Overview

As presented, general fund operating revenues in fiscal year 2003-2004 are in excess of operating appropriations, (total appropriations less equipment and construction categories).

From June 30, 2003 to June 30, 2004, the city’s general fund balance designated for contingencies will decrease from $5,407,853 to $5,393,185. This represents a use of carryover funds from FY02-03 to fund a portion of capital projects. The general fund, over which the city council has discretionary authority, is extremely important in the provision of essential city services. We believe that a cushion of approximately $5 million is prudent to allow us to weather any crisis that the City of Lakewood might face in the next fiscal year.

Challenges

As this budget is being developed, we are again in the midst of an uncertain economy, under the threat of state attempts to balance its budget by taking away local revenues, and suffering a crisis in world affairs.

With the war in Iraq behind us, there is hope for an economic recovery. However, no one knows how long it may take the economy to recover completely. Additionally, proposals at the state level to swap half of the cities’ sales tax for property tax could be devastating to Lakewood, which has geared its economic development towards the generation of sales tax to pay for city services such as law enforcement and recreation.

Local Economy

Lakewood still sees a modest growth in sales tax. Lakewood Center will still play a large role in keeping the local economy stable with the addition of the Target store scheduled to open in October, 2003, and the addition of Mimi’s and the Elephant Bar restaurants. The recently opened Kohl’s will also be a significant source of sales tax revenue. We do expect that the Wal-Mart, which opened in the Long Beach Towne Center in October 2002, will have a negative effect on sales at the Lakewood Wal-Mart located on Carson and Paramount.

Lakewood Center remains the city’s principal retail district and the core of Lakewood’s economy. The new Macy’s department store, Mervyn’s, and Target stores keep Lakewood competitive with newer malls in the region.

No Help from Sacramento

The state remains in severe financial distress due to overly optimistic budget revenue projections and mistakes made in handling the 2001-2002 electricity crisis. As we “go to press,” the May revised state budget deficit estimate is over $38 billion ($3.6 billion more than the January estimate), and Sacramento, despite many proposals by various legislators, has yet to muster enough support to adopt a plan that would significantly reduce the current budget deficit.

Whatever Sacramento does to extract itself from its budget problems, the Lakewood city council will attempt to defend our local revenues through the work of the city’s Intergovernmental Relations Committee.

The Global Effect

At the time of this writing, the end of the war with Iraq has brought down gasoline prices to pre-war levels and has had some positive effect on the stock market. However, any renewed unrest in the Middle East due to anti-American sentiment or destabilization of the area due to the war could have a negative effect on the economy of the United States.

Kohl’s chose Lakewood as one of the first locations for the company’s move into California retailing.

Economic Realities

Reports show that Lakewood’s total sales tax growth for the fourth quarter of 2002 was 0.9% lower than a year ago. This was due to a decline from last year’s record auto sales and by a drop in the countywide sales tax allocation pool. For the same time period, sales tax receipts for Los Angeles County increased 1.3% and Southern California, as a whole, was up 2.5%.

The state has not yet passed its fiscal year 2003-2004 budget. Lakewood’s proposed budget does not account for state actions that may affect local government. Such future actions by Sacramento would require a budgetary adjustment.

Revenues

Total general government revenues are estimated at $41,042,159. 

Appropriations

General government appropriations total $43,090,162 for fiscal year 2003-2004.

Lakewood maintains a balanced budget in the fact that current revenues offset operating expenditures.

Reserves

The budget does not call for the use of any General Fund reserves in fiscal year 2003-2004.

In fiscal year 2003-2004, $48,950 of the Cable TV funds and $5,590 of the Business Development Loan funds will be used.

The California Legislature had not yet adopted a budget when this edition of the Lakewood city budget was presented to the city council.

Expenditure Limit

Article XIIIB of the California Constitution limits the expenditures from the proceeds of taxes. These expenditures may increase over the prior year in the same percentage as inflation and population changes. Grants and non-tax revenues are exempt. The preliminary budget is 69% of the expenditure ceiling.

Sales Tax

Lakewood’s share of the uniform state sales tax is the city’s largest revenue source, estimated at $10,900,000 for fiscal year 2003‑2004. This represents an increase of 5.8% from sales tax revenues projected for fiscal year 2002-2003.

The city’s “top twelve” retail businesses, as a group, produced approximately 50% of the city’s sales tax revenues in 2002.

State Subventions

For fiscal year 2003-2004, state-collected local taxes (subventions) are estimated at $6,792,550. The largest of these are motor vehicle in-lieu, $4,831,730, and state gas tax, $1,646,925.

ECONOMIC DEVELOPMENT

Only 6% of Lakewood is zoned for commercial development, and of this area, only 19.9 acres are currently vacant and available for new retail development. To compound matters, the land that is available has many challenges associated with it. It will be up to the city’s Economic Development Committee to set a course to encourage the use of these remaining parcels of land for the economic interests of Lakewood.

Our recent successes have included the Target Store, the Elephant Bar Restaurant, and Mimi’s Café.

STREET MAINTENANCE

Providing well-maintained local streets for Lakewood residents will always be a local government priority. By reserving money in economically good years and wisely using Community Development Block Grant (CDBG) funds, Lakewood has been able to continue its program of local street maintenance at a steady pace.

WATER QUALITY

Lakewood continues its commitment to excellent water quality. Included in the 2003-2004 budget is engineering fees for a new water well and a treatment plant to remove hydrogen sulfide from Well #22. This well went into service in 1998. It produces approximately 1,800 gallons per minute and pumps directly into Plant #22, an adjacent storage facility. The well operates with a variable-speed pump, which is capable of pumping into the reservoir or into the distribution system. However, the presence of hydrogen sulfide in the water causes taste and odor problems. To remedy the water quality issues, the city funnels the water supply through the reservoir to provide chlorine contact time, which oxidizes hydrogen sulfide. A treatment plant at the site would remove the hydrogen sulfide and allow the city to increase production. The variable-speed pump could efficiently move the water directly into the distribution system or to storage, optimizing production.

PUBLIC SAFETY

Under consideration in 2003-2004 is the expansion and renovation of the Sheriff’s station. This includes technology updates for dispatch and re-organized internal division space to increase response time to emergency calls. Outdated electrical and mechanical equipment would also be replaced. However, county officials must consider the fiscal capacity that the county has to fund a major portion of this improvement before the city can commit to proceeding with this project. As conditions change, this matter will be brought back to the city council for consideration.

The Lakewood Sheriff’s Community Safety Center in the mall brings safety programs, Sheriff’s mall patrol units, and community members together in an impressive new facility.

WEST SAN GABRIEL RIVER OPEN SPACE PROJECT

In 2002-2003, work began on the West San Gabriel River Recreation Area Project adjacent to Monte Verde Park. This project was funded through the State Water Bond Act of 2000 at $1 million. When completed, this project will provide a beautifully landscaped buffer along the river and a walking path.

The San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy has funds available for competitive grants to develop and improve the San Gabriel River and adjoining land next to the West San Gabriel River Recreation Area Project. City staff is currently pursuing funding. The city would develop three acres, creating a passive open space experience with walking trails and connections to the existing bike trails.

A second phase of development along

the West San Gabriel River Parkway

is one of the FY 2003-2004 budget

focus areas.

Improving Education in Lakewood Schools

The Lakewood city council and staff will continue to work with education experts from Management, Analysis and Planning Inc., to improve education in Lakewood schools. The focus will be on ways to achieve unification of the schools in the City of Lakewood through a long-term solution and transition process: recommend short-term improvements to neighborhood schools and their education delivery systems; and recommend ways to mitigate any observed inequality in educational opportunity and to ensure the adequacy of Lakewood schools compared to schools in similar communities. Contract, staff support, and soft costs for implementing these changes are included in this budget.

Students in Lakewood schools are participating in an essay program to share their experiences of living in Lakewood or attending a Lakewood school.

PARK PROJECTS

The Skyknight jet located atop the concrete pedestal in Del Valle Park is a community icon. It has been on the pedestal since 1963 and exposed to the elements for nearly 50 years. Although it has been repaired and painted by city crews on many occasions, it requires a complete renovation to preserve it for generations to come. The 2003-2004 budget calls for the exterior to be repaired and recoated.

Also included in the 2003-2004 budget is removal and replacement of the existing restroom building on the south side of Mae Boyer Park. The new restroom building will be ADA accessible and include a storage facility for the park utility vehicle. The A-frame picnic shelter and tot lot shelter will be removed and replaced with Polygon craftsman-style, low-maintenance structures. Also, trash receptacles and a drinking fountain will be replaced, two bleacher pads added, the roof of the existing activity building will be repaired, and portions of the chain-link fence around the park will be replaced.

Information Technology (IT) UPGRADES

Several projects to upgrade the city’s Information Technology system are planned for 2003-2004 to insure its continued efficient functioning. They include an upgrade to the LaserFiche System, which is used for records storage and retrieval, implementation of several e-Government initiatives, and implementation of year one of the Strategic Information Technology Plan revised May 2003. 

The City is also exploring the replacement of its Financial Management Information System (FMIS). This system is now 21 years old and is written in a now seldom used programming code called PIC. FMIS includes general ledger, payroll, accounts payable, and a host of other core programs.

50th Anniversary

On April 16, 2004, the City of Lakewood will be celebrating its 50^th anniversary of incorporation. The year will be marked by several special events, including a series of community "open houses" during the city's 2004 anniversary year. Be sure to watch for announcements on Lakewood’s Web site, www.lakewoodcity.org, in newsletters and various other publications.

Lakewood was one of the nation’s first, post-World War II planned communities. On March 9, 1954, residents voted overwhelmingly for cityhood.

Revenues: Background

Fund accounting is the basis of municipal accounting in California. Funds are established to group revenues that have either restricted or unrestricted uses. Each fund includes a complete set of accounts. Funds are used to separate the city’s financial resources and obligations as required by law or for effective managerial control. The major funds used in this budget are:

§ General Fund is comprised of revenues that are not expressly restricted as to their use or require separate accounting.

§ Gas Tax revenues are restricted funds and can only be expended for street purposes.

§ Prop A and Prop C revenues are restricted funds, used for transit purposes.

§ Water Funds are primarily comprised of revenues generated through the water rate structure of the city’s Water Utility.

Typically, grant revenues from the county, state, and federal governments are placed in separate funds due to the requirements of the grants. The major grants in this budget are:

§ Housing and Community Development Act Fund.

§ Prop A 1996 Funds.

§ Internal service funds are used for the print shop, fleet maintenance division, employee benefits, and GIS. Costs for these programs are collected in these funds and allocated to the various departments of the city.

Expenditures: Background

The operating budget expenditure sections—City Operations, Water Utility, Capital Improvements, and Internal Services—are divided among activities and programs.

The functions of the city’s government have been classified by purposes of work performed. Each purpose is identified as an activity.

Each department/division’s purpose, programs, and functions are described on pages to the left of the budget estimates.

The significant detail summary helps the city council focus on the major policy issues in each activity. Projections describe the significant changed conditions, proposed activities, and productivity initiatives that are divergent from prior budgets.

Performance measures are specific measurable objectives which are intended for completion during the two budget years and which contribute to the accomplishment of the overall program goals. They may include workload measures that provide a quantitative basis for measurement of certain program activities. Where possible, four years of data are presented:  two previous years (2000-2001 and 2001-2002), the current year (2002-2003), and one proposed year (2003-2004).

Budget estimates for each department and division are presented on the right side of the expenditure pages. Four years of budget detail are depicted for comparison purposes:

2000-2001         Actual expenditures

2001-2002         Actual expenditures

                        2002-2000 Revised budget, year-to-date actual and estimated expenditures through June 30

2003-2004         Proposed appropriations

An actual expenditure figure may be affected by a one-time expenditure in a particular fiscal year. A revised budget figure may be different from the adopted budget figure at the beginning of a particular fiscal year due to budget transfers, continuing appropriations from the previous year or additional appropriations authorized by the city council during the fiscal year. Estimated actual expenditures are staff’s spending projections through June 30 but are calculated in February, four months before year-end. The proposed appropriations reflect a spending plan taking into consideration every contingency known at the time the budget is being composed and may be modified during a particular fiscal year by transfers or action by the city council. Proposed appropriations may not always be fully spent during the fiscal year. Often a person reading the budget should be careful in drawing conclusions from comparing the columns shown on the budget estimate pages without knowing the detail that went into comprising these figures. Changing conditions will bring about differences in the amount budgeted for a particular category from year to year.

Ten standard classifications of expenditures are used. The classifications are:

iEmployee services include regular and part-time employees, overtime wages, retirement contributions, benefits, and employer costs.

iContract services are professional and specialized services performed by firms or persons who are not employees (e.g., audit and data processing services). A large number of services are provided by contract due to Lakewood’s “contract plan” form of government.    

iFacilities expense includes the maintenance and repair of buildings and structures and the cost of utilities such as electricity, water, and telephone. The expense of depreciation of fixed assets for the Water Utility and Fleet Maintenance is also included.

iOffice expense includes consumable supplies, postage, photocopying, publications and subscriptions, and the maintenance of office equipment.

iMeetings and conferences includes expenses to national, state, and local organizations in which the city is a member; includes costs for lobbying efforts in Washington, D.C. and Sacramento; and includes miscellaneous training activities.

iSpecial departmental expense encompasses specialized supplies, small tools and equipment of individual departments (e.g., job tests for the Personnel Office). The classification also includes the expense of uniforms and safety equipment.

iOther operating expense includes training, insurance, membership dues, rents, and leases on equipment. It also includes the cost of electricity to operate the Water Utility’s pumps, the cost of groundwater replenishment, and the purchase of reclaimed water from the City of Cerritos.

iInterdepartmental charges include printing/reproduction services from the city’s Print Shop and vehicle maintenance and fuel from the city’s Fleet Maintenance Division. Charges are allocated to using departments through work order systems.

iEquipment includes capital outlay for machinery and equipment with an estimated unit price of $100 or more or a useful life of more than one year.

iConstruction includes capital outlay for construction contracts and materials.

