Finance Chapter 9 Homework City Treasurer Responsible For Investing And Managing The Accumulated Employee Andemployer Contributions

FY2009/10 Approved Budget

2009/10

Proposed

2010/11 2011/12 2012/13 2013/14

Budget Estimate Estimate Estimate Estimate

REVENUE

Berth Rentals 1,810 2,027 2,696 2,858 3,029

Interest 18 20 23 24 25

Gas and Oil Sales 250 250 300 300 300

Miscellaneous 78 26 26 26 26

TOTAL REVENUES 2,156 2,323 3,045 3,208 3,380

EXPENDITURES

Operating 1,052 1,218 1,364 1,446 1,501

Debt Service 604 751 1,165 1,165 1,165

Marina Fund (6009)

Revenue and Expenditure Five-Year Forecast

Dollars in Thousands

Marina Fund (6009)

The Sacramento Marina is a 475-berth marina located on the Sacramento River at Miller Park. The

The Sacramento Marina completed a $10.5 million renovation in FY2008/09 that included replacement

of the 45-year old deteriorating South Basin docks, providing covered berths for nearly all slips,

complete replacement of the fuel dock, and reconfiguring the berth sizes to reflect market demand and

ensure higher annual occupancy rates. The project was primarily financed through a loan from the

State Department of Boating and Waterways.

The five-year expense and revenue forecast reflects the financial analysis prepared for the new berth

configurations. Berth fees reflect an average increase of 12 percent annually through FY20011/12 and

FY2009/10 Approved Budget

39

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FY2009/10 Approved Budget

Community Center Fund (6010)

The Community Center Fund funds the operation, debt service, and capital improvement program for the

Sacramento Convention Center, Memorial Auditorium, and Community Center Theater. The Center’s goals

include maintaining successful financial performance as an enterprise fund, optimizing facility utilization

through aggressive marketing, exceeding industry standards for service and facility maintenance,

increase to the full amount of $3.00 per ticket in FY2009/10.

Labor costs are budgeted to grow by four percent during this time and non-labor costs by one percent.

Cost savings are being pursued and implemented due to uncertainty in the overall economy and the

potential negative impact on revenues. The Community Center is also establishing an operational

reserve beginning in FY2012/13 to address unanticipated or emergency needs.

FY2009/10 Approved Budget

2009/10

Proposed

2010/11 2011/12 2012/13 2013/14

Budget Estimate Estimate Estimate Estimate

REVENUE

Other Fund Uses – 224 224 224 224

TOTAL EXPENDITURES 26,250 27,862 28,066 26,279 27,717

SURPLUS/(DEFICIT) 22 (580) (199) 2,656 2,496

Operational Reserve – – – (50) (50)

Other Fund Uses

Revenue and Expenditure Five Year Forecast

Dollars in Thousands

Community Center Fund (6010)

FY2009/10 Approved Budget

42

Storm Drainage Fund (6011)

Revenue generated by the City for the purpose of providing storm drainage service to its customers is

deposited in the Storm Drainage Fund. Revenues are derived primarily from customer service charges

and interest earnings. Storm Drainage Fund revenues cover the cost of storm drainage operations at

103 pumping stations, wet weather treatment and storage, collection system maintenance, related

engineering services, flood plain management, customer service and billing, education programs,

water quality monitoring and other regulatory compliance issues, and a capital improvement program.

Fund expenditures are divided among operating costs, debt service, and capital improvements.

Challenges facing the Storm Drainage Fund include:

 Upgrading drainage service to areas outside of the City’s combined sewer and storm drainage

system (CSS) to meet citywide standards.

 Supporting regional flood control efforts.

 Improving drainage system reliability.

The following chart provides a five-year budget and rate forecast including the following assumptions:

 No rate increases and continued use of fund reserves. Expenditures continue to exceed

revenues and the fund is projected to be in a deficit position in the near-term. Per Proposition

218, a voter approved ballot measure is required to increase Storm Drainage rates. The

department intends to recommend moving forward with the ballot measure process.

 Increase in Sacramento Area Flood Control Agency (SAFCA) costs: The City of Sacramento

provides support and assistance to SAFCA by providing a salary and benefit framework for

SAFCA staff. City positions are filled with SAFCA staff and are fully reimbursed by SAFCA for

all associated salary and benefit costs. There are 5.0 FTE SAFCA staff positions currently

funded within the City’s budget in Utilities. SAFCA has requested an additional 11.0 FTE

positions costing approximately $1.6 million in FY2009/10. These costs will be fully offset by

reimbursement from SAFCA.

