Most people in Westlake Village know that the City is financially healthy, but much of the information floating around out there about the city finances may be difficult to understand or covering different periods of time, and there’s wrong impressions as a result. In the past 12 months, the city had about $8.7 million total in general revenue plus almost $2 million in restricted revenues. Over the long run, restricted revenues are about a wash with restricted expenses.
For this past fiscal year (ending June 30, 2007), the general revenues (the $8.7m above) are about $2 million more per year than the “operating expenses”. These are the monies that the City spends to run the city and offer services. The “surplus” ($2m) is primarily transferred to the City’s “Capital Improvement Program Fund Reserve”. This past fiscal year, the City spent about $3.4 million on capital projects, so about $1.4 million beyond the surplus revenue the City had. The City has chosen to spend more than that year’s surplus in other years as well.
So, while the city’s financial health is among the best in the state compared with other cities of similar size, and the city has plenty of revenue for operating expenses, Westlake Village does not have an unlimited number of funds for all the capital projects “on the wish list” which is currently about $45 million worth of projects. From a budget point of view, the most important decisions the City makes are the priorities and amounts of capital improvement projects.
The reason that much of the information out there is not accurate is because of two things: a) the budget is more complex than for most businesses, and b) the city has been in a period of change on how reserves are handled.
Restricted vs. General
One of the things that’s different about city finances is that some revenues are “General” (and unrestricted in their use), while others are Restricted revenues, and must only be used to pay for certain things. For example, the gas tax revenues received must specifically go towards roads, etc… General revenues, on the other hand, can be spent at the discretion of the city council.
Three years ago, the city council created a new “Financial Reserve Policy”. The new policy aims to have sound financial reserves in place, and also allow the city to better identify and designate what monies were available to pay for special or capital projects.
Since incorporation (when the city was created in 1981), the city typically accumulated and accounted for all its uncommitted reserves in one fund. This fund peaked in 2004-5 with approximately $14 million in it. This was somewhat misleading (especially to those outside the city staff and council) because it grouped all the reserves together, including those reserves needed for day to day cash flow along with the capital needs. It became clear to the City’s staff and council that a better way was needed: one that gave them a clearer picture as to the available funds for expenditures, as well as needs for reserves.
The reserve policy now has three categories: the General Fund Reserve, the Capital Improvement Program Fund Reserve, and the Building Maintenance & Replacement Fund Reserve.
The General Fund Reserve is the city’s contingency reserve to protect essential service programs and funding needs. Specifically, this is to give us the funds necessary even in the face of economic downturn, unforeseen natural disasters, reductions in revenue due to State/Federal actions, and unexpected lawsuits. Because the city’s cash flow has spikes and lows throughout the year, it’s also to provide a cash flow cushion for regular operations. Typically, a city might have 5-20% of their operating expenditures in reserve. Westlake Village has chosen to have between 50-75% as a general rule of thumb … which is $4.5-5 million for the General Fund Reserve.
The Capital Improvement Program Fund Reserve is dedicated to the city’s ongoing needs for road repairs/maintenance, park projects, streetscape enhancements, etc… The city council establishes the needs for each budget, and this reserve is typically funded from both General Fund revenues and various Restricted Funds as appropriate. Unused funds are carried-over to the next year’s reserve.
The Building Maintenance and Replacement Fund Reserve is for the on-going maintenance, upgrades and replacement of various city buildings. Like Capital Improvement Program Fund Reserve, the city council establishes the needs for each budget. This is funded from the general revenues, and is carried-over to the reserve for the next year if not spent.
Importance of Reserves
Covering cash flow needs, natural disasters, and downturns in the economy are easy to understand. For example, since property taxes are paid in December and again in April, revenues are not evenly distributed month to month.
But, some of the other reasons for reserves could use some additional explanation. Historically, California cities have been hit hard by unilateral actions taken by the State. This happened in the 1990s, and while 2004’s Proposition 1A gives cities considerable protection, the State still has the authority to “borrow” from the cities under certain situations.
Economic impacts are even more important. Early in Westlake Village’s history, the city was much more vulnerable because of reliance on a small number of revenue sources. The greater the diversity of these sources, the less vulnerable the city is to a downturn of a specific type. This is one of the primary reasons that the city council moved to increase tax revenues from hotel bed taxes. Property taxes, sales tax, vehicle license fees, etc… are all substantive sources.
You might be wondering how the city gets its revenue. Today, there are a number of sources, so let’s just talk about the largest numbers … and use round figures. For more specific information, contact city hall for specific numbers or a copy of the budget.
Revenue for the 2006-2007 fiscal year (July 1 through June 30) was $8.7 million for the General Fund. Sales tax revenues were $3.3 million of that, up from $2.85 million in 2002. The trend is a gentle upward trend for sales tax revenue.
The “Transient Occupancy Tax” (aka hotel bed tax) is 10%, and in 2006 is about $1.15 million. This was about $150,000 lower than expected because the new Four Seasons opened up somewhat later than originally planned. For 2007-2008, it should be considerably higher as both the Four Seasons and the new Marriott will be operating.
Property tax receipts are about $1.5 million. In case you are curious, this is about 5.8 cents per $1 of property tax paid to the county. Prop 13 froze the rates for cities back when Westlake Village was not yet incorporated. For those city’s that were not incorporated at the time of Prop 13, there’s a process for which they create the rate based on the amount that they think it will take to provide the services.
Building permit fees were about $675,000-700,000, and Vehicle License Fees are about $675,000. With Westlake Village nearly built out, building permit fees will likely stabilize in the future at approximately $300-400,000 per year.
