the new "Property tax in-lieu of Sales tax" revenue source created by the recent passage of Proposition 57. This ballot measure approved the reduction of the City's sales tax by one-quarter. This revenue reduction, totaling $1.3 million, will be replaced with a like amount of property tax revenues (this complicated State scheme has been referred to as the "triple-flip").

This sales tax estimate represents a 7% increase from the revised projection for the current year. This estimate is based on a combination of an expected underlying growth rate of about 3% plus the growth in the sales tax base from some specific projects underway such as the new theater at Del Monte Center and the soon-coming Infinity dealer. This projected growth is a welcome change after ten consecutive quarters of sales tax declines. Like TOT however, we are still not back to the level of sales tax revenues seen in FY 2000-01.

Property tax receipts continue to come in strong because growth in property values increases the property tax rolls whenever real estate is sold. After a good 6.8% increase in 2002-03, based on receipts so far we anticipate property tax receipts will be $4.4 million in 2003-04 which is 7.4% higher than last year. Property taxes are projected to increase another 7.9% next year to $4.8 million. Unfortunately, and contrary to popular belief, property taxes are not as big a part of General Fund revenue picture as they once were. This tax generates about 13% of all General Fund revenues. However, some of the recent changes and proposals for how to finance local government may change that. For example, changes have been proposed related to local funding from the motor-vehicle license fee discussed next.

The motor-vehicle license fee (VLF) is one General Fund revenue source that has been the subject of much discussion over the last year or two. As you know, cities receive a portion of the VLF paid by vehicle owners each year and the State passed legislation a few years back that lowered the rate by 67.5%. A reduction of this size would amount to approximately $1.1 million to Monterey's General Fund. For several years the State, as promised, was able to "back-fill" the VLF to cities that would have otherwise been lost due to the rate reduction. However, last year former Governor Davis raised the VLF rate back to its original amount because the State could no longer afford to fund the back-fill. When Governor Swartzenegger was elected he lowered the rate back down which created a new funding issue.

In May 2004, as part of an agreement worked out between the League of California Cities and the Governor, the VLF rate would be permanently lowered from 2% to 0.65%. However, cities will receive an additional allocation of property tax to make up for the loss of VLF. As mentioned earlier in this report, this plan still has to be approved by the State legislature and the voters, but the League feels this is an opportunity to establish some long-term revenue stability even though it will be fiscally painful in the short-term.

Therefore, our VLF revenue estimate for 2004-05 includes the equivalent of the full amount of $1.8 million in operating revenues. This amount is, however, now split between the usual VLF revenue account and a new "Property tax in-lieu of VLF" account. The reduction proposed by the Governor of $721,000 is shown in the budget as a "non-operating" amount since it is not expected to be on-going. This amount is part of the $1.2 million State take-away mentioned earlier. The other part is approximately $517,000 that is being taken from the Redevelopment Agency which ultimately also impacts the General Fund.

Return to top

GENERAL FUND RESERVES

In the FY 2003-04 budget, Council authorized a draw of $1.5 million from the Reserve for Economic Uncertainty to balance the budget. This draw, along with the phased implementation of the Budget Reduction Plan also approved by Council, has kept the current year's budget in balance. After the draw of $1.5 million, the Reserve for Economic Uncertainty will be about $4.7 million. This is equivalent to 10.8% of the proposed General Fund operating expenditures less estimated budget savings (the target reserve is 15%).

The proposed budget for 2004-05 does not recommend drawing down this Reserve any further at this point since the full implementation of the Budget Reduction Plan helped bring next year's budget into balance. We may have to revisit the use of this Reserve in the future, however, as one tool to consider in the closing of the structural imbalance projected for FY 2005-06. A long-term financial goal should be to reestablish this reserve to a full 15% of the operating budget.

The Reserve for Art Acquisitions will again not receive an allocation of $30,000 next year from the General Fund in accordance with the Budget Reduction Plan. There is currently $70,000 remaining in this reserve. The Artifacts Acquisition reserve has a balance of almost $49,000.

Other General Fund reserves exist for budgetary or accounting purposes such as the Reserve for Continuing CIP (approved projects not yet complete, $2 million); Reserve for Amounts Due from Other Funds ($1.4 million); Reserves for Encumbrances and Long-term receivables (required by accounting principles, $652,000 and $927,000 respectively).

