HB 2002-2003 Comm. Financial Annual Review

In accordance with the City Code, I am submitting the FY 2003-04 Combined Operating and Capital Budget for your review and approval.

Overview

The budget represents the most significant policy document that the City Council makes each year. The budget sets the City's work plan for the coming year, approves service levels of the several operating departments and details the capital investments that the City will make.

The most significant factors shaping the preparation of this budget are the increased costs associated with our ongoing programs and a lack of growth in sales tax with the expected loss of the last two new car dealerships located in the city. The expenditure side of the budget includes an additional $450,000 for retirement and health insurance costs. The retirement costs are projected to climb for the next several years as the rates are adjusted to reflect the negative investment returns experienced by the retirement system. Health insurance related costs are increasing throughout the nation much faster than inflation after several years of slower increases.

The revenue growth has been slower in all areas except property taxes where we continue to see increases that are higher than inflation and transient occupancy tax due to new hotels last year and this year. The loss of the new car dealerships cannot be overstated as having an impact on the overall revenue of the city. The VW dealership site does have a new development approved, which will generate some sales tax, but not as much as the dealership did. The BMW site will continue the current operation, probably until April 2004. Staff has had discussions with the dealership owners about the possible continued use of the site for service and used auto sales. The loss of these sources of revenue are important for both the short and long term, as the city attempts to continue to provide the services demanded by our residents and which are consistent with those provided by other cities in the South Bay. Additional revenues or increases in existing revenue will need to be considered in order to continue providing full range of services.

The other issue that is a complete unknown is the loss in revenue that the city may experience as a result of actions that the State Legislature and Governor may take to balance the state budget. The shortfall at the state level is unprecedented and even though local governments have so far been spared cuts in the early state budget balancing actions, it is expected that one way or another local government will again be called on to balance the state government programs. If the state does end up taking local government revenues to fund its programs, the city will have to amend this budget to reflect any changes. It is likely that consideration of any amendments will be done in July or August depending on when the state completes its budget. It is also important to point out that the state budget crisis is a multiyear problem. Some experts have said that the state will face this problem for 4 to 5 years. The last time that the state faced a budget gap this large in terms of percentage of its general fund was the 1992-93 fiscal year. That year the state tapped local government for a share of its property taxes, which if the city received those funds they would total over $1,000,000 this year. The funds targeted this year have been the Vehicle License Fees (VLF) and if we lost this source of revenue it would have significant impact on city services for the next several years.

This budget as proposed is balanced with recommended increases in a number of fees and charges including parking fees and fines. A separate report details these proposed changes both for the current fiscal year and beyond. In addition, staff will be proposing that the City Council consider placing two items on the November ballot for consideration by the voters: increasing the business license tax and the hotel tax (transient occupancy tax). This would allow the city to deal with state cuts without having to wait until the 2005 municipal election.

Revenue

Since the General Fund pays for the majority of operating expenses, this analysis of revenue and expenditures will focus on that fund. Most of the revenue in the other funds is either grant funds or other one-time funds which are restricted by use; therefore an overall comparison is not meaningful.

General Fund revenue estimates predict a 1% increase over estimates for 2003. Current year property tax revenue is projected to increase by 7%, reflecting continued health in the housing market in the beach area. Property tax represents 33% of total General Fund revenue. Please refer to the chart on page 30 for property tax distribution breakdown.

Sales tax revenue comprises 14% of total General Fund revenue and is estimated to decrease by 4% due to loss of the two auto dealerships. Prior to 2001-02, sales tax revenue rose 25% over the past two years, 59% over the past five years. The State sales tax rate is currently 8 1/4%, distributed as follows: 6% State; 1% City of Hermosa Beach; County Transportation 1/4%, Proposition A Transportation 1/2%. Proposition C Transportation 1/2%.

The third largest revenue source, utility user tax, is projected at just over $2 million, which is consistent with the 2000-01 level. For the new year, the tax represents 13% of total General Fund revenue. The tax rate is 6%.

