HomeMy WebLinkAboutAgenda 4.A 04/04/2011i
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DATE: !
TO:
FROM ,
SUBJECT
April 4, 2011
Honorable Mayor and Members of the City Council
John C. Brown, City Manage
2011/12 Budget Development
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BA0KGRO.UND
On February 28, 2011 the City Council considered and approved mid -year budget adjustments,
was provided a revised five- year;financial forecast for the General Fund, and discussed 2011/12
budget ' evelopment. The revised forecast projects a 2011/12 deficit of $2.291 million. 1f it is,
not corrected, this deficit is projected to increase to $15.14 million by the end of FY 2014/15.
Correcting for an amount equal to the projected deficits for 201.1/12 and 2012/13, approximately
$3.6 million in total, would balancethe budget through the remainder' of the forecast period. It
would ri ot restore or expand City activities, or establish reserves. A $4 million reduction target
was suggested, to establish_ a minimal reserve. That reserve should be augmented, if possible,
during the forecast. period to the 15 percent level set by Council policy. To provide stability in
thetbudget planning process sand more certainty to city employees regarding the future, it was
recommended that the entire $4 million be reduced in 2011/12.
Staff also updated the Council on work undertaken to reduce-projected deficits since the five-
year forecast was first presented in,January 2011. Council was advised there are currently no
opportunities to achieve PERS savings-through plan changes,, but.opportunities to consolidate
internally and with other agencies may provide savings in 2012/13 and beyond. Such savings
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could restore contemplated funding reductions and/or buildreserves. Staff also provided an
update .on another offering of the two -year service credit program ( "Golden Handshake ").
Adjusted to account for "golden handshakes and .expected savings from current consolidations;
approxi� nattily $2.8 - million in additional adjustments appears necessary to achieve a $4 million
target. Whether more or less than $2.8 million is needed depends on the number of employees
that ultimately opt,for the two year service credit, how many of those positions can remain
unfilled', and what the net savings from those positions total when adjusted for pay outs of
accumulated leaver A variety of options for making these additional reductions were discussed,
including: „..
® Eliminating Employee Salary Step Advancements. Estimated General fund savings:
$46,000.
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Agenda Review:
City Attorney Finance Director City Mana
® Eliminating Administrative leave payouts for management and mid- management
employees subject to 40 hour pay out 1 4 mits. Estimated General fund savings: $19,200.
® Increase the employee share of health care premiums. Each ten percent,shift to the
employee, from the current five percent share, results in savings of approximately
$240,000 per year.
® Continuing deferring cost of living adjustments for AFSCME- represented employees
through the forecast period. Estimated annual General fund savings: $117,500.
® Continuing the existing,furloughs, which represent a 3.1 percent pay reduction and are
valued at $550,000 per year, and,increasing furlough hours.
• Some combination of the foregoing'options, and a reduced workweek
• Salary roll - backs; and/or
o ,layoffs to reach the totals necessary to balance.
Based on Council interest, staff also discussed a second tier for PERS benefits for future hires
which reflects the approach suggested by City Managers in Sonoma and Mendocino counties:
2% at 60 formula for Miscellaneous employees, with an 90 ° percent cap on benefits
® 2% at 55 formula for Safety employees with an 80 percent cap on benefits.
® Both calculated using the average of highest three years for final compensation
Staff also discussed eliminating part -time positions in the General fund if the costs of those
positions are not in part or in whole offset by revenues, ;and;maint4ming unfilled any positions
that may. vacate by June 30, 2011. Based on known and anticipated resignations in the Police
and Public Works departments, these savings may be in'the range of $250,000 to $300,000.
Finally Transient Occupancy Tax receipts were discussed. Staff'is recommending that City
Council should revise its policy of retaining $1,000,000 for general fund use to allow the fund to
retain $1:,075,000 for the remainder of the forecast period. A copy of the February 28, 2011 staff
report is provided as further background information.
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Council Basked questions regarding.the two -.year service credit option that have since been
answered as part of 'the Council's March 7 and March; 21, 2011 consideration of that issue. On
March 2'1, 20.11, Council approved the two year service credit program, the window period for
which is now open and will continue to the end of June, 2011. Council underscored the
expectation that this option will not be offered again during the forecast period.
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Council questions also focused on Fire overtime costs out -of -town ambulance transports, a
second tier for PERS benefits, and increased funding for the Petaluma Visitors Program through
Transient Occupancy Tax proceeds.
The Council accepted comment from the City's represented employees, who asked Council to
defer consideration of the item until employees had more time to review the staff report. Council
provided that time, and asked Staff to work with represented employees to insure necessary
communication occurs during the budget development process.
DISCUISSION AND FINANCIAL. IMPAC`T'S
This section of this report addresses Council questions asked on February 28, 2011 and
discussions with represented employees since that-.date. It also provides further conversation
regarding options for eliminating projected budget shortfalls.
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With respect to Fire overtime and ambulance service, the Fire Department has ,provided two
informational memos. In one'of these, two overtime reduction strategies are discussed. In the
other, Ambulance transports are discussed. Reducing the minimum staffing level to 13
firefighters and a battalion chief is projected to save approximately $470,000 per year. A similar
reduction was bargained for in FY 2009 40. A structured "rolling brown -out" is estimated to
save and average of $539,000. This option would leave short term and temporary vacancies
unfilled; but would not reduce the_overall staffing roster., and would result in under- staffing, or
closingjof one fire station when such vacancies are'left unfilled. Either of these options must be
negotiated with and agreed upon by The Firefighters Association before they could be
implemented. The staffing:reduction may have SAFER grant implications that would cancel out
the grant, and trigger re- payment,prov signs. The rolling brown -out scenario can also have
negative; impacts on response times and insurance rates. Regarding Ambulance transports, the
department indicates that modifying the transport services Or transport bounds will impact the
department's right to operate within its legally established Exclusive Operating Area, which will,
in turn, negatively impact revenues. These proposals are discussed in greater detail in the
attachments to this report.
Regarding a PERS second tier, questions focused on the components of salary upon which
retirement benefits are based. Councilmembers specifically questioned how vacation leave, sick
leave, a l nd overtime payments factor into final the salary calculation. Accrued sick leave maybe
convert ed to years of service credits, but Ca1PERS prohibits counting sick leave, vacation, and
overtime pay in the final salary calculation.
Regarding funding the Petaluma Visitors Program, Staff proposed conveying $25,000 of
increased TOT revenue to the Program and retaining $75,000 for City use. Council members
indicated support for sharing increased TOT proceeds with the Petaluma Downtown Association
(PDA),;the current;Program operator, up Wand including full funding of the Association's
proposal to conduct the activity. The PDA's current agreement is effective through June 30,
2013 and provides $140,000 per year in.funding. It indicates when annual TOT proceeds reach
$1.169 million, the.PDA will receive additional funding of $29,000 to support a fully funded
budget of $169,000. Staff's revenue sharing proposal is generally consistent with that provision,
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but would provide the. additional funding "now, to strengthen the tourism and promotion program
and enhance its economic benefits.
In mid - ('.March, I met with all but one represented employee group to respond to any questions
regarding the February 28, 2011 staff report and the five -year forecast, assumptions or
conclusions, and to discuss any budget balancing opportunities they believe should be
considered. We also discussed the alternatives provided in the February 28 staff report and, to
varying degree, reactions to those various alternatives. Unit 10, Police and Fire Mid -level
managers; did not have questions, and:opted not to meet.
While questions differed in some respects, depending on thet interest. of each group, each list of
questions was exhausted and answers provided. Some common themes emerged: most groups
expressed concern with.making the entire reduction in the 20.11/12 budget year; some expressed
concern with using budget reductions as a means of building reserves; concerns were expressed
with the!proposal to eliminate step increases during the- forecast period; many wanted to see a
lay -off Tst; concerns were expressed that employees might be reluctant to indicate interest in the
golden handshake for fear they would be targeted for lay- offs.. Concerns were also expressed
about the equity that would be involved in making budget reductions, and the proportionality of
the impacts on all employees. As well concerns were raised with the City's loss of
competitiveness, in recruiting, for new hires if salaries and or/benefits are reduced. Finally,
employees asked about the timing of entitled development projects, or those under review. I
would characterize the meetings as positive given the subject matter, with most groups indicating
an understanding of the forecast and the scope of the budget problem and a willingness to work
towards a solution.
Returning to the alternatives for balancing the budget, staff continues to recommend a $4 million
target, adjusted downward by the value of any "golden handshakes" that may occur by the end of
this fiscal year. This is currently estimated at $2.8 million, but could be reduced by- maintaining
new vacancies to approximately $2.5 -2.55 million. Staff further recommends snaking these
reductions at onetime, in 201.1/12. This provides more stability and predictability, will provide a
higher level of certainty regarding the future for those employees who remain, and in.,my view a
less negative impact on long -term employee morale than additional rounds of reductions.
With respect to the options, staff recommends - actions that will not increase the size ofahe budget
deficit and niake. striking a balance more difficult. These include:
® Eliminating Employee Salary Step Advancements. Estimated General fund savings:
$46,000.
• Eliminating Administrative leave payouts for management and mid - management
I subject to 40 hour pay out limits. Estimated General fund savings: $19,200.
• Continuing deferring cost of living adjustments for AFSCME- represented employees
through the forecast period. Estimated annual General fund savings: $117,500.
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Together, these result in approximately $183,000 in savings. Employees have indicated losing
these items will have :a demoralizing effect. AFSCME has indicated that further deferring the
COLA, land reducing salaries is not equitable. AFSCME is the only group from the last round of
bargaining for which salary,increases were not fully implemented, and has not had the offsetting
advantage of a COLA in calculating salary reductions.
With respect to the remaining options:
e Extend the furlough. The 3.1 percent salary reduction expires this June and was calculated to
save�approximately $550,000 in a year's time.
Employees currently are required to take 2.48 hours of leave each pay - period, or have had their
salaries, reduced by an equivalent amount. This would need to increase to the equivalent of 10-
12 hoursper pay period to achieve the necessary savings. For employees working a regular shift,
this translates to a 34 -35 hour work week. A furlough of this magnitude is difficult to implement
for shift positions, such as Police and Fire. As indicated in the February 28 report, in exchange
for accepting the. furlough, employees were provided with additional leave time, which, except
for Fire, must be used within the next two years. That leave is not compensable, but represents
additional time away from the workplace. Fire personnel were provided additional sick leave
days, as they cannot be absent from their shifts without further impacting overtime costs and
negating, the value of the furlough for them. Sick leave is compensable for long -term employees,
which increases the City's unfunded liability. While removing an extended furlough from
bargaining options is not recommended, .it appears that significantly increasing the furlough will_
create operating difficulties that make its viability as a solution questionable.
o Increase the employee share of health care premiums. Estimated General fund savings:
$240,000 per year for each ten percent shift to the employee, from the current five percent
share.
Employees have previously indicated a lack of receptivity to this alternative, indicating little
willingness to open healthcare to,bargaining. They further indicated this option is regressive —
that employees at the lower end of the pay scale lose proportionately more of their incomes than
employees at the higher end of the scale. Benefits associated with'this option are that the
employee's share of health benefit premiums is pre -tax, and that salaries remain at levels that are
less detriinentatto recruitment efforts. In recent conversations with represented groups, staff
has also:discussed shifting the cost of healthcare increases to the employee. These were
calculated at-nine, (9) percent per year.. This is estimated to save: approximately $216,000 in FY
2011/12, but would have a multiplying effect in each of the next three budget years as these cost
increases are avoided.
