City of Rialto Annual Budget 2018-2019

Proposed Budget

For the
Fiscal Year
July 1, 2018 – June 30, 2019

City Council

Deborah Robertson - Mayor
Ed Scott. - Mayor Pro Tem
Joe Baca Jr. - Council Member
Rafael Trujillo - Council Member
Andy Carrizales - Council Member

City Treasurer

Edward J. Carrillo

City Clerk

Barbara A. McGee

Executive Staff

Ahmad R Ansari – Interim City Administrator
Fred Galante - City Attorney

Robb Steel - Assistant City Administrator/Director of Development Services
Mark Kling – Interim Police Chief
Sean Grayson - Fire Chief

Ron Carr – Interim Finance Director
Perry Brents - Director of Community Services
Robert Eisenbeisz - Director of Public Works/City Engineer
Barbara McGee - Director of Management Services

Organizational Chart

Citizens of Rialto

City Treasurer Mayor and City Clerk
City Council
Investments Record Keeping, Public Information, City
Cash Receipting/Receivables City Administrator Elections, Municipal Code/Ordinances,
Animal Licensing, Cemetery (Records)
Administration Agendas and Minutes, Commissions
City Attorney

Development Services Dept. / Public Works Police Department Fire Human Resources/Risk Finance Department Community Management
Assistant City Administrator Department 820-2550 Department Management Dept. Services Dept. Services Dept.
820-2540 820-2544
820-8017 421-7229 820-2501 820-2519 820-2519
Classification/ Budgeting
Building Services Engineering Operations: Suppression Compensation Child Development Rialto
Planning Services Maintenance: Patrol, Dispatch, Prevention Recruitment/ Financial Reporting Neighborhood & Network
Code Enforcement Animal Control, Senior Citizen
Business Licensing Facilities Crime Prevention Disaster Selection Payroll Services Passport
Economic Development Fleet Preparation Employee Development Accounts Payable Services
Parks Support: Paramedic Utility Users Tax Classes, Excursions,
Housing Streets Investigations, Ambulance Labor Relations Special Events, Notary Services
Downtown Revitalization Records, Property, CDBG Sports
Traffic Safety Budget, Crime Benefits/Rideshare Purchasing Racquet/Fitness Healthy Rialto
RDA Project Area Water & Risk Management Information Ctr. Pool,
Analysis Technology Playhouse Claims
Wastewater
Waste Community Services Community Center Bid Openings
Outreach Cultural Arts (Construction)
Management Adult/Youth
Sports
Cemetery

(Maintenance)

Capital Projects

The City of Rialto Annual Budget FY 2018-19

Directory of Officials

DEBORAH ROBERTSON

MAYOR

ED SCOTT JOE BACA JR. RAFAEL TRUJILLO ANDY CARRIZALES
MAYOR PRO TEM COUNCIL MEMBER COUNCIL MEMBER COUNCIL MEMBER

BARBARA A. MCGEE EDWARD J. CARRILLO
CITY CLERK CITY TREASURER

The City of Rialto, California Annual Budget FY 2018-19

Table of Contents

Guiding Principles and Community Values 1
Budget Message 4
Grant Funding 44
Special Events 47

Budget Summary Information 50
Available Resources 51
General Fund Overview 53
Citywide Overview 59
Personnel 66

Department & Fund Information 76
City Council/City Administrator 77
City Legal Services 81
City Treasurer 83
City Clerk 86
Development Services Department 90
Public Works Department 97
Police Department 108
Fire Department 119
Human Resources Division 124
Finance Division 128
Information Technology and Purchasing Division 135
Community Services Department 138
Management Services Department 143
Special Revenue Funds 149
Capital Projects Funds 186
Enterprise Funds 190
Internal Service Funds 193
Debt Service Funds 197

Revenue & Expenditure Detail 204
Revenue Detail 210
Expenditure Detail 246

Capital Improvement Plan Update 290
Capital Improvement Plan Summary 291
Capital Improvement Plan Detail 292

Supplemental Information 314
Proposition 4 – Government Sending Limits 316
Fully Burdened Rate Study 320
Budgetary & Debt Management Practices 326
Description of Fund Types and Funds 330
Glossary of Terms 334

The City of Rialto, California Annual Budget FY 2018 - 19

Guiding Principles & Community Values

1. Rialto is a Family First Community
 Our neighborhoods will be a safe place to call home.
 Essential community services and amenities must meet the needs and desires of our families.
 We will require high-quality housing for our families and establish well-maintained, safe, attractive
neighborhoods.
 We will create a sense of community that bonds residents and families together, resulting in a
stronger, better Rialto.

2. Rialto Shall Attract High-Quality New Development and Improve its Physical Environment
 First impressions matter. The quality and standards of our streetscapes and public spaces will
reflect the high quality of development we require.
 Infrastructure keeps pace with our growth. Every act of construction will result in the improvement
and enhancement of both the public and private realms.
 We pay attention to the details. We have high standards and will maintain our properties and
enforce our codes at all times.

The City of Rialto, California 1 Annual Budget FY 2018-19

Guiding Principles & Community Values

3. Rialto’s Economic Environment is Healthy and Diverse
 Businesses, City government, and economic development organizations will continue to work
together to strengthen the local economy and support businesses.
 We will aggressively attract and retain businesses that provide goods and services we desire,
create jobs, and build a sustainable tax base.
 Our City government will lead by example, and will operate in an open, transparent, and
responsive manner that meets the needs of the citizens and is a good place to do business.
 We take advantage of our status as the transportation hub of the Inland Empire.
 Rialto is committed to environmental sustainability, which means meeting the needs of the
present without compromising the ability of future generations to meet their own needs.

4. Rialto is an Active Community
 Our community will support the creation and maintenance of attractive parks, recreational
facilities, and gathering places that meet the needs of our residents.
 We will create transportation alternatives that allow us to walk, bike, and use public transportation
to travel within our community and reach regional destinations.
 We will continue to participate in community-based events that enrich our lives.

The City of Rialto, California 2 Annual Budget FY 2018-19

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3

Budget Message
Fiscal Year 2018/2019

JULY 24, 2018

HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

I am pleased to submit the City’s Fiscal Year 2018/19 Budget for your consideration. The Budget
reflects the City’s Guiding Principles and Core Values as expressed in the Rialto General Plan,
emphasizing open and transparent communication with the citizens of Rialto. The combined budget
for all City activities totals $212 million, including a General Fund Budget of $91 million. While the
General Fund Operating Budget achieves cash balance dependent upon approval of the measures
recommended herein, the budget remains structurally unbalanced because it does not fund all current
operating costs, and instead defers expenditures for capital outlay, pension, and retiree medical care
obligations. Further, the increasing payments due to PERS over the next 11-12 years will require
sacrifices from all parties to sustain public services.

Rialto continues to reap the rewards of economic development – that is the good news. In 2017, new
industrial development added 2,000 new jobs and $750 million in new assessed valuation. As a result,
assessed valuations in Rialto increased by $1.2 billion (15.7%) for the FY19 tax roll, more than double
the countywide average growth rate of 7.3%. In fact, Rialto achieved the highest growth rate in
assessed valuations within San Bernardino County for 2017.

The commercial sector kept pace with completion of the Rialto Marketplace (Wal-Mart Supercenter
and shops totaling 230,000 square feet) and the under construction Renaissance Marketplace
(Cinemark, Burlington, 24 Hour Fitness, a variety of restaurants and small shops), and several other
smaller commercial projects (WSS/Aldi, Coffee Bean, and Planet Fitness). The housing market
continues its revival with more than 200 new units under construction or in the planning pipeline at
average prices of $400,000. All this economic activity produced new tax and service revenues to
support general fund operations. Finally, the City sold 59 acres of Airport land adding over $5 million
in non-operational revenues allocated for capital projects and continued the most aggressive capital
improvement program in the City’s history, improving streets, fire stations, and parks.

Unfortunately, not all is good news: operational expenses continue to increase at an unsustainable
pace. Labor costs comprise 70% of the City’s operating expenditures, and despite only minor
modifications to the workforce, personnel costs have increased by some 40% since FY 13. The cost of
benefits grew much faster than salaries, principally retirement (PERS), employee medical care, and
other fringe benefits. The expanding cost of labor makes it difficult for the City to add workers to
enhance service delivery to the community, as the City must allocate new revenues to service existing
obligations to current and retired employees.

The great challenge for Rialto (and most cities in California) remains how to fulfill the City’s post-
retirement obligations to its employees: for pensions (PERS) and for retiree medical care (Other Post-

The City of Rialto, California 4 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Employment Benefits or OPEB). When the enhanced retirement program took effect in 2010, PERS
extended credit to the City to satisfy its promises to future retirees. At the same time, a severe
recession depressed the value of the system’s investment portfolio. The effect of these two significant
events, along with changes in actuarial assumptions, resulted in an immediate City debt to PERS of
$100 million on June 30, 2009. This “debt” reached and estimated $124 million on June 30, 2018 with
a funded ratio of approximately 71%. PERS intends to improve the funded ratio by demanding higher
and higher payments from employers over the next 10-12 years. Rialto’s annual obligation to the
pension system will grow from approximately $12 million in FY18 to $25 million in FY29, an increase of
$13 million per year (108% increase). This increase averages $1.1 million per year over the 11-year
period, and requires that the City devote the first $1.1 million of revenue growth each year to its
pension obligations. Since long-term revenue growth has averaged $3-$4 million per year, this singular
expense already claims approximately 25%-30% of the City’s future revenue growth. The City cannot
ignore this “ticking time bomb” and must commence immediate actions to address the chronic
underfunding of its pension obligations.

Budget Principles

The City continues to seek new ways to deliver high quality public services at an affordable cost. The
City prepares its annual budget in accordance with a few key principles:

 Conservatively Forecasted. The City forecasts revenues and expenses in a conservative
manner to minimize negative surprises at year-end and increase reserve balances rather than
draw upon them.

 Structurally Balanced. Recurring operating revenues should equal or exceed recurring
operating expenses. Recurring revenues are those that are reasonably reliable from year to
year and are normally produced from traditional governmental operations. A structurally
balanced operating budget should allocate revenues in proper proportions to demands for
personnel, services, debt service, and capital outlay.

 One Time Monies. The City shall use one time money for capital projects or other one-time
expenditures and will not use it to balance the operating budget except in unusual
circumstances. The City shall not use one-time resources (e.g., revenue spikes, budget savings,
sale of property, or similar nonrecurring revenue) for ongoing operating expenses. The City
may use one-time resources to rebuild reserves, retire debt early, increase capital
expenditures, and for other nonrecurring expenditures.

 Reserves. On November 2, 2004, the City Council adopted Resolution No. 5169 establishing a
policy targeting reserves equal to 50% of the operating budget. This reserve provides working
capital and a hedge against disasters, economic uncertainties, and other disruptions to

The City of Rialto, California 5 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

revenues or expenditures.

Over the last few years, the City produced structurally imbalanced budgets. While budgeted operating
revenues and expenditures equated, the City deferred normal obligations to achieve a “cash balanced”
budget. For instance, the City did not allocate adequate funds for capital outlay from operating
revenues (e.g., for fleet replacement), and in many years, the City deferred payment for its OPEB
obligations. The City satisfied capital outlay deficiencies by allocating one-time revenues, obscuring
the continuing problem that labor consumes a disproportionate share of operating revenues thereby
crowding out other spending categories within the Budget.

This Budget violates 3 of these 4 Budget Principles. The Budget is not structurally balanced, it uses
one-time monies for operating costs, and it starts and finishes the year below the target reserve
requirement of 50%. The Budget increases services to the community for the first time in many years,
but the future portends continuing difficulties in properly funding all necessary expenditures.

Accomplishments for FY18

The City accomplished several long-standing priorities in FY18 that will help advance future financial
sustainability:

 Measure M. On June 5, 2018, Rialto voters approved Measure M extending the 8% Utility Tax
without a sunset provision. The Utility Tax previously sunseted every 5 years, creating
significant obstacles for long-range financial planning. Toward the end of each Utility Tax cycle,
the City deferred personnel, service, and capital outlay decisions due to the uncertainty of the
next vote. The voters commissioned the City with responsibility to invest the revenues wisely
for the benefit of the community.

 Renaissance Marketplace. Lewis Retail Centers nears completion on its 460,000 square foot
shopping center at the southwest corner of Ayala Drive and the 210 Freeway. Cinemark
Theaters (opening in August 2018), 24 Hour Fitness (opening in July 2018), Old Navy, Burlington,
Ross, Blaze Pizza, the Habit, Chick-Fil-A, Olive Garden, Panera Bread, and Septembers Taproom
& Eatery anchor the shopping center. Starbucks Coffee and Panda Express opened earlier this
year. Upon build-out, this project will produce an estimated $1,000,000 in new sales taxes.

 Renaissance Plaza. Ayala 210 Partners commenced construction on the Renaissance Plaza
Retail Center on 8 acres acquired by the City at the northeast corner of Renaissance Parkway
and Ayala Drive. Cracker Barrel, Sonic, and a Holiday Inn Express headline the project. The City
expects to realize $600,000 per year in sales taxes, property taxes, and transient occupancy
taxes upon completion. The first occupancies will occur in FY19.

The City of Rialto, California 6 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

 Rialto Marketplace. NewMark Merrill completed the outparcel development adjacent to the
new Wal-Mart Supercenter, adding new shopping and dining options. The City expects to
realize $300,000 in net new sales tax revenue from the completed shopping center. In the
coming year, the Pacifica Companies intend to rehabilitate the former Wal-Mart building to add
a Ross Dress for Less, DD’s Discount, Auto Zone, and Panera Bread adding $200,000 per year in
revenues. The City continues to market the vacant land adjacent thereto for development of
additional retail and entertainment uses.

 Pepper Avenue Interchange and Specific Plan. On June 5, 2018, the City and SBCTA
commemorated the opening of the Pepper Avenue on and off-ramps to the 210 Freeway. The
City (via its former Redevelopment Agency) constructed the $15 million Pepper Avenue
extension to fulfill its obligation under agreements with SBCTA to create a road connection,
before SBCTA agreed to construct the ramps. On December 12, 2017 the City Council adopted
the Pepper Avenue Specific Plan, establishing land use designations, development standards,
design guidelines, and infrastructure requirements for the 100 acres of land that straddle
Pepper Avenue, making this an attractive future commercial development opportunity.