Notably, investment earnings were over $700,000 which is over $200,000 more than in the prior year.
Restricted revenues vary greatly from year to year, but are typically relatively predictable within the year. For FY 2005-06, the City received approximately $2.9 million in various restricted revenues; in
2006-07, the figure is $1.9 million; and in 2007-08, the budget anticipates a total of $3.4 million in restricted monies.
Since we’ve been asked the question repeatedly: office buildings, beyond their initial development fees, do not provide substantive revenue to the city.
To be clear, most of the the city’s revenue is generated by the Westlake North development … the commercial district, if you will. In the the early 1990’s, the city was set to be in the red. The city council took actions to reduce expenditures and set things in line, but in reality, the development of Westlake North created the revenue streams necessary to go beyond belt tightening (for example, the city deferred street maintenance.) in the mid-90’s.
One point to note is that all of these revenues can change from time to time. For example, Costco is planning on building a new Costco in Newbury Park. Once that happens, and things stabilize, one should expect revenues to drop at the Westlake Village Costco, and that could cost the City of Westlake Village as much as $150,000 per year in lost sales tax revenue.
To give you a high level view, this is how City’s General Fund Revenue revenue breaks down:
38.0% Sales Tax
17.3% Property Tax
13.2% Hotel Tax
8.9% Investment Earnings
7.9% Building Permits
7.7% Motor Vehicle Registration
For the most part, the expenditures were right on budget and the city staff’s ability to estimate appears to be quite good when one hears about the nightmares of other cities estimated costs.
There’s always a few things that are unexpected.
For example, over the last year or more, traffic operations and signal timing at several Lindero intersections near the freeway became sluggish. This wasn’t caused so much by the new hotels, construction, and increased business uses, but instead by a troublesome camera system that controlled the traffic signals. This was particularly obvious at rush hour when office building traffic in the area peaked. The existing system had been installed in the late 1990’s and had been exhibiting performance and reliability problems. As a result, the city spent an unanticipated $80,000 in April of this year to replace the camera systems along Lindero at Hedgewall Drive, Thousand Oaks Blvd., and Via Colinas, and a forth video detection system at Via Rocas and Via Colinas.
There were a total of six mid-year budget adjustments in the 2006-2007 (the fiscal year that just ended). The largest of these was a one-time $582,200 adjustment for the pay-off of the City’s CalPERS unfunded liability. Part of the unfunded liability was due to changes in pooling arrangements by CalPERS which changed the rate structure. In addition, there was a change in the benefits given to the city employees by the council. But, the majority of this amount was due to under performance of the investments by CalPERS that required the city’s to put in more than originally expected.
There were some interesting items the City spends money on — that are representative of the type of community that Westlake Village is. For example, the city has a subsidized senior & youth taxi program (about $75k/yr). And, there’s a program to reduce the costs of Airport Shuttle Services (about $36k/yr). There’s close to $200k/yr in Library expenses, and almost $1.2 million in annual streetscape improvements, as well as $425,000 in Parks & Recreation. Westlake Village spends over $1.8 million per year on Public Safety, including law enforcement, crossing guards, animal control, school anti-drug programs, COPS (Citizens Options for Public Safety) and emergency preparedness. Contact City Hall if you are interested in finding out more about these programs.
Capital Improvement Projects
Capital projects — or improvement to those projects — are for items that create or improve facilities and properties that become assets of the city. For example, the city used to rent space for city hall. Through an analysis, it was easy to see that even in spending $8.7 million for the Civic Center that opened in 2003, the rent would cover the expense, AND the city would have a dedicated facility.
Another example is the upcoming Lindero Canyon interchange upgrades. This is a series of upgrades designed to improve the traffic flow on Lindero between Agoura Road to Via Colinas. The idea is to add one additional lane in each direction on the 101 overpass. At Agoura Road headed east, there will be two left turn lanes onto Lindero. On westbound Agoura Road, there will be two right turn lanes. In addition, at Via Colinas, there will be two right turn lanes onto the freeway. And, there may be on ramp improvements from the 101 at Lindero which may be especially important since so much of the office building traffic comes from well outside the city limits.
To date, there have been developer fees collected for this project, plus there will be new developer fees in the future. In addition, the city is hoping to win final approval from the Metropolitan Transport Authority for $8.5 million for the Lindero Canyon interchange upgrades. The approval is currently waiting for the State budget to be adopted, and for the MTA to assess what impact that budget will have on transportation programs. Assuming the MTA monies come through, there will still be a shortfall, for this project, of between $2.5 and $3.5 million which would need to come from the City’s reserves.
Other future projects include such things as upgrades to the city’s parks, and possibly the parks to be built in conjunction with the Triunfo YMCA.
In a list of projects created by the City Council based on resident feedback in July 2004, there were an estimated $45 million in possible “wish list” projects. Of this, there’s $3 million estimated for a new community/youth/senior center, $18+ million to replace the existing open Lindero channel with an underground reinforced concrete box and construct a linear park/walkway above it, $10+ million for the joint YMCA/Westlake Village Park project, and the list goes on.
This list will likely be updated in the years to come, and with new revenues coming online and stabilizing from the new hotels, grants to improve the Lindero interchange, and more, the city council will have an even better picture of what it may want to do for capital projects in the years to come.
The budget information is detailed and about an inch thick. There’s a ton of details on a variety of programs that Westlake Village has in the community.
In the end, the city has plenty of revenue and reserves to cover it’s necessary operating expenses. The real decisions come with allocating the surplus monies (whether from reserves or cash flow) to capital improvement projects around the City.