® Salary roll- backs.
While employees have indicated concerns with the City's ability to retain qualified employees
and attract high ,quality candidates when vacant positions must be filled, as well as their own
ability do meet personal financial obligations, this option can be more directly set at a level
sufficient to make up any balances needed after savings from golden handshakes; frozen
vacancies; deferred COLAs; and foregone step increases and leave payouts are applied. This
option can also be applied equally to all employee groups regardless of work day or shift, and
maintains the current number of employees on the payroll to continue to provide existing levels
of service. For that reason this option is recommended to the City'Council for serious
consideration.
® Layoffs to reach the totals necessary to balance.
In this option, net balances are through the elimination of positions. This has an immediate
negative financial impact on affected employees, more greatly 'impacts service levels and will,
based on previous experience have negative impacts on employee morale. In that latter regard,
developing a lay -off list also creates ,a lot of anxiety in employees who ultimately may not need
to be terminated from service, depending on success in negotiating other concessions. Although
some groups have indicated that this is an option they are prepared for; it is recommended as an
option of last resort if other efforts at bargaining fail.
Regarding a second tier for PERS benefits for future hires, savings . within the forecast . period are
expected to be negligible. For the effect this option has on longer term savings, pursuing it is
also recommended.
o Revenues
As indicated in the February 28` report, past discussions with the Council regarding
opport unities to enhance revenues have focused on pending development projects, and the tax
revenues they will generate. Based on -the anticipated timing and phasing of construction for the
Regency project, the entitlements yet to be granted to the Deer Creek Village project, and the
timing and phasing of construction for that project if entitlements are granted, no revenues `for
either of these.projects are estimated.in the coming two year period. To rely on revenues from
either of these sources to offset projected deficits during the next two years is not advised. Any
resulting revenues that may accrue in 2012/13 and beyond can be used to restore funding and/or
rebuild reserves.
As well, no revenue increases that: might be. anticipated from passage of ballot measures on the
2.012 ballot have been projected, would any such revenue be received within a timeframe that
would, negate the need for the level and timing of reductions recommended. Again,
any revenues obtained from such a source can be allocated between funding and reserves as the
Council deems appropriate at that time.
CONCLUSION
The forgoing report seeks to answer questions posed by the Council at the February 28` meeting,
discuss imeetings held with represented employees since then, and to further discuss the
alternatives and options for implementing budget reductions. At this time, the Council is
respectfully requested, for purposes of budget development, to provide policy guidance as to
whether`it wishes to:
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1) 'set $3.6 million, $4 million, or some other number as the adjustment target for the next
two budget years; ,and -
2) i achieve those adjustments over one, two, or more years.
The Council is further requested to indicate which of the:alternatives presented in this report it
does not: wish to pursue.in negotiations with represented employees and what if any further
alternatives it would like staff to evaluate and attempt to bargain.
ATTACHMENTS
1. March 2, 20.1.1 memo regarding Overtime Reduction Strategies
2. March 3, 201.1 memo regarding Emergency Medical Services and Ambulances
3. February 28, 2011 Mid -Year Budget Review and 2011/12 Budget Development Report
4. Fiscal Sustainability Report 2011 -2015
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Attachrilent
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City of Petaluma., California
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'Memorandum MAR: 019 zo »
CITY MANAGER
Petaluma Fire Department;, 198'D Street Petaluma, CA 94952
(707) ,778- 4390�Fax (707) 762 -4547 E -inaik firedepMcLpetaluma.ca.us
DATE: March 2, 2011
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TO: John Brown, 'City :Manager,
CC: Scott Brodhun, Assistant City Manager
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FROM: Larry B. Anderson, Fire Chief L
SUBJECT: Overtime Reduction Strategies
John:
Cost savings,associated with staffing options indicate that a range of between ,$470,859 - $539,275
could most likely be achieved.
1. A reduction in minimum staffing will reduce expenditures by $470,859, or 11.7% of the total
current, projected 6 year budget deficiency.
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2. A structured Rolling Brownout will reduce expenditures by $539,275, or 13.5% of the total
current) projected 5 year budget deficiency.
The following information is divided into three sections:
a. Executive: Summary
b. Review & General Discussion
C. Administrative Analysis & on Discussion
Everything that is needed. to understand the cost ramifications is contained in the Executive
Summary.
The remainder of the, information is presented as a detail reference; document (as needed) for a.
broader understanding dlthp, variables related to this complex assessment.
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EXECUTIVE ISUKMARY`
• dent fees what # 9 `ormation presents two options for reducing overtime It identifies what each option is, and it
e estimated costs,savingswould be ifone°or he otherwere implemented. Both Options are
predicated on the basis that authorized staffing 'levels °are :achieved and that no, or at least very few, positions
in Operational Staffing are vacant long term.
1. Option #1 - ' Reductionof Minimum Daily Staffing from 14 to 1'3 FireFighters. If this option is
chosen,1 it will most likely - Reduce Overtime Expenditures by$470,859 Annually
2002 -2003
852,835
700
343;404
509,431 Estimate
2003 -2004
812,879
663,287
343,404
469
2004-2005
619,096
446,493
377,245
241,851
2005-2006
427,140
231,225
415,750
11,390'
2006-2007
633,474
480,157
433;805
199,669
2007-2008
640,629
334,638
475,263
16.5
2008.2009
611,919
354,557
499;665
112,254
2009-2010
606,311
526,330
470,859
135,452
200 - 2011
1,245;888_
1
470,859
775;029 Projected
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2. Option #2 - Rolling Brownout If this is chosen, it will eliminate all overtime expenditures
related to daily staffing at a Rate of $1,290 per 24 Hour Shift.. Vacancy Occurrence,
Eliminates an "Average" of $539,275 Annually.
2002-2003
852,835
700;000
700,000
1'52,835
2003-2004
812,879
663,287
663,287
149,592
2004-2005
61.9,096
446
446,493
172,603
2005-2006
427,140
231,225
231,225
195' 2 915
2006-2007
1 633;474
480,157
480,157
153;317
2007-2008
640,629
334
334,638
305,991
2008 -2009
611,919
354,557
354,557
257,362
2009-2010
1606:311
526:330
526.330.
79:981
539;27$
Estimate
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REVIEW A GENERAL DISCUSSION
The, ;overtime�expenditures in, this current period are clearly an anomaly related to vacancies, disabilities,
personal in une
p j s and rJ onal illness. y rider rmal conditions, this-anorraly'would not have occurred'.
However, as suchthe pr end of ear'ex enditures are included in the analysis.
The projected _
p j $1,116,788 in; overtime expenditures has the effect of spiking the ''average, expenditures." The
result of this is that the projected savings achievable under Option #2, "may" be potentially overstated.
This anomaly i& not a surprise for`this current period. On August 2 2010, Council unanimously approved
acceptance of a SAFER Grant in the amount of $1,230 and reauthorized six positions that had been
vacated to achieve a balanced budget. The Agenda report'identified' $995,720 in projected expenditures if the
vacated positions were not filled. As can be seen in Table 4 below, 'the Agenda report was reasonably accurate
in disclosing th'e.expense side of e: overtim Again, because of the vacancies going into FY 2010/11 Budget
period, the overtime anomaly occurred.
As stated elsewhere in this Memo,, it is critical to,maintain staffing at theAuthorized levels in order to remain in
compliance with the SAFER Grant 'requirements, as well as to better control overtime expenditures.
Each of the Tables provided in' #his Memo depict actual and highly accurate - information for the current fiscal
period (2010/11) as well for the eight previous Fiscal. Budget Periods. In both Tables, at the FY 2002/03 line,
total overtime utilized during that 'period is accurate, but the cost information in the "Related Only to Staffing"
column is estimated because the actual data is not readily available. For all intents and purposes, it should be
considered very close to accurate.
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Tahle 3,.. tActualYTotaC OT .. °Related'Onlv,to - Re2iuctibn" ° Total .Overtime' Red ucedAd
In the both tables, the cost information for FY 2010/11 is projected, but it should be considered highly reliable
because it is b on accurate information through'the first :' /z of•the current fiscal period. In addition to this,
these costs are
being utilized'to adjust the mid -year budget presented to City Council on 2/28/11.
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Table4 , °, .T,otal,Overtime .Total Expenditures ,
2010 - 2011, 1,245,888. 1,116,788- Projected
The City typically budgets $300,000 for overtime each year. Approximately $100,000 of this overtime is related
to over -max and training overtime, neither of which are discretionary; nor is it possible to eliminate these
expenditures his means'that even if all - .overtime were eliminated, the City would still have an obligation to
fund overtime inthe following two ;categories:
1. FLSA a Overtime related to'56 hour workweek.
2. Training - Overtime related to meeting minimum training mandates (i.e., pa
It is important t'o make a. distinction between'the Overtime Budget ($300.,000) and the acts
expenditures because decreasing or even eliminating the Overtime Budget, does not reds
overtime expend.itures.,Assuch, for the purpose of this discussion, the following informatil
overtime related to staffing. It does not include, any discussion or analysis of overtime rely
management of - large scale emergency events, such as for example, extinguishing a larg
flood emergency, activation of the EOC, or °any other large scale human resource depend
licensing, etc.)
it overtime
;e or eliminate all
i will only address
,d to the
fire, managing a
nt event.
As already sfated, the City typically funds a $300 overtime budget. This is very . conservative compared to
other fire.service agencies in Sonoma County, and it is; in fact, ,the'lowest. However;, the Department=
histori cally spends around $650,000'per °year, on average ,in'total overtime.for all categories.
This historical underfunding of'overtime usually, results: in the Department absorbing the overage in its Supplies
and Services Bu or it is absorbed with vacancy savings: Absorbing the overage: in the Supplies and
Services Budget has significant negative impact to the operational _readiness of - the Department as the
Organization isl to manage, maintain, or otherwise provide for routine supplies, equipment, and the
services necessary and %or °prudent for operational readiness'.' We have been fairly successful in managing
several large scale purchases with :Grants.
Projected agai �'st this: current fiscal year (10/11) the average cost of overtime has increased to $7.1.6,686 (the
anomaly) due to significant amountof cost related to the following:
1 Vacancies -'8 vacancies 7/1/1'0=10118/10, 4 vacancies through1he date of this report.
2. Disabilities — 5 to 7 disabilities first half of 201'0, 5 disabilities `through the date of this report.
3. Two OfDuty Injuries and one longterm Illness.- $106,000through the date of this report.
Option #1 - Reduction of Mini 'mum Daily Staffing from, 11419 11 FireF.ighters, Reduces Overtime
Expenditures 'by $470,859 Annually:
In Option #1, this $470,859 in expenditure sayings is very close to, precise, no matter how negatively impacted
staffing might tie in a given year. For example, even if the vacancies,, disabilities, personal injuries or personal
illness forced even higher a overtime usage than has ever occurred,, at= least one position per day would be
eliminated under the Option #1 scenario to meet the demand',. and it would still result in an expenditure
savings of $470;859.
'201'0 -.2bil 1,:2451:8881 1.118.788 470.859 775,029
Option, #2 Ro"Hing Brownout, Eliminates an'fAverage" of $539 Annually.
