By Chris Frost
Oxnard—The Oxnard Finance and Governance Committee received an update on the general fund budget projections for the fiscal year 2019-20 and authorized sending the document to the full city council.
Mayor Tim Flynn told the committee that he hopes the city council makes recommendations.
Chief Financial Officer Kevin Riper made the presentation and said he wants to emphasize the word base in 2019-20.
He said the revenue and expense projections are based on the current service level from the finance and operating departments and what spending and revenue would be if the city is on “automatic pilot” next year and the city didn’t make any policy changes.
“It’s to set the scale of the problem, and these are not where we plan to end up,” he said.
Riper said about 80 percent of the general fund’s revenue comes from taxes, with property tax being two-fifths of the general fund revenue and sales tax being another quarter.
“All other fees, franchise fees, business license tax, and transient occupancy tax, is about another eighth,” he said. “The other three are smaller general fund revenues. Service fees and charges, the cost allocation plan, where other funds pay the general fund for services provided by city staff paid the general fund, and all other revenues.”
The total revenue projected for the current year, he said, is $134 million.
“There is about a $2 million increase in property tax, $59 million in 2019-20, from this fiscal year to next fiscal year,” he said.
Sales tax shows a decline in revenue, $31.7 million, down from $32.4 million, he said, even though the state is “trundling” along.
“It’s completely due to a timing quirk,” he said. “The State of California got behind in sales tax remittances to all cities, not just to us in the fiscal year 2017-18 and they missed a payment.
This fiscal year, the $32.4 million contains an extra payment from the state.”
Riper said property tax over time is doing well since the recession.
“It’s about a 4.5 percent increase over the last nine years in general fund property tax,” he said.
“That’s attributable to 2 percent, which is the maximum allowable inflation adjustment, and then there are Proposition 8 re-evaluations from the property assessor having reduced property values during the recession. Proposition 8 re-evaluations caused an increase in those properties affected and those are still coming.”
Property transfers and re-evaluations from property sales and new construction, he said, add up to a 4.5 percent annual growth rate.
“That’s how we get to our $57 million projection for this year and $59 million for next year,” Riper said.
Salaries and benefits make up the majority of general fund expenditures, he said, and another 20 percent comes from materials, supplies, goods and services and smaller amounts for debt services and transfers out.
“Most of that is for public safety (projected at about 55 percent), or about $80.1 million,” he said. “There is about $33 million for cultural and community services, development services and public works.
Salaries and benefits are projected to grow by almost $6 million in the next fiscal year, he said, based on current staffing levels and no changes.
“When we put the CIP (Capital Improvement Program) placeholder together, it assumed a $1 million contribution to the general fund to various projects and has shrunk by a little bit because of last week’s council action,” he said.
The total pension costs over the past nine years rose by double, he said, to $35 million and the same is true for the general fund because it is for public safety.
“There is the same 3.5 percent overtime growth over the same nine years we’ve been talking about,” he said. “The last two fiscal years had bumps because of public safety-related overtime because of the Thomas Fire in the fiscal year 2016-17 and the Woolsey Fire this fiscal year.
Eventually, much of that extra overtime will be paid back by FEMA (Federal Emergency Management Agency) and the state emergency management agency, but that money isn’t coming until next fiscal year.”
Riper said the fire and police departments are the largest overtime users.
“When you put the two together, the total CalPERS general fund cost of about $20 million and overtime of about $10 million, that’s $32 million of the general fund’s spending of $140 to $145 million,” he said. “More than a fifth of the general fund spending is due to pension costs and overtime. Both are required to deliver services.”
The total general fund revenue increase is slated for a 1.3 percent increase.
“Expenditures are expected to increase by 5.5 percent and current service and staffing levels,” he said. “A deficit of a little over $9 million is projected if no action is taken. That’s on top of a $3 million deficit projected for the current fiscal year.”
If the council takes no action, he said the fund balance would drop to approximately $5 million for the end of the next fiscal year.
“That’s only 4 percent of total expenditures, and the policy target is 18 percent,” he said.
Committee Member Bert Perello asked Riper to recommend a reserve policy for the city before the item advances to the city council.
An 18 percent fund balance would be in the mid $20 million, rather than the $5 million shown,” Riper said.
Perello was worried about the bond rating from Standard & Poor’s, and Riper said they would look at the operating deficit first.
“If it goes unaddressed in the short term because you run out of reserves and long term because your forecast looks bad, they would look to factor that in as a possible downgrade,” Riper said.
Committee Member Gabriela Basua said the city needs to watch how they budget strictly next year, and the city is looking at cutting expenses.
“What are we looking at,” she asked. “We’re looking at $10 million to balance. We have hard decisions, and I ask that we take staff recommendations seriously.”
Chairman Tim Flynn said while there have been budget deficits there have also been ample reserves to soften the blow.
“In last year’s budget, the recommendation was for every department to cut back by 5 percent and I think the cuts were somewhere in the neighborhood of $8 million,” he said. “It would seem like we were able to deal with an $8 million deficit; it’s not that bad that we have to deal with a $9 million deficit this year. Most of the cuts that took place last year were authorized positions that had not been filled.”
He called it the most difficult financial year during his tenure on the city council.
“It’s going to necessitate cuts that we’ve never had before,” he said.
Perello said the city needs to face the music with the budget and the city manager will put the presentation on the city’s website.
“There are going to be some shocked city employees when it comes to council,” he said. “This is not a good day for Oxnard, but I am hopeful there are going to be better days in the future.”