No preview available
1984 JUL 24 CC MINI. II. III. IV. MINUTES OF AN ADJOURNED REGULAR MEETING OF THE EL SEGUNDO CITY COUNCIL July 24, 1984 CALL TO ORDER The E1 Segundo City Council convened in adjourned regular session on Tuesday, July 24, 1984, at 9:00 a.m., in the Council Chamber of the E1 Segundo City hall. THE PLEDGE OF ALLEGIANCE was led by Mr. Richard Patterson. ROLL CALL Present: Councilmembers Jacobson, Schuldt, Siadek, Synadinos, and Mayor Armstrong Absent: Councilmembers None STUDY SESSION Mayor Armstrong declared the session open. He stated, that with Council approval, they would accept any comments /input from the public. City Manager Jones indicated that staff has updated some of the information prepared last year, when Council and the revenue advisory committee were looking at the various sources of revenue. The outline, in chart form, was presented by Finance Director Jose Sanchez. One chart indicated the up- dated history of the trend line of sales tax revenue and the other, the sum of revenue and expenditures in the general fund. The Sales Tax chart was one that was presented in October of last year to illustrate what the sales tax picture has been, beginning with Fiscal Year 1975 -76. What is now indicated for update is the actual ex- perience between fiscal year 82 -83 and 83 -84. When the chart was first presented, there was a general estimate of 83 -84. The chart update now indicates that the tax has come in at approximmately $2.9 million, just under the $3 million indicated. The projection for 84 -85 is $3.1 million; a 5% growth factor. The indication based on the trend is that it will "flatten" out. This trend could change based on several factors; a significant change in point of sale, new development that would participate in retail sales tax, and any change in the sale of fuel oil from the refinery would all have an impact. However, at this point, the projection is a 5 -6% increase. Mayor Armstrong asked for clarification regarding point of sale; that a point of sale would be forthcoming x; ►:21 gs X1_'_ Ei 0 0 (possibly from Hughes) and would yet back to Council in six months, and wanted to know the status. Mr. Jones responded that he recalled Hughes would look into the possibility of changing their contracts so that El Segundo would appear as a point of sale. Mayor Armstrong asked that at the appropriate time would any industry please comment on this. Councilman Siadek indicated that the Property Tax Allocation Committee was addressing this issue. Jose Sanchez indicated that the chart, Revenues and Expenditures for General Fund Only, which was presented in October, 1983 was updated for the 83 -84 actual experience. It is extended to show what the trend will be, for the next several years. For this time, the chart shows, the green line for revenues and the red line for expenditures. What is shown is a $282,000 difference with expenditures being higher. The projected 84 -85 budget shows a $750,000 deficit in operating funds with a 5% trend, assuming no new revenues are in place and remaining static. The City is looking at $1.2 million. Chris Mehlum, General Manager, Chevron, asked why the rate of increase in expenditures, and the separation of the two lines. Mr. Sanchez indicated it was based on trend which is what we have experienced over the last few years. This project for expenditures, is strictly basic operating budget. There is no provision or contingency for supplemental request or any interim adjustments that are made based on unanticipated appropriations that may be required through the year or mid -year adjustments. Mr. Jones indicated that the city's expenditures tend to follow the trend line of inflation in the general society. but many revenues are not sensitive to inflationary trends, e.g., the tax per head levied last year. The trend is also based on franchise taxes which reflected a decrease this year in the franchise tax and the gas company because of a warm winter. Based on this, our trend line for next year might be too low if we have a very cold winter. Councilman Siadek inquired of Mr. Mehlum if he had any idea of the oil sales tax. Chris Mehlum, replied he did not. Mr. Jones indicated that the main sale of gas is to the Edison Company. taut their production of electricity decreases when you have a warm winter. Mr. Jones stated that the City has taken the history and the general trend line and done a more detailed projection of our operation over the 4 year period and reflected on the Estimated and Projected General Fund Operating budget and Unappropriated Reserves (Periods 83/84 through 86/87). This is an update of a chart prepared last year. What is inserted in 83/84 is the -2- Council Minutes July 24, 1984 actual unaudited results for that year and changed the projection based on the results of 83/84 through 86/87 fiscal year. Mr. Sanchez explained, with visual aid charts, that the intent was to illustrate: (1) Revenue and expenditure corollation that we have had for 83/84 and what we are estimating for the next three fiscal years, based on certain assumptions. (2) It is intended to show what the operating surplus or operating deficits would be, and (3) the accumulative reserves that would be generated. The first column (pre -audit 83/84) indicates the current amount of revenues that have been collected for 83/84, the current appropriations and prior to any increased revenues that were enacted January 1, 1984. There was a 