In Option #2, this $539,275is an average of the nine year period. It; too, .should: be considered highly accurate
because historical records; `including estimates and projections are, conservative and. appear.to be on, target
even in this current budget year:
AVERAGE:
539,-27
Both Options: 1 and:2 will, functionally reduce firefighting capability and effectiveness, :and they will require a
restructuring of basicfire °ground operations. Under both options, the NFPA 171`0 Staf Standard Will not be
met at various ,times and under certain circumstances. Under Option 2, however, and in addition tothe staffing
deficiency, the NFPA 1710 Response Time Standard_ will be significantly impacted, again at various times and
under certain circumstances.
In summary, Option #1 results'in one.NFPA 1710 deficiency (staffing), while Option #2 results in two
deficiencies (staffing and response time).
Option #1 - Reduction of 'din. imurn Daily Staffing from 14 to 131= ireFghters, Reduces .Overtime
Expenditures by $470,859 Annually.
Under
savings are Option 1, minimum daily staffing is reduced from 14• FireFighter positions to 13 positions and the
Und
_ based on current and exact overtime costs per 24 hourshift. The basis of the findings rely on
Operational Staffing related to the total authorized positions being filled, In this case, historical data concludes
that at least one FireFighter will be off duty everyday in the fiscal period. In other words, 365 shifts.
Option #2 - Rolling Brownout, Eliminates an Average of $539,275 Annually:
Under Option #2, based on the nine year history, the average overtime amount that would be eliminated would
be $539,275. However, in this current year, a ;total of $1,116;788 (projected) in overtime would have been
eliminated if Option #2 had been, in place this year.
It should be noted, however.,, that whilet that would be true for this year;, this year was an exception that was
projected due to a Council directive o hold vacancies in the FY 2009/10 Budget,period. However, due to
recruitment challenges and difficulties, the vacancies extended well into our current period resulting in
excessive vacancies (eight), several disabilities. (five to seven), long term personal injuries (two), and a long
term personal illness (one).
The actual projected best case amount of overtime that would be saved in Option #2, then, would (again) be
the average,. or $539,275 annually. This, is because the lowest savings Would have been $231,225 in FY
2005/06 all the way up to a high of $1,116;788 in ourcurrent period., In the; Rolling Brownout option, savings
are achieved only because overtime would never be utilized (except forFLSA and Training).
Staffing drops are predicated on, how many FireFighters report for duty, While vacation leave is controlled at
one per shift, sick leave, disabilities, personal' injury and illness are not controllable.
Department Roster Staffing & Distribution:
In order to achieve the projected savings discussed in both the. Minimum Staffing Reduction and the Rolling
Brownout options, Department rosterfstaffing must be maintained at 48 line positions and three operational
shift battalion chiefs. These resources are distributed acrossthe three shifts (A, B, C). Currently, roster staffing
is set at two positions above minimum in order to address vacation, disabilities, and sick leave.
Operational staffing subject to overtime consists of the following positions and is distributed as depicted in the
table below:
1. FireFighter
2. FireFighter - Paramedic
3. Engineer
4. Engineer- Paramedic
5. Fire Captain
6. Battalion Chief (shift commander)
FF's, FF-PM, Eng, Capt. 16 16 f6 48
Battalion Chief's 1 1 f 3
Total Roaster 17 17 1.7 51
Daily Staffing Minimum; 15 175 15
Overtime is utilized to meet minimum staffing, whenever staffing .levels fall .below 15 (14 FF's + 1 BC) either
because one (or''more) of 14 FireFighter positions is out on leave and /or one battalion chief position is out on
leave. Again, the absolute daily minimum is:
FireFighters — 14
oauauvre.vrI V -
Daily Milhimum - 1
In its simplest terms, the Rolling Brownoutwould not hire back overtime positions to meet the daily minimum
staffing of 15 (14 FF's + 1 BC). If, for example, 1 °4 positions showed up. to work, overtime would not be utilized
to hire . back one- position : on overtime to' get back up to 15 (14 'FF's + 1 BC), or if 13 positions showed up to
work, overtime 4would.not be utilized to h re,back two on overtime, and soon. However, in the Minimum Staffing
option, any timestaffing levels fell below 14 (13' FF's + 1 BC) then overtime would be utilized to bring the
staffing back up to minimum.
Fire
V. 1K ;AIn
Option #1 - Reduction of Minimum Daily - Staffing from 14 to 13 FireFighters, Reduces Overtime
Expenditures by $470,859 Annually:
In order to maintain three staffed fire stations with a total of five response units, a minimum of at least 13
FireFighters pl C`s the shift battalion chief are required. This. is ,the concept that was employed during the FY
2009/10 Budget period by agreement between the City and IAFF Local 1415.
Down staffing the operation by one FireFighter per shift resulted in maintaining three fire stations with five
emergency response,:units with the;sixth unit (BC) utilized for field supervision and Incident Command, as
depicted in following Table
Station & Unit .Model
Engine (3 FF's
Truck (4 FF's)
Em
Total
3
2 6
1 4
2 4
5 14
1 1
6 15
-1
14
1
1
1
nits' 2 1
9
3 1
'5,
O®tion . #2:
Option #2 Rolling Brownout, Eliminates an "Average" of $539,275 Annually.
4>
`A
A structured Rolling Brownout that drops to 12 FireFighter positions :(plus the battalion chief) would result in
closing one fire station, or operating it with 'a two person crew on a third ambulance.
Dropping down �to 11 FireFighter positions (plus,the battalion chief) would, eliminate the option to maintain a fire
station open with at least a third ambulance.
Under the Rolling Brownout Option if;a. total -of eight FireFighters below °minimum staffing were unable to
report for duty (which has occurred), two firestations would close leaving Fire Station 1 with one engine and
one ambulance to respond to all emergencies during each'24 hour period.
There would be no fire ground capability except for some minor exterior (defensive mode) firefighting. When
any emergency event did occur, the next emergency would be handled only after the two units completed their
assignment(s) and became available forthe next event, or when ;and if surrounding agencies responded in to
assist Petaluma, in either case delayed.
Based, on ;Petaluma's daily emergency response activity load, 14 FireFighters per shift minimum is currently
the point of "equilibrium'' and efficiency in ' staffing that has been effective'in consistently meeting the
emergency responseservice load,,_ most occasions, but only under certain criteria (i.e:, not able to meet full
first alarm response time standard).
In the exam
$10,230 for
above, the cost to'keep the other two Fire Stations open under that scenario would have been
24 hour period..
The following Table identifies how staffing reductions would be structured eliminate: all but! the minimum
identified overtime (Over- max'and Training), how it impact two NFPA Recommended :Standards, and at
what point °the r eductions would result in`closing a fire station;
Ti 1E� 7 ^ �° x r
Tg Be m Compliance�w /These'$tandards 9
NWA471,0
Staffing
NFPA -1710 ,
Time
M
` p
i
' Current Minimum Staffing -14 FF + 1 BC
15
78%
3 Fire Stations Open
Current Staffing & Response' Tiine:;Deficiences
0
11%
Us , 1T, 2 Amb
( Reduce
Staffing by I FF/Shift, -13 FF+ 1 BC
14 ,
78 %
3 Fire Stations Open
Deficiency
1
11 0 %
Us, 1T, 2 Amb
- 12 FF+ 1 BC
1 i 13
67. %'FireStation
2 °Closed ":�;
Deficiency
2
29 %
2Es, 3-Amb
11 FF+ 1. BG
12
61
Station 2 "CloseiJ =::
Deficiency
3
29%
Us, 2:Amb
10 FF+1 BC
Deficiency
11
4
61%
29%
` 'Fire Station`2- +Gosed'.e';
2Es, 2 Amb
'9 FF + '1 BC
1 10.
61%
{
Fire Station izClosed =t`:
Deficiency —
[— 5
29 _
Us, 1 Amb
8FF +1 BC
9
61%
Fire °S`tationr2Closed.,
Deficiency
— - - -- 7 FF+ 1 BC
Deficiency' 1 —�
6
8
7
29
61%
1 29% '
Us, 1 Amb
Fire;Station-2Closed' .
Us j
��
'v;'.:Deficiency_Increases,To
r r Fire Statio&2,:C1osed'
1 BC $tatlOnY3 nOSed
Fire ) q,.
E r
A drop in staffi g below -the current level, (15 positions) will most likely result- in the City receiving a lower
Insurance.Rating Office' (ISO) rating, possibly moving - the City from. a 3, to:a,Class 4 orClass This will`
increase the cost,of °fire protection insurari'ce`to both residences and businesses.
A structured Rolling ,Brownout- could potentially affect ;the City Exclusive Operating area (EOA). If .
magnitude of the Rolling Brownout resulted in reduction of Advanced Life Suppot (ALS) services,. this
would'generate (or,cause) a "change'in scope oftenrices "-being provided (i.e., less services,'longer
response time, inability`-to rheet`demand, "reliance on mutual :aid,'etc.)
Table 8 (belo'
human. and rE
deployment v
"Red" cannot
violates Fede
depicts the; NFPA 1'710 {Staffing Matrix and how the Fire .Department currently deploys it's
ourcesao meet the standard. As staffing reductions occur, the Table, also depicts how
uld be modified at' the - vad reduction .levels ',(i.e,, one position, two etc:) Items depicted in
e executed .either because it is.functionally impossible, violates the NFPA.Standard, and /or
IC and State OSHA Law.
k6
This
andh
'is for base reference only. While the staffing points reflect accurately,'the variables
in .the functional task model would be modified dependent upon incident, "variables.
" Tatile8M�imum
,Num6erofFFsRequued==
a�_
NFPAaNumberofPersonnel;
�v
NFPA1710
National
Fire Protection Association Indial Full Alarm Assignrrnt
f 15
V
15 IC"' X 13 12 11 r10u 9 8 7
'
b
—�C
, � R /Fbsdion/F nctionv`
y - � '3'
9 fi
.72 4 ,, ' -
k y
.' %+. W` 4""S F ..� .
'j
52:3.22(1)
Establishment of incident;cbrintind outside of'the hazard aeeafor'the
overall! coordination and direction of the initial'full alarm assignment: A
1
1 a
1 I
1
1
1
1
1 1
1
1
rrinirrum of one individual shall be dedicated;to this :t
5.2:3.2:2 (2)
Establ'is hment of an uninterrupted water supply of a minimum 1480 Urrin
(400 gpm) for 30 minutes. Supply line(s) shall The maintained by an
1
operator who shall ensure uninterrupted wWater f low application.
^I
5.2.3.2.2 (3)
Establishment of an effective water flow application rate of.1110 Umin
(300 gpm) from two handlines, each of w hich,shall have a minimium of
4
4
4
II
4 J
4
I I
4 14
4
i
4 1
4
370 Urt>in (100 gpm). Attack and backup Iinesfshall, be operated by a
minimum of onnel each to effectively and safely maintain the' line.
I
l
5.2.3.2:2 (4)
Provision of one support person for each attack and backup line
deployed to provide, hydrant, hookup and to assist in line lays, utility
2
2
2
2
2
2
2
2 (
2
1
contro and forcible entry.
_
5:2.3:2:2 (5)
linitial
A r inirnum of-one victim search and rescue, 'teams hall'be part of the
full alarm assignment. Eacti and °rescue team shall consist
2,
2
2
2
2
2
2
1
0
0
of a minimum of two personnel. T
I
w
_
5.2.3.2.2 {6)
A minimum of one ventilation team shall be;part.of theiinitial full alarm
1
assignment. Each ventilation team shall consist of a minimum of tw o
2
2
2 I
2
1
1
0
0
0
0
5.2.3.2.2 (7)
p ersonnel.
