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HomeMy WebLinkAbout06-26-2003 Jt Adj Reg Mtg Minutes - MCCMiNi JTFS MAYOR AND COMMON COUNCIL AND COMMUNITY DEVELOPMENT COMMISSION OF THE CITY OF SAN BERNARDINO JOINT ADJOURNED REGULAR MEETING JUNE 26, 2003 ECONOMIC DEVELOPMENT AGENCY BOARDROOM This is the time and place set for a joint adjourned regular meeting of the Mayor and Common Council and Community Development Commission of the City of San Bernardino from the joint adjourned regular meeting held at 5:30 p.m., Thursday, June 19, 2003, in the Council Chambers of City Hall, 300 North "D" Street, San Bernardino, California. The City Clerk has caused to be posted the order of the adjournment of said meeting held on Thursday, June 19, 2003, and has on file in the Office of the City Clerk an affidavit of said posting together with a copy of said order which was posted at 9:00 a.m., Monday, June 23, 2003, on the City Hall breezeway bulletin board. The joint adjourned regular meeting of the Mayor and Common Council and Community Development Commission was called to order by Mayor/Chairman Valles at 2:21 p.m., Thursday, June 26, 2003, in the Economic Development Agency Boardroom, 201 North "E" Street, San Bernardino, California. Roll Call Roll call was taken by City Clerk Clark with the following being present: Mayor/Chairman Valles; Council Members/Commissioners McGinnis, Derry, Suarez, McCammack; City Attorney Penman, City Clerk Clark, City Administrator Wilson. Absent: Council Members/Commissioners Estrada, Longville, Anderson. 1. Budget deliberations - Fiscal Year 2003/04 - Discussion & possible action - Proposed City and EDA budgets Introductory- Comments - Mayor Valles Mayor Valles advised that times are difficult for all cities throughout the country, and one big concern for mayors is the unfunded federal and state mandates. She added that the last thing the City wants to do is create unfunded mandates at the local level, which would be irresponsible at this time. She stated that staff needs to remember every day that the business of the City is to provide as many services as we can to the people who live here, making sure that public dollars are spent as efficiently as possible. 1 6/26/2003 The Mayor stated that the City's top priority is to be fiscally sound, and if the conservative budget process embarked on over the last few years had been embraced 20 years ago we would be in a much better financial position. She noted that the City does have a meager reserve, which must be protected; and although next year will be tough, the following two years will be even tougher. Mayor Valles advised that another priority is the safety of our residents and our community, and that means having enough police officers on the street so they are highly visible. Therefore, City Administrator Wilson would be making a presentation at the next budget meeting as to what it will cost to fully fund the additional police officers needed, including the additional squad cars. She stated that there has also been a desire and a push to have four men on each fire engine —a plan referred to as "two men in and two men out." This plan also comes with a price tag on it, and she has asked Mr. Wilson to calculate what it will cost for the "two men in and two men out" as well as the additional fire stations. She noted that this is all important information that the voters need to know, and one decision cannot be made in isolation of the total impact that it has on all services. Mayor Valles read from a letter dated June 25, 2003, addressed to Mayors, Council Members and City Managers from the League of California Cities, Subject: Possible Assembly Budget Proposal Also Could Contain Sigenificant Cuts to Local Governments Over Three Years. The letter advised that although the League does not know anything definite, the elements of the budget proposal may include the following local government reductions, possibly for three years: • $250 million reduction from cities (per capita allocation) a $100 million reduction from RDAs to ERAF (same formula as the current year reduction) • Possible programmatic cuts to COPS, Juvenile Justice, Booking Fees and other programs are unclear. City Administrator Wilson explained what these cuts would mean to the City of San Bernardino, if enacted. He advised that the per capita allocation would amount to $3 million per year being taken from the City of San Bernardino; the additional ERAF would amount to $622,000 per year; and the program cuts would amount to approximately $377,000 per year —resulting in a possible $4 million impact to the City's budget for one year. He added that these cuts could be taken for three years, which would amount to $12 million over the three-year period. 2 6/26/2003 Library Tax City Attorney Penman advised that staff has looked into a library tax —that the City of Pasadena recently renewed their library tax for another ten years and the City of Riverside has enacted a library tax. He noted that in Pasadena the amount of the tax was $20 per residential parcel, $13 per apartment unit, and $147 for a commercial parcel. He noted that in San Bernardino, $147 might be too high; however, it appears such a tax could raise between $1.2 million and $1.5 million per year. He stated that there would be three exemptions —low income families or individuals, disabled individuals, and senior citizens with an income below a certain amount. Mr. Penman stated that the City is presently paying on a bond that was used to build the Feldheym Library, and owes payments on that bond for another ten years. The debt service is about $663,000 per year, and this proposal would allocate proceeds from this tax to pay one-half of the annual debt