March 29, 2004
TO: Library Commissioners
Susan Hildreth, City Librarian
FR: George Nichols, Finance Director
RE: 2004-05 BUDGET STATUS
On February 19, 2004, the Commission approved the Library’s proposed budget of $88.408 million for 2004-05 (Attachment A). The Commission approved the budget with the understanding that increases for health and dental benefits and retirement had not been finalized and that additional changes would be made to the budget once costs were determined. Since the Commission’s action, baseline adjustments made by the Controller related to health/dental, retirement, and other issues increased the Library’s budget to $88.658 million, resulting in a deficit of $742,149.
Moreover, the Governor’s proposed State budget includes a shift of $1.3 billion in statewide local property tax dollars to fund K-14 that could reduce discretionary General Fund (GF) in San Francisco by $54 million and subsequently, the Library’s Charter required allocation of GF by $1.220 million. If the Governor’s proposed ERAF[1] shift is approved by the Legislature, the Library’s shortfall would grow to $1.962 million.
The outcome of the proposed shift will not be known until at least May when the Governor releases his May Revision; and, it may not be known until the Legislature adopts a budget later this summer. The Mayor’s Budget Office has not issued instructions regarding contingency plans to cover the loss of revenue resulting from the ERAF shift; however, we must be prepared in case it is approved.
It must be noted, that the current budget and our balancing plan assumes no change in collective bargaining agreements. Our budget assumes that employees will continue to pay the 7.5% retirement; and, that no salary adjustments will be provided. Should either of these assumptions prove to be wrong, additional and more drastic reductions will be required.
To balance the budget, the Library has prepared:
1. A reduction plan to close the $742,000 gap that exists now; and,
2. A contingency reduction plan to cover the potential revenue loss of $1.220 million should the ERAF shift be approved.
The budget reduction plan and the contingency reduction plan are summarized on Attachment B. The underlying goals of both plans are to:
- Balance the budget without layoffs.
- Maintain critical baseline services and minimize impacts on public service.
- Provide a viable level of funding for deferred maintenance and computer replacement.
- Maintain and increase if possible, the baseline books and materials budget.
- If approved by the Commission, fund RFID implementation at a reduced level. Includes conversion of collections at Excelsior Branch Library and the Main Library A/V Center. First phase implementation would be funded at $300,000 from the LPF reserve fund.
Reduction Plan to Cover Baseline Cost Increases.
The $742,000 deficit results from the following adjustments made to the budget after it was approved by the Commission and submitted to the Mayor:
· Adoption by the Board of Directors of the San Francisco Retirement System (SFRS) of an employer retirement contribution rate of 4.48% for 2004-05[2]. The baseline budget provided by the Controller included a rate adjustment of 2.4% or $808,000. The 4.48% rate equates $1.506 million or $698,000 more than initially estimated.
· Increase to health/dental plans left unfunded in the budget approved by the Commission in anticipation of additional adjustments that would be made to the budget once all costs and revenue adjustments were known. The increase to health/dental benefits totaled $430,565.
· The Charter amendment enacted in November that established a City Services Auditor function in the Controller’s Office. The ordinance requires the Controller to conduct financial auditing, performance auditing, best practice analysis, and special reviews; and, sets aside 0.2% of the budget to fund the program. The Library’s assessment is $112,000.
· Actual costs calculated by the City’s budget system for proposed new positions and substitutions or reclassifications; and, other miscellaneous system adjustments increased the budget by a net $9,437.
To balance the budget, the Library will withdraw or defer several new funding requests for a savings of $217,000; reduce funding for several new funding requests for a savings of $122,875; utilize accumulated fund balances remaining in a State ILL/DL account to fund a portion of the proposed increase to the book budget saving $259,000; and base budget reductions including a voluntary salary reduction of 15% by the City Librarian, miscellaneous baseline reductions and elimination of the Tool Lending Center grant for savings of $254,184. Specifically,
· Funding will be withdrawn for Millennium ILS upgrades ($60,000); Web Management Software ($10,000); purchase of a delivery truck ($49,000); recruitment materials and supplies ($5,000); roof inspections ($23,000); table repairs ($10,000); and repair of Park Branch stairs ($60,000).
· Funding will be reduced for computer replacements ($75,000); user placed reserves in the Branch system ($25,875); and A/V equipment replacement ($22,000).
· State grant balances from Interlibrary Loan and Direct Loan reimbursements received by the Library prior to 2002-03, will be used to fund $259,000 of the proposed $545,500 increase to the book budget. Funds will be used specifically for opening day collections in the Branch System. This leaves $206,000 to permanently increase the base books & material budget and $80,000 to purchase books for the BLIP bookmobiles funded by Library Preservation Funds.
