A&F Subcommittee\Memo Indicates City Budget Is Already Dipping into Red Ink
• Reserve Fund Has Dropped to Half of Former Size
BY BILL KOENEKER
Despite assurances from Malibu Mayor John Sibert and other council members that the municipality's finances are on target and in good shape, the Administration and Finance subcommittee heard last week how the city's current fiscal year budget has dipped into red ink and that the once robust reserve fund has dropped to half of what it once was.
Assistant City Manager Reva Feldman delivered the bad news at the A&F subcommittee meeting on an update of the adopted budget for fiscal year 2011-2012.
Feldman, in her report, noted the council also approved a one-time transfer of $561,000 for CalPers, which came out of the reserve fund.
"The amended general fund expenditures budget for fiscal year 2011-12 is $22,229,534, which provides for an amended budget with expenses exceeding revenues by $1,492,892. The revised projected general fund undesignated reserve at June, 2012 is now $8.3 million," she noted.
Just last April, the council adopted a policy for a general fund reserve of no less than 50 percent of the city's annual general fund operating budget. At one time the undesignated general fund stood at nearly $16 million.
Feldman, in her memo, indicated that the council has appropriated $914,500 in additional general fund expenditures. Those approved appropriation are: $8,500 for wireless access at Bluffs Park, $755,000 for litigation expenses for one the Natural Resource Defense Council lawsuit, $34,000 for the Malibu Coastal Vision Project, $40,000 for the Kanan Dume Road improvements design, $2000 for the Arts Task Force stakeholders summit, and $75,000 for the PCH safety study matching grant.
The city also authorized $20,000 for the school district to fund a study on whether an additional athletic field could be constructed at Malibu High School.
Feldman delivered more bleak news about the city's future finances. This has to do with the debt obligations which are slowly mounting as commencement of payments either has begun or will start soon.
This goes back to the acquisition of Legacy Park in 2006 when the city issued $15 million in certificates of participation or COPs. Feldman noted the city uses the rent collected from the three commercial properties to meet the debt obligation and maintain the property. The annual debt service associated with the COPs is $1.2 million. The city generates $1.3 million from rent collected from the three properties acquired as part of the purchase of Legacy Park.
In 2009, the city acquired the new City Hall and issued another $15 million of COPs for the acquisition of the building. In 2010, the city issued an additional $5 million of COPs for the improvements to City Hall.
"The debt service associated with the City Hall COPs will commence in FY 2012-2013 with a partial payment. By FY 2015-2016, the city will be paying $1.7 million a year in debt service for the COPs associated with the City Hall acquisition and improvements," Feldman wrote in her staff report.
One idea discussed by the subcommittee was the possibility of generating revenue by licensing Malibu's name.
The subcommittee, comprised of Mayor John Sibert and Councilmember Lou La Monte heard from the staff about the branding program at the city of Beverly Hills. The city trademarked and licensed its shield logo and is using it on merchandise that is sold throughout multiple retailers and on the Internet.
In 2007, the city entered into a licensing agreement with a full- service licensing agency to promote the Beverly Hills brand. The agreement provided for a split of royalties based on merchandise sold and did not require an upfront fee by Beverly Hills.
However, the arrangement did not generate as much revenue as expected and more recently the city has entered into an agreement with a branding company to specifically market a Beverly Hills perfume and a separate agreement with William Morris Endeavor to market the logo on other merchandise. The city expects to sell its merchandise at a new visitors center it is opening up.
The city also generates cash for the one-time use of their logo in movies and television, which generated $15,000.
Hopes are high that in the future the city could generate revenue up to $500,000.
Feldman recommended the city could establish a branding and licensing committee to work on creating a Request for Proposal to establish a trademarked logo.
Subcommittee members also got to take a look-see at an audit report for the Los Angeles County Sheriff's Department.
When the full council ordered up the report, members insisted the audit for the $6.2 million contract for law enforcement was to ensure the city is receiving all of the services specified in its contract with LASD.
The city's independent auditors Lance Soll and Lunghard performed the review to evaluate compliance of LASD with the city's contract.
"The attached independent accountants' report indicates LASD is providing and the city is receiving all of the services as required by the contract between the two parties," wrote Feldman in a staff report.
The auditors indicated through an inquiry with Lt. Steven Smith of the Lost Hills Sheriff's station, they obtained an understanding of the controls and procedures established by the department to record the number of minutes each month and ultimately for the entire year for the personnel assigned to the service of the City of Malibu.
"In addition, we performed tests to determine that the controls established by the LASD were functioning as intended and that the sheriff was in compliance with the total service units purchased by the city as reported," the audit report states.
"We obtained the monthly services compliance report summarizing the minutes by day for sworn personnel, civilian personnel and reserve deputies who provided services to the City of Malibu. We judgmentally selected one day each month and traced the minutes," the audit report noted.
One day from each month from July, 2009 through June 2010 was selected. There were no exceptions, the auditors found.
The auditors also obtained timecards and checked them. The deputy daily worksheets and timecards were traced to the service minutes detailed report.
Auditors checked about tracing the hours to the payroll register, comparing the total minutes provided to the city to the total number of minutes purchased on the contract. The city purchased 2,671,131 minutes and LASD provided 2,684,189 minutes or 13,058 minutes more than the contract.