At tomorrow night’s City Council meeting, City Council members will consider reductions in the FY 2009-2010 General fund Budget to recognize a projected 6.4% drop in revenues.

The City needs to adjust the adopted FY2009-10 Operating Budget to allow for reductions in Assessed Valuation, Sales Tax estimates, and Richmond Community Benefits Agreement revenues.

The city manager is recommending adjusting the general fund revenue downward to $124,725,930 (a decrease of $8,658,844) and reducing expenditures by $8,658,844. Expenditure adjustments are achieved through a combination of personnel and other cost savings.

At its June 16, 2009 meeting, the City Council adopted the fiscal year 2009-10 Operating Budget. This budget was balanced and fully funded with $144,019,521 of General Fund revenues and expenditures. City staff used all information and data available at the time to anticipate revenues, including anticipated reductions from the State of $4.8 million.

Subsequent to the adoption of the budget, the County Assessor reported a 16.1% loss in assessed value to the City of Richmond, and current Sales Tax revenues have come in lower than expected.

Proposed expenditure reductions were developed by the following methodology:

1. Elimination of Vacant Positions

At the time the FY2009-10 budget was adopted, a personnel vacancy savings of $2.8 million was factored in, by not filling those vacant positions. Vacant positions were completely eliminated from the budget where it was felt that public safety workload still necessitates hiring additional personnel. These exceptions were:

·         Police officers, where the number of sworn personnel is still below the targeted level established for FY 2008-09, and due to the fact that the city received COPS stimulus funding to hire 8 officers,

·         Police dispatch, where additional staff are required to meet call demands, and o Code Enforcement because of increased workload due in part to the foreclosure crisis.

2. Reductions in Departmental Expenditure

Each department was asked to identify 15% in potential expenditure reductions from the expenditure line items that they control (i.e., total department expenditures less allocated costs), and to describe service changes resulting from those expenditure reductions. While not all of these identified cost savings were ultimately incorporated into the revised budget, they were used as a starting point from which to reduce expenditures, and especially to reduce non-personnel expenditures.

3. Operating Transfers

Transfers from special revenues were identified that could be used to fund operations. These included a transfer of gas tax revenues that were not programmed for capital improvements but can be used to fund street maintenance services provided in the Public Works department, and a transfer of funds held in trust that can be used to fund the current portion of post-retirement benefits.

4. Reductions in Personnel

After taking the steps described above, which did not completely eliminate the structural deficit, staff identified specific areas where it was felt that staff reductions could be made where workload has declined due to the economy (especially in Planning and Building Services and in Redevelopment). Staff is proposing additional reductions of $1.9 million in salaries and benefits to be achieved by removing additional positions through early retirement or recommended layoff.

a. Early Retirement

The Public Employees Retirement System (PERS) states that an employee may provide two (2) years of additional service credit as follows: An agency may amend its contract to provide two years additional service credit to members who retire during a designated period because of impending mandatory transfers, layoffs, or demotions and the following requirements are met:

(1) The member is employed in a specified classification, department, or other organizational unit and retired within the period designated by the governing body. The designated period must be subsequent to the effective date of the contract amendment and can not be less than 90 or more than 180 days in length. (The benefit cannot be provided on the basis of employee organization or non-represented groups).

 (2) The governing body must certify that it is electing to be subject to the provisions of this section due to mandatory transfers, layoffs and/or demotions that constitute at least one percent of the job classification, department, or organizational unit.

(3) The governing body must certify that it is the intention that any vacancies created by retirements under this program or at least one vacancy in any position in any department or organizational unit shall remain permanently unfilled thereby resulting in an overall reduction in the work force of such department or organizational unit.

(4) The governing body must certify that it has complied with the provisions of state law and has disclosed the additional employer contributions and the funding of those employer contributions, at a public meeting.

(5) To be eligible for this service credit, a member must have at least five years of service credit, be in employment status with the providing agency for at least one day during the designated period and retire during the designated period. The member’s retirement date may not be the first day of the designated period.

b. Layoffs

Staff has identified other proposed reductions in personnel for which early retirements either cannot be offered or have not been accepted. Potential layoffs are estimated to provide approximately $1,200,000 in cost

savings.

SUMMARY:

It is unfortunate that the negative budget factors described in this staff report manifested themselves after adoption of a balanced FY 2009-10 operating budget in June 2009. It is extremely important, however, for the city to take immediate steps to reduce its budget to respond to these factors. If such steps are not taken in short order, it could jeopardize the City of Richmond’s credit rating, impairing its ability to restructure debt, causing hire debt service expenditures and further exacerbating these budgetary problems. Failure to take immediate action would also further reduce the city’s reserves that provide long-term financial stability and a safety net for unforeseen negative events.

For full documentation of the proposed cuts and their impacts, click on the Agenda items below: