Midyear budget not all bad

City Manager Ken Frank’s midyear budget report ranged from great news to terrible news to weird news.

The great news was that General Fund revenues for fiscal year 2009-10 were more than $500,000 above projections, in spite of revenue from hotel and sales taxes and service charges coming in $1 million below estimates. The windfall was due to property taxes that exceeded expectations and savings by city departments.

“Right now we are in great shape,” Frank said. “Property taxes were almost $800,000 above the estimate, largely due to interest and penalties associated with late payments. But the highlight of the 2008-09 budget was the $2.2 million in expense savings by city departments.”

The Police Department saved almost $250,000, much of it unintentional — jobs were unfilled. The Fire Department saved $265,000, primarily by reducing overtime costs. Unfilled vacancies in Public Works saved $220,000.

Not only the General Fund showed improvement, Frank said.

Other funds also ended up healthier. The Capital Improvement Fund was $470,000 higher. The Sewer Fund was pumped up by an additional $1 million when 30-year bonds to fund facilities in Aliso Canyon were retired and the reserve fund paid more than expected.

The bad news is that similar departmental savings won’t be repeated in the current fiscal year because most police vacancies have been filled, departments have already pared their 2009-10 budgets and other agencies are not hiring, so there is less attrition.

A lower-than-expected Insurance Fund balance also has Frank concerned. Higher claims reduced the fund $140,000 less than was projected, which is a little worrisome, Frank said, because the 2009-10 budget pared the allocation for workers’ compensation.

The “terrible” news came from the California Public Employees Retirement System.

“It is excruciating,” Frank said. “PERS has promulgated projected rate increases based on a 28% investment loss in fiscal year 2008-09.

“CalPERS is doing everything possible to juggle the books and lessen the horrendous rate increases, which are coming.”

Laguna Beach is facing increases beginning in July of each fiscal year of $470,000 in 2011, $790,000 in 2012 and $830,000 in 2013.

Frank foresees massive city deficits in the coming years: jumping from $1.2 million this fiscal year to $4.1 million in 2013-14.

“Since General Fund appropriations are approximately $46 million a year, the city needs to pare close to 10% of the budget unless the recession recedes and revenues grow,” Frank reported. “On the positive side, the council has maintained $2.5 [million] in a Recession Smoothing Account.

“Moreover with the higher than expected ending fund balances, the General Fund Reserve is over the basic 10% threshold by about $4 million. Therefore, the city has enough in reserves to get through the next two to three years without reducing services, but then there would be a massive cut of $3 [million] to $4 million.”

Offsetting some of the bad news is a plan that allows the city to recoup sooner than expected most of the $2.2 million owed the city in property taxes that was loaned to the state.

The council approved Frank’s recommendation to take advantage of a state program that allows the city to immediately sell its note, which was supposed to be paid off in three years, with 2% interest tacked on.

The sale means the city will lose the interest, but will not have to slash the $2.2 million from its Capital Improvement Program as was contemplated to pay the state.