52.6 million operating deficit. However, with the increases that took place effective January 1, 1984, we had, under revenue increases! (Al) Business registration fee and other permits which generated $1.7 million, (A2) the Rectroactive adjustment for July 1, 1983 through December 31, 1983 generated an additional $600,000 and (A3) the 2% bed tax increase generated approximately $90,000. With those in place, we come down to the Operating Deficit of $282,435. Also under the Pre -Audit column, there is shown a pro- jected unappropriated reserve of $5.6 million, which is in the general fund balance reserves. Councilman Siadek asked for an explanation of the difference between the $21 million in reserves versus the unappropriated reserves. Mr. Sanchez indicated that the chart was to demonstrate the unappropriate reserves in the general fund only. This fund is used to fund the operating cost with regards to public works, public safety, various in- ternal service funds operations. The $21 million is total reserves City -wide, which would include the general fund as well as the internal service funds, the capital improvement funds, special revenue sharing, etc. Mr. Sanchez stated that we have loaned from the emergency reserve fund monies for special capital improvement funds on a loan basis. However, no money is moved from the internal service fund to the general fund. Councilman Jacobson wanted to know if we hadn't used some of the equipment replacement funds for funding full equipment purchases rather than what is pro -rated for that. Mr. Sanchez said that in those cases we suspended the contribution to the equipment replacement fund and to the workers' comp fund, but we haven't transferred the funds from the workers' comp fund to the general fund. He also stated that the amounts that are charged to the general fund for workers' comp and equipment replace- -3- Council Minutes July 24, 1984 X 8301 S':30" ment needs are based on projected replacement costs anc there are variables there and what we do is be sure there are adequate reserves to fund those replacement needs for the next three or four years. The reason we recommended that we suspend this year or the last two years 84/85 and 83/84 was based on our assessments that there were adequate reserves. But in essence if we did charge the general fund in its full allocation, then it would be alot more, the charge would be alot more than what the appropriation was for those years. Mr. Jones stated that all the monies in the other funds are restricted for a specific purpose. For example, we have one fund called vacation and sick leave reserve. The resolution that set up the fund restricted the use to paying for sick leave and vacation that is accrued when an employee terminates and the purpose for setting the fund up at the time was that in the event there is a case where there is an unusual number of retirements or terminations that result in a very large amount of payoff, it could come out of that fund. In case you do have a bad fiscal situation and you have to layoff a large number of employees, there is a very big fiscal impact in accrued vacation and sick leave which can come out of that fund. You cannot transfer that money for unrestricted use in the general fund but you can use it to cover the costs of personnel costs in terminations. So that is an operating cost but it is still restrict- ed. Mr. Sanchez then went on to the next coluum (84/85), this based on the budget that was just adopted by Council and it indicates a current revenue projection of $15.2 million with appropriations at $15.9 million. Based on the difference, $751,228. The revenue pro- jection for 84/85 is much greater than the revenue that is indicated in the column just to the left. The reason it is greater is because included is the new revenues that were effective Januay 1, 1984. Those revenues are now in place and they are part of the general fund revenue etimates. To move down further in the column, under New Revenue Source, this is based on an update which was presented in October, 1983 with the initial intent that we wanted to show over a three year period we would raise approx- imately $5.5 million to fund operating costs and capital improvement needs and other types of needs. What we are indicating here is that we would generate an additional $1 million for 84/85. The next number $855,700 is the short -fall based on our original estimates, we should have raised in 184 if we were going to keep pace with the initial scenario that was presented in October, 1983. The 83/84 estimate was $2.6 million, however, we only raised $1.7 million. So the difference is $855,700. We are also making an estimate of the new hotel in town for $350,000 and with those new revenues in place, we would have an operating deficit go from $750,000 to a projected $1.4 million. Councilman Siadek asked for clarification if this was deficit or surplus. -4- Council Minutes July 24, 1984 Mr. Sanchez responded it was the operating surplus. The number of $4 million dollars is an acccumulative number and it is for memorandum only which would in- dicate how much we have raised in new reveunes so at that point if these things were to take place we would have raised an additional $4 million in new revenues. Again, with those assumptions, the projected unap- propriated reserve would go from $5.6 million to $7,060,000. Mr. Jones responded that this was capital improvement and other expansions. For