City manager’s $786 million budget expected to net positive income
By Gus Herrera
At their latest regular meeting, the Pasadena City Council swiftly approved a $786 million budget for FY2018. After almost two months of meticulous deliberation, there was very little appetite for discussion. Everyone around the dais was eager to finally close the public hearing and conclude the prolonged fiscal talks.
City Manager Steve Mermell originally submitted his recommended budget on May 8. Since then, five joint meetings were held with the finance committee where council members fastidiously posed questions and requests for additional information regarding this year’s fiscal strategy.
According to city staff’s report, this year’s operating budget is “balanced and does not rely on [the] use of reserves.” Furthermore, the city’s financial plan is also “expected to result in positive net income at the end of the fiscal year.”
In addition to covering Pasadena’s projected operating revenues and expenses, the budget includes appropriations for the FY2018-2022 capital improvement plan (adopted on May 8) and the city’s affiliated agencies (i.e. the Rose Bowl Operating Company, Pasadena Center Operating Company, and Pasadena Community Access Corporation).
Council’s actions this past Monday also adopted a resolution to transfer 10 percent of the light and power fund’s estimated gross revenues ($16.956 million) to the city’s general fund.
The municipal code usually limits the maximum amount available for transfer in this manner, but council superseded these regulations by determining that the injection of a larger amount “would not be detrimental to the functioning and administration of the power utility during the budget year.”
This year’s general fund is set at $236.7 million, slightly lower than FY17’s adopted amount of $237.8 million. The capital improvement budget will invest approximately $79 million into infrastructure.
Fiscal responsibility and conservation played a large role in the city’s approach to this year’s budget, as several “negative trends” were identified as early as last year’s budget deliberations, according to Mermell’s transmittal letter.
Council began to address these challenges last October by approving $2.1 million in expenditure reductions and continued the trend by reducing another $2 million this year.
Mermell hopes that these reductions, “coupled with moderate projections of revenue growth,” will “greatly [reduce] the size of projected future operating deficits.”
The city manager’s statements were cautious, yet slightly optimistic – revealing that “Pasadena’s local economy continues to perform well” and local unemployment sits at 4.3 percent (through March), compared to 4.6 percent in Los Angeles County. Mermell cites that although the city’s development activity has tapered a bit, the “hospitality sector has remained strong.”
As far as revenue goes, the outlook is mixed. The city has three main streams of income, which make up more than half (53.2 percent) of the general fund’s overall revenues: property tax, sales tax, and utility user’s tax (UUT).
Property tax continues to be the city’s “most stable revenue source” and is expected to grow by 8.29 percent ($64.38 million) in FY18. Despite showing slow growth, sales tax will be progressively challenged by online shopping. Instead of receiving a consistent slice of the pie, as is the case via retail store purchases, the tax from online shopping is allocated to a county-wide pool. The result: Pasadena sees less than 2.5 percent of that revenue.
Changing trends as a result of technology will also hamper UUT revenue. Declines in the use of landline telephone services, traditional cable services, and consumption of natural gas/electricity/water are expected to continue this year.
One revenue source where Mermell sees hope is in the transient occupancy tax (TOT), which has “become a strong revenue source boosted by increased travel to Pasadena … ”
Additionally, continued development and the renovation of existing hotels can see TOT income “increase by several million dollars.”
In summary, “the city is not seeing the same level of overall economic growth across its major revenue categories,” writes Mermell. With respects to expenses, this year’s capital improvement program includes 200 active projects (total estimated cost of $953 million) and six new projects.
Unfortunately, the investment “is not sufficient to keep pace with the growing maintenance requirements of the city’s extensive infrastructure” and “some of the city’s infrastructure has exceeded its useful life,” according to Mermell.
Specifically, the current level of investment into street maintenance ($1.5 million) is “not sufficient to prevent further deterioration of their overall condition; an investment closer to $4.5 million per year would be needed to do that.”
In the end, the budget was approved unanimously and council kept their comments short and sweet.
“We’ve been working on the budget starting at 3 p.m. every Monday since May … I think this is good work all the way around … I’m happy to adopt the budget for this year,” said Council Member Margaret McAustin.
“Case closed … budget is adopted, thank you,” concluded Mayor Terry Tornek.
Captions:
1 – “Case closed,” said Mayor Terry Tornek, eager to move on from budget discussions that lasted close to two months. – Photo by Terry Miller / Beacon Media News
2 – Council praised City Manager Steve Mermell for his work – despite revenue streams lacking overall growth, the budget did not need to dig into the city’s reserves. – Photo by Terry Miller / Beacon Media News