· Baseline reductions of $254,184. Includes voluntary 15% salary reduction by City Librarian ($23,252); elimination Tool Lending Center grant ($175,000); and other miscellaneous reductions ($55,932).
Contingency Plan for Loss of $1.2 million General Fund Revenue (ERAF)
Should the Legislature approve the Governor’s proposed shift of property tax dollars to K-14, the Library will face an additional shortfall of $1.220 million. To cover the additional shortfall, the Library would withdraw additional new funding requests, make further reductions to new funding requests that remain, make additional cuts in baseline programs, and utilize the LPF reserve to cover the remaining need and mitigate the need to make deep cuts in baseline programs in 2004-05. As currently proposed by the Governor, the ERAF shift would be a permanent realignment of local property tax dollars resulting in an ongoing reduction of GF allocations made to the Library.
Specifically, the Library will:
· Withdraw remaining funds for reserve processing for Branch Libraries ($25,875) and audio-visual equipment replacement ($22,000) for additional savings of $47,875.
· Reduce funding for a full-time Delivery Driver position to a half-time position, saving an additional $25,224.
· Further reduce funding for PC and workstation replacement from $225,000 to $200,000 for additional savings of $25,000.
· Withdraw funds to increase the base books and materials budget for additional savings of $206,000. Budget would still provide $259,000 from ILL/DL reimbursements for opening day collections and $80,500 for the two Branch Library Improvement Program bookmobiles.
· Make additional baseline program cuts for savings of $132,368.
· Use $534,624 from the LPF reserve to cover remaining need and mitigate the need to make deeper baseline program cuts in 2004-05.
Impact of Proposed Balancing Plans on Library Preservation Fund Reserve
The LPF reserve currently has a balance of $2.249 million[3]. To offset the $742,000 deficit caused by additional baseline adjustments made by the Mayor and the Controller, the Library is not using LPF reserve funds. In fact, due to reductions to baseline and new funding proposals that exceed the shortfall, the Library will actually reduce spending from the reserve by $110,000. The Library would use $912,000 from the reserve (reduced from $1.022 million) to support its Capital Improvement Program leaving a balance of $1.336 million (2.5%). Of the $912,000 – $901,426 is for the Main Library POE project and $10,434 is for Deferred Maintenance. If RFID is approved an additional $300,000 from the reserve would be programmed for a total appropriation of LPF reserve of $1.212 million. Programming an additional $300,000 for RFID from the LPF reserve would leave a balance of $1.037 million (1.9%).
To cover the deficit resulting from additional baseline increases and the loss of revenue should the Governor’s proposed ERAF shift be approved, the Library in addition to the budget cuts described above, would use a total $1.616 million from the LPF reserve leaving a balance of $632,523 (1.2%). Of the $1.616 million, $901,426 is for the Main Library POE project, $180,000 is for Deferred Maintenance, and $534,624 is to cover the shortfall that remains after making the budget cuts described above. If RFID is approved an additional $300,000 from the reserve would be programmed for a total appropriation of LPF reserve of $1.916 million. Programming an additional $300,000 for RFID from the LPF reserve would leave a balance of $332,523 (0.6%).
The Contingency Reduction Plan requires the use of additional LPF reserves to mitigate the need for deep program cuts in 2004-05. Although, the reserve balance will be seriously depleted if the ERAF shift is approved, the Library would be able to maintain core and mission-critical public services in 2004-05 with minimal loss of jobs and no layoffs. The use of LPF reserves to support the Library’s baseline operations is a short-term measure to minimize baseline cuts next year – one of the principal reasons we have labored to maintain a prudent reserve. The impact to the LPF reserve is illustrated on Attachment C.
System-wide Budget Review
In conjunction with the short-term plans to balance the 2004-05 budget, the Library needs to proactively plan for a future that could include further revenue loss (local and state) and more significantly, further growth in baseline costs.[4] During 2004-05, the Library will conduct a comprehensive review of all Library services and programs. The goal of this system-wide review is to look for opportunities to reduce costs by eliminating or reducing non-core programs; to reduce staffing levels through reorganization, consolidation, and redeployment; and to develop a contingency reduction plan for 2005-06. In reducing staffing levels, our goal would be to eliminate positions (vacant) and not people. As stated, cost reductions will probably be necessary to mitigate further erosion in our revenue base; and more significantly, to offset increases in salaries, benefits, work comp, and other baseline costs that are likely in 2005-06.
Given the economic uncertainties and the prospects of City-wide growth in baseline expenditures (i.e., employee compensation), it is not likely that the Library will be allocated General Fund dollars beyond amounts required by the Charter. Consequently, it will be incumbent on the Library and the Commission to conduct this review and to proactively plan for the challenging times that lay ahead.
cc: Paul Underwood, Deputy City Librarian
Attachments