FY2009/10 Approved Budget

43

2009/10 2009/10 2009/10 2010/11 2011/12 2012/13 2013/14

Base

Budget

Proposed

A

ugmentations

Proposed

Budget Estimate Estimate Estimate Estimate

Projected Rate Increase* 0% 0% 0% 0% 0%

REVENUE

Charges, Fees and Services 33,117 – 33,117 33,117 33,117 33,117 33,117

Interest 387 – 387 387 387 387 387

Other 3,502 2,712 2,796 2,886 2,977 3,074

Additional SAFCA Positions – Fully

Offset – 11.0 11.0 FTE

Storm Drainage Fund (6011)

Revenue and Expenditure Five Year Forecast

Dollars in Thousands

*Voter approval is required for rate adjustments to the Storm Drainage Fund. This forecast assumes no rate increases for FY10-14.

FY2009/10 Approved Budget

Property Taxes

In Thousands

138,738

64,379

70,000

80,000

90,000

150,000

$ Thousands

Revenue Overview

Property Taxes

Article XIII of the California Constitution (Proposition 13) limits ad valorem taxes on real property to

one percent of value plus taxes necessary to pay indebtedness approved by voters prior to July 1,

1978. The Article also established the 1975/76 assessed valuation as the base and limits annual

increases to the cost of living, not to exceed two percent, for each year thereafter. Property may also

be reassessed to full market value after a sale, transfer of ownership, or completion of new

construction. The State is prohibited under the Article from imposing new ad valorem, sales, or

transactions taxes on real property. Local government may impose special taxes (except on real

Not included in the graphic below is the property transfer tax, imposed on all transactions when

property located in the City is sold.

FY2009/10 Approved Budget

58,194

50,000

60,000

$ Thousands

Sales and Use Tax

The City of Sacramento has adopted a Bradley-Burns Sales Tax Ordinance, which allows the City to

receive one cent of the overall sales tax imposed in the City. The State Board of Equalization

collects and distributes sales and use tax for the state, cities, counties, and other entities receiving

sales tax revenue.

Sales and Use Taxes make up approximately 16 percent of General Fund revenues and are expected

to decrease by approximately 2.5 percent as a result of the effects of the slowing real estate market,

Since FY2004/05, this revenue exchange has been implemented with the City receiving less sales tax

and greater property tax allocations. This will remain in effect until such time as the state’s economic

recovery bonds have been retired.

The City’s sales tax receipts peaked at $69.5 million in FY2007/08. For FY2009/10 sales tax is

estimated to be $62.2 million, or 10.5 percent less than the peak and a 2.5 percent reduction from the

FY2009/10 Approved Budget

46

Utility Users’ Tax

51,739

48,069

45,000

50,000

$ Thousands

In Thousands

3,3003,300

3,504

3,431

2,000

2,200

2,400

3,600

2002/03

Actual

2003/04

Actual

2004/05

Actual

2005/06

Actual

2006/07

Actual

2007/08

Actual

2008/09

Amended

2009/10

Proposed

Fiscal Year

Utility Users Tax (UUT)

Measure O was approved by the voters on November 4, 2008, and reduced the 7.5 percent tax rate

to 7.0 percent on telecommunication services but expanded to include Voice over Internet Protocol

(VoIP), text messaging and many other previously excluded technologies. The 7.5 percent tax rate

continues to be in effect for gas, electric, and cable services. Current UUT revenue is approximately 16

percent of General Fund revenues and is expected to increase by 4 percent.

FY2009/10 Approved Budget

Business Operations Tax

In Thousands

7,500

7,319

7,558

7,500

8,000

Actual

Amended

Proposed

Fiscal Year

Business Operations Tax

Business Operations Taxes are remitted annually by individuals and businesses that commence,

transact, engage in or carry on any business, trade, profession, calling, occupation or gainful activity in

the City. Business Operations Taxes make up approximately 2 percent of General Fund revenues and

are expected to remain at a stagnant level for FY2009/10.

Motor Vehicle License Fee (MVLF)

An annual license fee equal to 2 percent of the market value of the vehicle as determined by the

Department of Motor Vehicles is imposed on any vehicle, of a type which is subject to registration

The Council has an adopted fee policy which sets forth guidelines for establishing cost recovery goals

determining the categories of cost recovery levels in which to categorize/organize fees, methods for

determining which category a fee falls under, and establishment and modification of fees and charges.

Fees and Charges make up approximately 10 percent of General Fund revenues and are expected to

grow approximately 10 percent. Annually, Council considers adjustments to fees and charges as part

FY2009/10 Approved Budget

48

Note: Property, sales, use, and utility user taxes related to the current fiscal year are accrued as

revenue and accounts receivable and are considered available if received within 60 days of year end.

