1. Budget policy and Deficit discussion
June 19, 2017

2. INTRODUCTION
Understanding the City's On-going Deficit

3. Impact of Restricted Funds
The City has other monies in other funds , however the use of those funds in each case is legally limited. Funds cannot by law be used to pay the City’s general operating costs. Only the balance in the general fund matters with determining deficits

4. FISCAL GUIDELINES Defining a balanced budget
Recurring Revenues to meet recurring expenditures
Use of One time Revenues for one-time expenditures
Establishing adequate reserve levels
In accordance with the Government Finance Officers Association GFOA

5. TYPES OF DEFECITS
CYCLICAL DEFICIT– usually occurs in an economic downturn
STRUCTURAL DEFICIT – occurs over a period of time regardless of the state of the economy.

6. HISTORICAL GENERAL FUND SURPLUS DEFECIT

7. Impact of using reserves
The City has been surviving by covering the annual deficits with the use of reserves, which are put aside to cover emergencies , disaster and the like. For example the tremendous damage to the pier by the storm of An even bigger storm could have caused much larger devastation and required emergency services , repair or reinstallation of utilities , replacement of city equipment and buildings. It is very bad public policy to allow reserves to be seriously depleted as has been the case.

8. Policy and Practice
The policy is to set aside a minimum reserve amount equal to three (3) months of General Fund expenditures. The minimum and target General Fund balances are intended to be a prudent and conservative fiscal policy, which should contribute to the fiscal security of the City. The reserve levels can be changed or used for specific purposes at the discretion of the City Council. There is no maximum unreserved General Fund balance and any reasonable additional reserve above the minimum reserve would provide a greater level of fiscal security for the City.

9. Policy and Practice Cont’d
The minimum reserve may be used for cash flow needs necessitated by unforeseen emergencies, while reserves in excess of the minimum will only be used for one-time uses associated with unexpected events such as economic downturns or temporary reductions in revenues. In general, General Fund Reserve funds will be used for one-time uses only. Once established, appropriations from the General Fund Reserve funds commitment can only be made by formal City Council action.

11. EXPENSE REDUCTIONS AND DISCRETIONARY COSTS
The City must find new resources of revenue or it must cut cost. Other than public safety, staff has been reduced from what it use to be . There are department heads who have very little to assist them. The only possible remaining cuts are to services (street sweeping, median maintenance, park maintenance and others) and to public safety personnel. The Police Department estimated budget is % of the total general fund . No serious cost cutting can occur without reducing that costs.

17. Cannot Shift Funds
There is some information out there that actually claims that the city doesn’t have a deficit, relying on the non-general funds which are reflected in the budget. This is totally incorrect. AS mentioned earlier it is illegal to use the those funds for other than their narrow intended purpose . They cannot be shifted to the general fund.

18. Enterprise funds subject to proposition 218
Substantive Requirements of Prop. 218
According to Prop. 218, a property-related fee must meet the following substantive requirements:
Revenues derived from the fee must meet not exceed the funds required to provide the service;
Revenues derived from the fee must not be used for any purpose other than that for which the fee is imposed;
The amount of a fee imposed must not exceed the proportional cost of the service attributable to the parcel;
The fee may not be imposed for a service unless the service is actually used by, or immediately available to the owner of the property subject to the fee; and
No fee or charge may be imposed for general governmental services, such as police, fire, ambulance, or libraries, where the service is available to everyone in the community.

19. SURPLUS PROPERTY AUTHORITY (SPA) FUND

20. Loan from Redevelopment Successor Agency to Surplus Property Authority
On January 7, 1998, former Redevelopment Agency (RDA) entered into an agreement with the Surplus Property Authority (SPA). RDA agreed to pay the principal sum of three million dollars ($3,000,000) with an interest rate of 8% per annum for a period of thirty years.
Under the Dissolution Act, RDA was dissolved as of February , thus creating Successor Agency to administer the wind down of the dissolved RDA. One of the requirements of the Successor Agency, with the approval of the oversight board and the Department of Finance (DOF), is to prepare a recognized obligation payment schedule (ROPS) until all obligations of the former RDA have been paid in full.
DOF determined that the agreement between the former RDA and the SPA was deemed enforceable and legitimate. However, DOF recalculated the loan balance and reduced the interest rate to match the LAIF interest at the time that agreement was entered into which is 3%.
Outstanding loan balance as of June 30, 2016 is $2,153,924.
DOF approved a principal repayment of $437,363 and an interest payment of $64,618, for a total payment of $501,981.
Assuming that DOF will continue to approve repayment of approximately $450,000 a year, the loan will be paid off in FY

21. Loan from Surplus Property Authority to the General Fund
On June 2, 2014, a Promissory Note Agreement was entered into by the General Fund and the SPA through City Council Resolution #4085 and SPA Resolution #47 agreeing that a $5,000,000 interfund loan be made from the City’s General Fund out of the Capital Improvement Reserve fund to the SPA to fund the maintenance and capital improvement projects at Hueneme Beach Park and Moranda Park.
The interfund loan shall be subject to the following terms:
Shall accrue interest at a rate of 6.0%.
Duration of the loan is from July 1, 2014 through June 30, 2027
Principal and interest shall be repaid by the SPA
May be repaid in whole or in part at any time upon direction of the Council.
As of June 30, 2016, outstanding balance of the loan is $4,454,511. SPA will make a principal repayment of $297,530 and an interest payment of $267,271 to the General Fund in FY

22. SUMMARY Principal $437,363 Principal $297,530 Interest 64,618
SPA
GENERAL FUND
Principal $437,363
Interest ,618
Total $501,981
FY – SPA will be receiving $501,981 from Successor Agency
Principal $297,530
Interest ,271
Total $564,801
FY – General Fund will be receiving $564,801 from the SPA.

23. Currently, Local Agency Investment Fund’s rate is .78%
Local Agency Investment Fund (LAIF)
Currently, Local Agency Investment Fund’s rate is .78%
Should the Council decide to pay off the General Fund and reinvest the funds to LAIF, GF will generate an interest income of $32,424.

24. QUESTIONS