service (approximately $330,000); would freeze the General Fund contribution to the library at its present amount, less approximately $200,000 or $300,000; and it would have an escalator clause tied to the Southern California cost -of -living index. Likewise, the library tax would have a similar escalation clause. At the end of the ten-year period, the tax would go back to the voters to see if they wanted to continue it or not. At that time, if it was continued, the library would receive the additional $330,000 previously allocated to pay one-half of the library bond debt service, and the City's General Fund would have the other $330,000 that they would have been using to make that payment. The immediate net increase to the library would be approximately $700,000 per year; and the General Fund would realize about $500,000 to $600,000 per year, less what is currently being spent on the library. So, the library would benefit by over half a million and the general fund would benefit by about half a million. Mr. Penman advised that staff has identified the number of parcels in the City and is working with the City Engineer to determine how many of those parcels might be subject to exemptions —that if the parcels are owned by federal or state or other governmental entities, they would be tax exempt. He stated that the requirement would be that every dime of the tax money would have to be spent for the library and to pay half of the debt service on the library bond which built the current main library. It was noted that the money would not be limited to the Feldheym Library, but could be used for any of the City's libraries. 3 6/26/2003 City Clerk Clark pointed out that August 8 would be the deadline for submitting a request to the County to include the library tax on the ballot; therefore, the Council would need to take action on this matter by the first Council meeting in August in order to meet the deadline. Mayor Valles asked the City Attorney to draft a proposal for the library tax for Council consideration. It was recommended that the draft be ready for the second Council meeting in July in case any modifications are needed. Mr. Penman stated that his office would have it ready by the second Council meeting in July, at which time the Council could accept or reject the idea. Council Member/Commissioner McCammack stated that questions regarding a library tax had been posed to some of the residents at the town hall meetings, and although supported by about 90 percent of the residents, it was clear that the money had to have a specific use for the public to support it. Ed Keller, 1696 Mesa Verde, San Bernardino, CA, expressed support for a library tax similar to those in Pasadena, Riverside, and San Diego. He stated that before he would say that he is definitely committed to such a tax, he would want to see in written form how the tax would be framed; but overall he thought it sounded like a viable idea. He stated that he would prefer a library tax versus a bond. General Budget Comments City Administrator Wilson suggested that in light of the budget uncertainty that the City is facing —specifically with respect to the state budget —that the Council consider holding off on taking any actions to balance the budget until they know the extent of the deficit. He stated that they have talked about a gap of $4 million, which we know already exists, add to that the potential cut of another $4 million, and that equates to a very big number that the City has to balance; and it would be proper to do that budget balancing at the time we know the actual extent of the deficit. He pointed out that in order to do that the Council would have to adopt an interim expenditure plan. City Attorney Penman stated that because the City does not know what the state is going to do, or how much money the City is going to receive from the state or from other sources which are dependent upon the State of California, that the Mayor and Council adopt what is normally called a continuing resolution, but this would be a little different. 4 6/26/2003 He advised that in previous years the Mayor and Council have continued the prior fiscal year's budget by one -twelfth each month —in other words, a continuing resolution that authorizes the City to pay in July one -twelfth of the amount that was allocated in the previous year's budget. However, it would not be prudent to do that this year because this year's budget is far in excess of what we know we are going to have for next year. Therefore, this year for the month of July, the Mayor and Council would adopt a resolution authorizing expenditures at one -twelfth of proposed levels contained in the Preliminary Detail Budget for the 2003/2004 fiscal year, or as needed to pay the authorized costs incurred for the month of July 2003 only, pending final approval of the 2003/2004 budget. He noted that it may be necessary to remove from the Preliminary Detail Budget anything that might be subject to meet and confer or that might have any legal ramifications. Thereafter, if the state has not adopted a budget by the end of July, and we still do not know how much money we are going to lose from the state, the Mayor and Council would consider adopting another resolution that would do the same thing for the month of August. Mayor Valles pointed out that this does not mean that the City is not going to bite the bullet and make the necessary reductions, but it is very difficult when the uncertainty of the state is looming over us. She indicated that there is a sense of where cuts must be made; however, in some instances there are legal meet and confer issues which also need to be addressed. City Attorney Penman referred to the document titled, Budget Balancing Options, dated June 12, 2003, from the City Administrator's Office to the Mayor and Council, which contained recommendations by department as to how spending could be reduced. He explained that several of the recommendations involved either personnel cuts, or cuts that would affect employee working conditions, which under California State Law are subject to the meet and confer process. He stated that the current fiscal year ends on June 30; and staff does not have time to sit down and meet and confer with the bargaining units on all of the recommendations for cuts that affect personnel or that would impact employee working conditions. Consequently, staff is recommending to the Council that implementation of these suggestions be postponed except for those that are already included in the Preliminary Detail Budget until we are closer to recommending adoption of a budget for fiscal year 2003/2004. 5 6/26/2003 Council Member/Commissioner Derry stated he had some concerns regarding the continuing resolution. He noted that the City knows it has a $4 million shortfall now and is not sure what the state is going to do; however, the longer we put off budget decisions, the fewer months we have to squeeze those cuts out in the future. For example, if the continued resolution goes through August, the needed cuts would have to be squeezed into a ten-month budget instead of a twelve-month budget, which would exacerbate the cuts. Discussion ensued regarding how other cities are handling the budget crisis and how some of them have been able to adopt a budget even though they are also awaiting input from the state. It was noted that bottom line, in most cases they have a healthier reserve than San Bernardino. Barbara Pachon, Director of Finance, advised that when the preliminary budget document is prepared, staff does the best estimates they can. However, today we have two more months of data relative to collections on revenues, etc., so based on today's projections we have about $288,000 more revenue coming in for this fiscal year than anticipated, which then means that we can increase some of the estimates for next year to almost $300,000, which brings the shortfall down from $4 million to about $3.5 million. Pension Obligation Bonds Mayor Valles advised that Special Counsel Sabo would be making a presentation regarding Pension Obligation Bonds. She stated that she wanted the voters and all in attendance to understand how these bonds work and how borrowing money works. Mr. Sabo explained that Pension Obligation Bonds are taxable bonds; that in certain types of situations a City or a County may want to consider issuing taxable obligations to do a one-time funding of a known pension shortfall amount. He stated that he had met with City Administrator Wilson several months ago, and there needs to be additional work done before anyone could make a definitive proposal to determine if Pension Obligation Bonds even make sense for the City and what the savings might be. He added that it is a complicated process to find out if the City has the right type of circumstances. Mr. Sabo introduced Jeff Kinsell of Kinsell Newcomb & De Dios, who provided information on the "numbers" and under what circumstances the City would seriously consider using Pension Obligation Bonds. 6 6/26/2003 Mr. Kinsell advised that Pension Obligation Bonds have been used by a number of communities in California; however, there have only been a couple of issuances where the issuer was a member of the California Public Employees Retirement System (Ca1PERS). He explained that the City of San Bernardino is a member of CalPERS, and every year CalPers calculates what the City's obligation for that year will be. This is done by taking the number of employees that the City has in the system, looking at the rate at which they earn benefits, the average tenure they are going to be in the employ of the City, and what their average life expectancy would be. They then take those actuarial numbers and apply a rate of 8 percent, which has been their rate of growth historically. PERS then looks at the account that the City has —the cash that is on deposit for the benefit of this City —and they determine if the City is over -funded and has a surplus, or is under -funded. He stated that the most recent numbers provided for the City of San Bernardino in 2001 indicate that at that time the City was under -funded by just short of $18 million. Therefore, when PERS calls every year, they will say that they want the City to contribute the amount of benefits that accrue to those employees for this year, and they want the City to make up over a thirty-year amortization that $18 million at an assumed rate of 8 percent. Mr. Kinsell explained that the City is then paying what it has to pay this year and is also paying what it hasn't paid, or what hasn't been realized in the past, at 8 percent. The way the Pension Fund Obligation Bonds help fix that, is that interest rates are so low today the City can borrow the $18 million today at about 5.5 percent; therefore, paying debt service on the $18 million at 5.5 percent, instead of having PERS call up and say they want the City to amortize that same debt at 8 percent. He stated that using the 2001 numbers, which are the most current, plus an amortization of the old contribution, it would be the amortization of the old contribution, plus the 1 or 2 percent which is the difference between 8 and 5.5 percent. However, if for some reason over the next thirty years they don't even earn 5.5 percent, the City is behind and doing the obligation would not have been a good idea. Mr. Kinsell discussed at length various aspects of Pension Obligation Bonds and answered questions regarding rates, terms, etc. According to Mr. Kinsell, with a 30-year term, using the assumption of 8 percent versus 5.5 percent, the City would save about $375,000 per year at a 5.5 percent present value factor, or $5.6 million if all of the assumptions work out. This would be net of the $270,000 charged by his company to handle the bonds. 