 Wastewater Treatment Plant. On February 27, 2018, the Rialto Utility Authority approved a
$30 million landmark project to construct numerous improvements at the City’s Wastewater
Treatment Plant. Construction will commence this summer with completion one year later in
August 2019. The improvements will result in a more efficient treatment process, and enable
the City to save approximately $500,000 annually. This savings will help keep sewer treatment
rates as low as possible.

The City accomplished many other non-financial improvements to programs and services as identified
in the Budget.

Financial Forecast for FY19

During FY18, the City engaged PFM to prepare the City’s first 10-year financial plan. Predicting the
future presents challenges because the City controls few variables that impact the forecast, such as
inflation, interest rates, state and federal funding policies, taxation, and employment. The City
controls the local service standard, employee complement, and employee compensation.

The current economic expansion enters its 10th year, and many economists sense that a national
recession is overdue and likely to arrive in 2020. Nevertheless, the University of California Riverside
recently submitted its Regional Intelligence Report for the Inland Empire (June 2018) and concluded
as follows:

The City of Rialto, California 7 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

The Inland Empire is poised for another year of steady growth in 2018. The region’s
population continues to increase, local job gains are outpacing the state overall, and
consumer spending is on the rise. In addition, while the Inland Empire’s residential and
commercial real estate markets are more expensive than many parts of the nation, they
remain more affordable than real estate in neighboring coastal communities in Southern
California. This regional affordability advantage is paving the way for continued gains in
the local market. Still, the area faces potential headwinds. Despite greater affordability,
limited housing supply is inflating home prices and homeownership is out of reach for
many Inland Empire residents. Couple that with a record-low unemployment rate and
businesses may find it difficult to attract the talent they need to maintain the level of
growth they have enjoyed in recent years.

Other key findings include:

 Employment continues to increase, outpacing the state and national economies with a 3.1%
growth rate from 2017 to 2018. Wages also increased, although at a slower rate than the state
and nation. With unemployment falling to its lowest rate on record, tightening labor markets
will put upward pressure on wages.

 Retail Sales continue to grow in the Inland Empire, although at a slower pace than the state.
Fuel and service stations led the increase due to rising fuel prices. Taxable sales related to
construction activities also grew at an accelerated rate due to the vigorous construction
activity. Consumer spending on food, restaurants, and hotels advanced at a more cautious
pace. Growing personal incomes prompt higher demand for retail goods, causing retail vacancy
rates to drop and rents to increase.

 Industrial construction continues at a torrid pace, with more than 20 million square feet
currently under construction. The sector vacancy rate of 6.9% remains historically low, pushing
rental rates up in the last year by 6.5%. The dominant sector remains Transportation and
Warehousing, adding 9,800 jobs in the last year, and new construction remains strong.
Manufacturing continues its long-term decline in California.

 Residential construction activity continues to increase in the Inland Empire. Building permits
grew by 4.7% in the first quarter of 2018, with single-family construction leading the way.
Multi-family permits declined after leading the residential sector for the last few years.
Supplies remain lean relative to the demand, consequently prices increased to $353,000 for a
median priced existing single-family home. Prices remain below the pre-recessionary peak
reached in 2007.

Prudence suggests that the City should expect a recession sometime in the next 2-3 years and prepare
accordingly. City revenues declined by 16% during the Great Recession from 2009-2011, and the City

The City of Rialto, California 8 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

should anticipate a retreat of 5%-10% under normal recessionary conditions. The onset of a recession
will cause revenue stress that will require service and/or workforce reductions or deployment of
reserves set aside for that “rainy day” purpose.

General Fund Revenues

The City categorizes General Fund revenues into operating revenues and non-operating revenues.
Generally, operating revenues represent taxes and other revenues that are reasonably predictable
from year to year, and result from traditional governmental operations (taxes, service charges,
licenses, and permits). Non-operational revenues represent one-time revenues or revenues produced
from non-traditional governmental activities (such as land sales or rentals).

General Fund Revenues

120,000,000 12.0%

100,000,000 10.0%

General Fund Revenue80,000,000 8.0%
Operating Revenue Growth %
60,000,000 6.0%

40,000,000 4.0%

20,000,000 2.0%

- FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 0.0%
8,206,418 658,081 4,922,855 473,637 30,867,631 12,508,200 5,674,845
Non-Operating Revenues 60,744,093 65,770,611 69,734,370 70,656,222 78,176,769 82,259,636 85,750,995
Operating Revenues
Operating Revenues Growth % 0.0% 8.3% 6.0% 1.3% 10.6% 5.2% 4.2%

Figure 1

Figure 1 shows that General Fund revenues continue to grow due to the economic expansion and
scope of development activity in Rialto. Total General Fund revenues peaked in FY 17 at $109 million,
largely due to extraordinary Airport related land sale activity. For FY 19, the City estimates total
revenues of $91.4 million, with $85.8 million derived from operational sources and $5.7 million derived
from non-operational sources. This represents a revenue growth of $3.5 million over FY18, or 4.2%

The City of Rialto, California 9 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

(after adjusting for a double up payment of the IGT transfer in FY17). This adjusted growth rate
exceeds the long-term trend line.

Operating Revenues
Figure 2 depicts the long-term trend in General Fund Operating Revenues. The Great Recession caused
a 16% reduction in revenues from FY09 to FY11, before rebounding through FY19. The long-term
compounded growth rate is 4.2% from FY05 through FY19, with average annual revenue increases of
$2.9 million. The more aggressive increases in recent years offset the losses during the recession. The
long-term growth rate provides insight when forecasting forward because it takes into account the
natural ebb and flow of our economic cycles. The City should expect non-recessionary increases of $3-
$4 million per year on average.

General Fund Operating Revenues

$100,000,000

$90,000,000

$80,000,000 Long Term Growth Rate = 4.2% or $2.9 million/year
$70,000,000

$60,000,000

$50,000,000

$40,000,000

$30,000,000

$20,000,000

$10,000,000

$0
FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19

Other Revenues Taxes

Figure 2

Table 1 shows that, from FY13 - FY18, projected operating revenues increased by $23,604,845 or 6.3%
per year compounded. Operating revenues increased by an average of $3.5 million per year over this
5-year period. Taxes grew by 6.0% per year during the period, while other operating revenues grew
by 6.8%. Staff expects taxes to increase by 7.3% for FY19, although other operating revenues will
decline by 2.3%.

The City of Rialto, California 10 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 1

The operational revenue growth during this period and the forward forecast for each revenue source
during FY19 follows:

 Sales and Use Taxes (20%, up from 19% last year). Sales and Use Taxes reflect State Board of
Equalization allocations to the City of its 1% share of taxable point of sale transactions within
the City, along with allocations from the County and State pools (based upon the City’s
proportion of countywide or statewide sales). In addition, the City receives allocations from
out of state shipments and on construction materials for new residential and non-residential
development not otherwise allocated by situs.

Sales taxes are the City’s largest revenue source for the first time in years, due to the
completion of several retail projects (Rialto Marketplace) and the capture of sales taxes from
the Medline Industries facility. The City forecasts that it will receive $16,834,000 in FY 19, a
growth over FY18 of $603,000. Medline Industries reported quarterly sales taxes to the City
for the first time in June 2017 and the City projects full year returns of $4,400,000. The City
agreed to rebate 50% of this amount to Medline as an incentive to relocate its point of sale to
Rialto, so the net benefit to the General Fund will be $2,200,000. As the Renaissance
Marketplace completes later this year, sales taxes should receive another boost of
approximately $500,000 in FY 19 and upwards of $1,000,000 per year thereafter. The principal
future risk to this revenue stream is the trend toward online sales (rather than brick and
mortar), which will depress sales tax yields from existing shopping centers and cause the sales
taxes from obsolete shopping centers to decline.