Transient Occupancy Tax now represents 7% of General Fund revenue and is estimated to increase by 11% over 2002-03. A new 70-room hotel has just opened this fiscal year. In 2001-02, a 72-room hotel opened last fiscal year and an existing beachfront hotel expanded by 70%.

Excess assets are available in the Public Employees Retirement System (PERS) for the Miscellaneous Group employees (non-safety). When this "superfunding" occurs, PERS allows those excess funds to be used for the payment of employer paid employee contributions. The funds from PERS show as revenue in the General Fund account "Use of PERS Excess Assets"; expenditure accounts continue to show the expense for city paid employer contributions. PERS estimates that these excess funds cease to be available after 2003-04.

Expenditures

There are no significant changes proposed in service levels for any of the departments. Expenditure increases reflect higher costs in a number of areas, including those associated with salary, retirement and benefit increases. Negotiations are under way with our employee organizations. Current agreements expire on 6/30/03.

No new positions are recommended. The requested positions included seven (7) new positions in the Fire Department. This request is similar to the one made last year with the addition of a position to fund a CERT coordinator.

The Lighting Fund was reduced by almost $66,000 because the cost of the Lighting/Landscaping/Medians Division is more than the assessment generates. The estimated balance available at the end of 2004 is 0. It is recommended that the City Council submit the issue of increasing the assessment to the voters through the "mailed ballot" procedure available for assessments.

This budget includes $6.8 million in funding for proposed capital projects in our continuing effort to improve our streets, parks, sewers and buildings. The most notable projects (including carry-over projects) are the Pier Phase III, Community Center ADA improvements, residential streets and sidewalk ramps. No transfer is proposed from the General Fund to the Capital Improvement Fund this year, as these revenues were needed to balance the preliminary budget, however, $275,000 from the Tyco Fund is transferring to the Capital Improvement Fund. The 5-Year Capital Projects Work Plan will be provided under separate cover for review at the study session. This work plan will detail each project, including funding and timeline, from start to finish, to improve accountability for the capital improvement projects.

All significant changes in fund balances shown in the Budget Summary are due to capital improvement project expenditures, which is the intended purpose of these funds. There have been no significant changes in the revenue stream for these funds.

I would like to thank all the Department Directors for their work and the Finance Department staff and Finance Director, Viki Copeland for putting the budget together. This has been an extremely difficult year to develop a budget to present to the City Council and I really appreciate the extra effort that has been made by all involved.

Receive and file the 2002-03 Comprehensive Annual Financial Report (CAFR), which includes

Annually the City has a financial audit performed by an independent, certified public accounting

firm. The auditor’s report is located behind the second divider that is labeled “Financial

Normally, the CAFR is complete by December and presented to City Council in January. This

year was a year of great change year because of the implementation of GASB 34. GASB, or

the Governmental Accounting Standards Board, is the standard-setting body for state and local

government financial reporting. GASB 34 is the statement that established new financial

reporting standards, which, for our City, were implemented for the 2002-03 fiscal year reporting.

Implementation of the new standards involved a complete overhaul of report formatting for

2002-03 and conversion of the previous year’s data in addition to 2002-03 in order to have

comparative information. Well over a year of planning was required, involving not only the

Finance staff but also Public Works, an outside appraisal firm and additional services from the

auditors. The staff appreciates the City Council’s support for the extra effort and the financial

The most recent fund balances, as contained in the 2002-03 CAFR were used in the 2004-05

Preliminary Budget, therefore the City Council did have accurate information when considering

the 2004-05 Preliminary Budget. The fact that the CAFR had not actually been presented to

the City Council did not, therefore, affect any of the decision-making. Staff plans to present the

Some of the efforts involved in the project were the independent identification and appraisal of

the city’s infrastructure assets, which involved Public Works and American Appraisal,

development of accounting data to convert to and support the new statements, development of

new fixed asset policies and new systems for recording the infrastructure assets.