If an aerial device is used in operations, one person shall function as an
I
aerial operator who shall maintain primary control of the aerial device at
1
1
0
0
0
1 0
0
0
0
0
all times.
I
5.2.3.2.2 (8)
Esfablishment of an IRIC that shall consistof axiinimwmof'two property
2
2
J
2 1
1 1 0
I
0
O j 0 1 0
equipped and trained personnel.
15
_,
; ®13
_I
r 12 �11
i
�10
_I _
' 9 +� 8 ' 7
Total
15
Deficlenc., "'
0
�..
zPFD Model for Standard Initial Attack
Number
of Personnel
w
_Based on All`Umts d adabletfor Response �._�
Battalion Chief - Assumes role as Incident Commander &Safety
1
1'
1$' Engine Company - Prepares forf ire ;attack. ,Firefighter at hydrant,
3
3
3
3
3
3
3
3 j 3
Engineer at pump, captain extending °;attack line.
3
- - --
2nd Engine Company - A "ssigned as rapid intervention crew. Complies
with OSHA regulation for "2 out ". Fire attack must wail to enter structure
3
3
3
3
0
4
j 0
( 4 13
until RI C'is as signed.
3,
1 "Paramedic Ambulance - Assigned to fire attackgroupto augment their
2
2
1 2
2
2
2
2
i 0 0
effecti Extends s afet y line or second attack line.
2
1
_
VTruck- Company -Residential fire allows crew to split into 2pairs. First
is ventilation, second crew is assigned to control utilities and begin
4
3
3
3
0
0
priority
salvage "operations. Can also assist with fire attack by removing ceiling.
4
3'
0
4
2nd 'Paamedic' Ambulance -Assigned as search group— insuringthatthe
2 2
0 0 2
0 0
0 0
structure is clearofyictims.
2
4 i
15 1.
'1'3 ''12 I 71
i . i I'.
, 10 1 9
I= I
_
I 1"
1 t
;rEfALUAM FI�MA,RTI1l�fr -TOTAL
15
°
:,r
DeficiencYa: n� xu
0` ,,12 3,` _4 5� 67
�s8
1710 - minimum is 15 personnel on scene,of a "basic" structurefire. The r ecommendationisfor 4 person eng ines and ,4 person trucks, or
j
more in some cases.. The: Standard does allow us to get'the 15 on scene4hrough multiple units, BtJT,for the PFD, w e staff
5 units 73 (E),,3 (E), T (4), 2 (A), 2 (A),'+ 1 BC= 15 to.get there. The dow ns ide is w henrany single multiple units are already
`working ano ther "incident,!w a have less resources on scene. So, while w e can h it;t h e 1 5 minimum.(w hen w e are at full staffing)
w e don't aMr ays accomplish;this due to,reduced'levels of available resources. If w e staffed our units a the 4 + level, w e
w o ulcl be better able to hit the;mimmum;doth res ponse time level, because fewer units' w nth more firefighters would j
arr ive more quickly that same amount of FFs. arriving on multiple units or not at all because they are already deployed.
t
Attachment 2
1 /{ ] .; Ally �•�
MAR 0 3 2011
CITY MANAGER
Petaluma Fire Department, 198 D Street Petaluma, CA 94952
(707) 778 -4390 Fair (707) 762 -4547 E- mail: fireclept(ccDci petaluma.ca.us
DATE: March 3, 2011
TO: 1 Larry Anderson, Fire Chief
FROM - ' Dan Epperson, Battalion Chief /EMS
SUBJECT: Operational Questions'Regarding Emergency Medical Services and
Ambulances
Several questions and discussion regarding the Emergency Medical Service (EMS)
ambulance operations occurred at the 2128/11, City Council Meeting. The following is a
summary of the operation to assist in that discussion and any follow up directives that
may occur:
1. Can we keep our ambulances in town and not transport to outlying .hospitals?
— No, this is not possible under current regulatory controls and State law.
This may lead to the question, why do we respond out of the city limits? Can we
control ambulance resources; to better protect the City and keep the fire firefighting
resource/ ambulances in town, etc.?
i
Answer —As part of the County and State -wide EMS system and its regulatory controls,
the City, Fire Department operates under strict guidelines that dictate when and where it
has authority to respond, as well as where patients, based on medical condition, are
transported to.
The Department operates in the "Petaluma Historical Ambulance Area" which
encompasses approximately 160 square miles. A reference map is provided on Page 4
of this Memo.
The EMS service has been delivered for over 80 years now and it includes both a City
and County response jurisdiction. This service Area, has in fact, been the subject of
lawsuits the past, and there is significant legal and historical opinion that has
developed over the past 30 years regarding boundaries, authority, and right to service.
If the City chooses to modify or change any portion of the response Area or to modify
any function of the services delivered within the Area, it could be subject to losing the
Exclusive Operating Area (EOA) forever as well as violating State and Local medical
' All
controls: If this occurred, the. county, would take over the jurisdiction and place a private
provider in the service area. The cost, of services related to this operation would be
borne by citizens that use the service but it would beat a much higher rate than that
which the Fire 'Department charges. It would also result in slower response times. The
loss of revenue to the City, over a 10 year period, would be $20 million.
The result of this would be that the. City would lose the revenue that it uses to fund
approximately 16 F. ireFighter positions per year, and 'it would lose the funding utilized to
maintain first response — Fire Engine based paramedic services. This is significant
because the City would still :need , the, same size workforce to deliver the fire protection
and all hazards emergency response services, including first responder medical care,
only it would do so without the benefit of the revenue.
The dual use of ambulance personnel to support the fire operations provides a
significant economic benefit when viewed at the "Marginal Cost to. the (service) Benefit
"`This benefit would be lost if the EOA were compromised. EMS revenues net
Margin:'
$2.0 million annually.
Approximately 70% of the transports are to Petaluma Valley Hospital which includes
most , of the routine emergency medical care, while transports to Santa Rosa Memorial
Hospital are required (by State Local Medical control) for serious cardiac care,
neurology, and trauma related emergency medical services. Kaiser hospitals represent
about 30% of all EMS pat, serviced, while they provide approximately 60% of our
revenue.. Medicare and Medical provides coverage for a large portion of our local
emergencies, but they pay only 10 to 25% of the billed services.
In summary, limiting services to ,in town EMS transport would not only be against State
and County medical control, but it would be economically unsupportable as well.
During Calendar year 2010, the Department transported patients to the following
destinations:
Total Ambulance Transports — 3,084
1. PVH - 2
2. Kaiser South 285
3. Kaiser north —'231
4. Santa Rosa Memorial — 1:59
5. Other — 25 (Novato, Sonoma Valley Palm Drive, etc.)
2. Can we contract °the BLS transports from an, emergency scene to a private
ambulance service and keep our dual use. Fire ambulances available for the
Cities coverage? No, Or can we do more Basic Life Support (BLS) transports
to supplement income'in between emergencies?
Ans.wer"r Basi6 . life; support'transports occur about 35% oft-he time. A portion of these
servicesare for Kaiser covered patients who require out.of city transport. If these
transports were passed off to another- ambulance provider, the revenue from our best
payer, would go with it. The Fire Department would still be responsible for providing the
initial response services including patient evaluation, treatment and care, but it would
then also have to remain on scene until a slower arriving resource arrived to transport
the patient. "Field care" alone i's very difficult to.recover costs on. Ambulance transport
with EMS care at any level is the most often paid bill.
Regarding unit availability, we are currently operating at a minor deficit in meeting
emergency response transpot demand, at least on average. Approximately once per
week, we must utilize a mutual; aid ambulance (i.e., a private provider) to meet the
service demand in the EOA. When this occurs, the revenue loss also occurs, even
though we responded to deliverfirst response -Fire Engine based paramedic services.
At some' point in the future, a third ambulance will. need to be staffed and become
operational in order to address increasing EMS response service. At this point in time,
the balance between unit availability, which includes -two fire engines, one aerial ladder
truck, and two ambulances are at a saturation level for all responses, but not yet a
level to support staffing another ambulance. That resource will need to be added in the
future.
Ambulance operations area critical function of the Fire Department's mission and a
model of emergency care that 'shines at the highest levels in the field. We have
expanded advanced live support care to all of our apparatus. so that most of the time,
Petalun1 a citizens and visitors receive the very best emergency medical care available,
and it is, on par with any city in California.
Petaluma is not only the busiest, but it is. one of only four fire departments in the entire
Sonoma County that provides advanced life support transport services. This also means
that it is only one of four receiving a revenue for those services.
The next page is a current map of the EOA. The lines in Red indicate City limits, while
the lines in Yellow reflect our County EOA.
6
Irl
Attachment 3
DATE:I
TO:
FROM'
SUBJECT:
February 28, 2011
Honorable Mayor and Members of the City Council
John C. Brown, City Manager
Mid -year Budget Review and 2011/12 Budget Development
BACKGROUND
I
In January, 2011 the Council reviewed a five -year financial - forecast for the General Fund. The
forecast was based on assumptions regarding cost escalation for the period, and the best
information then available regarding revenues. The forecast predicted' a_shortfall of $2.26
million in FY 2011/12 which, if left uncorrected, increased to a deficit of $14.1 million in FY
2014/15 The Council was advised that staff was investigating a "Fresh. Start" for our retirement
pans, extension of the amortization period to 30 years for the unfunded actuarial accrued
plans,
in each plan. Staff indicated it would also investigate opportunities to further lower the
City's required contributions by °voluntarily joining the pool -for the Safety Plan. Staff also
indicated it would determine employee interest in another offering of the two -year service credit
program ( "Golden Handshake "). Finally, staff indicated:it.would continue to explore
opportunities for inter -and intra- jurisdictional consolidations. Staff suggested resulting savings
from all these efforts could reduce projected deficits to set the stage for bargaining further
concessions with represented employees and/or reducing the numbers of positions eliminated in
order to maintain a balanced budget.
DISCUSSION and FINANCIAL IMPAC'T'S
The Council was provided, in a, separate item on the February 28, 2011 agenda, mid -year budget
adjustments for funds including the General Fund. Based on current estimates, the General fund
is expected to have a.balance of $243,729 at year -end. This is an increase of $111, 850 over the
first quarter estimate, and is $238,690 more than was estimated at the beginning of FY 2010/11.
This new estimate is incorporated into a revised five -year forecast. As indicated in January, staff
intends to periodically update the five -year forecast, to reflect changing fiscal conditions.