The City of Rialto, California 11 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

 Utility User Tax (17%, up from 16% last year). The City adopted the Utility User Tax in 2003 as
an 8% levy upon all utility consumption. This revenue projects for FY 19 at $14,188,100. This
revenue has grown reliably by approximately $500,000 each year because of economic
expansion, and may receive continuing boosts in the years ahead from new development. The
principal risk (other than repeal) is the trend toward co-generation and legislative exemption
of certain utilities from the payment of local taxes. Households are also “cutting the cord” and
eliminating cable TV service and landline phone service, depressing those sources of utility tax
income.

 In Lieu Property Tax (14%, up from 13% last year). The State created the In Lieu Property Tax
in 2004 as an allocation of additional property tax revenue to replace vehicle license fee (VLF)
revenue lost when the state reduced the vehicle license tax. This property tax in lieu of VLF
grows with the change in the citywide gross assessed valuation of taxable property from the
prior year. The State allocates property tax in lieu of VLF revenue in addition to other property
tax apportionments. The City expects this revenue to increase by $747,360 for a total of
$12,047,360 due to expected growth in assessed valuations from new construction.

 Property Tax (14%, up from 12% last year). Property taxes represent the City’s share of the
property taxes levied upon all secured and unsecured property within the City. The City
receives approximately 14% of the 1% levy on assessed value. This revenue projects to increase
by $1,628,000 during FY19 to a total of $11,726,000. The $1.2 billion increase in assessed
valuations produced an attendant increase in property tax revenue.

 Revenue from Other Agencies (7%, down from 10% last year). Revenues from Other Agencies
include grants and other subventions from other governmental agencies. The IGT transfer
related to Emergency Medical Services represents a significant recent component of this
revenue ($2 million +).

 Service Charges (8%, no change from last year). Service charges include animal control, police
department fees, ambulance service fees/subscriptions, weed and lot cleaning, development
related fees (building and engineering plan checks), and other current services. This revenue
decreased due to a slight slowing of development related revenues. Costs associated with this
revenue likewise decreased.

 Licenses and Permits (6%, no change from last year). Licenses and Permits include business
licenses and building permits. The largest single source of revenue in this category is business
license, with a forecasted increase due to expanding economic activity and improved collection
efforts. Building permit related revenues forecast to remain steady as the pace of construction
continued into FY19.

The City of Rialto, California 12 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

 Other Taxes (6%, up from 5% last year). Other taxes include franchise fees, transfer taxes, CFD
fees, TOT, and Proposition 172 sales taxes.

 RUA Payments (4%, no change from last year). RUA Payments include transfers from the Rialto
Utility Authority to the City General Fund in accordance with the authorities established under
the Joint Powers Agreement. These revenues will remain stable at $3,140,530 reflecting the
annual lease payments ($2,000,000) and annual contract service payments ($1,140,530).

 Operating Transfers In (3%, no change from last year). Operating Transfers In include transfer
from a wide variety of special funds for services, overhead, and other expenses. The largest
source of this transfer in is Gas Tax ($1.5 million) which offsets costs of street maintenance in
the Public Works Department.

 Use of Money (1%, no change from last year). Use of Money captures earnings on the General
Fund’s investment portfolio. Revenues have increased in recent years due to a growing
investment portfolio and increasing short-term interest rates.

 Miscellaneous (1%, no change from last year). Miscellaneous includes false alarm fees,
general service fees, and impound charges.

 Fines/Forfeitures/Penalties (1%, no change from last year). Fines/Forfeitures/Penalties
include parking and court fines.

Non-Operating Revenues
In recent years, the City derived significant income from its entrepreneurial activities. The City
completed eight land transactions at the Airport generating $31 million ($28 million, net of contingent
liabilities) for the general fund. The City has also facilitated several private development projects by
acquiring land on a conduit basis, collecting revenue from the developer that is then passed through
to the selling landowner (for a net zero budget consequence). Table 2 shows the recent trends for
non-operating revenues.

For FY 19, the City anticipates the following asset sales:

 Scholl Way. LHR will purchase a 0.9 acre site from the City to dedicate as right-of-way for Scholl
Way. The City expects to receive gross sales proceeds of $130,000, with net proceeds of
$70,000 after contract expenses and contingent liability allocations.

The City of Rialto, California 13 Annual Budget FY 2018 - 19

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Fiscal Year 2018/2019

Table 2

 Building #4 Airport Site. Dermody Properties is under contract with LHR to purchase a 19- acre
Airport parcel for development of a 400,000 square foot distribution center. The City expects
to receive gross sales proceeds of $1.4 million, with net proceeds of $800,000 after contract
expenses and contingent liability allocations.

 Renaissance Plaza. The City also budgeted complete closings on the Easton/Ayala Retail Site
($3,400,000), which will offset the $3,000,000 site acquisition costs the City incurred in FY18.
The City expects Cracker Barrel and Sonic to close early in FY19, with others to follow in 2019.

The City’s non-operating revenues have been extraordinary in recent years, allowing the City Council
to allocate funding for capital projects that otherwise had no funding source. The Airport sales
program remains active with additional sales opportunities during FY19. The Ayres Hotel chain intends
to acquire a 2 acre parcel from LHR for construction of a 135-room hotel and LHR is working toward
the sale of a 28-acre industrial parcel. Other non-operating revenues include County Landfill Waste
Rebates of $46,000.

General Fund Expenditures

General Fund Expenditures by Object
The Budget assigns operating expenditures to five major categories: Salaries and Benefits,
Service/Supplies, Capital Outlay, Debt Service, and Other. Table 3 shows that, from FY 13 – FY18,
General Fund Operating Expenditures increased by $29.2 million or 9.1% per year. The largest dollar
and percentage growth occurred with Services & Supplies ($16.0 million and 19.1%). Operating
expenditure growth of $29.2 million over this period exceeded operating revenue growth of $21.5
million.

For FY19, total budgeted expenditures increase by $4.6 million (5.6%) to a total operating budget of
$87.1 million. The operational expenditure changes include:

The City of Rialto, California 14 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 3

 Salaries & Benefits. This category encompasses all forms of employee compensation. From FY
13 to FY18, total compensation to City General Fund supported employees increased by
approximately $13.5 million, or 5.9% per year. The largest components of that growth included
overtime compensation, and retirement (PERS) costs. Budgeted employment increased by 21
employees over the period, and the FY 19 Budget adds another 17 FTE.

Table 4 shows that the FY19 Budget forecasts Salaries and Benefits to increase by $5,279,498
(9.7%) over FY 18:

o Salaries increase by $5,932,193 due to the addition of 17 FTE employees and anticipated
salary adjustments for all employees, increasing its share of total compensation to
50.3%.

o Overtime decreases by ($897,566) because public safety expects fuller staffing
complements, declining to 8.9% of total compensation.

o PERS costs will increase by $1,327,791 as the ramp up of the payment for the unfunded
accrued liability continues, increasing to 21.3% of total compensation.

o Other Benefits increased by a miniscule $4,366.