Return to top

Overall for 2004-05, proposed General Fund operating expenditures amount to $45.9 million. This represents an increase of 0.3% from the 2003-04 amended budget and a 2.9% increase over the original 2003-04 budget. The total proposed 2004-05 operating expenditures for all funds amount to $74.8 million which represents an increase of 2.3% from the 2003-04 amended budget and a 5.2% increase from the original 2003-04 budget.

Though the budget shows a modest increase due to rising employee costs, phased in implementation of the Budget Reduction Plan has resulted in total employee staffing decreasing significantly as shown in the following chart (total staffing shown is full-time equivalent positions).

The following discussion highlights some of the more significant programs and budget issues that are included in the proposed budget for 2004-05.

Window on the Bay
There are two parcels remaining in the Window on the Bay "West" section and staff continues to work toward acquisition of these properties on an opportunity-buying basis. As noted later in this report, the CIP budget for next year includes an additional $160,000 for the purchase of these parcels when they become available. This brings the total reserve currently allocated to Window on the Bay acquisition to $1.6 million.

Public Service Center
The proposed budget includes a transfer of $275,000 to the Public Service Center Fund in repayment for the cost of two capital projects in the FY 2003-04 CIP budget: the reroofing of Few Memorial/Brown Underwood buildings and design costs associated with roof repairs and replacements for El Cuartel. Council direction is to pay for the construction of the Public Service Center with cash so this transfer keeps this fund whole. With this transfer the Public Service Center Reserve stands at just over $13.3 million.

City Infrastructure
Another important priority is the upkeep of the City's streets, sewers and storm drains. Toward that end, $1.3 million is included in next year's CIP and NIP budget proposals for just such projects. It includes the following: $350,000 in street resurfacing (not including Presidio and Navy); $240,000 for sewer line repair; $120,000 for South Boundary Road repairs; and $200,000 for Wharf II sewer line replacement.

There remains, however, a substantial backlog of unfunded projects in streets, storm drains and buildings. Staff believes the funding levels proposed for maintenance of infrastructure and facilities are too low. And, as mentioned earlier, the State take-away of $1.2 million in FY 2004-05 ends up directly impacting the City's ability to adequately maintain its streets, storm drains and sewers.

New Public Works Positions needed to Implement Storm Water Requirements
This budget proposal includes a request from the Public Works Department to create two new positions (Senior Engineer and Engineering Technician) and downgrade another (Operations Engineer to Street and Utility Manager). The regional storm water permit process (NPDES Phase II) requires cities to annually inspect and evaluate 25% of their storm water system or 100% every four years. Based on the inspection results, we are then expected to develop measures to upgrade, repair or replace storm water collection and drainage systems. If a city fails to comply with its storm water management plan it can be fined up to $30,000 per day (with a minimum daily fine of $3,000). Similar requirements have been imposed on the maintenance and inspection of sewer lines. The Senior Engineer and Engineering Technician will be responsible for this inspection and monitoring.

These positions will be fully funded by new storm water revenues received from the privatization of La Mesa housing, an adjustment to the Navy contract for sewer fees, the downgrading of the Operations Engineer position and the Presidio contract. No additional General Fund dollars are needed for this additional staffing, which is necessary to implement this year’s new obligations under the unfunded Federally mandated Clean Water Act.

Downgrading the Division Chief position in the Maintenance Division from Operations Engineer to Streets and Utilities Manager will complete the reorganization of that Division, which started almost two years ago with the separation of Facilities Maintenance and Mechanical Services from that Division. The new Division Chief position will oversee the remaining operations in Streets, Sewer and Storm Drain Maintenance.

Return to top

Cannery Row Hotel
The Cannery Row hotel project remains the highest economic development priority in the City because the completion of this project would provide a significant increase to the City's tax base. This would be extremely helpful given the $2 million shortfall projected for the out-years. Besides providing funds to better serve the community, this project would also rehabilitate a currently "blighted" area on Cannery Row and provide public use of McAbee Beach.

MCCVB Advertising
Included in this budget proposal is $478,000 for the Monterey County Convention and Visitors Bureau (MCCVB) leisure advertising program. This includes $150,000 in one-time money that will be matched dollar-for-dollar by the Monterey Bay Aquarium ($100,000) and the Cannery Row Marketing Council ($50,000). A similar investment in tourism/leisure travel advertising was included in the current year’s budget. Staff believes it is imperative that in these difficult economic times we redouble our efforts to attract leisure travel dollars to Monterey. We believe that our early increases in TOT this year can be attributed to this increased investment. This additional cost is partially offset by fees generated by cruise ships visiting Monterey.