The revised forecast projects a 2011/12 deficit of $2.291 million, which if left uncorrected will
increase.'to approxirnately$15.14 million through FY 20'14/15. As'indicated in the mid -year
review, correcting for,an amount equal to the projected deficits for 2011/12 and 2012/13 appears
to be su l fficient to eliminate deficits throughout the forecast period and leave an ending fund
balance, of approximately $2 in 2014/15. These projections do not restore or expand City
Agenda !Review:
City Attorney_
Finance Director
City Manager
I
activities, or establish, any-reserves. Continuing to operate without reserves is not recommended;
a $3.6 million reduction is used to illustrate the minimum needed to .obtain balance throughout
the forecast period. A more appropriate reduction target at this 'time might be S4 million. This
would re- establish a minimal reserve. This reserve should be augmented during the forecast
period, to at.least the 15 percent level set by Council, policy, :as new development- related
revenues are hopefully received in 2012/13 and beyond. Based on GFOA recommendations for
a California city of Petaluma -'s size, reserves should be set closer to 25 percent. This should be a
goal for the forecast period extending beyond 2014/15:
At your' January 3 ; 2011 meeting, staff,indicated it would return to discuss options for
eliminating the projected deficit. If was expected thatxesponses to inquiries made of PERS
would be received by the mid -year review, and that indications of.interest in the 2 -year service
credit program would be received from eligible employees. PERS responses were received, and a
preliminary interest list in the two year service credit program was developed. Neither PERS -
related alternative will produce savings. PERS indicates it will not allow "Fresh Start" re-
amortiz and an.actuaral analysis shows that joining the Safety Plan pool will cost
Petaluma more than at present.
Sixteen) employees indicated interest in the 2 7year service credit program. Not all, however, are
in the General Fund nor can all resulting vacancies remain unfilled. Several positions are subject
to the minimum staffing level provisions of the City's agreement with'the Firefighter's
Association. As well, pay -outs associated with accumulated leave. reduce-savings. It appears
that of the 16 positions thus far identified, approximately 9 are in the General Fund, and can be
left vacant. They are estimated to net savings of approximately $1.1 million. Based on
past experience, interest is expected to grow during the budget development process. For the
savings this option willprovide, it is recommended that the City Council approve offering the 2-
year service credit again, on a- one -time basis. An item enabling that decision is currently being
prepared for consideration at the March 7, 2011 meeting.
As indicated in January, staff is evaluating opportunities forinter and intra jurisdictional
consolidations, and cooperation. The most promising of these opportunities are associated with
Police and Fire dispatching functions, although there may also lie some opportunities in less
well - developed ideas. There are,also'known savings associated with the consolidation of Public
Works and the Department of Water Conservation and Resources. With respect to alternatives
for dispatch activities, Fire is currently evaluating moving its dispatch to RedCom, a joint powers.
authority (JPA) that provides dispatching to other area fire departments. As well, Police has
recently initiated an analysis of establishing a JPA among the larger jurisdictions in the County
for police dispatching. Savings estimates -for these actions are not yet available, but`it is hoped
that as - much as $500,000 might be saved through these consolidations. It is expected, however,
that establishing a new JPA, ifthat can be done, would probably not be completed until mid -year
FY 2011/12. Due to the preliminary nature of these efforts, savings from these two sources
should not be relied upon in calculating deficit reduction amounts. Any savings created
subsequently could be used to restore positions, augment reserves, or some combination of the
two.
O's
I '
Approximately 80 percent of General Fund costs support Salaries and Benefits. As such, these
costs represent over $28 million of projected 2011/12 expenses of $3.4.8 million. Remaining
expense is in Services and Supplies +costs and intergovernmental charges. 'These have been
reduced to level's that cannot bear further ,significant reduction. This is not to say that further
reductions in these areas will not be sought. Reducing the projected deficit by as much as $4
million, however, requires that the majority of savings be taken from Salaries and Benefits. As
in the past, this will require negotiating concessions with represented employees, eliminating
positions, or a combination of the two.
Approximately 70 percent of General fund. costs support Public Safety functions. As such, over
$24 million of projected 2011/12 expense represents Public Safety costs, approximately $9
millions of which will be 'in Fire and; $15 million in Police. Reducing as much as $4 million from
remaining departments through lay - offs and program cuts cannot be done without impacting
services to unacceptable levels and rendering entire departments ineffective. Further, with
minimum staffing level requirements, in place in Fire's MOU, no position reductions can
currently occur there, exacerbating the reductions that would be borne -by other departments.
Accordingly, reductions must be .absorbed *across the entire General Fund.
As previously indicated, staff believes at ,least $4 million should be reduced from expenses, to
maintain balance through 20:14/15, and to start to re-establish reserves. It is recommended that
the entire $4 million be reduced in 2011%12. Accounting. for�anticipated Golden Handshakes, and
known savings from consolidations, a reduction target of $2.8 million is recommended. This
represents approximately ten (1-0) percent of projected Salary and Benefit costs for 2011/12.
Furloughs and related salary reductions equaling 3.1 percent of salary and benefits were .
implemented.for all employees in December 2009, and will expire in June 2011. The annual
savings calculated for the furlough which did not reduce healthcare costs, was approximately
$550,000. In exchange for accepting the, furlough, employees were provided with additional
leave time, which, except for Fire, must be used within the next two years. That leave is not
compensable, but represents additional time away from the; workplace and associated
deterioration of service levels. Fire personnel were provided. additional sick leave days, as they
cannot be absent from their shifts as can otheremployees without further impacting overtime
costs and negating the value of the furlough for them. Sick leave is compensable after 10 years
of service or at the time of retirement, which increases the. City's unfunded liability. , The
furlough "is also ,structured so that time, off may taken flexibly, with department approval.
This creates additional personnel management duties. The five year plan assumes the furlough
will not be continued beyond June 2011. Continuing it beyond June 2011 requires bargained
agreement. By itself, continuing the current furlough will not be sufficient to eliminate the
deficit. Jt .must either be more than quadrupled, or increased and augmented with a variety of
other cost savings actions, all, of which must also be bargained. As well, the term of the furlough
must be extended for another four years, and' due to the number of hours employees would be
away from their shifts, the structure would need to be made less flexible and more predictable.
Reductions in hours and pay of this.magnitude, for this length of time may be better
characterized as a pay reduction combined with a shortened work week, or for some, simply a
pay reduction. With respect to other cost savings options, it is recommended that the Council
also consider:
0
• Eliminating Employee Salary Step Advancements. This is estimated to save $46,000 in
the General fund in 2011/12, but would not carry through the forecast period for all
subject employees as some matriculate to the top step of their salary ranges. A review of
this option Jast year "showed most affected employees will be in Police and Fire.
• Eliminating; pay -outs of Administrative leave for management and raid- management
employees subject to 40 hour pay out limits. Based on 2009/1.0, this is estimated to save
approximately $19;200:
• Increase the employee share, of health care premiums. Each ten percent shift to the
employee; from the current five percent share, results in savings of approximately
$240,000 per year. This continues to be recommended as a more beneficial reduction of
compensation for employees than straight salary, as ,these premiums are a pre -tax benefit
• Continuing the deferral of cost of living adjustments for AFSCME- represented
employees through the forecast period. This would result in annual savings of
approximately $117,500.
Additional alternatives to achieve the level of savings needed, which are also recommended for
Council consideration, 'include;
• Some combination of the foregoing options; and a reduced workweek
• Salary roll- backs; and/or
• Il'ayoffs
In the short-term, staff is .also analyzing the elimination of additional part-time positions in the
Generaffund. Savings are not expected to be significant, as most remaining part-time positions,
such as Parking Enforcement Officers, generate offsetting revenues. As well, positions vacated
between now and the end of the fiscal year will only be filled if they are mission - critical. These
actions may generate between $250,000 and $300,000 based. on known and anticipated
resignations in the Police and Public Works departments.
In the longer term, Council has shown interest in a second tier for PERS benefits for future.hires.
Managers in Sonoma and Mendocino: Counties have worked'together to develop a consistent
approach and have suggested moving =to a second tier for PERS benefits, the features of which
are:
® 12 %o at 60 formula for Miscellaneous employees, with an 90 percent cap on benefits
®
.2% at 55 formula for Safety employees with an 80 percent cap on benefits.
® Both calculated using the average of highest`three years for final compensation.
The managers also recommended the participation of employees in funding their pensions; in
Petaluma, employees are already paying the full "employee share ".
The savings associated with these actions are expected to be negligible in the forecast period.
When the majority of employees are under the second tier, it is estimated. that cities can expect to
save approximately two percent per year of payroll costs. After thirty years, that figure is
expected . to increase to five percent. Neighboring cities are taking steps to implement a second
tier; it isrecommended that Petaluma do so also.
A�
I
Revenues
Past discussions with the Council regarding opportunities4o enhance revenues have focused on
pending development projects, and the tax revenues they will generate: Based on the anticipated
timing and phasing of construction for the Regency project, the entitlements yet to be granted to
the Dee I r Creek Village project, and the timing and phasing of construction for that project if
entitlements are granted, no••revenues for eitherof•these projects are estimated in the coming two
year period. To rely on revenues from either of these sources to offset projected deficits during
the next;two years is not advised. As indicated previously; and as with dispatch consolidations,
any resulting revenues that may accrue in2012/13 and beyond can be used to restore funding, to
build reserves, or some combination of the two.
As well,. no revenue increases that might be anticipated. from passage of ballot measures on the
2012 ballot have been projected, nor would any such revenue be received within a timeframe that
would appreciably negate the need for'the level and timing of reductions recommended. Again,
any revenues obtained from such a source can be allocated between- funding and reserves as the
Council 'deems appropriate at that time.
It appears, however, that year end estimates for Transient Occupancy Tax receipts may exceed
original! projections by as much as_:$100,000. While it is desirable to augment the Petaluma
Visitors • Center budget with a portion of those funds.to enhance tourism attracting activities, as
the agreement for services with that organization contemplates, it is recommended that the
Council retain approximately $75,000 of these increased revenues for General fund use. This is
the equivalent of funding for approximately 3 /4 of a position.
. CONCLUSION
The forgoing alternatives are provided for the CounciVs consideration, and use in providing
future direction prior to the initiation of bargaining with the City's represented employees. No
specific action is sought at the present time, only Council questions and feedback. Future
direction will be used in labor negotiations, and to develop the 2011%12 budget.
Attachment
6 d " , 1 t b ity
a' t
JL
City of Petaluma, California
Mr,
L
a .
CiTof Pe .
11 English Street e Petaluma, CA 9495
x185$
January 3, 2011
Honorable Mayor and Councilmembers:
I am pleased to present the Fiscal Year(s) 2011 -15 Fiscal Sustairiability Report. This effort is the
first step towards development of budget strategies for Fiscal Year 2011 -12 and the development
of sound financial strategies to ensure the City's fiscal health into the future.
This report is intended to be a long -range planning tool to allow the City Council to make
strategic decisions on the City's financial sustainability. This report will require annual updates
to assure accuracy of the forecasts and to- adjust to existing conditions. The foundation of the
report! is built upon financial trend analysis and financial forecasting which describes the City's
current and projected financial condition. Specific recommendations to address the budgetary
forecast and conditions presented within this report will be presented separately as we move into
the budget development and planning process.
The report provides an overview of the City's financial position utilizing elements of the ICMA
Financial Trend Analysis model to examine five -year trend data. Several critical financial
indicators have shifted into unfavorable and warning rating categories including our sales,
property tax and building revenues. These continue to fall off due to the ongoing economic
climate.
The results of the review indicate a continuing decline in both the City's projected operating
position and General Fund fund balance. Based upon the City's weakening financial position,
this report is focused on identifying those factors contributing to the decline as well as outlining
some measures to address the issues during the upcoming budget process.
i
The City's General Fund reserves continue to be at weak levels with the General Fund
unreserved undesignated fund balance currently estimated to be $245,177 at the 2011 fiscal year
end. Overall on a combined basis across all funds, the City's reserves have continued to decline
over the past few years.
Introd I ced within the report are some available Gap Closing Strategies. As mentioned earlier,
specific recommendations for closing identified funding gaps' will be forthcoming as part of the
budget development and planning process for Fiscal Year 2011 -2012.
