Initiated By: Robert Clark, Town Manager

Agenda Item______

December 17, 2008

File No.______

AGENDA BILL

Subject: Budget Adjustments

Initiated by: Robert Clark, Town Manager

Brad Koehn, Finance Director

Michael Grossblatt, Human Relations Manager

BACKGROUND:

The Nation is currently suffering through a recession which has affected the real estate, construction and financial industries particularly harshly. The recession, which started in December of 2007, became significantly more severe this fall. These economic conditions have resulted in major changes to the development related services provided by the Town and the associated revenues. In addition the Town has experienced extraordinary legal expenses, and one time costs associated with the start-up of commercial air service.

The Town has gone through three rounds of budget adjustments as the recession has deepened and as the Hot Creek litigation has evolved.

FY 2007-08 Mid-Year Adjustments:

When the FY 2007-08 Budget was adopted in June of 2007 the “1” Hotel and Ritz/Hillside projects had both received use permits and were planning to break ground. Eagle Lodge had received a zone change and was planning to move forward as well. The budget assumed one of these three major projects would proceed. As the recession began (in December 2007) it became clear that we could not count on any of these projects breaking ground (although the Ritz continued to work towards a groundbreaking until May of 2008). The Town also learned that the risk management authority was rejecting coverage for the Hot Creek litigation expenses. In response Town Council cancelled capital improvement projects that were not grant funded and loaned money that had been earmarked for the North Village Parking Structure to the Development Impact Fee Funds in order to complete grant funded projects. A hiring freeze was imposed which ultimately resulted in elimination of twelve positions. Finally, $1.64 million was advanced from the REU to cover legal expenses.

FY 2008-09 Annual Budget:

The Council approved a budget which included one time actions to address further legal expenses and airport funding needs. A portion of the annual road repaving budget was delayed for one year in order to cover ongoing legal expenses associated with the Hot Creek appeal. Also, one-time adjustments were made to the Measure A capital account to cover one time expenses associated with the start up of commercial air service. A General Fund contribution is included for airport operating expenses during the current year, and will continue to be needed until there are enough flights to trigger the availability of increased FAA capital funding that would repay the General Fund for prior loan advances made for capital purposes.

FY 2009-10 Mid-Year Adjustments:

The deepening of the recession resulted in a reduction in building permit valuation to less than 20% of the already anemic level of the prior year. Several developers stopped work on entitlement efforts in mid-stream. This has resulted in a $500,000 shortfall in building and planning fee revenue, which is very likely to double by year end. This agenda bill recommends:

· elimination of nine additional positions,

· delay in funding the growth in employee leave liability,

· charging work to funds other than the general fund, and

· reductions in compensation agreed to by Town staff.

These changes will generate $1 million in budget savings during the second half of the fiscal year.

ANALYSIS/DISCUSSION:

The plan for reduction of $1 million in expenditures during the second half of the current fiscal year includes several elements:

Staffing Reductions

The following positions will be eliminated from the budget no later than March 1, 2009 saving about $400,000:

· Parks Maintenance Worker (vacant)

· Community Development Technician (vacant)

· Administrative Secretary

· Supervising Administrative Engineer

· Sr. Public Works Inspector

· Police Sergeant

· Animal Control Officer

· Sr. Records Examiner

· Plans Examiner

Overall, about half of the twenty one positions eliminated over the course of the year since the recession began are directly related to processing or inspecting development applications and projects (see attachment A). This is consistent with a sustained reduction in construction (and now entitlement) activity. This is fee driven work, and both the volume of work and amount of revenue is expected to be constrained for an extended period of time. If we do get an unexpected upsurge in activity, this is work that can be completed by contract in small increments. An analysis of the strategic implications of the staff cuts is attached.

Defer Funding the Growth in Liability for Accrued Time Off

The Town of Mammoth Lakes fully funds liability for accrued time off even though this practice is not required by government accounting standards and is not practiced by many jurisdictions. The funding is budgeted and allocated on a payroll by payroll basis. If this allocation is deferred for six months there will be a $261,000 savings in the current year budget. The savings from the staffing reductions are much greater in FY 2009-10 and the funding can be restored at that time. If this is done we estimate that the liability will still be 88% funded in the current year.

Charges to Alternate Sources

A number of opportunities to charge time to sources other than the general fund have been identified:

These charges cover work that can be done by current staff that would otherwise be charged to the general fund.

Negotiated Compensation Reductions

The recognized employee groups, department directors, town attorney and the town manager’s office have all offered to accept reductions in compensation in order to minimize the number of positions that need to be deleted and to provide some additional benefit to those who are loosing their jobs. Agreements with the associations are presented for ratification by the Town Council. They include the following key provisions:

· The effective date of the cutswill bedelayed from January 1stuntil March 1st.

· The individuals who are affected by the cuts will be offered a retirement incentive package.

· A deferred compensation match provided to all employees by the Town will be suspended for six months from January through June of 2009.

· The Town Manager, Department Heads, Management Employees and General Employees have agreed to a one day per month unpaid furlough for the six months from January through June of 2009.

· The Police Employees have agreed to suspend their on-call pay for six months from January through June of 2009.

Together the employee compensation reductions will save $250,000 over the second half of the fiscal year.

Potential for Further Adjustments The adjustments recommended at this time address the most recent impacts of the deepening recession. It is not known if there will be further impacts such as reduced skier visits in the coming months. Therefore we have developed potential contingency plans for further adjustments later in the year if needed.

OPTIONS ANALYSIS

Option 1: Ratify the attached agreements with the four recognized employee groups, and adopt a resolution amending the budget to reduce appropriations by approximately $1 million and direct staff to bring back to Council the required documents for the retirement incentive package.

Option 2: Do not ratify the agreements or adopt the budget resolution and provide further direction to staff regarding the budget.

Option 3: Take no action at this time.

VISION CONSIDERATIONS:

An analysis of the strategic implications of the budget cuts is attached.

FINANCIAL CONSIDERATIONS:

A budget update is attached. The budget changes proposed in this agenda bill are intended to address a project $1 million shortfall in building and planning fees.

ENVIRONMENTAL CONSIDERATIONS:

None.

LEGAL CONSIDERATIONS:

The four employee associations have be recognized as the representative of certain employees and, as such, are able to agree to modifications in benefits on their behalf.

RECOMMENDATION:

Therefore, it is recommended that the Town Council approve:

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