Colton Hall Museum
As part of the Budget Reduction Plan, a cut of $31,000 was approved to reduce part-time hours related to staffing the Colton Hall Museum and for an Artifacts Specialist. Staff is recommending that these dollars be restored to keep the Museum open. Most of this cost will be funded by the savings generated by the reduction of the Public Facilities Director position to one-half time starting next fiscal year. If the part-time effort is not approved, the Colton Hall Museum will be closed four days a week. In addition, other programs would be cut back or eliminated severely, including the rotating gallery at the Conference Center.

Library Bookmobile
The Bookmobile continues to operate on a reduced schedule of two days per week. There are no immediate plans to replace the vehicle itself as the current vehicle continues to operate adequately.

July 4th Celebration
Because the July 4th celebration program was not eliminated in the Budget Reduction Plan, funding for all direct costs will be included in the FY 2004-05 budget proposal submitted to Council. However, the Budget Reduction Plan did include the elimination of the Recreation Superintendent position which has been responsible for the massive job of coordinating the logistics of the fireworks, parade and lawn party. This position spent many hundreds of hours on the July 4th event and it will no longer be filled starting this coming Summer. So, in short, there is funding for the July 4th celebration but not staffing.

The Recreation Department has been asked to take another look at their operations and programs and provide some alternatives that would allow for staffing of the coordination of the July 4th activities by reducing other recreation program net costs to pay for this staffing. Another alternative is of course the elimination of all or part of the July 4th celebration. These alternatives are presented in a separate staff report from the Recreation Department as part of this July 6, 2004 budget hearing.

Expand Hilltop Pre-school Program
This budget includes $36,334 to expand the pre-school program at Hilltop in order to accommodate those children that were attending the preschool program at Archer Park Center. This cost will be fully offset by program fees.

Volunteer Program
The City's Volunteer Program is a very popular program that has been reduced from 1.75 to 0.75 positions recently as a result of budget cuts. The Budget Reduction Plan includes the elimination of the Regular part-time Community Resources Coordinator position on December 31, 2004. Because of the tremendous assistance City volunteers provide, many departments have asked that this program be extended for an additional six months if possible. Therefore, the proposed budget will include $36,000 to fund the 0.75 Community Resources Coordinator position and related supplies through June 30, 2005. Budget savings from moving the funding for the Community Human Services grant to the Housing budget have been earmarked to fund this extension.

Monterey Center for Children
The Public Works Department has requested $71,000 in order to provide building maintenance and custodial services to the Monterey Center for Children next fiscal year. It was originally hoped that by the end of the third year of operations the Center would be profitable enough to pay for its own maintenance. The third year ended last year, financial records been reviewed, and the Center will not be returning any dollars to the City this year. Setbacks due to the closure of the Presidio gates as a result of 9/11 have contributed to the less than desirable financial results.

This request is also being considered a "one-time" funding request. If the financial condition of the Center or the City does not improve in the near future, the City may have to consider funding alternatives other than the General Fund for the maintenance and custodial expenditures the Center may not be able to pay. Whether this can be done, especially considering that the maintenance of other City facilities has been significantly cut back, remains to be seen.

Other Position Changes
As indicated earlier in this report, the City-wide number of full-time and regular part-time positions has decreased from 532.25 full-time equivalent positions (FTE) in FY 2002-03 to 505.00 in FY 2003-04 to the recommended 485.00 in FY 2004-05. This reduction of positions has required reductions in the level of services provided and changes in the City’s way of doing business.

Part of those changes involves restructuring the responsibilities of some positions. The proposed FY 2004-05 budget includes some relatively minor position changes to reflect changes in responsibilities. These include upgrading a Police Services Technician position to Senior Police Services Technician, a Custodian to Senior Custodian, and an Associate Planner to Senior Associate Planner. It also includes converting a temporary part-time Communications Assistant position to regular part-time in conjunction with reducing the Community Education and Outreach Coordinator position from full-time to a ¾-time management contract position.

The City maintains a number of funds other than the General Fund to account for the revenues and expenditures of activities that are separate from the General Fund for either legal or accounting purposes. A brief overview of the 2004-05 budget picture for some of the more significant of these funds follows.