Although the 2011 -15 Fiscal Sustainabili Rep provides a look ahead to plan f t financial
ty p p p or he finan
issues `and challenges facing the City over the next five years, the immediate concern is
producing a balanced and fiscally responsible budget for Fiscal Year 2011 -12 and 2012 -13. This
will require focusing on reducing expenditures through cost - cutting measures in the short-term as
revenue enhancements are precluded for the most part until the next general election. Long -term
budget (balancing actions are needed to gap -fill the both the short and long -term.
r�l
The budget development process will require a review of all core and non'-core programs in order
to prioritize service delivery functions. This review will need to include all cost elements of
service delivery such as level of staffing, salaries,' and benefits. This prioritization is critical as
Gap - Closing Strategies are discussed so that direction may be provided to Staff in developing a
balanced budget for fiscal year 2011 -12.
The prospects of increasing :revenues in the near term is limited since a ballot measure would be
required to increase any of the City's major sources of revenue and such a measure may only be
placed on the ballot at a general _election at which Council members stand election. The next
opportunity to place such a measure on the ballot is in November, 2012.
This report, in addition to efforts undertaken during recent budget cycles, again underscores
staff's commitment to being proactive in developing and putting into action plans to address
budgetary shortfalls the City has faced. It further underscores our service commitment to the
community as we determine a solid course of action as we attempt to balance the needs of our
citizenry with realistic fiscal projections.
Resp
Marc Puckett
Director of Finance
11
i
Fiscal Sustainability Report
Overview
The Fiscal Sustainability -Report provides an objective look at the current financial
issues facing the City. The Report is intended to serve as a tool, providing Council and
the public with the insight required to 'address issues impacting the City's financial
condition. The Report consists of a financial plan that provides supporting information
necessary to developing an action plan after a thorough analysis of all issues that
impact the City's financial condition.
Utilizing the financial tools already in place, the Report looks at the Financial Trends,
Financial Forecast, and Gap Closing Strategies to provide insight into the "fiscal health"
of the City in order to determine a sound financial course of action in future years.
Report Plannina P
The financial planning process is a year round process consisting of short-term and
long -term elements. The City's one -year financial plan or annual operating and capital
budget outlines short-term spending priorities for the ensuing fiscal year.
Annually,, City Council identifies which programs, services and projects are of the
highest priority for the coming year. Since many of the programs, services and projects
are considered part of the City's basic program and service delivery or include multi-
year projects, development of a multi -year financial plan is also needed. Once the
City's current priorities have been updated, staff identifies the elements of the adopted
budget that have, or are expected to have, an impact on the financial condition of the
City over the next five years. These elements become the basis for development of
long -term plans to maintain the fiscal stability of the organization for future years.
The process that went into developing the City's Fiscal Sustainability Report included
the involvement of several staff members in preparing various elements of the report.
The process included identification and confirmation of critical issues, analysis of critical
issues 'id'entified, analysis of financial trends for revenues and expenditures, and,
development of forecasts for revenues and expenditures.
P
r.
The 2011 -15 Fiscal Sustainability Report consists of the following
sections:
Financial Trend Analysis
A number of financial indicators are analyzed utilizing the International City
Management ..Association's (IC`MA) guidelines contained in "Evaluating Financial
Condition ". The analysis of these indicators is designed to present information on the
fiscal health of the City of Petaluma as part of the Fiscal Sustainability Report. This
financial trend analysis primarily focuses on the City's General Fund.
Financial Forecast
The summary of the five -year fiscal sustainability forecast is rimaril
p y intended for the
General Fund, incorporating adopted City fiscal policies and practices, assumptions for
revenue: trends, expenditure' patterns, fund balances and other known financial impacts.
Gap Qlosing Strategies
Introduced within the report are some available Gap Closing Strategies and an analysis
of the City's major funding gaps or requirements: Specific recommendations for closing
identified funding gaps will be forthcoming as we move into the budget development
and planning process for Fiscal Year 2011 - 2012.
These strategies are 'important to address the cash flow and funding gaps within the
City's operations and priority capital projects and to develop a plan of action that will .
meet the future operating and infrastructure needs of the community, while ensuring
that future resources can sustain on -going operation and: maintenance costs.
Financial Trend Analysis
A comprehensive analysis. of the City's financial trends and reserves has been .
conducted as part of the Fiscal S.ustainability Report. The financial trends and reserve
analysis document the progress that has been made in implementing long -term
solutions to improve the financial condition of the City. This trend analysis also acts as
an early', warning system to alert Council and the Administration of trend changes that
will have!an impact on the financial condition.
i
Current Financial Condition Overview
The Report focuses on the financial condition of the General Fund, the City's key
operating fund. The City's General Fund ended the 2010 fiscal year with a total fund
balance! of $1.8 million. These funds are available for appropriation to meet the budget
gap of $1.3 million for fiscal year 2011. The estimated ending General Fund fund
balance for fiscal year 2011 is projected to be $245,177 or less than 1.0% of the
operating budget.
.3'
However, the City's General Fund 'reserve policy currently reads, ",a minimum fund
balance_ reserve in the: General Fund will be maintained at all times. The City's goal is
to reach an optimal level for this reserve of 15% of the Fund operating budget"
or $4,908,000 based upon the adopted 2011 operating budget. The policy further
states that, "the unappropriated fund balance in the General Fund will be maintained at
a level sufficient.to provide adequate working capital..."
As a general rule, on. average an operating reserve equivalent to 2`5% of the operating
budget for $8,180,000 is considered optimal based upon surveys conducted of public
sector agencies' reserve policies. ,As .a matter of practice, the reserve policies should
be reviewed annually and .revised as appropriate. Further, a practice of funding the
reserves should be considered together with funding all service priorities during the
budget development process to ensure that the City's Jong term fiscal health is
protected. Operating the City without adequate reserve balances for significant periods
of time is not, prudent and may create emergency cash flow: shortfalls. Further, the lack
of adequate reserve balances negatively impacts the City's credit rating therefore
increasing future borrowing costs.
Financial Trend Analysis
The City's financial condition is also quantitatively measured using -a financial trend
monitoring system. Because of the City's commitment to long -term financial planning
and funding of necessary reserves, efforts to implement cost reduction strategies
including measures to streamline service delivery have already been undertaken by City
departments over the past three budget cycles. These cost - cutting actions already
taken demonstrate the ,. City's commitment to improving the organization's long -term
fiscal health.
Financial trends are analyzed each year together with many other factors in order to
better understand the financial condition of the City. Some of these factors considered
include:.
➢ The economic condition of the City and the surrounding region;
➢ Types and amounts of revenues and whether they are sufficient and the right mix
to support the current and projected population levels;
Expenditure levels and whether these expenditures are sufficient to provide the
desired level of services currently and in the future;
➢ Fund balances and their impact upon current City financial resources.
These issues and others are examined in determining the current financial condition of
the City, The City's fiscal policies have also been considered in connection with this
analysis!,., Data used in performing the financial trend analysis was primarily drawn from
the City's Comprehensive Annual Financial Reports for fiscal years Fiscal Year 2006
through; and including the draft financial statements for Fiscal Year 2010.
Consequently, all trends are based on the best available financial data available as of
June 36, 2010, and include only limited changes that have occurred since that time.
i
A summary of some of the key trends measured and changes in those trends from the
last fiscal year follows.
Revenue Trend Analysis
i
Sales Taxes, Transient Occupancy Taxes, and Licenses and Permit revenues are three
examples of forms of elastic revenues that. the City receives. Elastic revenues are
responsive to market demand are vary directly in proportion to economic business
cycles that affect market demand.
Sales Tax Revenues: For the second quarter in a row' every region in California
experienced increases in sales tax cash receipts from the same quarter a year ago.
Northern California increased by 3.9% and Southern California increased by 3.6%
resulting in a statewide increase of 3.7 %.
MuniSe'rvices,LLC provides sales tax analysis to the City of Petaluma and many cities
statewide. A copy of Muniservices' most recent cash receipts analysis report for the.
City of Petaluma is attached (Exhibit A). The cash receipts analysis report presents
performance 'information for City, other jurisdictions in Sonoma county, geographical
regions,; and statewide comparisons by quarter, fiscal year to date and benchmark year.
Per the report, the City's sales tax revenues on a cash basis have increased by 3.1 %
for the year to date reporting period (July thru December) as compared to the same
period in the prior fiscal year..As a whole, jurisdictions within Sonoma County saw an
average increase .in their sales tax collections of 7.9% or 4.8% more than in Petaluma
for the: same two quarters as compared to the prior year., Statewide, sales tax
collections increased 5.5% for the same time period.
I
For the most recent four quarters (January thru December) the City's sales tax receipts
increased by 1.3% which slightly exceeded the statewide average increase of 1.1%.
County- wide, sales tax receipts increased by an average of 3.1 % over the same period.
The following table (Table 1) shows the five year history and five year forecast for sales
tax collections in the City.. The fiscal year 2011 adopted sales tax revenue estimate of
$8,165,000 is $3,484,972 or 30 % less than fiscal year 2008 levels when sales tax
collections peaked at $11,649,972. It is anticipated that sales tax revenue estimates will
increase by 3% in fiscal years 2012 and 2013. During fiscal year 2012, a major retail
center is projected to open. Assumptions for sales tax receipts from similar businesses
based on existing market data provided by our sales tax consultant have been included
in the revenue estimates displayed in the charts below. Then, in fiscal year 2014 and
2015, sales tax collections are projected to increase by 4% and 5% respectively.
9-
Tab
$10
$8;000,000
i
$ 6,'000; 000
I
$4;000,000
$2,'000,000
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Property tax revenuer Property tax revenue collections. have declined - by 9:,5% from
$7,393,338 collected during fiscal year 2008 to a total revenue estimate for fiscal year
2011 of $6,686,800 as revised , during the first quarter General Fund budget review.
This its due to a decline in secured property values during the prior fiscal year. This
downward adjustment was believed to be an indication that property tax revenues will
n continue to grow at a gradual pace over the forecast period.
, �
i
There are three major factors that contribute to year to year valuation changes. First,
Proposition 13 allows the County Assessor to increase or decrease the taxable value of
real property by the net change in CPI growth, with a cap of 2 % growth per year.
Second, property valuation is increased or decreased annually by transfer of ownership
transactions that occur in the prior calendar year. Upon, sale of real property, the base
taxable value of the property should equal its sale price. Third, valuation can be
decreased by the County Assessor through individual appeals or mass appeals if
warranted by market conditions.
i
Based upon ' the,, most. recent property tax revenue .estimates provided by the Sonoma
County Treasurer -Tax Collector's Office, the City will receive $6,807,900 in property tax
revenues during fiscal year 2011. This amount is an increase of $121,100 or 1.8%
more than the fiscal year 2011 first quarter revised revenue estimate for property tax
collections.
1
i
i
The ;following table (Table 2) shows a five year history , of property tax collections and a
five year forecast of future property tax collections. Property tax :revenue collections are
projected to increase by 2.5% in fiscal year 2012 then increase at a rate of 3% per year
in fiscal years, 2013, 2014 and 2015.
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Transient Occupancy Taxes: Transient Occupancy Tax (TOT) is levied for the privilege
of occupying a room or rooms or other living space in a hotel, inn, tourist home or
house, motel or other lodging (defined below) for a period of 30 days or less.