The City again received an unqualified opinion, which indicates that the auditor believes the

financial statements present a fair picture of the financial position of the City, as opposed to a

qualified opinion, in which the auditor “qualifies” or limits his opinion for specific reasons, such

as lack of fixed asset accounting, significant internal control deficiencies or now, noncompliance

The report has again been submitted to the Government Finance Officers Association (GFOA)

to qualify for the Certificate of Achievement for Excellence in Financial Reporting for the ninth

time. The filing deadline was extended in consideration of GASB 34 implementation. The

award program requires a high level of compliance with governmental standards, inclusion of

information well beyond the general-purpose financial statements and an unqualified audit

Presents financial information in new formats, namely, the Government Wide Financial

Statements, beginning on page 15. These are designed to show net assets and equity

of the City as a whole, provide information on the cost of services and show how

Requires a new section, Management’s Discussion and Analysis (MD &A) to present

Requires accrual accounting for all governmental funds, meaning that long term assets

and liabilities (such as capital assets, including infrastructure) are included in addition to

short term assets and liabilities. All revenues and all costs of providing services are also

Much of the information previously contained in the staff report is now found in the MD &A

starting on page 3. General Fund information is found on page 10. Detailed sales tax

information, however, is not included in the CAFR, therefore it is presented below.

Sales tax represents 15% of total General Fund revenue and declined by 6% from 2001-02,

primarily due to the loss of the Porsche/Audi dealership and associated lease revenue.

Gary Caporicci, the partner in charge of our audit, will be available at the meeting to make

some comments about the new CAFR model and to answer any questions you may have.

Since the reporting model is new for all of us, if you have particular questions, we would

TOTAL GENERAL ACCOUNT $23,629,212 $1,847,805 $570,893 ($1,458,713) (706,941) $23,882,256

August 11, 2004

Honorable Mayor and Members of Adjourned Meeting of

The Hermosa Beach City Council August 13, 2004

2004 IMG

CONCERT ON THE BEACH: SHERYL CROW

Recommendation

It is recommended that the City Council approve the request from IMG to produce an evening concert on the beach, Thursday, September 23^rd, 2004, featuring Sheryl Crow.

Summary

The Community Resources Department received a special event application from IMG, the company responsible for the production of Beach Bash, to produce a concert on the beach that would feature Sheryl Crow. The verbal request was received Thursday, August 5, 2004, after the Council agenda had been prepared. The City event application and $500 application fee were received Friday, August 6, 2004. An interdepartmental operations meeting was held Tuesday, August 10, 2004 to assess production feasibility and safety concerns. Per Council direction, this special event request was adjourned from the regular meeting of August 10, 2004 to Friday, August 13, 2004 at 6:00 p.m.

ENTERTAINMENT VENUE

Opening Act 6:00-6:45PM

TBD Remarks 6:55-7:04PM

First Support Act 7:05-7:55PM

American Express Remark 8:11-8:19PM

Sheryl Crow plus guest performers 8:20-10:00PM

Fireworks Display 10:01-10:04PM

Show Ends 10:05PM

Event capacity is determined to be 10,000 spectators situated on the sand (no bleachers) in six (6) designated quadrants situated on the north side of the Pier (Attachment A). Each quadrant measures 120’ X 200’ totaling 24,000 sq. ft per section. Open area capacity is typically set at 1 person per 7 sq. ft. Should more than the anticipated crowds of 10,000 arrive; there is safe seating capacity for 20,000 within the grids as shown on Attachment A.

A 6’ perimeter fence will control access to the venue site with secured entrances on both east and west sides. Other structural components include a stage, media deck, and elevated seating for a VIP area.

Per coastal commission policy, IMG cannot charge admission to the proposed event, but may sell or designate preferred seating (VIP) for up to 24% of the total amount of seating capacity. More than 75% of the seating capacity shall be available free of charge for general public admission.

The event contract (Attachment B) stipulates that a minimum of sixty (60) private security guards, one (1) Police Sergeant, eight (8) Police Officers, and two (2) Fire/Paramedic Officers are assigned to the event for security purposes.

