City of Upland, CA

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Thursday, September 2

City Manager

Robb Quincey, City Manager

Happy late summer everyone; it seems so true to me now what my folks used to say…”cherish each and every day as you get older the days go by faster and faster….and faster”. I hope that you all have had a perfect “slow enough to enjoy” summer, and that you are well heading into another beautiful fall here in Upland. This past year has been another of great progress and program completion, notwithstanding the state and local budget challenges. Like so many other forms of government, here at the City we too have had to “retool” the organization and make a myriad of programmatical cuts and changes, from personnel to projects. It is our hope though that we can minimize the impact to the City by carefully examining which projects must be completed, slowed or significantly modified or deleted in their entirety.

Recently, the City Council again adopted a conservative fiscal budget that is balanced.  As I mentioned last year, our financial plan is to “balance in and balance out”.  For the City’s Fiscal Year 2010/2011, much effort went into this balancing effort such that the City continues to ensure superior customer care in all areas, from public safety to public works and everything in between.  The City’s collective staff worked very hard to prepare and present a “no-nonsense” budget to the City Council which represents a collective effort of city-wide programming and the funding to accomplish it.  My budget transmittal letter follows for your review. I hope that you find it to tell the financial tale of the City, and that you can fully examine it and find it useful in the context of what to expect from your City this coming year.

The budget is based upon the following premises:

• City expenditures have been evaluated on their own merits, based on sound, functional decisions related to the staffing and programming needs of Upland;

• A slight improvement in the economy is expected and, as a result, revenues are projected at a slight growth compared to the prior year; and,

• No additional revenue loss from State “raids” has been factored in the Proposed Annual Budget; however, staff will make recommendations to the City Council once the fiscal impact of any “raid” has been legislated by the State. 

The budget as presented to the City Council is different than what was originally submitted by the Departments.  Budget staff prepared an analysis of the Departments’ budget proposals in consultation with the City Manager.  The City Manager and Budget staff then met with each Department to discuss budget requests, enhancements, and reductions.  As usual, the Departments have demonstrated a high degree of understanding and cooperation concerning budget requests and reductions.

Total City revenues are projected to be $100,328,780, an increase of $5.0 million compared to the prior year.  The funds with the highest revenues are as follows:  General Fund ($37,377,470), Water Utility Fund ($20,822,140), Redevelopment Agency ($12,151,890), and Solid Waste Utility ($10,240,250).  The net increase of $5.0 million is a result of higher Enterprise Fund revenues ($3.6) due to an expected increase in water sales, and a recent sewer rate increase by the Inland

Empire Utilities Agency.  In addition, the City was awarded new federal grant funds ($1.8 million) to be spent for capital improvements.  A slight decrease in redevelopment revenue is also reflected, due to reimbursements for capital projects that will not reoccur in the upcoming fiscal year.

The FY 2010-11 expenditure budget totals $126,008,310, including Capital Improvement Project (CIP) requests.  Many funds make up the total budget amount, with one of the largest being the General Fund in the amount of $37,480,170, or 29.7% of the organization’s total. Other major fund expenditures include the Water Utility Fund ($27,715,610), Redevelopment Agency ($21,166,530), Solid Waste Utility ($10,268,230), and Environmental Enterprise Fund ($7,115,480).  In sum, appropriations reflect a total decrease of approximately $4.3 million or 3.3% from the prior year amended budget.  The chart below illustrates the total budget by expenditure function:

Total personnel costs inclusive of all City funds are decreasing by $0.5 million, to $36.5 million.  The net change includes an increase of $0.5 million for a full year of staff costs pertaining to the new air ambulance service; however this entire cost is offset by reimbursement from the service provider.  Also included is an increase of $0.5 million for merit/step increases for eligible employees and additional retirement costs.  Lastly, staff is recommending the creation of three new positions in Animal Services while also reducing part-time staff costs; thereby realizing a net increase of $0.1 million.  Offsetting these increases is a recommendation to leave 21 vacant positions unfilled for the entire fiscal year, realizing $1.6 million in cost savings.  Most of these positions are being left vacant as a result of the golden handshake program approved by the City Council last June.  In summary, the total number of authorized positions is increasing by 3.00 FTEs (Animal Services) to a total of 345.25 positions; of these positions 324.25 are recommended to be filled and funded in FY 2010-11.