7 6/26/2003 General Obligation Bonds Mr. Sabo advised that General Obligation Bonds come and go; that the constitution has been changed several times over the years and it was precluded for a number of years, but came back in again. He stated that presently, General Obligation Bonds are used mostly by school districts for school construction —either they will do a Mello -Roos special tax or a General Obligation Bond issue. A General Obligation Bond issue for the City of San Bernardino would be something city -wide —voted on city-wide by the voters. The tax is an ad valorem property tax —not a special tax as was discussed earlier for the library. He stated that when you talk about a parcel tax, a fixed dollar amount, that's a special tax on a per parcel basis, versus an ad valorem tax, which is calculated on the value of a property. He advised that on an ad valorem tax, you look at the total assessed valuation of the taxable property in the city, determine what is the debt service that you need, divide it, and it comes out to so many cents per thousand dollars of valuation. As the assessed valuation of the city increases, and as the debt service remains the same, the percentage would decrease, but you are now applying a smaller percentage against a bigger value, so the tax regenerated remains the same. He noted that there are limitations on the types of improvements that could be generated, and in many instances you will have a General Obligation Bond issue that's authorizing a very large amount-50 or 100 or 200 million dollars —but then you don't actually issue the bonds until you have the need for the money. So you would never get a $200 million authorization, issue the $200 million today, and bank the monies for some time in the future. You would probably get the larger authorization and then issue the bonds as you had the need and projects were ready to be constructed. Mr. Sabo advised that the City would be limited to those purposes that were stated in its bond matter —that there has been a lot of litigation over the years as far as whether the bond measure was too specific, too vague, or are the bonds being used for the purpose which the voters were led to believe they were voting upon. He stated that although General Obligation Bonds are available, he thought that for a City the size of San Bernardino it would be a major effort to convince people why, on a city-wide basis, the City would be financing improvements. He added that General Obligation Bonds have been discussed many times throughout the years. 8 6/26/2003 City Attorney Penman asked Mr. Sabo whether he would strongly recommend that the City consider a General Obligation Bond in light of the situation the City of San Bernardino is now in with its budget crunch, the condition of its streets, and so forth; or would he advise that General Obligation Bonds may not be the first way to go. Mr. Sabo stated that he would not look at General Obligation Bonds as a budget solution —that the only way he would say yes as a budget solution is if the City had other General Fund monies to be appropriated for needed capital improvements, and those needed capital improvements could then be funded with General Obligation Bond issue. In addition, for something of this magnitude it takes a large voter education program —perhaps more time than is available between now and November to educate the voters on an issue such as this. Also, if there was a capital improvement project that the City needed or wanted, such as a water plant or sewer plant, maybe that would have enough appeal to the citizens, but he didn't think the City would want to consider doing all the background and paperwork necessary to do a General Obligation Bond issue merely for a way to solve budget problems. State Infrastructure Bank Loans Council Member/Commissioner McCammack inquired about the rates on State Infrastructure Bank Loans. City Administrator Wilson provided information on the State Infrastructure Bank Loan. He stated that right now the City has three different loans outstanding from that bank loan. The first one is a loan that the Agency received for the improvements on Harriman Place of $2 million. The second one, the City has received approval for a $2 million loan for the Verdemont fire station. And third, apparently the Water Department has secured a loan of somewhere around $10 million for water system improvements. Therefore, combined we have already drawn down about $14 million of the jurisdictional cap of $20 million. He added that this is a way to fund specific infrastructure improvements if there are any. There was no further discussion regarding the budget. 9 6/26/2003 2. Closed Session - conference with labor negotiator - pursuant to Government Code Section 54957.6 Negotiator: Linn Livingston Emplo_- ee Or,-Tanization: San Bernardino Police Officers' Association 3. Adjournment At 4:09 p.m. the meeting adjourned to 5:30 p.m., Monday, June 30, 2003, in the Economic Development Agency Boardroom, 201 North "E" Street, San Bernardino, California. The next joint regular meeting of the Mayor and Common Council and Community Development Commission is scheduled for 1:30 p.m., Monday, July 7, 2003, in the Council Chambers of City Hall, 300 North D Street, San Bernardino, California. No. of Items: 3 No. of Hours: 2 RACHEL G. CLARK City Clerk Linda E. Hartzel Deputy City Clerk 10 6/26/2003