example, any planned ex- pansion in the fire department or other operating department could come out of that. Moving to the next column, we are making again a per- centage estimate in the increase to revenues and to appropriations assuming that everything remains status quo, we are looking at a $1.2 million operating de- ficit. Mr. Sanchez indicated that this was strictly general fund operations. It does not include the capital improvement appropriations projected for that same year. Councilman Siadek asked for an explanantion of why we are showing a projected increase of 100% in the unappropriated reserves from 83/84 to 86/87? Mr. Jones responded that that is the $5.5 million talked about in the memorandum that we had projected last year to raise, which would cover the operating deficit, plus providing about $4 million over this period of time for capital improvements, and new ex- pansions in programs. Now the Council has not formally adopted that as a goal, that was presented last year when we presented the information to the Revenue Advisory Committee and to the Council. A discussion followed regarding capital improvement projects that were carried forward and the amount of reserves that are available. Mr. Jones indicated that for any project Council has budgeted and was encumbered, the money is encumbered and it exists. It is not shown in the unencumbered reserves because it is encumbered, but does exist in the cash reserve. All the funds in the capital improvement fund have been encumbered for projects budgeted by the Council as of this year. A discussion ensued regarding the amount of money in the capital improvement fund and the use allocated for that money. Mr. Jones proceeded to explain that if nothing is done in the way of increased revenue and we continue at the current level of operations with no expansion, by 1986/87 fiscal year the deficit in the general fund will be a $1.6 million. If the Council were to adopt the general goal of raising a total of 5.5 million dollars of new revenue including the revenue that was -5- Council Minutes July 24, 1984 .X,Wsf) i X 6304 raised previously in 1983/84 fiscal year given the actual experience we had with the amou -n -t of revenue and expenditures in 83/84 by 1986/87 we would have about $1,223,000 per year for expansion of new programs or for capital projects. He continued that, including the increase in the business registration fees from last year, and the increased revenue from the new hotel tax, we will be raising $2,372,000 of additional new revenue. That means if the $5.5 million is adopted as a goal for new revenue, the Council would need to look for additional revenue sources totaling $3,127,000 over the next few years. In this report we have analyzed 13 potential revenue sources which are either totally new revenues or increases in additional revenues which, if fully utilized, would raise several times over that amount of revenue and the difficult task the Council has is the total amount to raise and the source(s) from which those are to be raised and the timing in which they are to be raised; spread out over the three year period or alternatively elect to raise the whole amount in one sum initially. If raised at one time, then the total amount available over three years would be that much larger. Mayor Armstrong inquired if mentation and the Fire /Life this. Mr. Jones indicated that th sure how these could be put some decisions were made on projects. the Traffic Study Imple- Study was included in at was accurate. But wasn't into an expenditure until some of the specific Councilman Siadek asked for clarification if this meant a 40 -50% increase in revenues over the next three years. Mr. Jones indicated that he was not sure if this was the correct percentage as against existing revenues. Discussion ensued regarding industry input and suggestions as well as the possibility of having to raise taxes to raise the money necessary to cover the costs of running the city. It was pointed out by Councilman Siadek that if we raised taxes, this could put us in contlict with Jarvis IV if it passes in November. He also indicated that we should consider using money from the reserves to balancce the budget. That it is unfair to tax industry and not residents, especially one industry, Chevron. MOTION WAS MADE by Councilman Siadek to appropriate necessary funds from the reserves to balance the budget. Motion failed for lack of a second. Discussion followed as to implemented and whether to improvements. And whether from what sources. whether this should be implement several capital taxes should be raised and Council Minutes July 24, 1984 MOTION WAS MADE BY COUNCILMAN SIADEK, SECONDED 13Y COUNCILMAN SCHULDT to appropriate funds from the reserves for capital improvements as outlined by the Traffic Study. Discussion ensued regarding the amount and what it was. It was also discussed whether staff was instructed to implement some of those capital improvements. Mr. Jones indicated that they were being implemented as fast as staff has the ability to yet the projects and the bids put together. He also stated that Council needed to be aware that it was not feasible to imple- ment all those projects at one time because they are timed with other development projects. However, Mr. Jones mentioned that a presentation of the transportation study implementation will be at the next Council; and perhaps Council might want to wait and look