Presidio Public Works Authority Fund
The Presidio Public Works Authority Fund was established in 1998 to account for the operational activities, capital projects, and revenues associated with the municipal services contract between the City and the U.S. Army at the Presidio of Monterey. Services provided to the Army include maintenance of buildings, streets, sewers, storm drains and water systems and other special projects. The proposed operating budget for this fund for 2004-05 is $4.3 million, all of which is reimbursable by the Army. This budget also includes a payment to the General Fund of $325,000 for the overhead and administrative support the City provides to support this contract.

Storm Water Utility Fund
Projected revenues of $980,000 for 2004-05 in the Storm Water Utility Fund almost exactly balance with proposed operating costs for the year. However, this Fund still owes $1.4 million to three other funds (Sewer Line Maintenance Fund, $132,000; Sewer Main Fund, $575,000; and General Fund, $690,000) for past loans for storm drainage projects. Unfortunately, because operating revenues are only sufficient to pay operating expenses, the proposed Storm Water Utility Fund budget does not include any debt service payments to the funds noted above.

Furthermore, despite the fact that the Storm Water Utility Fund now receives almost $1 million in user fees annually, the General Fund still had to subsidize the capital program by $400,000 in 2001-02, $550,000 in 2002-03, $285,000 in 2003-04 and now $80,000 is in the proposed CIP budget for 2004-05 for Church Street drainage repairs. In addition, the Neighborhood Improvement Program has funded several important storm drainage projects over the last few years. The overall Storm Water Utility program is significantly underfunded in light of Federal mandates we will be required to meet in the future.

Sewer Line Maintenance Fund
Unlike the Storm Water Utility Fund, the Sewer Line Maintenance Fund has sufficient revenues (estimated to be $1.3 million in 2004-05) to pay for not only its ongoing operations, but also some of its capital needs. However, due to several factors the amount of funding available for sewer related capital projects is less than that which is necessary to fully fund the City's capital obligation under its state permit in this

area. These factors include, 1) inability of Storm Water Utility Fund to make a debt service payment this year (last year it was $100,000); 2) proposed purchase of camera equipment to monitor sewer lines ($112,000); 3) shifting of costs to this fund per Budget Reduction Plan; 4) increased risk management charges. We will need to reevaluate the fee for this utility.

Cemetery Fund
The Cemetery Fund continues to be heavily subsidized by the General Fund. For 2004-05 we project revenues of $255,000 and a $25,000 operating shortfall. In addition, the Cemetery Fund will require an advance from the General Fund of $119,000 to cover the debt service payments on the columbarium. This amount will be recorded as an interfund loan as it is projected that over time sales of all niches from the columbarium will far exceed the total debt service costs. However, since the columbarium loan will be paid off more quickly than all niches will be sold, there will be a need for advances from the General Fund in the meantime.

Marina Fund
The Marina Fund's proposed budget of $1.6 million includes debt service on state loans in the amount of $476,000. In addition, the Marina Fund now transfers $150,000 to the General Fund each year to assist with the expense of maintaining Wharf II. Total estimated revenues for 2004-05 are $2 million.

Parking Fund
The proposed $5.5 million Parking Fund budget includes $1.5 million in debt service, most of which is related to the Cannery Row Parking Garage. The Parking Fund budget includes $200,000 to pay for the cost of the WAVE shuttle subsidy program. This includes the City's portion of the cost of purchasing the new trolleys which is $30,000 annually for 10 years. So far, these new trolleys have been very well received. The proposed Parking Fund budget includes the recommendation to reinstate a Parking Attendant due to increased activity in the Parking operation.

Housing Fund
The budget of the Housing program, which was adopted by Council separately on May 4, 2004, amounts to $4.3 million in 2004-05. Funding for a major new mixed-use project on Alvarado Street is included in this budget in the amount of $917,000. In addition, many existing programs continue to be funded such as Community Services ($326,000), Rehabilitation Loans ($500,000) and Historic Preservation ($125,000). In addition, $1,005,000 is still available for new workforce housing programs and projects such as opportunity-buying on Van Buren Street and/or housing on City-owned Ryan Ranch land.

Capital Improvement and Neighborhood Improvement Program Budgets
The proposed Capital Improvement Program (CIP) budget amounts to $3.4 million for fiscal year 2004-05, and an additional $1.9 million is allocated for Neighborhood Improvement Projects (NIP). The proposed CIP and NIP budgets include $1.3 million for infrastructure repairs and improvements such as streets, sewers and storm drains. Also included is $465,000 for traffic calming (NIP); $375,000 for the widening of the 400 block of Beldon Street (NIP); $160,000 in Tidelands money for Window on the Bay opportunity-buying; $295,000 for the Fire Administration modular; and $325,000 to replace the dehumidifier in the Sports Center.