Employee Retirement Benefits

The City of Sacramento provides defined benefit retirement benefits through PERS and the SCERS.

PERS is an agent multiple-employer public employee defined benefit pension plan. SCERS, a closed

system, is a single-employer defined benefit pension plan. There are approximately 1,150 retirees

covered by SCERS and 120 active employees covered by the plan. All other retirees and active

employees are covered under PERS.

PERS – Miscellaneous 7%

PERS – Safety 9%

SCERS – (varies with entry age) 3-10%

The City makes the following participant contributions on their behalf and for their account (percent of

annual covered payroll):

equal to the City’s required and actual contributions. The required contribution was determined as part

FY2009/10 Approved Budget

of the June 30, 2006, actuarial valuation, using the entry age normal actuarial cost method. The

actuarial assumptions included (a) 7.75 percent investment rate of return (net of administrative

which results in an amortization of 6 percent of unamortized gains and losses each year.

For the fiscal year ended June 30, 2008, the City’s annual SCERS pension cost of $3.5 million was

equal to the City’s required and actual contributions. The required contribution was determined as part

of the June 30, 2006 actuarial valuation using the entry age normal actuarial cost method. The

Proposed FY2009/10 budget contains a $3.4 million contribution to SCERS from both the General

open system such as CalPERS.

Other Post Employment Benefits (OPEB)

Recent changes to State and Local Government employers reporting requirements related to the cost

of retiree medical benefits represent a very serious fiscal challenge to the City. The City currently

provides a medical insurance subsidy to retirees who meet certain longevity standards. The City has

FY2009/10 Approved Budget

$31.5 million. The current pay-as-you-go cost in the Budget is approximately $10 million. The

difference between the ARC and the pay-as-you-go amount of $21.5 million will be recorded as a

liability on the City’s financial statements. This information was communicated to City Council as part

of the Midyear FY2007/08 Budget Council Report dated January 22, 2008.

A City working group has been formed to gather facts and explore the City’s options for dealing with

ratings, particularly if a significant number of local governments in California do fully fund the benefit on

an actuarial basis. This is only one of several risks to the City’s credit ratings. In the short run, the

City’s deteriorating budgetary situation and the likely development restrictions in the Natomas Basin

are a more significant risk to our credit rating. We see continuing pressure on state and local agencies

to reduce benefits, raise employee contributions or close benefits to new employees to fund the

FY2009/10 Approved Budget

51

BUDGET STATEMENT

General Information

The City of Sacramento was established in 1849 and in 1854 became the capital for the State of

California. Sacramento also serves as the seat of Sacramento County government. It is the seventh

Sacramento is a charter city and operates under a Council-Manager form of government that currently

provides for a nine-member elected City Council, including an elected Mayor. There are no other

elected City officials. The City Council appoints the City Manager, City Attorney, City Clerk and the City

Treasurer to carry out its adopted policies. Members of the City Council serve alternating terms of four

Budget Presentation

The presentation of the FY2009/10 Proposed Budget is included in three documents: Proposed

Operating Budget, Proposed Capital Improvement Program (CIP), and the Blueprint for Strategic

Budgeting. The Blueprint is designed to provide highlights and general information relative to the

Proposed Operating and CIP Budgets. The Proposed budget documents are available on the City’s Web

City Council Budget Hearings

Starting on May 19, 2009 the City Council will hold hearings on the FY2009/10 Proposed Budget.

These hearings provide the public the opportunity to provide their input on the budget. The preliminary

hearing schedule is provided on the following page:

FY2009/10 Approved Budget

Date What When

Week of April 27 Budget Briefings (Mayor/Council and

Unions)

Friday May 1 Release Proposed Budget

Tuesday, May 26 Budget Update

Hold for Hearing if Necessary

2-4 p.m. Hold for Budget as Needed

6-9 p.m. Council Business

Tuesday, June 2 CIP

Budget Update

Hold for Hearing if Necessary

Evening 1 hour

Financial Policies

The City of Sacramento operates under the following financial policies:

1) Budgetary Practices

a) Approved Budget Resolution

2) Investment Policy

3) Debt Management

1) Budgetary Practices

a) Budget Resolution

The Budget Resolution is the primary financial policy document for the City of Sacramento. These

policies are reviewed annually during the budget process and are shared with the City Council

during the review of the proposed budget.

FY2009/10 Approved Budget

53

The FY2009/10 Budget Resolution can be found in Section 30 of this document.