at those individually and then make decisions. Mayor Armstrong asked if Councilman Siadek would amend his motion with the stipulation that priorites are carefully examined and put into action if appropriate to so. Further discussion followed including assessment districts. Councilman Jacobson also inquired if the report regarding Arena and Franklin was ready. Mr. Jones responded it would be presented at the next Council meeting. MOTION WAS DEFEATED with the following vote: Ayes: Councilmen Schuldt and Siadek Noes: Councilmembers Jacobson, Synadinos and Mayor Armstrong MOTION WAS MADE BY MAYOR ARMSTRINV AND SECONDED BY COUNCILMAN JACOBSON to examine funding methods and give direction to staft for implementation. MOTION CARRIED by the following vote: Ayes: Councilmembers Jacobson, Schuldt, Synadinos and Mayor Armstrong Noes: Councilman Siadek Chris Mehlum, Chevron, indicated that Council had apparently made up their minds on funding and imple- mentation of doing so without any input. He thought industry was invited to give input and part of the input might have shed some light on the reserves but apparent- ly Council was of mind to go ahead with funding rather than tap the reserve without any input from industry. Mr. Mehlum indicated that one of the ways to attack the problem is to tap the reserves. he felt that it was strange to take a vote before getting input. He also stated that Chevron has a great part in the reserve; they put it there, and maybe they have something to -7- Council Minutes July 24, 1984 X 6307' jC fi3[lEi say about it. He felt Council was rejecting the use of the reserves and simply going ahead and conjuring out ways to raise revenues. Mr. Mehlum suggested that this year we tap the reserves and then find out where we are going, what the business climate is likely to be in the next few years, and then make another decision. Mr. Myron Harpole, President, Hacienda Hotel, regarding the reserves; the Hacienda along with Chevron, are the only companies who have contributed to the reserve. Mr. Harpole indicated because of the atmosphere of the City he would not object to any projects that better the city. Mr. Harpole urged to supplement the budget from the reserves. Mr. Dick Patterson, 1205 East Oak, presented Council with a handout (Fiscal 1984/85: Budget Alternative & Recommendations - Recommended Council Actions). Mr. Jones stated that if Jarvis IV were to pass, fees and service charges could be increased only by the amount of the cost of living (consumer price index) in any given year. Any increase above and beyond would not be permitted. mr. Jones turther indictated that the assessment proposal on street lighting, etc. would fall under the same category; there is some question that those assessments are in fact taxes and that would also be absolutely prohibited under Jarvis IV; which will have a large impact on all alternative sources. (NOTE: Councilman Siadek left the meeting at 10:50 a.m.) Pat Smith, 947 Virginia, stated that he felt reserves were to be used. He asked for clarification if the City had a policy on the amount of reserves that the City is to have? Or ever established such a policy? Since Councilwoman Syandinos indicated that there was no policy. Mr. Smith stated that he felt the City should establish a policy decision on the amount of reserves that are necessary. He went on to state that Mr. Mehlum indicated he had some revenue, and that approximately 10% of the budget which would be approx- immately $1.6 million; then double for 20 %, $3.2 million to be kept in reserves. These would then be our "rainy day" items. He said that we all have an opinion of a rainy day, so then establish a policy that a certain percentage of the operting budget as reserves and then the City doesn't have to worry about whether the reserves will be used or not. Mr. Wesley Bush, General Manager, E1 Segundo Chamber of Commerce, indicated that by looking at the figures, the City has no problem. We have the reserves and that's the purpose of the reserves - to help in situations like this. He also stated that in other cities when there is a cash flow problem, it is left to the voters and let the voters indicate on which projects they want to spent for and how much to spend. So why not offer �� Council Minutes July 24, 1984 the voters a "shoppiny list" and let the people decide what the Council should do. He stated that is what the City did on the Senior Citizen Housing. He also stated that the City should put a little more effort into the Committee that Councilman Siadek is on (Property Tax Allocation Committee) in the sharing of property tax revenue. (NOTE: At 11:24 a.m., Councilman Siadek returned to the Council meeting.) Mr. Howard Schmidt, TRW, stated that Council is in a very difficult position and if Council does proceed to adopt the policy for new taxes, then Mr. Schmidt would like to relate the concerns of TRW. Regarding the issue of the sewer assessment district, theoretically that assessment to enter the County Sanitation's Dis- trict, effected the property owner. however, because of standard leasing arrangements, the actual tenants are the ones helping to bear the property owners cost on that. Mr. Schmidt indicated that he would like to make the Council aware of certain taxes, fees that may look on paper to affect a certain industry, or certain type of business but in effect, many of those may be passed on through costs that will end up on the same individu- als