It should be noted that this CIP proposal recommends a departure from existing Council policy in two instances. Firstly, in the past 25% of gas tax funding has been set aside for the acquisition of Window on the Bay properties. However, given the significant underfunding of street maintenance, staff recommends that all gas tax funding be allocated to street resurfacing projects. Secondly, normally all Tidelands revenues are also set aside for the acquisition of Window on the Bay properties. Again, due to the overall lack of funding for infrastructure projects, staff recommends departure from this policy in order to allocate some Tidelands funding to sewer, storm and fire sprinkler projects.

A fuller discussion of the entire 2004-05 CIP and NIP programs are provided in separate reports to Council elsewhere on this agenda.

The FY 2004-05 budget is precariously balanced, as I stated earlier in this report, but the fiscal picture beyond next year is of even greater concern. Our early projections show a $2 million General Fund operating imbalance starting in FY 2005-06 that will have to be dealt with by next June. And, unfortunately, these projections assume a lower level of funding for the maintenance and replacement of city facilities and infrastructure than we should be providing.

The reasons for this out-year imbalance are multi-faceted and are related to the various "financial pressure points" that challenge the City of Monterey (and most other cities for that matter). The major areas putting pressure on the budget continue to be:

• Revenue shortfalls (TOT, sales tax, interest, State take-aways)

• Infrastructure maintenance (streets, sewers, storm drains)

• Employees (health care, retirement costs, workers comp, housing)

• New open space/facilities (Window on the Bay, Public Service Center)

The solution to this projected $2 million FY 2005-06 imbalance can take the form of 1) more expenditure (program) reductions, 2) increased fees or taxes, 3) increased tax base, or 4) some combination of these methods. Taking a longer-term look, projects like the hotel on Cannery Row and the Ocean View Plaza project would greatly increase the City's tax base, thereby helping to close the budget gap in the out-years without raising taxes or cutting more programs. However, at this point revenues from these projects have not been factored into our nearer term projections through FY 2005-06.

At the June 1 Council meeting, there was a request that staff include a list of other potential revenue sources in this budget report. The potential revenues that staff has identified are as follows:

• TOT increase
• City-wide fee review and reduce/eliminate subsidies
• Increase sewer maintenance fee from 47.6% to 70%
• Increase Storm Drain Utility fee to recover cost of operations and maintenance and capital improvements to meet Federal mandates
• Seek corporate naming rights/sponsorships
• Establish Library fundraising program
• Phone service fee for 911 dispatch services
• Admissions tax for entertainment facilities, possibility exempting non-profits
• Establish City affinity credit card
• Increase sales tax for local infrastructure or for general use
• Increase property transfer tax rate (e.g. for residential sales above $1 million)
• Construction truck impact fee
• Street sweeping fee

In reviewing this list, I believe it would be prudent to first carefully consider the impact on services and on the City organization if we plan to continue to live within our currently available revenues before we proceed with further review of any tax increases that require a public vote. Proposition 218 requires that tax increases be on the ballot when Councilmembers are elected (e.g. November 2004 or November 2006 - unless there is a financial emergency in which case a different election date could be used). Also, tax increases typically require a 2/3 vote to be approved if the new revenue is for a specific purpose (50% for a general purpose). If Council wants to immediately pursue any new revenue sources, please provide direction to staff. It is highly probable that without new revenues we may have to once again use the Reserve for Economic Uncertainty and/or identify and implement additional service reductions with further position reductions.

Given the budget imbalance projected for FY 2005-06 and the financial pressure points reviewed above, staff believes that this is not the time to add back programs that were reduced or eliminated in the Budget Reduction Plan unless a clear funding source can be provided. Similarly, it is not the time to be adding new programs or services unless there are new revenues, expenditure savings, or long-term efficiencies that result.

Instead, we need to focus on how to maintain the level of reductions provided in the Budget Reduction Plan and how to start addressing the projected $2 million structural imbalance in FY 2005-06. We also need to develop a long term strategy for more appropriate levels of investment in the maintenance and replacement of our facilities and infrastructure.

Fred Meurer

CITY OF MONTEREY

Return to top