Others lodging includes, but not limited to:
Camping sites
® 1 Space at a campground or recreational vehicle park
The authority to levy TOT is granted to -the legislative bodies of both cities and counties
by Revenue and' Taxation Code 7280. The authority to collect TOT is generally granted
to theiCounty or City Tax Collector by the legislative bodies by means of an ordinance.
Pursuant to existing Council Policy, $1,000,000 of the TOT is retained and used a
general revenue source to support General Fund funded operations. A total of
$1,513,000 in Transient Occupancy Taxes was received in Fiscal Year 2009, however. .
This change in. policy was made to off =set declining revenues. This source of revenue
was' projected to be maintained at $1,000,000 and adopted at that level for Fiscal Year
2010. Revenue estimates adopted. for Fiscal Year 2010 and projections for .Fiscal
Years 2011 thru 201 also anticipate no increase in TOT revenues due to a projected
continuation of current Council Policy to use TOT revenues collected over $1,000 „000 to
fund, `the Visitor Center operations and the Petaluma Visitors Program. An agreement
with; the Petaluma Downtown Association was entered into during June, 2010, to
oversee the Visitor Center operations and °administer the Visitors Program. It may be
desirous to revisit existing Council Policy regarding the use of only $1,000,000 of the
TOT :revenues as a general revenue source. As TOT revenues increase and in
consideration of other programs and service delivery cuts that may be necessary to
balance the budget, it maybe desirous to use a Larger portion of TOT revenues for
general purposes in odder to maintain service delivery in other areas. The following
table�(Table 3) summarizes the TOT receipts for the past five years and.forecast for the
next!five years.
I able 3
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Licenses and Permit revenues: 'Licenses and Permit revenues were anticipated to
decrease in construction permits and inspection fees due to the recession and lack of
construction activity. Construction activity is expected to rebound slowly based upon
consensus economic data suggesting a slow growth recovery in the local economy. As
a result, License and Permit revenue projections reflect these slow growth economic
assumptions.
The following table (Table 4) provides a five year historical view and five year forecast
of the City's License and Permit revenues. The prior year reduction in these revenues
from ;Fiscal Year 2006 to Fiscal Year 2007 is due to development related revenue that
was .previously accounted for within the General Fund being transferred into and
accounted for separately in the newly created Development Services enterprise fund.
Looking forward, this revenue source is expected to increase during Fiscal Year 2012
by approximately $250 or '33% partly as a result_ of the anticipated opening of a
major retail center. However, revenue projections for 2013 are anticipating that revenue
collections from this source wily return to Fiscal Year 2011 levels of $741,550 :then
increase minimally by 2% in Fiscal. Years 2014 and 20.15. These revenue projections
anticipate very modest growth in development activity for the next 3 -4 years.
Table 4
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
—
$1,000,000
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lntergovemmental Revenues: General Fund Intergovernmental revenues are projected
to have decreased by 7.8 % or $392,494 in Fiscal Year 2010 as compared to Fiscal
2009 from $5,056,662 to $4,664,168. However, as a percentage of operating revenues,
the intergovernmental revenues decreased from 14.4% to 14% when comparing the two
fiscal years.
By analyzing intergovernmental revenues as a percentage of operating revenues, the
City can determine the extent of its dependence upon resources from other
governments. Excessive dependence on this type of revenue can be detrimental to the
financial health of the City as the factors controlling their distribution are beyond the
City's control.
Per the first quarter budget review for Fiscal Year 2011, Intergovernmental revenues
were projected to decrease slightly by $72,000 or 1.5% from $4,673,300 to $4,601,250
during the current fiscal year. This revenue source is projected to remain flat in Fiscal
Year 2012 then increase by 2% for Fiscal Years 201:3 thru 2015 based upon historical
trends.
The following table (Table 5) shows a five -year history and five -year forecast for all
major revenue categories within the General Fund.
Table 5
$14,000,000
Property Taxes
$12,000,000
Sales and Use Taxes
$10,000,000
Business Lic & Prop
TrfTaxes
$8,000,000
Franchise Fees
— Licenses and Permits
$6,000,000
�
"
Fines & Forfeitures &
Penalties
$4,000,000
— investment Earnings
and Rent
$2,000
-- Charges for Services
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Other Transfers and
$0
Sources
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Expenditures Trend Analysis: Comparison of Expenditures by Category
Salaries and Wages: Salaries and Wages are projected to have decreased by 6.4%
overall or $1,349,658 as of Fiscal Year 2010 as compared to Fiscal Year 2009. The
adopted Fiscal Year 2011 budget reflects an additional reduction of 3.6% or $723,799
as projected. Salaries and Wages for FY 11 -12 thru 1.4 -15 are adjusted'to reflect the
elimination of furlough hours and no COLA :increases. However, even though no COLA
increases are anticipated, employees that are not at the top step of their pay grade will
continue to receive step increases if their performance meets standards. Any increase
in Salaries and Wages' over the forecast period in excess of current projections. will
increase the projected .budgetary imbalance proportionally. . Beginning in Fiscal Year
2013, six Firefighter /Paramedics that were previously funded by Grant money have
been included in the General Fund salary and wage projections. The following table
(Tab'le 6) provides a five -year historical comparison and five -year forecast for total wage
and salaries paid to employees from the City's General fund.
Table 6
$25,000,000
$20000,000
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Fringe Benefits: Fringe benefit expenditures as a percentage of General Fund salaries
Year 2010 to Fiscal. Year 2009 spending flevels3.T ° to 35.8 %° when. comparing Fiscal
and wages, increased b a total of 2.2' °
his increase in fringe benefits as a
percent of salaries and wages is attributable to the salaries and wages ($1.3 million
reduction ction in total) paid decreasing at a ,greater rate of decline than fringe benefit costs
over the referenced period. Fringe benefit expenditures as a percentage of salaries and
wages are projected to increase slightly during, Fiscal Year 2011 from 35.8% to 36.1%
as a result of the projected additional '$724,'Dob :red.uction in salary and wage payments.
The largest percentage component of the total benefit costs is the contribution to the
City's defined benefit retirement program. The retirement contribution percentage is
projected to increase by approximately 1.9% for the general employee group and
approximately 5% for the public safety group (policemen and firefighters) for Fiscal Year
2012 These contributions are projected to increase over - 2013 -2015 due to changes in
actuarial assumptions as. a result of a plan experience study conducted by the plan's
actuary. As a result of the study, the actuary has,, enacted differing assumptions for
amortization of investment gains and losses, mortality rates for retired lives (retirees are
living longer) and a 0.25,% decrease in the assumed investment rate of return. The City
has taken steps to reduce increases in the contribution rate and is currently working
with the plan actuary to limit ;grovvfh in the contribution rate where possible. The second
largest component of benefit costs is health care. During the current fiscal year, health
care costs are. ,increasing by 9 %. For the forecast period, health care costs are
projected to ,increase at an annual rate of 9 %. A five -year historical comparison and
five -year forecast of total fringe benefits costs is displayed in the table following (Table
7).
�`1
Table 7
Financial Forecast
General Fund Revenue and Expenditure Growth
In each revenue and expenditure category an initial summary is provided with the
following:
H
from FY ro h Rate 2010he average annual rate of growth for the ; past'five years
➢ 2011 Projected Growth Rate — Average annual rate of growth projected for the
current five -year forecast.
Operating Position: An operating surplus is when revenues exceed expenditures as of
the end of a fiscal year point-in-time comparison. Conversely, when expenditures
exceed revenues there is said to be an operating deficit. The City is projected to have a
operating deficit for Fiscal Year 2010 of $231,088. The City has ended the Fiscal Year
with an operating deficit in four of the past five fiscal years having spent $6,867,950
more than it received in revenue over this same period. Based upon forecasts included
in the attached exhibit (Exhibit 1) and absent any changes in projected spending
i
patterns, the City is projected to spend more than it receives in revenue over the next
five years. Based upon these historical trends and forecasts, structural changes are
needed to reduce the cost of the City's current service delivery model, or, new revenue
must' be identified in order to maintain the existing level of service delivery. Absent any
change, the City will have a projected deficit within its General Fund of approximately
$17.5 million at the end of Fiscal Year 2015.
Fund,Balance Analysis. Unreserved fund balance refers to those dollars available for
use in the event of a financial emergency, short-term revenue fluctuations or an
economic downturn. The City's fiscal policy goal is to attempt to operate each year at a
surplus to ensure the maintenance of adequate ,reserve levels. Unreserved,
undes fund balance in the City's General Fund is currently projected to equal
$124;`077 as of the end of FiscaCYear 2011.
The City's General Fund reserve policy currently reads, "a minimum .fund balance
reserve in the General Fund will be maintained at all :times. The City's goal is to reach
an optimal level for this reserve of 15% of the General Fund operating budget" or
$4,908,000 based upon' the adopted.2011 operating budget. The policy further states
that, "the unappropriated fund balance in the General Fund will be maintained at a level
sufficient to provide adequate working capital..... As a general rule., on average an
operating reserve equivalent to 25 of the operating 'budget or $8,180,000 is
considered optimal based upon surveys conducted of public sector agencies' reserve
policies. As a matter of practice, the reserve policies should be reviewed annually and
revised as appropriate. Further, a practice of funding the reserves should be
considered together with funding all service priorities during the budget development
process to ensure that th City's long term fiscal health is protected. Operating the City
without adequate reserve balances for significant periods of time is not prudent and may
create emergency cash 'flow shortfalls. Further, the lack.of adequate reserve balances
negatively impacts the City's credit rating therefore increasing future borrowing costs.
Financial Forecast
The five -year financial forecast identifies the City's current and projected financial
condition to determine if funding levels are adequate arid' if projected expenditures can
be sustained. The forecast provides a basis for decision making and shows the
potential impact of current decisions on the future.
In response to a 39.4% decline in revenues over the past five budget cycles, operating
expenditures were reduced by 37 %. But, despite the cost containment measures, the
budget forecast still shows potential budget deficits over remaining four years of the
forecast.
The lingering effect of the downturn in the economy continues to have an impact on City
revenues. Sales taxes and development related service revenue estimates have been
reduced in the Fiscal Year 2011 adopted budget from the prior fiscal year.
�I
Forecast expenditures are increased by inflation, forecast assumptions or known
contractual increases. As a result of revised forecast "projections, City revenues are
anticipated to grow by only 7.0% in total through Fiscal Year 2015. Expenditures,
however, are anticipated to grow by over 17% over the same time period.. The Fiscal
Year .2011 forecast shows projected operating deficits in each year of the five years of
the forecast and negative.fund balances beginning in 2011. Clearly, the City will have
to address the projected deficits in order to improve its operating position and fund
balances as the City will not adopt an unbalanced budget.
Forecast Assumptions.
Beyond the economic and growth /trend assumptions used in the forecast, information
specific to the City of Petaluma is included in the forecast:
New positions — No new city positions have been added within the forecast
period.
Fiscal Year 2011 -1.2 thru 2014 -15 Salaries and Wages are adjusted without
furlough hours and no COLA.
® Beginning in Fiscal Year 2012 -13, 6 Firefighters are; added to the General Fund
salaries and wages.
Step increases for employees that are not at the top of the current wage scale for
their position have been included in the forecast.