Fiscal Impact: $25,452 Estimated Permit Fees (Attachment C)

$74,548 Charitable Donation toward youth/family orientated City programs and /or facility utilized by youth populations

The production schedule (Attachment D) details equipment load-in procedures beginning Thursday, September 16^thwith vehicles crossing the Strand for two consecutive days. Truck movement will discontinue over the course of the weekend and resume Monday, September 20^th. All load-in and teardown proceedings will be implemented between the hours of 8:00AM and 8:00PM.

The American Express media outreach will be limited to local markets. Banner, print and radio marketing plans are outlined in Attachments E and F.

Attachments:

A. Venue Site Plan

B. Commercial Event Contract

C. Fiscal Impact Detail

D. Production Schedule

E. Street Banner Design

F. Marketing Plan

Respectfully Submitted, Concur,

____________________________ ________________________

Lisa Lynn Stephen R. Burrell

Community Resources Department City Manager

August 2, 2004

Honorable Mayor and Members of Regular Meeting of

the Hermosa Beach City Council August 10, 2004

1. MUNICIPAL MATTERS

a. STREETLIGHT ELIMINATION. Memorandum from Public Works Director Richard Morgan dated August 2, 2004. (PDF File).

RECOMMENDATION: Authorize the removal of up to 50% of the streetlights in the northwest portion of the City as a test project before proceeding citywide.

b. PROJECT NO. CIP 00-630 PIER RENOVATION - PHASE III, AWARD CONSTRUCTION CONTRACT, APPROPRIATE FUNDS, AND APPROVE PROFESSIONAL SERVICES AGREEMENT FOR CONSTRUCTION SUPPORT. Memorandum from Public Works Director Richard Morgan dated August 2, 2004. (PDF File).

RECOMMENDATION: That the City Council:

Award the Construction Contract to George C. Hopkins Construction Company, Inc. in the amount of $4,782,000.00 and authorize the Mayor to execute and the City Clerk to attest subject to approval by the City Attorney;
Authorize the reduction in the amount of $75,000 from the 122 Tyco Fund;
Authorize the appropriation of $100,000 from the 125 Park & Recreation Fund;
Authorize the appropriation of $500,000 from the 302 Artesia Blvd. Relinquishment Fund;
Authorize the appropriation of $51,991 from the 150 Roberti Z’berg-Harris Grant Fund;
Authorize the appropriation of $220,000 from the 150 Per Capita Grant Fund;
Authorize the appropriation of $291,263 from the 301 Capital Improvement Fund;
Authorize the re-appropriation of $100,000 from Project No. CIP 03-109 Concrete Road Repair – Various Locations, 301 Capital Improvement Fund, into this project;
Authorize the re-appropriation of $120,000 from Project No. CIP 03-110 Slurry Seal – Various Locations, 301 Capital Improvement Fund, into this project;
Authorize the Director of Public Works to make minor changes to the George C. Hopkins Construction Company, Inc. contract as necessary within the 5% contingency amount of $239,100; and
Approve the Professional Services Agreement between the City of Hermosa Beach and Ron Yeo Architects for construction support services in an amount not-to-exceed $30,000.

STREETLIGHT ELIMINATION

Recommendation:

It is recommended that the City Council authorize the removal of up to 50% of the streetlights in the northwest portion of the City as a test project before proceeding citywide.

Summary:

Appropriations for the Lighting/Landscaping District (LLD) for fiscal year 2004-05 are $661,131. These appropriations are funded by $455,000 in tax levy funds, $2,750 in miscellaneous revenue and $61,643 from the LLD fund balance. The deficit of $141,738 was funded with a transfer from the General Fund. As part of the budget review process, Council directed staff to investigate eliminating approximately half the streetlights as a means of balancing the District budget by reducing expenditures. The majority of streetlights in the City are already energy efficient sodium vapor bulbs therefore removal is the only cost savings option. This was recommended in lieu of balloting residents to consider a cost increase to their Lighting District assessments (presently $41.68/year).