Water Utility

The city's Water Utility, providing service to about 80% of Lakewood, is governed by the city council. The water system was purchased from the Lakewood Water and Power Company in 1959. Bonds were voted by the people to finance the acquisition. These bonds were fully paid on March 1, 1994.

The Legacy Capital Improvement Plan proposes additional water main replacement in FY 2003‑2004.

In March 1996, the Lakewood Financing Authority sold bonds to finance the costs of acquiring and construction of improvements to the water system.

The Department of Water Resources has the responsibility for running the utility, including water quality assurance, maintenance programs, emergency preparedness, and capital improvements. The goal of the department is to ensure proper operation and maintenance, to develop and perpetuate the system, and to protect the water supply for the more than 20,000 customers of the system.

Capital Improvements

Capital improvements are considered apart from the operating budget of the city. Capital improvement projects typically involve large outlays and cover multiple years.

In FY02-03 the "Legacy Capital Improvement Plan" was updated and its proposals for Year “one” of its implementation plan FY03-04 are reflected in the proposed budget.

Revenue Detail

Major sources of revenues are as follows:

· Sales tax – Budgeted at a 5.8% increase, revenues are projected at $10,900,000 for fiscal year 2003-2004. Sales tax revenues for fiscal year ending 2002 were up 2.4% from 2001.

· Motor vehicle in-lieu fees – This revenue is estimated to be $4,831,730 for fiscal year 2003-2004.

· Current service charges – An adjustment to refuse collection fees is proposed effective July 1, 2003, and will be based on increases in collection and disposal fees.

· Special police charges – Revenues returned to Lakewood for the Sky Knight program from the four neighboring cities is estimated at $589,000 for the fiscal year 2003‑2004.

· Property taxes – Revenues are projected at $2,565,670 for fiscal year 2003-2004.

· Building permit fees – Fiscal year 2003-2004 construction permits and plan check fees are estimated at $523,750.  The budget plan is that these charges shall be sufficient to cover the cost of the service. Any increase by Los Angeles County in charges to the city will require an adjustment to current fees.

· Utility Users Tax – The utility users tax is levied at 3%.  For fiscal year 2003-2004, the amount is projected at $2,535,900.

· Recreation fees - $820,100 in recreation classes, programs, and sports program fees are projected for fiscal year 2003-2004. These revenues offset costs.

Water Fund

Water operating revenues are projected at $6,224,750 for fiscal year 2003-2004.

Reclaimed water sales are forecast at $200,000 for fiscal year 2003-2004.

Expenditure Detail

· Personnel expenses – 29% of the preliminary budget is for personnel costs. Lakewood’s workforce in the past 18 years has decreased from a high of 192 regular employees to 174 positions in FY 2003-2004, of which 170 are currently filled.  One new position is proposed in this budget. The position is a Park Maintenance Worker responsible for the maintenance of the new West San Gabriel River Parkway Nature Trail.

Lakewood’s outstanding employees have provided dedicated service to the city during good and bad economic times. A salary increase of 3.25% is budgeted for the 2003-2004 fiscal year because of the current labor contract.

· Contract services – Approximately 43% of the budget reflects contract services.

Major contracts include law enforcement by the Los Angeles County Sheriff’s Department ($7,858,511), refuse collection ($1,873,000), and disposal ($1,894,000).

Other contracts include Housing Authority Assistance ($1,439,029), street lighting maintenance ($588,420), building regulation ($667,000), tree maintenance ($430,000), and street sweeping ($364,340).

· Supplies and expenses – This general classification of expenses represents 19% of the fiscal year 2003-2004 budget. The largest expenses are utilities ($1,262,250); water replenishment ($1,224,990); insurance costs for liability, property damage, earthquake, environmental and workers’ compensation programs ($1,136,711); and electricity for pumping water ($561,800).

· Interdepartmental services – These are services provided by the city’s print shop and fleet maintenance and geographic information system (GIS) services. Costs are collected in internal service funds and allocated through work orders and, in the case of GIS, estimated usage. These services are 1% of the budget. Print shop operations are expected to cost $265,608. The fleet maintenance costs are budgeted at $840,040. GIS costs are budgeted at $84,228.

· Capital equipment – The operating budget contains two designations for capital equipment: $208,544 is specifically targeted, and $250,000 is designated in an equipment replacement fund to replace equipment that is unsafe or no longer serviceable.

· Capital Improvements - Capital projects include local streets and alley resurfacing program ($1,045,000), major streets resurfacing program ($680,000), water utility improvements ($1,331,000), and hardscape ($400,000). Most of these projects are funded by restricted revenue sources.

Recommendation

It is respectfully recommended that the city council schedule necessary budget study  sessions, hold the public hearing on the budget, and adopt the preliminary budget as the city budget for fiscal year 2003-2004.

Respectfully submitted,

Howard L. Chambers

City Manager