The City of Rialto, California 15 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 4

o Other Post-Employment Benefit (OPEB) is the cost associated with the City’s payment
for post-retirement medical expenses. The City’s Annual Required Contribution consists
of a normal cost component ($1.0 million) and an unfunded accrued liability component
($1.4 million). The FY 19 Budget defers 100% of this payment obligation by using the
Section 115 Trust assets instead to make the current year payment to the retirees ($1.4
million). This provides cashflow savings to the General Fund in FY19, but increases the
City’s unfunded accrued liability. This will increase the City’s downstream payment
obligation when the unfunded accrued liability is re-amortized during bi-annual
recalculations.

 Services and Supplies. This category encompasses utilities, internal allocations, legal services,
contract services, training/memberships, and other services. From FY 13 to FY18, total Service
and Supply expenditures increased by approximately $16.0 million, or 19.1% per year. The
largest components of that growth included other services, legal services and contract services.

Table 5 breaks down the components of the Service and Supply category growth for FY13 to
FY18:

o Utilities increased slightly due to increased consumption and cost of the various utility
services for City facilities. The City expects these increases to moderate after
installation of the energy efficiency improvements. For FY19, the increase is $41,790
or 3.1%.

The City of Rialto, California 16 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 5

o Internal Allocations represent charges for building maintenance, information
technology, and others. These costs remained steady for FY19.

o Legal Services peaked in FY17 at $3.3 million due to the Flores case and settlement, then
retreated in FY18 to $1.8 million. The FY19 Budget establishes the legal services budget
at $1.5 million, a decrease of $0.3 million for FY19.

o Contract Services peaked in FY17 at $15 million, representing 50% of all Service and
Supply expenditures. Development related services (planchecks and inspections) drove
this trend in Development Services and Public Works. The City expects a sizable
decrease of ($2.8) million for FY19, due to conversion of contract services for
employees.

o Training and Memberships includes travel, training, and membership expenses and
remains steady at $421,207 for FY19.

o Other Services and Supplies includes the Medline sales tax rebate and the IGT Transfer,
which caused most of the growth of $4.6 million over the 5-year period. The FY19
Budget forecasts a more modest increase of $168,402.

 Capital Outlay. General Fund supported capital outlay includes investment or reinvestment in
new public facilities, and the purchase of new or replacement rolling stock (cars, trucks, and
engines). It varies widely from year to year depending upon circumstances, but generally
averaged $1 million per year since FY 13. The City periodically supplements the annual
allocations with one-time reserve allocations.

The City of Rialto, California 17 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

The FY 19 Operating Budget allocates minimal funding for general fund supported capital
outlay. Normal capital outlay should roughly equal 5% of the operating budget ($4.3 million)
so this appears to represent a deferred obligation; however, the City Council has allocated a
significant portion of the reserves to fund capital outlay in recent years supplanting the demand
upon the operating budget. The City also received a $1.7 million state budget earmark in FY19
that helps offset General Fund capital outlay burdens.

The General Fund capital expenditures for FY19 include 1 hybrid vehicle for City Council, 3
vehicles for the Building Division, 1 light duty truck for Code Enforcement, 5 police patrol
vehicles, an aerial lift truck for public works, and 2 passenger vans for Community Services all
totaling $540,000. Other capital outlay includes citywide roof replacements, pool/spa
replastering, new pool pumps and heater, door replacements for fire stations, and 1 copy
machine, all totaling $478,000. Total General Fund operating capital outlay for FY19 is
therefore $1,018,000.

 Debt Service. The General Fund does not directly identify any significant General Fund secured
debt; however, the City issued debt secured by a General Fund pledge that is paid from the
Building Maintenance Fund and the Street Light Assessment District Fund:

o Energy Efficiency Improvement Loan. On May 9, 2017, the City Council approved a
debt financing with Holman Capital to finance the retrofitting of various public facilities
for energy efficiency under a contract with Alliance Building Services. The total
authorized debt was $6,854,653 and the projected annual debt service payment is
approximately $550,000 per year for 15-20 years. The program forecasts that energy
savings will exceed the annual debt service payments and provide cash flow benefits to
the General Fund. The City allocates the debt service costs to each Department based
upon the building maintenance allocation model.

o Streetlight Acquisition. On May 9, 2017, the City Council approved a debt financing to
acquire the SCE owned streetlights and convert all City owned streetlights to LED
Lighting Fixtures. The anticipated debt of $3,612,709 produces annual loan payments
of approximately $315,000 per year. The City repays the debt from savings achieved
due to the acquisition and conversion project. The City makes the debt service
payments from the Street Light Assessment District fund.

The City of Rialto, California 18 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 6 summarizes the Total General Fund Budget (operating and non-operating from FY13 through
FY19). Total General Fund operating revenues exceeded General Fund operating expenditures by
$11,614,567 over the period, adding to the reserves. Non-operating revenues exceeded non-operating
expenditures by $23,220,557 also adding to the reserves.

Table 6

Budget Advisory Committee Recommendations

On July 25, 2017, the City Council adopted Resolution No. 7171 forming the Budget Advisory
Committee. The City Council established the following objectives for the Budget Advisory Committee:

1. Review the revenue and expense projections forming the key inputs to the long-range financial
plan, and advise regarding actions promoting financial sustainability and optimal service
delivery.

2. Evaluate and recommend new or alternative revenue measures, including but not limited to
taxes, fees, user charges, and entrepreneurial activities.

3. Review, evaluate, and recommend methods of reducing expenditures or increasing
productivity, including organizational changes, alternative service delivery models, new
technological investments, and service elimination or reduction.

The City of Rialto, California 19 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

4. Review and evaluate the various revenue and expense ideas submitted by the City’s employees
and community members and make recommendations to the City Council.

5. Evaluate the City’s capital improvement program needs and recommend budgetary measures
to ensure the City sets aside adequate funding to replace equipment and facilities when they
become obsolete.

The City Council’s primary emphasis was the General Fund, the source of funding for core
governmental services including public safety and public works.

On July 24, 2018, the Budget Advisory Committee will submit its final report and recommendations to
the City Council. The Budget Advisory Committee offered 21 revenue enhancement recommendations
and 27 expenditure efficiency recommendations.

Organizational Changes

For the FY18 Budget, the City Administrator froze 11 positions throughout the organization. The frozen
positions just happened to be vacant in July 2017, when the City Council adopted the Budget – the
freezes did not implement a strategic initiative. The City expected savings from the frozen positions
of approximately $1.4 million during FY18. During the year, the Interim City Administrator held/froze
3 additional positions (2 in Development Services and 1 in Finance) to better allow those Departments
to conduct comprehensive reorganizational assessments with the FY19 Budget.

The various City departments submitted personnel requests as part of the annual budget process.
Consistent with City Council pronouncements during FY18, the Interim City Administrator challenged
the Department Directors to propose reorganizations that added employees while cutting costs and
creating career pathways within the organization. Ostensibly, this required either increased revenues
associated with a new employee or a corresponding reduction in cost. The Development Services and
Public Works Departments represented the strongest opportunity for such transitions and put forth
the most ambitious restructurings, adding employees while off-loading contract employee costs. A
few Departments proposed personnel increases without offsetting costs, arguing that service loads
required new employees regardless of costs.