Maintenance and operations appropriations are increasing from $55.4 million to $56.0 million, or $0.6 million from the prior year.  Most of the increase is due to higher costs in risk management ($0.9 million) for legal services, insurance premiums, and claims and settlements.  Increased costs ($0.3 million) are also projected for building maintenance/utilities for the Animal Services Facility and Fire Station No. 164.  Offsetting this increase is a reduction in HOME grant expenses ($0.6 million); less funds are projected to be spent for this program.

Capital outlay purchases and capital improvement projects are decreasing from $37.9 million to $33.5 million, or $4.4 million from the prior year.  This decrease is primarily due to projects that were budgeted and completed in the prior year that will not reoccur in FY 2010-11.  In addition, as a result of slow development in the past few years, the City has received minimal development impact fee revenues, which fund major capital improvement projects.  Significant decreases in capital projects include: General Fund ($2.2 million), Gas Tax ($2.8 million), and Environmental Fund ($1.9 million).  An increase in water infrastructure projects ($2.5 million) is also projected.  Proposed capital improvement projects of interest for FY 2010-11 include: Arrow Highway Pavement Rehabilitation, Arrow Route Widening, Recycled Water Infrastructure, Water Plant/Reservoir Improvements, and Trenchless Sewer Rehabilitations.

 

GENERAL FUND

In summary, the proposed General Fund budget is balanced without the use of one-time revenues or General Fund reserves.  However, there are significant budget reductions recommended in this budget in order to maintain the General Fund in balance, mostly impacting staffing levels.  The General Fund ending balance is projected to be $9.5 million, which is $130,000 above the reserve policy limit of 25% of operating expenditures.  A summary of the General Fund balance is illustrated below:

General Fund Revenues:

Total General Fund revenues are projected to be $37,377,470, a slight increase of $0.1 million or 0.4% from the prior year amended budget.  The chart below illustrates the distribution of revenue sources in the General Fund.

• Property Taxes
  Property tax revenues are projected to be $17,357,830.  However, of this amount, $5,627,780 is the Property Tax In-Lieu that backfills the reduction of motor vehicle license fees.  After adjusting for this revenue source, property tax revenue is projected to be $11,730,050, reflecting an overall decrease of 3.1% or $0.4 million over the prior year amended budget.  This decrease is due to the County of San Bernardino automatically reassessing home values multiple times in the past two years, which has caused property tax revenue allocated to the City to decrease. 

• Sales Taxes
  Staff is projecting sales tax revenues of $9,860,160.  Staff is projecting this revenue source to remain at the same level as the amended budget, which reflects a reduction of $500,000 as reported at mid-year due to a continued decline of taxable sales in the current year.  As there has been no improvement reported in recent sales tax figures, staff is recommending a flat projection of growth.    

• Motor Vehicle In-lieu Fees
  State Motor Vehicle In-Lieu fees, also known as Vehicle License Fees, is projected to be $232,880. The State is backfilling this revenue source with a projected $5,627,780 in property tax revenue. Since this revenue is calculated on assessed values, and these have declined significantly over the past few years, the budget amount is $0.4 million lower than the prior year amended budget. 

• Charges for Services
  Overall, this revenue source will total $3,858,480, an increase of $1.1 million from the prior year amended budget.  This increase is mostly due to the City receiving a full year of reimbursement revenues ($0.8 million) for the new Air Ambulance program.  In addition, staff is projecting to collect on delinquent plan check fees ($0.3 million) for previously completed projects.

• Investment Earnings
  Interest rates have declined during the past few years, as a result of the Federal Reserve lowering interest rates numerous times.  Also, the City’s General Fund cash balances have declined as a result of the City paying for new public facilities construction costs.  The combination of these factors has caused interest earnings to decrease significantly, approximately 50% from the prior year amended budget.  For FY 2010-11, interest earnings are projected to be $228,100.    

• Other Revenue
  Other revenue totals $1,841,800, a slight increase of $0.2 million from the prior year.  This increase is due to projected reimbursements from other agencies.    

• Transfers In
  The General Fund will receive operating transfers in from the Highway Users Tax Fund in the amount of $512,700 for street maintenance costs such as traffic facility maintenance, street sweeping, and sidewalk maintenance.     

General Fund Expenditures:
General Fund expenditures are projected to be $37,480,170, which is $0.8 million lower than the prior year amended budget.  Due to higher uncontrollable maintenance and operational costs, these are increasing by $0.5 million; whereas personnel costs are decreasing by $1.3 million. 