®' The retirement contribution percentage is projected to increase by approximately
1.9% for the general employee group and approximately 5% for the public safety
group (policemen and firefighters) for .Fiscal Year 2012. These contributions are
projected to increase over 22013 -2015 due to changes in actuarial assumptions
as a result of a :plan experience study conducted by the plan's actuary
®! Health benefit costs are projected to increase at an annual rate of 9 %.
Revenues are generally anticipated to grow by an inflation factor of 2% unless .
otherwise indicated.
® Fiscal Year 2010 -11 Revised Est. Benefits reflect fully charging Worker's Comp
rates.
® Fiscal Year 2011 -12, thru 2014 -15 Benefits increase is substantially due to PERS
anticipated increases, fully charged Worker's Comp . rates and 9% health care
increases.
Fiscal Year 2011 -12 thru 2014 -15 Services & Supplies assumes a 2 % per /year
increase.
Fiscal Year 2011 -12 thru 2014 -15 Intragovernmental remains flat.
® Fiscal Year 2011 -12 thru 2014 -15 Fixed.Assets /Ca Oita l Outlay remains flat.
Factors Not Included in the Forecast
®
This forecast is based on the General Fund only.
No new or enhanced programs are included in the forecast.
Gap Closing Strategies
To analyze the cash flows and funding gaps of the City's General Operating Fund and
develop a gap - closing strategy that will meet the future operating needs of the
community, while ensuring that future 'resources can sustain ongoing operating, capital
and maintenance costs, funding strategies must be identified as part of the Fiscal Year
2011-2012 budget development process.
Due to the lingering organizational effects of five consecutive years of budgetary
spending cuts, recommendations for additional cost cutting measures should be
considered together with a prioritization of all service delivery functions. Revenue
enhancement options must also be part of the budget balancing discussion if the
existing level of service delivery is to be maintained. `Unfortunately, the City is limited in
its revenue raising efforts due to referendums passed. at the State level that limit the
City's taxing authority. Service level priorities need be established each year as part of
the budget development process. Once created, these priorities need to be utilized in
creating a balance between the level of services that can be provided within the
available resources to fund those services.
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2010 -11 PROPERTY TAX ALLOCATION
ESTIMATE
PROPERTY TAX REVENUE SUMMARY
SECURED BEFORE RDA 8,642,395.71
AB454 UNITARY AND RAILROAD UNITARY 66,319.48
UNSECURED BEFORE RDA 318,821.26
HOPTR BEFORE RDA 83,550.17
LESS: RDA ANNUAL TAX INCREMENT (ADJ FOR AGREEMENTS) (2,263,192.51)
LESS: GEOTHERMAL & BUSINESS IMPOUNDS (39,993.67)
SUBTOTAL 6,807,900.44
VLF SWAP
CITY OF
TRIPLE FLIP
PETALUMA
ABS / PROP 13 FACTOR CALCULATION
(191,504.66)
2009 -10 AB8 TAX ALLOCATION. BY TRA
11,815,342.06
2010 -11 AB8 GROWTH BY TRA
(214,576.79)
2010 -11 A88 TAX ALLOCATION BY TRA
11,600,765.27
2010 -11 ADJ GROWTH FACTOR FOR PER CAPITA AND
FINANCE SHIF (0.013171)
(ADJUSTED;.FOR RDA GROWTH)
2009 -10 ERAF 93 -94 PER CAPITA SHIFT
(117,947.38)
2009 -10 ERAF 92- 93 &93 -94 DEPT FINANCE SHIFT
(2,459,108.11)
TOTAL 2009 -10 ERAF SHIFT
(2,577,055.49)
MULTIPLY BY ADJUSTED GROWTH %
(0.013171)
2010 -11 ERAF SHIFT
(2,543,113.09)
2010 -11 ADJUSTED AB8 ALLOCATION
9,057,652.18
2010 -11 A138 / PROP 13 FACTOR
666,047,427.19 0.01359911
PROPERTY TAX REVENUE SUMMARY
SECURED BEFORE RDA 8,642,395.71
AB454 UNITARY AND RAILROAD UNITARY 66,319.48
UNSECURED BEFORE RDA 318,821.26
HOPTR BEFORE RDA 83,550.17
LESS: RDA ANNUAL TAX INCREMENT (ADJ FOR AGREEMENTS) (2,263,192.51)
LESS: GEOTHERMAL & BUSINESS IMPOUNDS (39,993.67)
SUBTOTAL 6,807,900.44
VLF SWAP
3,896,644.02
TRIPLE FLIP
2,135,651.71
LESS: ESTIMATED SB2557 ADMINISTRATION FEE (EFFECTIVE 2006-
(191,504.66)
, . 07, VLF SWAP & TRIPLE FLIP INCLUDED IN CALCULATION)
LESS- ESTIMATED COST REIMBURSEMENT FOR UNSECURED
(8,074.13)
COLLECTIONS
ESTIMATED NET PROPERTY TAX REVENUE FROM CERTIFIED VALUE
12,640,617.38
Note:
(1) The above estimate is based on Certified Values and does not reflect mid -year
adjustments to the Tax Roll. Property tax revenues generally decrease throughout
the Tax Year due to Tax Roll adjustments (e.g. - assessment appeals, valuation
reductions, other corrections). While these adjustments are typically small in nature,
large assessment appeals could have a material affect on the Tax Roll and the
revenue apportioned to taxing agencies.
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0
City of Petaluma
Sales Tax Digest Summary
Collections through September 2010
Sales through June 2010 (2Q2010)
CALIFORNIA OVERVIEW
For the second quarter in a row, California experienced sales tax growth. This quarter also marked the
first quarter in years with all regions in California showing positive growth. Statewide sales tax receipts
during July- September 2010 grew. by 7.1% from the same three months in 2009. Northern California
grew by 8.5% and Southern California grew by 6.4%. As for City of Petaluma, its sales tax receipts
changed by 26.6% from July- September 2009 to July- September 2010.
CALIFORNIA'S FUTURE
Expect General Retail sales to be flat in FY 2011 with growth between 3.5% and 4.5% through FY 2015.
Sales tax from Services Stations will continue to be volatile. Construction will continue its drop during FY
2011 by close to 1S% before growing by 2.5% per year through FY 2014. Food Products, which includes
Restaurants, will grow with core CPI of 2.4% per year with price pressures upward of 3.5% in FY 2015.
Auto sales will remain flat during FY 2011 until pent up demand will cause buyers, who will be seeking
lower- priced vehicles, to increase purchases during FY 2012 arid 2013 by 3 %. County Pool receipts will
follow the auto sales trends as third -party vehicle sales resume along with overall car sales volume.
In order to establish an economic rebound, California needs job growth both locally and regionally to
increase spending business travel. Housing prices must stabilize and register 59 growth to restore some
levels of the wealth effect and to strengthen consumer confidence. A broader taxable base and a lower
rate would provide better growth as well as a more stable source of sales tax revenues over time.
LOCAL RESULTS
www.MuniSeivices.com (800) 800 -8181 Page 1 0
Local Collections
;1n
$2,057,451
Share of County Pool (13.80 %)
195,742
Share of State Pool (.19 %)
1,086
SBE Net Collections
2,254,280
Less: Amount. Due County 2.50%
(56,357)
Less: Cost of Administration
(24,147)
Net 2Q2010 Receipts
2
Net 2Q2009 Receipts
1,717,638
Actual Percentage Change
26.6%
www.MuniSeivices.com (800) 800 -8181 Page 1 0
City of Petaluma
HISTORICAL CASH COLLECTIONS ANALYSIS BY QUARTER
(in thousandsof$)
TOP 25 SALES /USE TAX CONTRIBUTORS
The following list identifies Petaluma's Top 25 Sales /Use Tax contributors. The list is in alphabetical
order and represents :sales from July 2009 through June 2010. The Top 25 Sales /Use Tax contributors
generate 43.8% of Petaluma's total sales and use tax revenue.
AUTOWORLD
PETALUMA HYUNDAI
CHEVRON SERVICE STATIONS
SAFEWAY STORES
CVS /PHARMACY
SAVE MART SUPERMARKETS
EXXON SERVICE STATIONS
SCOTT LABORATORIES
FISHMAN SUPPLY COMPANY
SHAMROCK MATERIALS
GC MICRO CORPORATION
SHELL SERVICE STATIONS
HANSEL HONDA /KIA
SOLAR DEPOT
HANSEL TOYOTA & RV
STAPLES OFFICE SUPERSTORE
HENRY CURTIS FORD /MERCURY
TURIN NETWORKS
K MART STORES
USA SERVICE STATIONS
KOHL'S DEPARTMENT STORES
VICTORY CHEV /CADILLAC /OLDS /GEO
NORTHBAY NISSAN
WHOLE FOODS MARKET
ORCHARD SUPPLY HARDWARE
www.MuniServices.com (800) 800 -8181 page 2
iC�
City of Petaluma
HISTORICAL SALES TAX AMOUNTS
The following chart shows the. sales tax level from sales through June 2010, the highs, and the lows for
each segment over the last two years.
(in thousandsof$)
$1,800,
S1,600,
$1,400'
$1.200
S1,0,0
$800
$6 00
$4 00 1
$200;
$0
c5
v`
S
�o
P�
ANNUAL,SALES'TAX BY BUSINESS CATEGORY
®2Q20 L.0
•e ioh
=Low
(in thou&ands.of S)
s
2Q 2010'
i i i is
4Q 2009 2 c80 gira21549yai
2.Q 2 0 0
1 Q '2 0 0 9
4 Q 2 0 89
3 2 0 0 8
2 Q 2 00 8' -
1Q 200 ' :: J s 4 7
'So 52,000 S4 000 '56,000 $8,000 S10,o:00 $12,000
L�C encral.Reta,il OFood Pr'.od_ucts- EIT ran sp;ortation MConstruction MBusiness To Business.MM icr.11nnrn� I
www.MuiiiServices.com (800) 80.0 -8181 Page
0
City ®f Petaluma
FIVE-YEAR ECONOMIC TREND: Business To
(in t h o u s a n d s o US)
:1I
I I
t'{
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nz'
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fi
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y �
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�''�F9+
A �b I �''F� T �
l�-, k h �
¢er N ' R 1 ..
1"94
A
PER CAPITA BY BUSINESS SEGMENT
This chart shows sales tax per capita from business segments from July 2009 through June 2010.
Per C a p i t a a by Bu simes:s S eg:m e'.n t
Auto Sales -New
Service Stations
R es t au ran is
I
F o o d M a r k e.ts
M iscellan eou s R eta il_
ArppsrelStores.
M i s r,. V eh is le S a les
Uigh t Ind ust..ry
Depa,rtm e
O rric - er E'.q,.0 ip to en t
i
B Id g'.M atls -W hsle
i A m. [,o 'P a its /Re pa it
i
i
B Idg -,.M atds -R eta it
A.LL OT$ E K.S
I
www.Mu'nisel (800) 800 -8181 Page 4
6�
City of Petaluma
FINAL RESULTS: January -March 2010 Sales
Local Net Cash Collections
Less: Pool Amounts
Less: Prior Quarter Payments
Add: Late Payments
Local Net Economic Collections after Adjustments
Percent Change from January-March 2009 Sales
MUNISERVICES' ON -GOING AUDIT RESULTS
This Quarter $74,932,
Total too Date $4,607,863
$2,0109,616
($121,865)
($72,190)
$2S,815
$1,841,376
DOWN BY.3%
www.M6niServices.com (800) 800 -8181 page
��1