Table 7 summarizes the initial personnel requests from the Departments. The Departments requested
32 new FTE employees (new or unfrozen), and offered to delete 8 positions (delete or continued
freeze), for a net addition to the workforce of 24 employees. In addition, the Departments requested
11 reclassifications for existing employees to conform titles to the actual duties or the class and
compensation report recommendations. Staff worked with the Budget Committee to determine which

Table 7

The City of Rialto, California 20 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Requested FTE Position Changes (FY19)

Department Position Adds Position Subtracts Net
New Unfreeze Adds Delete Freeze Subtracts Adds Reclass

Finance/ITS 1 23 -2 0 -2 12
00 0 11
City Clerk/Mgt Services 1 0 1 00 0 10
-2 -1 -3 40
Community Services 1 01 -2 0 -2 40
00 0 40
Development Services 6 17 -1 0 -1 23
00 0 75
Fire 5 1 6
24 11
Police 0 44

Public Works Maintenance 3 0 3

Public Works Engineering 5 2 7

Totals for All Departments 22 10 32 -7 -1 -8

requests to approve.

Table 8 summarizes the Budget Committee’s recommended additions, deletions, freezes, and
reclassifications. The Budget Committee recommended unfreezing 6 of the 11 frozen positions from
FY18, adding 16 new employees, and deleting 5 positions for a net workforce gain of 17 full-time
employees and 3 part-time employees. This reduced the net Departmental requests from 24 positions
to 17 positions. Nevertheless, this represents a significant increase in employment. The added
positions will relieve approximately $1 million per year in contract costs (based upon a full year of
service).

The Budget Committee expressed concern that the economy will encounter a recession in the next 2-
3 years and that the Departments should slow the conversion of consultant contracts to employees to
preserve flexibility in the event of a downturn. Further, the Budget Committee recommended
classification adjustments only when supported by the recently completed compensation and
classification report. Of the 11 reclassification requests submitted, the Budget Committee
recommended 5. The Human Resources Department will review all other reclassification requests for
reclassification within 90 days after budget adoption.

The City of Rialto, California 21 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 8 22 Annual Budget FY 2018 - 19
The City of Rialto, California

Budget Message
Fiscal Year 2018/2019

Table 9 illustrates the General Fund Workforce and the Total City Workforce. From FY 13 to FY 18,
total General Fund budgeted employment increased from 268 authorized employees to 300
authorized employees, an increase of 32 employees. The FY19 Budget adds 17 net new General Fund
supported employees for FY19. The City will offset the cost of many of these hires with decreased
contract employee expenditures, ultimately resulting in cost savings to the City General Fund.

Budgeted Employment (FY 13 to FY 19)
General Fund and Total City Workforce

Department FY 13 Authorized Positions FY 18 Proposed Changes
FY 14 FY 15 FY 16 FY 17 FY 19 FY13-FY18 FY18-FY19
General Fund Workforce
City Administrator 267.96 285.16 283.53 301.97 307.57 300.09 317.05 32.13 16.96
City Clerk 2.00 2.00 3.00 3.00 3.00 3.00 3.00 1.00 0.00
City Council 6.00 3.00 3.00 3.00 3.00 3.00 3.00 (3.00) 0.00
City Treasurer 5.00 5.00 5.00 5.00 5.00 5.00 5.00 0.00 0.00
Development Services 4.00 4.00 4.00 4.00 4.00 4.00 4.00 0.00 0.00
Finance 8.25 1.55
Fire 15.88 16.25 18.45 19.05 18.25 19.80 10.00 0.00
Human Resources 11.83 12.33 13.33 13.17 12.50 11.50 11.50 (0.33) 3.00
Management Services 64.00 64.00 61.00 78.00 81.00 80.00 83.00 16.00 0.00
Police 1.07 1.00
Public Works 3.33 3.33 4.33 3.73 4.40 4.40 4.40 5.00 5.66
0.00 4.00 4.00 4.00 5.00 5.00 6.00 (0.16) 5.75
Total City Workforce 140.50 141.50 141.50 141.50 142.50 140.34 146.00 2.55
City Administrator 23.05 30.12 28.12 28.12 28.12 25.60 31.35
City Clerk
City Council 329.00 321.00 324.00 338.00 344.00 333.00 350.00 4.00 17.00
City Treasurer 2.00 2.00 3.00 3.00 3.00 3.00 3.00 1.00 0.00
Community Services 6.00 3.00 3.00 3.00 3.00 3.00 3.00 (3.00) 0.00
Development Services 5.00 5.00 5.00 5.00 5.00 5.00 5.00 0.00 0.00
Finance 4.00 4.00 4.00 4.00 4.00 4.00 4.00 0.00 0.00
Fire 9.34 9.34 9.34 0.66 1.00
Human Resources 10.00 10.00 10.00 11.00 (1.10) 1.00
Management Services 21.10 19.50 19.50 20.50 21.00 20.00 21.00 2.17 1.00
Other 12.83 12.33 13.33 17.67 17.00 15.00 16.00 4.00 3.00
Police 76.00 76.00 70.00 78.00 81.00 80.00 83.00 1.07 0.00
Public Works 5.00 1.00
3.33 3.33 4.33 3.73 4.40 4.40 4.40 0.60 0.00
0.00 4.00 4.00 4.00 5.00 5.00 6.00 1.50 4.00
0.00 0.00 0.00 0.60 0.60 0.60 0.60 (7.90) 6.00
140.50 142.50 145.50 145.50 146.00 142.00 146.00
48.90 40.00 43.00 43.00 44.00 41.00 47.00

Table 9 The total

City

workforce, including positions funded by grants or as part of enterprise activities, increases to 350

authorized positions. Since FY13, the Total City workforce grew by 21 employees, with reductions in

grant and enterprise supported employment of almost 28 employees offset by an increase of 49

employees to the General Fund.

The City of Rialto, California 23 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Pensions

“Unsustainable”
Other than renewal of the Utility Tax, meeting our employee post-retirement obligations (pension and
medical care) remains the most significant budgetary challenge the City will confront in the coming
years. Due to a number of factors, many beyond the City’s control, pension costs in particular will
increase dramatically for the next 10-12 years.

In January 2018, the League of California Cities released its report entitled “Retirement System
Sustainability Study and Findings”. The key findings were:

1. City pension costs will dramatically increase to unsustainable levels;

2. Rising pension costs will require cities to nearly double the percentage of their General Fund
dollars they pay to CalPERS; and

3. Cities have few options to address growing pension liabilities.

Table 10 24 Annual Budget FY 2018 - 19
The City of Rialto, California

Budget Message
Fiscal Year 2018/2019

Although underfunded pension plans are common amongst California cities, the problem is particularly
acute in Rialto. As a percentage of current and forecasted payroll, Table 10 shows that Rialto carries
the highest burden in San Bernardino County (and the 13th highest in the State). Rialto’s extraordinary
burden results because it only recently enhanced its retirement benefits with retroactive application
to all prior years of service, and thus has had but a few years to make payments amortizing the
obligation. Other cities in the region acted more swiftly after the State authorized the enhanced
pension program in 1999/2000 and thus have had longer amortization opportunities.