that bear the cost of the head tax. For example, the staff recommendation for commercial leasing of property; the individual, the owner, the landlord, the property manager - that tee is going to go directly to the tenant. That tenant will already be submitted to the head tax, that tenant will be paying the utility tax (it Council adopts), and the tenant will be paying his share and the landlords share. In the case of TRW, they are a tenant company in E1 Segundo. They do not own the structures, therefore, not only does TRW pay a head tax for business license fee but if Council adopts a commercial real estate tax, they will then be paying that as well. And not all businesses are owner occupied facilities. A second issue on staff recommendations is the personnel payroll tax - the tax on employees, r'rom TRW's perspective, that tax seems cumbersome. because of the nature of the business (Aerospace) there is alot of fluid movement among employees and reporting records will be very difficult to keep track of what employees are assigned to E1 Segundo and make sure that the employee is taxed. It also raises a serious personnel issue among large industry - where one part of the industry is on one side of the street in one community and another part of the industry is across the street in another community and the employee being taxed - how does industry administer that and keep employees happy. The third issue - assessment districts. Assessment districts must be identified by the property owners that benefit from that assessment and therefore they are charged that benefit that is derived from those improvements. but when you talk about delivery of services in terms of assessment districts, then a very difficult question is raised. because of paying for the service that no one else is afforded, the property owner -9- Council Minutes July 24, 1984 6307 � 63f18 z is subsidizing that service and why should that service be afforded to someone else. For example, if the City isolates a area in town that is in a tire assessment district, those affected property owners would be benefiting from that district and that district would be serving them. As a property owner in that owner, then concern would be whether service is being provided someone else who is paying for the service. (NOTE: Councilman Siadek left the meeting at 11:33 a.m.) Mr. Michael Jackson, Hughes Aircraft: outside sources that haven't been identified (outside of using sales tax revenue, reserves, etc.). He indicated that Hughes has been working on the areas of point of sale and property tax reallocation. Property Tax Reallocation - having dust talked with Supervisor Deane Dana's staff regarding the allocation formula for Los Angeles County and explaining E1 Segundo's situation to see if there isn't something the County Administrative Officer can do in terms of reallocation. Hughes has also looked to Sacramento in terms of addressing the problems through legislation. That is being pursued through Hughes' Legislative Advocates. They have been in contact with both Assemblyman Curtis Tucker's office and Senator Bob Beverly's office and are exploring the reallocation formula state -wide with the various local government committees and revenue and taxation committees in the legislature. Mr. Norm Smith from Hughes, addressed the Council regarding the issue of progress in the point of sale issue. Mr. Smith stated that what Hughes has been trying to do is not to change the point of sale but to actually to get permission to pay all of the sales and use taxes directly to the State instead of to the vendors which would point in E1 Segundo for the operations in E1 Segundo. There is some resistance, but one of the hoard members is in favor, and a letter has been written to the staff in Sacramento requesting this particular use be applied to hughes. There has not been an answer as yet received. If Hughes is successful, the estimate is approximately S1 million (conservatively) in additional sales and use tax. This would be the 1% local tax revenue. Mr. Jackson stated that Hughes will continue to work with the Board of Equalization and the legislature and the County. He indicated that Council needed to give some direction in terms of providing progress on both issues. Mr. Jones indicated that there is discussion that assessments are really taxes because they are spread, imposed on property and the way they are spread raises a legal question that they are in fact then not assessments but classifiable as taxes. And it that is the case, then-Jarvis IV prohibits any tax above the *1 per 100. There is no way to impose any more - it -10- Council Minutes July 24, 1984 would eliminate any of the assessments that may Lail under that category, even though people approved them by a 90% vote. Discussion then followed regarding the Revenue sources suggested by Departments. MOTION WAS MADE BY COUNCILWOMAN SYNADINOS AND SECONDED BY COUNCILMAN JACOBSON that the meeting be adjourned. Meeting was then adjourned to Closed Session at 12:U8 p.m. regarding matters of negotiations. V. ADJOURNMENT Council reconvened at 12:23 with the followiny present answering roll: Present: Councilmembers Jacobson, Schuldt, Synadinos and Mayor Armstrong Abesent: Councilman Siadek Council then adjourned at 12:25 p.m. until July 25, 1984 at 1:30 p.m. APPROVED: Charles K.` Armstr Respectfully submitted, Q 4'9�� Valerie A: Burrowes, City Clerk -11- Council Minutes July 24, 1984