The majority of General Fund expenditures are appropriated for public safety services (64.7%), followed by engineering & public works (9.7%), and recreation and community services (6.1%).  The chart below illustrates General Fund Expenditures by Department.

• Personnel
  General Fund personnel costs are projected to total $27.8 million, a decrease of $1.3 million from the prior year amended budget.  The change reflects an increase of $0.4 million due to step increases for eligible employees and higher retirement costs.  Offsetting the increase is a reduction in part-time staff costs ($0.1 million) and full-time staff costs ($1.6 million).  As previously stated, staff is recommending freezing 21 full-time positions that are currently vacant.  It is necessary to implement this budget measure due to stagnant revenues and continued increases in other fixed costs.  The personnel cost reduction represents 5.8% of the City’s total General Fund funded positions. 

• Maintenance and Operations (M&O)
  The FY 2010-11 maintenance and operations budget is $9,678,420, which is an increase of $0.5 million from the prior year.  This increase is due to new or additional costs in the following areas: contract for radio communications, election services, and the air ambulance program.     

• Capital Outlay
  For FY 2010-11, staff is recommending no capital outlay purchases funded by the General Fund, thereby showing no change from the prior year. 

• Transfers Out
  For FY 2010-11, the General Fund will make transfers out to other funds in the amount of $0.4 million.  The transfers will fund bond principal and interest payments, and costs pertaining to the ongoing work of the General Plan Update.   

 

SPECIAL REVENUE FUNDS

STREET MAINTENANCE AND IMPROVEMENT FUNDS

The City receives two sources of funds for street infrastructure improvements.  The Gas Tax Fund accounts for gasoline taxes received from the State of California, and the Measure I Fund accounts for revenue received from the State of California from a special 1/2% sales tax.  For FY 2010-11, the total budget for street improvement projects from these sources is $6.1 million.  Projects of interest include: Citywide Slurry Seals, Citywide Concrete Repairs, Pavement Rehabilitation, Redding Way Rehabilitation, and Diamond Court/Vallejo Way Street Rehabilitation.    

HOME INVESTMENT PARTNERSHIP PROGRAM

The Home Investment Partnership Program budget appropriates $1,540,000. These funds are received from the U.S. Housing and Urban Development Department and are used to assist limited income individuals and families purchase their first home or make needed improvements and repairs.

COMMUNITY DEVELOPMENT BLOCK GRANT FUNDS (CDBG)

This year’s CDBG program allocation totals $1,156,280. The recommendations for these funds have been processed and approved by the CDBG Committee, and the City Council has reviewed and supported the recommendation.  These funds continue to support many important community needs that may not otherwise be possible. Programs such as Code Enforcement, Graffiti Removal, and Homeless Services are examples of how these funds directly benefit the Upland community. 

AIR QUALITY MANAGEMENT DISTRICT

This fund accounts for the receipt of funds generated by AB2766, which sets forth requirements for the reduction of air pollution from mobile sources as promulgated by the South Coast Air Quality Management District.  The total appropriations are $80,120, and total revenues are $91,740.

OFFICE OF TRAFFIC SAFETY

Periodically, there are grants available for use by Police Departments for technology, community oriented policing, and resource officers in schools.  These grants are based on availability and, as a result, only amounts that have been received are expended.  Appropriations for these grants total $180,480.

OTHER GRANTS

Like police grants, periodically there are special purpose grants available for use by other City Departments.  These grants are based on availability, and because of this, only amounts that have been received are expended.  The total appropriation for Other Grants is $491,190.  Any additional grants available will be brought to the City Council separate from this document.

 

DEBT SERVICE FUNDS

PUBLIC FINANCING AUTHORITY

This fund is used to accumulate resources necessary to make payments on the police building lease revenue bonds.  The appropriation of $263,890 is for annual principal and interest due on the bonds.  Revenues and transfers in are projected at $256,000.

 

CAPITAL PROJECT FUNDS

Capital Project Funds include: General Capital Improvements, Park Acquisition and Development, Storm Drain Development, and Street & Traffic Facility Development.  For FY 2010-11, the total budget is $7,958,630, including FY 2009-10 carry-over projects.  Projects of interest are as follows: Arrow Highway Pavement Rehabilitation, Solar Panel Project, Arrow Route Widening, and various Park Improvements.  The revenues for these funds are derived from development impact fees, and are projected to be $1,541,160.  In addition, the City was awarded two federal grants for a total reimbursement of $1.7 million to offset project costs.   

 

ENTERPRISE FUNDS

WATER UTILITY FUND

The Water Utility Fund budget includes the cost of delivering water and service to City customers and costs in maintaining the system. Total Water Utility appropriations projected are $27,715,610, an increase of $2.5 million or 9.9% from the prior year amended budget mostly due to an increase in water infrastructure projects.  Water improvement projects of interest include:  Recycled Water Infrastructure, Water Plant/Reservoir Improvements, Urban Water Management Plan, and Water Rate Study.  Revenues are projected at $20,822,140.  The Water Utility fund balance is projected to be $2,464,898.

SOLID WASTE FUND

The Solid Waste Fund budget includes the cost of providing refuse service to City customers.  Revenues are projected at $10,240,250 and appropriations are $10,268,230.  The Solid Waste fund balance is projected to be $403,230, within the reserve policy limit previously established by the City Council. 

ENVIRONMENTAL ENTERPRISE FUND

The Environmental Enterprise Fund operating budget includes the cost of providing sewer services to City customers and to maintain the system.  Total appropriations are $7,115,480, a decrease of $2.1 million from the prior year.  Most of the decrease is due to lower infrastructure projects in the upcoming fiscal year.  The majority of the budget is comprised of the waste treatment services contract with the Inland Empire Utilities Authority (IEUA).  Revenues and transfers in are projected to be $6,126,920.  The Environmental Enterprise fund balance is projected to be $3,393,583.

ANIMAL SERVICES FUND

The Animal Services Fund is a newly created fund to account for Animal Care and Animal Services programs.  The City is currently exploring the expansion of services such as contracting with other agencies that need Animal Care services, providing boarding services, etc.  Since the goal is to operate the Division in more of a “private-sector” business enterprise mode, with the intent that costs will be recovered through user charges, staff recommends accounting for these services in an Enterprise Fund.  Total revenues are projected at $309,780, and appropriations are $787,620.

INTERNAL SERVICE FUNDS

SELF-FUNDED LIABILITY FUND

This fund is used to collect cost allocations among each Department, and uses these funds to pay for insurance costs that include: legal services, workers compensation, long-term disability, unemployment and general liability.  Revenues are projected to be $2,906,620, and appropriations are $2,886,040.

REDEVELOPMENT AGENCY
The Redevelopment Agency budget is built upon a foundation of continuing the pursuit of economic development.  For FY 2010-11, appropriations total $21,166,530, an increase of $1.0 million or 5.0%.  This increase is primarily due to providing more low/moderate income grants to subrecipients, and higher developer agreement costs.  Capital improvement projects of interest funded through the Redevelopment Agency include: “C” Street Rehabilitation, “D” Street Rehabilitation, Downtown Parking Lot Reconstruction, and Memorial Park Road Paving.  Revenues are projected to be $12,151,890, mostly comprised of property tax increment.  The Redevelopment Agency projected fund balance for Capital Projects is $517,292, and for Housing is $647,874.

ECONOMIC OUTLOOK
The United States has continued to experience latent recessionary impacts, and clearly this is the most challenging economy in decades; there are no quick fixes.  At the state level, California continues with its dire fiscal situation, as legislators are working toward developing a plan to close the State’s budget gap.  The fiscal impact of the State’s actions on the City is still unknown as of the date of this letter. 
The Inland Empire also continues to suffer economically.  The foreclosure rate remains among the highest in the nation, while sales tax and property tax revenues are still declining, and unemployment is in the double digits.  Analysts anticipate the economy will remain on “shaky ground” until jobs reappear. 
The effects on Upland continue to be significant.  The City’s development revenue has all but disappeared, and tax revenues are significantly lower.  City staff will continue to exercise significant fiscal prudence in the current year, as well as it has in the past and will in future years.  As you will see in this document, the City has reduced its operating expenditures to match its declining operating revenues.

CONCLUSION
In closing, my staff and I thoroughly enjoy working at the City of Upland.  Many of us call Upland our hometown – so our commitment to this City is very near and dear to our heart.  If you have any thoughts or questions regarding the City budget or our provision of services at a municipal level, please contact me at rquincey@ci.upland.ca.us or at 909-931-4102.  I look forward to hearing from you.  Thank you.

Robb Quincey, City Manager