To address our pension challenges, the City engaged the actuarial firm of Bartel & Associates (the same
firm used by the League of California Cities) to frame the problem and identify strategies for resolution.
The Rialto actuarial report provides numerous tables and charts illustrating the challenges the City will
encounter in the years ahead.

Unfunded Liability
Figure 3 shows the City’s 25-year trend in pension valuations, the market value of pension assets, the
actuarial value of the liabilities, and the funded ratio (the value of the assets as a percentage of the
liabilities). The City’s pension fund was “super-funded” twice during that period (meaning the value
of the assets exceeded the value of the liabilities). The City in effect had more money in its retirement
fund than what was actuarially determined necessary to pay all claims. A series of recent events
dramatically changed this positive standing.

First, the City Council approved labor agreements enhancing retirement benefits retroactive to the
employee’s first day of employment with the City of Rialto, substantially increasing liabilities. Second,
the Great Recession substantially reducing asset values. Third, the California Public Employee
Retirement System Administrators updated a variety of actuarial assumptions regarding post-
retirement outcomes (i.e. duration of retirement). Finally and most recently, PERS lowered the
expected long-term rate of return on its investment portfolio from 7.5% to 7.0%. The combined effect
of all these changes moved the City from “super-funded” status to “super-unfunded” status. The City’s
unfunded liability on the valuation date of June 30, 2018 is expected to reach $124 million. The City’s
ratio of assets to liabilities is estimated at 71%, well below generally accepted standards. To reach an
80% funded ratio, the value of pension assets needs to grow by approximately $37 million (either by
additional contributions or by investment returns).

The City of Rialto, California 25 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Assets & Liabilities/Funded Status (1994 - 2018)

$500 160%

$450Value of Assets and Liabilities ($M) 140%
$400 Funded Ratio (%)120%
$350 100%
$300

$250 80%

$200 60%
$150 40%
$100 20%

$50

$0 0%

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

Actuarial Liability Market Asset Value Funded Ratio %

Figure 3

Budgetary
Implications
The City Budget will soon feel the full consequence of these events. To restore proper funding levels,
PERS notified all participating public investors that employer contribution rates would increase. The
normal cost component will increase by 1-3% for miscellaneous plans and 2-5% for public safety plans.
The payment for the unfunded accrued liability will increase by 30-40% over a 7-year phase in program.
Figures 4 and 5 project the annual growth in the annual PERS payments and the increase in employer
contribution rates. Employer contribution rates will reach 50% for miscellaneous employees and 80%
for safety employees by FY29.

The City of Rialto, California 26 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Future PERS Payments and Employer Contribution Rates 90%

$30.0

$25.0 80%
70%

$20.0 60%
Future PERS Payments ($M)
Employer Contribution Rates (%)$15.050%
40%

$10.0 30%

20%
$5.0

10%

$0.0 0%
2019
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Figure 4 Safety
Normal Cost UAL Miscellaneous

The net result is the City’s General Fund annual payment obligation will increase from $11.4 million in
FY18 to $24.9 million in FY29, an increase of $13.5 million or $1 million per year on average for the
next 11 years (according to the Bartel Report). Pension payments will grow from approximately 16%
of General Fund expenditures to 22% of General Fund expenditures, crowding out expenditures for
other essential services. This trend requires immediate attention to ensure future budgets can
accommodate the increased payment obligations without devastating services.

Solutions
In a report presented to the Budget Advisory Committee on May 7, 2018, staff identified several
options to address the growing pension burden: Budgetary and Borrowing.

Budgetary Solutions

The budgetary solutions require the City to identify revenue streams or adopt expenditure reductions
to dedicate toward the retirement of unfunded liabilities.

 Reduce the Reserve Target from 50% and Allocate Surplus Reserves to Unfunded Liabilities.
The City currently has approximately $31 million in operational reserves (36% of operating
expenditures, although expected to increase upon recapture of invested monies). If the City
Council relaxes the target reserve (to say 25%), the released reserves could be dedicated to the
unfunded pension liabilities.

The City of Rialto, California 27 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Service "Crowd Out" 25%

$30.0

Annual PERS Payments ($M)$25.0 20%
PERS Payments as % of GF Revenues$20.015%
$15.0 10%
$10.0 5%

$5.0

$0.0 0%
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Annual PERS Payments PERS Payments as % of GF Revenue

Figure 5

 Dedicate General Fund Reserves Allocated for Capital Projects. The City currently has
approximately $33 million in reserves allocated for capital projects, including Fire Station #205
and Frisbie Park. Terminating these capital projects would free up funding for unfunded
pension liabilities, although representing a significant setback to community quality of life.

 Dedicate One-Time Monies. Periodically, the City receives one time-money from asset sales
or other unexpected sources. One of the City’s current budget principles is to use one-time
money for one-time expenditures. A pay-down of the unfunded pension liability satisfies this
principle. The City could consider a policy to dedicate a portion of future one-time money to
pay CalPERS or deposit into a Section 115 Trust.

 Increase Revenues. The City could consider another ballot measure, such as a sales tax increase
to devote to pension obligations. Alternatively, the City could direct money from a previous
ballot measure such as the UUT or Measure U (Tank Farm) measures, through the budgetary

The City of Rialto, California 28 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

process, toward pension funding. Other revenue enhancement options include reinstating the
PERS tax or passing through higher lease payments from the Rialto Utility Authority.

 Control Expenditures. The City could reduce ongoing expenditures and redirect the money
saved toward pension obligations. This would involve cuts to service levels and/or programs,
reductions in force, or gaining concessions from employee groups.

None of these option are particularly appealing but worthy of consideration in combinations thereof.
Unfortunately, the City will need to demonstrate serious financial discipline in the years ahead in order
to fulfill its generous promises to the employees.

Borrowing Solutions

Under the borrowing solutions, the City issues debt at a lower interest rate than the interest rate on
the PERS obligation (7%). The City would then dedicate the debt service savings from the spread to
accelerate retirement of the debt, or to maintain services.

 Pension Obligation Bonds. The City could issue taxable Pension Obligation Bonds and use the
proceeds to pay down the unfunded liability. The City of Monrovia recently issued taxable
POB’s to address its unfunded liability. The City of San Bernardino issued POB’s and this
ultimately became one of the principal contributors to its bankruptcy declaration. Because of
the risk, the Government Finance Officers Association (GFOA) recommends against the use of
these bonds. The City currently carries minimal debt secured by the General Fund, and adding
third party debtholders adds an external party of interest to annual budgetary decisions and
reduces City flexibility. Taxable bonds often carry severe restrictions on refinancing, and may
require secondary pledges of City assets.

 Internal Borrowing. This option involves borrowing money from the City’s current investment
pool at a lower rate than that paid to CalPERS. By using the borrowed money to pay down the
unfunded liability, the City captures the spread between the negotiated cost of capital on the
internal debt and what it would have paid to CalPERS. The City General Fund executes a
promissory note for purchase by the City’s investment portfolio. The City of Chino (and now
others) recently adopted this strategy, appropriating $69.1 million to pay down its CalPERS
unfunded liability and achieve a 90% funding level. The internal note carried an interest rate
of 2% (slightly higher than what the portfolio was earning in short-term investments) and the
proceeds retired 7% debt with CalPERS, with the 5% spread used by the City to accelerate
repayment of the internal note. The City projected total savings over 30 years of $62 million.
This option mimics the Pension Obligation Bond strategy, except that the City invests in the
debt rather than a third party investor.