The budget resolution governs the following financial management areas:

Section 1. Scope

Section 2. Definitions

Section 8. Unspent Appropriations and Encumbrances

Section 9. Revenue Budget

Section 10. Capital Improvements

Section 11. Operating Grants and Externally Funded Programs

Section 12. Multi-Year Operating Projects

Section 13. In-Lieu Property Taxes and In-Lieu Franchise Fee

Section 14. Appropriation Limits

Section 15. Midyear Financial Reporting

Section 16. Miscellaneous Controls/Considerations

b) Financial Planning Policy

The City of Sacramento develops its annual budget according to Council-adopted sustainable

budget policies. These policies call for one-time funding sources to be used for only one-time

operating and capital expenditures. Ongoing expenditures are to be matched with ongoing financing

The ongoing core of the Mayor and Council’s budget philosophy continues to be sustainability. The

City Council has adopted the following objectives and principles to support this philosophy:

Budget Objectives

 Develop a fiscally sustainable spending plan by July 1st

Budget Principles

 Maintain a fiscally sustainable, balanced budget

 Use one-time resources strategically

 Identify return on investment and impacts; fiscal and social benefits

FY2009/10 Approved Budget

54

The Mayor and City Council adopted specific guidelines for the development of the FY2009/10

budget:

 Preserve the delivery of City services to residents and businesses to the extent

possible

 Use a mix of reserves, new revenues and citywide departmental reductions

consistent with a sustainable budget approach

c) Budget Development Policy

The Mayor and City Council formally adopted the Strategic Planning – Strategic Budgeting

process in June 2006, which allows the Mayor and City Council to incorporate priorities as

identified in their strategic plan into the budget process. Strategic Planning – Strategic

The following figure represents the City’s budget/program planning cycle:

FY2009/10 Approved Budget

The City’s fiscal year is July 1 through June 30. As such, the City Council annually adopts the

City’s operating and capital budgets for a single fiscal year beginning July 1 and ending June

30 in the subsequent calendar year.

To establish the annual budget, the Budget Division of the Finance Department develops a

plan for expenditure of projected available resources for the coming Fiscal Year. Labor costs

are updated to reflect salary and benefit changes called for in union contracts, and estimates

and City Council as required by City Charter on or before May 1 of each year. The Mayor and

Council review the proposed operating and capital improvement budget in public hearings. The

budget is formally adopted by a vote of the City Council on or before June 30 of each year. Any

changes to the proposed budget, as considered and approved by the City Council during

budget hearings, are included in the Approved Budget document.

The Council adopted Strategic Planning – Strategic Budgeting process is reflected in the

following timeline:

January – Council Planning Session

 Establish budget objectives and principles

 Provide policy direction for year-end results

 Consider policy direction for marginal budget adjustments

July 1st – New Fiscal Year

August/September – Executive Team Planning

FY2009/10 Approved Budget

October/November – Department Reviews and Recommendations

 Administrative work related to close of prior fiscal year

 Staff briefs Council on critical fiscal issues for future budget development

d) Budget Basis

Annual budgets are adopted for the General Fund, Enterprise Funds, Internal Service Funds,

and a variety of other Governmental Funds. In all funds, appropriations for expenditures are

established using the modified accrual basis of accounting, adjusted for the following:

‐ Purchase order encumbrances are budgeted as expenditures in the year of commitment.

the revenues are collected within sixty days of fiscal year-end. Payments in lieu of taxes in the

General Fund are budgeted as revenue instead of interfund transfers. The City budgets for

revenue in Proprietary Funds using the accrual basis of accounting.

The City Manager is authorized to administratively amend the budget during the year for

transactions up to $100,000 without City Council approval. All other appropriation adjustments

during the year require City Council approval.

2) Investment Policy

The investment policy of the City of Sacramento is established in the Sacramento City Code and

3) Debt Management

The City currently operates under the State of California debt requirements. The California Constitution

requires that long-term debt pledged by the full faith and credit of the City can only be approved by

FY2009/10 Approved Budget

57

The City also carries debt secured by specific revenue sources, and Certificates of Participation

secured by interests in City assets.

4) Risk Management

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of

5) General Fund Reserves

6) Fees and Charges

The City Council evaluates all City fees on an annual basis to determine the manner in which fees and

charges are set and the extent to which they cover the cost of the service provided.

Fund Structure

Overview

The General Fund is the City’s primary operating fund and accounts for all financial resources of the

general government, except those required to be accounted for in another fund.

The City budget includes the following major Enterprise Funds:

 The Water Fund accounts for the operation and maintenance of the City’s water treatment, water

transmission, and distribution systems.

 The Sewer Fund accounts for the operation and maintenance of the City’s sewer system.