City Council Meeting: April 7, 2009

Agenda Item: 8-B

To:                   Mayor and City Council

From:              P. Lamont Ewell, City Manager

Subject:          Extension of the Master Facilities Use Agreement and Related Supplemental Agreements with the Santa Monica-Malibu Unified School District

 

Recommended Action

Staff recommends that the City Council review and approve the recommendations of the Adjustment Conference Committee and extend the Master Facilities Use Agreement and related supplemental agreements with the Santa Monica-Malibu Unified School District for an additional three years (ending June 30, 2012) and increase the City’s base payment by the February CPI, with a minimum of 2% and a maximum of 4%, per the terms of the Agreement.  Assuming a CPI adjustment of 2%, funding would total $7.6 million for next fiscal year.

 

 

Executive Summary

The five-year Master Facilities Use Agreement calls for an adjustment conference in January 2009 to assess the state of the community use of District facilities, the fiscal status of the City and the School District and whether to recommend that the Agreement and related supplemental agreements be extended for an additional three year period through June 2012.  Officials and staff of the City and School District met over the last three months to review each entity’s fiscal conditions and budgetary challenges, including the challenges facing each as a result of the unprecedented economic downturn and State budget reductions.  The Committee recommends:

·       Extending the Master Facilities Use Agreement and related supplemental agreements through June 30, 2012, maintaining the annual base payment of $7,494,503 and adjusting that amount by CPI per the terms of the existing contract.  For FY 2009-10, the CPI increase will be 2%.  Additional CPI adjustments will be made in FY 2010-11 and FY 2010-12.

 

·       Convening an adjustment conference each January during the term of the Agreement to discuss any additional adjustments in payment based on the value to the City of use of the District’s facilities and the City’s ability to provide the School District with additional compensation for the use of District properties. 

 

·      That the City and School District develop a methodology to be used in reviewing the growth of the City’s “Big 8” revenues that looks backwards over the past two fiscal years but also looks forward to the City’s projected revenues and expenditures to allow for the consideration of the City’s fiscal status, including projected revenues and expenditures.

 

·      That the School District include and clearly acknowledge annual payments made by the City in its annual budget as a separate income line item.

 

·         That the District continue to maintain the Special Education District Advisory Committee (SEDAC) or similar public committee.  SEDAC or its equivalent shall review the District’s special education policies and programs, make recommendations, and report to the Board of Education.  The Board of Education shall hold a minimum of two semi-annual Board meetings on special education policies and programs.  Changes to policies and programs shall be considered for approval by the Board at a Board meeting.

 

 

The current base payment to the School District is $7,494,503.  Approval of staff’s recommendations would adjust the base amount by CPI (2%) for a total payment of $7,644,393 next fiscal year.  Staff is currently formulating next year’s budget and will incorporate the new amount into the FY 2009-10 budget and FY 2010-11 budget plan.  Council will formally appropriate funds with the FY 2009-10 budget adoption on June 16, 2009.

 

 

Background

Council approved the Master Facilities Use Agreement and related supplemental agreements in spring 2005.  Opportunities for new parks and recreational facilities are extremely limited within the City’s fully built environment.  Therefore, the purpose of the Agreement is to allow the City and the community to use School District playfields, recreational facilities and buildings which are under-utilized during non-school hours.  The Agreement provides unrestricted revenue to the School District in return for use of District facilities.  The School District has utilized City funds to support the District’s goal to promote extraordinary achievement for all students while simultaneously closing the achievement gap. The Agreement spans five years (July 2004 to June 2009) with two renewal options that would extend the agreement to June 30, 2014.  The City pays the School District an annual base payment of $6.0 million, which has been adjusted each year per the terms of the Agreement and now totals $7,494,503.  This payment is in addition to the funds contributed by the City for programs and services it provides at District school sites, which total approximately $2.5 million this year and for which the City received $661,000 in fee revenue.  The City provides approximately $26 million annually in community-based youth programs.  The Agreement calls for an adjustment conference to be held in January 2009 to assess the state of community use of District facilities, the fiscal status of the City and the School District and whether to recommend that the Agreement be extended for an additional three year period through June 2012.

 

The adjustment conference committee convened its first meeting on January 26, 2009 with two subsequent meetings on February 4th and February 23rd.  Adjustment conference participants included Mayor Ken Genser, Mayor Pro Tempore Pam O’Connor, School Board President Ralph Mechur, Vice President Barry Snell, School District Superintendent Tim Cuneo, City Manager P. Lamont Ewell, Deputy City Manager Elaine Polachek, City Finance Director Carol Swindell and School District Finance Director Janece Maez. 

 

Discussion

Fiscal Conditions

As part of its charge, the committee discussed the budgetary and fiscal conditions of each organization, including the challenges facing each as a result of the unprecedented economic downturn and State budget reductions.  The City is facing significant reductions in its revenues including projected reductions in sales and use tax, transient occupancy tax and property tax.  The most recent five year forecast showed revenue projections for FY 2008/09 with expected receipts $1.8 million below budget estimates; however, conditions are continuing to deteriorate and the next set of projections will show a further decline in revenue.  These declines, as a result of the unprecedented economic downturn, are expected to continue into 2010 and perhaps beyond.  Additionally, the City faces challenges in FY 2011/12 as a result of CalPERS’ decline in investment income, which will cause a significant increase in employer contribution rates for employee retirement benefits.  Given current projections, the City estimates a budget shortfall of over $8 million in FY 2009/10, but this number is expected to deteriorate further based on recent revenue information.  The City Manager has implemented a hiring freeze and has asked departments to identify 3% savings in their FY 2008/09 budgets and prepare FY 2009/10 budget proposals containing expenditure reductions totaling 5%.  Overall fiscal conditions are continuing to deteriorate as a result of the significant economic downturn and additional budget adjustments may be needed in order to ensure that a structural deficit does not exist. 