Staff performed a cost analysis (see ATTACHMENT 1), which determined that a 50% reduction in lighting would save approximately $50,590 the first year in energy savings per year when the lights are turned off and an additional $62,410 per year in tariffs when the Edison-owned lights are removed, for a total annual savings of $113,000. There is a $40 per lamp charge for Edison to turn off the lights and bag them, for a total cost of approximately $20,000.

Since this concept became public, staff has received mixed reviews from residents (see attached letters). Many residents are happy to see the lights turned off while others are concerned about safety. Staff recommends implementing these changes by starting out with a test area. The selected area is in the northwest section of the city, bounded by 27^thStreet on the south, City boundary on the north, Valley Drive on the east and the Strand on the west. The proposal is to remove all of the mid-block lights on the residential streets, leaving one light at the intersections and to remove every other light on Hermosa Avenue and on the Strand. This will eliminate 50 of the existing 152 lights.

These lights will be turned off and left bagged for a trial period of approximately three months. Staff will bring the results of this test back to Council for final determination whether or not to proceed with streetlight removals citywide. If it is determined to proceed, the lights will be removed. The wooden power poles will remain but the concrete and steel poles will also be removed.

Edison owns 41 of the 57 lights being removed. There is a $40 per lamp charge for turning off the lights, for a cost of $1,640 to be funded by the Lighting/Landscaping District (105-2601-4303).

August 2, 2004

Honorable Mayor and Members of Regular Meeting of

The Hermosa Beach City Council August 10, 2004

PROJECT NO. CIP 00-630 PIER RENOVATION – PHASE III, AWARD CONSTRUCTION CONTRACT, APPROPRIATE FUNDS, AND APPROVE PROFESSIONAL SERVICES

AGREEMENT FOR CONSTRUCTION SUPPORT

Recommendation:

It is recommended that the City Council:

1. Award the Construction Contract to George C. Hopkins Construction Company, Inc. in the amount of $4,782,000.00 and authorize the Mayor to execute and the City Clerk to attest subject to approval by the City Attorney;

2. Authorize the reduction in the amount of $75,000 from the 122 Tyco Fund;

3. Authorize the appropriation of $100,000 from the 125 Park & Recreation Fund;

4. Authorize the appropriation of $500,000 from the 302 Artesia Blvd. Relinquishment Fund;

5. Authorize the appropriation of $51,991 from the 150 Roberti-Z’berg-Harris Grant Fund;

6. Authorize the appropriation of $220,000 from the 150 Per Capita Grant Fund;

7. Authorize the appropriation of $291,263 from the 301 Capital Improvement Fund;

8. Authorize the re-appropriation of $100,000 from Project No. CIP 03-109 Concrete Road Repair – Various Locations, 301 Capital Improvement Fund, into this project;

9. Authorize the re-appropriation of $120,000 from Project No. CIP 03-110 Slurry Seal – Various Locations, 301 Capital Improvement Fund, into this project;

10. Authorize the Director of Public Works to make minor changes to the George C. Hopkins Construction Company, Inc. contract as necessary within the 5% contingency amount of $239,100; and

11. Approve the Professional Services Agreement between the City of Hermosa Beach and Ron Yeo Architects for construction support services in an amount not-to-exceed $30,000.

SUMMARY:

On April 15, 2004, Project No. CIP 00-630 was advertised in the Easy Reader, Green Sheet (F.W. Dodge), and Reed Construction Data. A total of 33 bid packages were picked up. The City Clerk received 2 bids by the closing date of July 1, 2004. The bids were publicly opened and read aloud.

The bid results are as follows:

BIDDER CITY TOTAL BID AMOUNT

1. George C. Hopkins Const. Co., Inc. Glendale, CA $4,782,000

2. Kiewit Pacific Co. Santa Fe Springs, CA $5,548,000

Both bids were responsive. The price of the apparent low bidder, Hopkins Construction, is approximately $1,282,000 (approximately 36.63%) above the engineer’s estimate of $3,500,000. The higher bids can be attributed to the constantly increasing cost of materials.