 

The School District is also facing significant reductions in revenue as a result of State budget cuts.  The School District receives 73% of its revenue from the State and about 4% of its revenue from the federal government.  The School District is projecting a loss of approximately $12 million in State funding over the next two fiscal years.  As a result, the School District has identified a number of proposals to close their funding gap including a hiring freeze, increasing class size, reductions in the central administrative office, health benefits, contracts and elementary school music. 

 

Revenue Performance

The Agreement calls for an evaluation of the performance of eight of the City’s General Fund revenue sources as a basis for recommending adjustments to the City’s base payment to the School District.  The “Big 8” revenue sources are property tax, sales tax, utility user tax, transient occupancy tax, business license tax, real property transfer tax, parking facilities tax, and fines/forfeitures.

 

The Agreement specifies two conditions whereby the adjustment conference will discuss adjusting the base payment.  The first condition is whether the growth of these revenues for the two year period between July 1, 2006 and July 1, 2008 exceeds 4% and the second test is whether the growth of these revenues exceeds CPI by 1.25% in each of the two fiscal years.  Neither of these tests was met over the last two fiscal years.  However, committee members acknowledged the continued need to provide monetary support to the District, in the form of compensation for use of facilities, particularly in these difficult economic times, while minimizing the reduction in other City services.  Therefore, the committee recommends that a CPI increase be applied to the base annual payment to the School District per the terms of the agreement. 

 

Committee Recommendations

The Adjustment Committee recognized that the community’s desire for and commitment to excellent public schools is balanced with their expectations for a wide range of municipal services and programs as well as a safe and well-maintained City infrastructure.  Accomplishing both goals will be especially challenging over the next three years of this Agreement.  With this in mind, the committee recommends extending the Master Facilities Use Agreement and related supplemental agreements through June 30, 2012, maintaining the annual base payment of $7,494,503 and adjusting that amount by CPI which will result in an additional $149,890 to the School District.  Each January during the term of the Agreement, the committee recommends that the City and School District reassess their respective needs and ability to provide services for their constituents.  An adjustment conference will be convened to discuss any additional adjustments in payment based on the value to the City of use of the District’s facilities and the City’s ability to provide the District with additional funding. 

 

The Adjustment Committee also discussed developing a methodology to be used in reviewing the growth of the City’s “Big 8” revenues that looks backwards over the past two fiscal years but also looks forward to the City’s projected revenues and expenditures.  This allows for the consideration of the City’s fiscal status, including projected changes in fiscal conditions and the need to consider other services to the community.

 

Staff has identified several other issues that could significantly impact the City’s fiscal health and should be considered relative to the City’s ability to provide additional funding to the School District.  State revenue grabs are still possible given the continued economic downturn.  In addition, significant legal judgments against the City cannot be predicted and could seriously affect available resources.  Moreover, the Agreement only recognizes changes in the City’s largest revenues as a basis for recommending adjustments to the base payments.  It does not address situations like the present economic downturn where revenues are declining precipitously, nor does it consider needed changes in services provided to the community in other General Fund supported areas.  The City must consider all services needed and desired by the community and balance those needs with the funding provided to the School District.

 

Accountability

Both the City and the School District agree that it is in the best interest of the community if the benefits of the Agreement as well as the financial status of the two organizations continue to be well understood.  And while both organizations acknowledge and agree that the decisions on use of the City’s payments are best left to the discretion of the Board of Education, an extension of the Agreement will continue to call for School District accountability to the community.   

 

To that end, the District will include and clearly acknowledge annual payments made by the City in its annual budget as a separate income line item.

 

The March 2008 Lou Barber & Associates evaluation of the School District’s Special Education services made 27 recommendations.  One of those recommendations was to create a culture of transparency and openness in dealing with all stakeholders.  The proposed Agreement extension requires that the District continue to maintain the Special Education District Advisory Committee (SEDAC) or similar public committee.  SEDAC or its equivalent shall review the District’s special education policies and programs, make recommendations, and report to the Board of Education.  The Board of Education shall hold a minimum of two semi-annual Board meetings on special education policies and programs.  Changes to policies and programs shall be considered for approval by the Board at a Board meeting.

 

Financial Impacts & Budget Actions

The current base payment to the School District is $7,494,503.  Approval of staff’s recommendations would adjust the base amount by CPI (2%) for a total payment of $7,644,393 next fiscal year.  Future adjustment conferences will be convened to discuss any additional adjustments in payment based on the City’s ability to provide the District with additional compensation for use of District facilities.  If additional adjustments are not possible, the payments will increase by CPI in years two and three of the Agreement.  Staff is currently formulating next year’s budget and will incorporate the new amount into the FY 2009-10 Budget and FY 2010-11 Budget Plan.  Council would formally appropriate funds with the FY 2009-10 budget adoption on June 16, 2009.

 

 

 

Attachment 1 – Proposed Extension to Master Facilities Use Agreement

 

 

 

Prepared by:  Elaine Polachek, Deputy City Manager

 

 

Approved and Forwarded to Council:

 

 

 

 

 

 

 

 

P. Lamont Ewell

City Manager