The following anticipated expenses are required to manage the project, minimize delays, and reduce inconvenience to the public and the L.A. County Lifeguards:

1) Testing/Special Inspections $ 60,000

2) Temporary Communications Relocation/Verizon $ 56,097

3) Lifeguard Relocation/Temp. Facilities $ 52,388

4) Temporary Restroom Facilities $ 24,536

TOTAL $ 193,021

Staff requests award of the project and approval for these future expenses in order to expedite the start of construction.

Background:

The project originally bid on October 30, 2003 with two bidders. The low bid of $4,444,000 was determined to be unresponsive, and the second bid of $5,418,000 was approximately $1,942,364 over estimate; therefore, all bids were rejected. In an effort to reduce the cost of the project, Staff made several major changes to the plans and specifications such as eliminating the ADA ramp, observation deck, the use of Trespa, replacing lithocrete paving with concrete, and specifying a design build for the garage structure using masonry instead of concrete and rebar. Setting up temporary facilities for the lifeguards and their communications systems was also removed from the project. Staff and the lifeguards would take on the responsibility of setting up temporary facilities to better streamline the project.

The project re-bid on June 10, 2004. Since no bids were received, the project bid date was extended to July 1, 2004. Two bids were received, with the low bid being $4,782,000.

In an effort to minimize costs, Staff will conclude all services from Purkiss Rose-RSI, and contract directly with Ron Yeo Architects for review of submittals and RFI’s pertaining to the buildings. Staff will request Harris & associates review all other submittals and RFI’s. By excluding Purkiss Rose-RSI from the construction phase, the City will save the $19,722 of the original contract, and an estimated $12,000 for the cost of their overhead, supervision, and coordination.

Analysis:

Staff has reviewed the low bidder documents and has found them to be in order. Reference calls have been supportive of the contractor’s work habits. Therefore, Staff recommends that the project be awarded to Hopkins Construction.

All construction funding is not yet secured, but Staff recommends award of the project at this time. Any further delay risks Hopkins Construction withdrawing their bid. Staff has requested that Los Angeles County provide funding to cover costs related to the temporary and permanent Lifeguard facilities. In addition, Staff has also requested a grant/loan from the California Coastal Conservancy. These two requests are still pending.

Fiscal Impact:

The project funding sources are as follows:

FUNDING SOURCE Current Proposed

Budget Appropriations

1) Prop A Open Space 221,743 0

2) Tyco * 2,167,800 (75,000.00)

3) 122 Tyco (FY05-06) * 0 300,000

4) 125 Park Tax 0 100,000

5) 150 Wildlife Grant 324,000 0

6) 150 Roberti-Z’berg-Harris Park Grant 0 51,991

7) 150 Per Capita Grant 0 220,000

8) 160 Sewer 196,874 0

9) 301 Capital Improvement 1,198,943 291,263

10) 301 Re-Approp. CIP 03-109 0 100,000

11) 301 Re-Approp. CIP 03-110 0 120,000

12) 302 Artesia Blvd. Relinquishment 0 500,000

TOTALS 4,109,360 1,608,254

*Notes: 1. The current 122 Tyco Fund budget must be reduced by $75,000 because the actual FY04-05 revenue will be $525,000 instead of the originally estimated $600,000.

2. The proposed appropriation for $300,000 from the 122 Tyco Fund will be made in FY05-06 for construction work completed in that fiscal year.

Funds Available $ 4,109,360

Proposed 04-05 Appropriation $ 1,308,254

Proposed 05-06 Appropriation $ 300,000

Total Project Budget $ 5,717,614

Proposed Construction Contract $ 4,782,000

Temporary Facilities $ 133,021

Management/Inspection $ 500,000

Subtotal $ 5,415,021

5% Contingency $ 270,751

Total $ 5,685,772

Staff recommends the above listed appropriations be approved in order to prevent a shortfall and temporarily fund the project until L.A. County commits their funds. Once the County commits funds to the project, City funds can be transferred out to other projects for their originally intended use.

Attachments:

1. Project Location Map 3

2. Professional Services Agreement