The City of Rialto, California 29 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Staff recommends rejection of Pension Obligation Bonds because of the risk created when third party
bondholders enter the City’s financial decision-making. In a financial crisis, these outsiders demand
priority payment and threaten City services. The internal note option intrigues because of the
potential savings and the higher degree of internal control, but warrants additional legal and technical
analysis to determine if Rialto can assure repayment and comply with the City’s investment policy. The
City Treasurer has expressed reservations regarding this approach. In either of these options, the City
replaces one form of borrowing (the pension obligation) with another (presumably at a lower interest
rate).

The budgetary options, paying CalPERS directly or establishing a Section 115 Trust, require the City to
identify a source of funding to make the payments. Paying CalPERS directly appeals because, in so
doing, the City extinguishes expensive (7%) debt. The downside is that the City loses control of the
money. These funds are no longer available if the City should need them for any other purpose.

The City loses a lesser degree of control of its funds with the Section 115 Trust option. The City could
use the money in this Trust to reimburse annual pension contributions made by the City. As annual
pension costs increase, the City can withdraw money from the fund to pay a portion of the costs if
necessary. The Section 115 Trust allows the City to invest the monies more aggressively than for
General Funds invested. The success of this strategy in fact depends upon earning a more aggressive
rate of return, because, by choosing to invest itself, the City forgoes the opportunity to pay down the
CalPERS 7% debt.

Given the goal to maintain greater control over City funds, the Section 115 Trust provides a preferable
choice over paying CalPERS directly. Staff recommends that the City Council work toward establishing
the Trust and adopt necessary policies to allocate resources from current and future budgets. The City
must demonstrate its financial discipline by committing to one of the 5 options noted under Budgetary
Solutions.

OPEB (Retiree Medical Care)

The City also contributes toward the post-retirement health care costs of former employees. The City
contributes a fixed amount toward the cost of retiree medical coverage, depending upon family size
with contributions ranging from $279 to $726 per retired employee toward insurance plans costing
from approximately $500 to $1,700 per month. CGMA members receive full premium payment.

In 2009, the City created an OPEB trust account to pre-fund retiree medical care obligations. Public
Agency Retirement Services (PARS) invests contributions on behalf of the City. As with PERS, the City
should make annual payments to fund the normal costs and the amortized amount of the unfunded
liability (the sum of these two payments is the Annual Required Contribution) and then make the
annual payments to retirees from the Trust. For FY18, the City made the normal cost contribution to

The City of Rialto, California 30 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

the Trust, and paid the costs due to the retired workforce via CalPERS. The City indirectly made the
Annual Required Contribution through this two-step process.

The Annual Required Contribution for FY 19 consists of the normal cost component ($1.1 million) and
the UAL component ($1.4 million) for a total obligation of $2.5 million. The FY 19 Budget proposes to
fund the retired workforce obligations completely from the Trust and make no other contributions
towards OPEB obligations, resulting in a net cashflow savings to the City of $3.8 million. This will reduce
the asset value of the Trust and increase the City’s unfunded liability; however, the City maintains
greater flexibility to fund its OPEB obligations than it does for its PERS obligations. PERS does not
accept anything less than full payment of the Annual Required Contribution.

Capital Replacement Funding

The City does not have a systematic program to fund its capital facility requirements. The City requires
replacement of vehicles, equipment, and buildings on a periodic basis to fulfill its service obligations.
Ideally, the City would budget for these predictable expenditures by allocating funding each year from
the operating budget, and then draw upon the accumulated savings to replace capital assets on a
programmed basis rather than an emergency basis. Staff estimated that the City should allocate
approximately $1.0 million per year to plan for the replacement of fleet (with a $6 million current
deficiency), and another $0.5 million for building facilities. The FY19 Budget does not allocate this level
of funding for capital replacement, and therefore defers this obligation into the future. The City will
replace fleet, equipment, and building facilities on an as-needed basis.

Operating Budget Deficit/Recommended Measures

A Structurally Balanced Budget occurs when Operating Revenues equal or exceed Operating
Expenditures. Operating Expenditures for this analysis should include all costs of standardized service,
and all normal allocations to services/supplies, capital outlay, debt service, and other components.
Often, budgets may be cash balanced (revenues equal expenditures) but structurally imbalanced
(because otherwise appropriate expenses are deferred). The City of Rialto has many times submitted
a budget reflecting this dichotomy, and the FY19 budget follows this continuing trend. Circumstances
may make this approach acceptable in certain years, but the City cannot sustain this practice
indefinitely and eventually must achieve a better allocation of its limited resources between the
competing budget elements.

The City of Rialto, California 31 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Table 11 summarizes the proposed Operating Revenues and Expenditures for FY19. The FY19 Adjusted
Operating Expenditures of $87,142,763 exceed Operating Revenues of $85,750,995 producing an
Operating Deficit of $1,391,768. The FY19 resolves the deficit with a one-time allocation of non-
operating surplus revenues, producing a total General Fund surplus of $297,477.

Table 11

The City has seesawed on its OPEB obligations in recent years, making no contributions in some years
and then doubling up in others. The City’s practice has been to contribute some or all of the Annual
Required Contribution to the Trust, and then direct pay the current retiree costs. The FY 19 budget
proposes for the first time that the City pay the current cost of retiree medical care directly from the
Trust.

In an optimal budget, the City would allocate approximately 5% of its revenues toward capital

The City of Rialto, California 32 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

improvements or $4.3 million. The City has not accomplished this objective in recent years, and many
cities in fact struggle to maintain the capital stock. The reduction of $3.7 million from the capital outlay
is a theoretical reduction intended to illustrate the deferral of capital investment.

The City generates significant income from its asset sale activities. For FY19, the City expects budgeted
non-operating revenues to exceed budgeted non-operating expenditures, producing a surplus of
$1,689,245. Instead of adding this surplus to the General Fund Reserve and designating it for capital
projects, the Budget allocates these monies to balance the operating budget. This is inconsistent with
the City’s Budget Principles, but necessary to accommodate the operating deficit created by the
increased personnel costs (for new workers, salary adjustments, and PERS burdens).

General Fund Reserves

The City Council established the General Fund Reserve Fund to provide funding for emergencies,
special projects, and working capital. In 2002, the City Council adopted a policy to “target” a minimum
reserve level of 50% of the operating budget. The operating budget for the purposes of this calculation
included all appropriations for operating expenditures plus transfers to other funds for operations.
The policy stated that the City should not use the reserves for on-going operational expenses such as
salary increases, services, and supplies.

Figure 6 shows that, from FY13 to FY 17, the City has maintained operational reserves satisfying the
target standard; however, in FY18 the City Council opted to use operational reserves for various
expenditures (retroactive payments due under anticipated labor agreements) and investments (for
economic development land acquisition and CCA advance costs) that resulted in operational reserves
dropping below the target. The operational reserve at FYE18 is estimated at $31.3 million,
representing 36% of the FY19 operating budget (or 14% below the target).

During FY18, the City Council considered reports and recommendations to reconsider the appropriate
reserve targets. The City asked PFM to analyze the City’s reserve policy and recommend changes to
the standard as appropriate. Because of the risk of revenue upset related to the Utility Tax renewal
and economic recessions, PFM recommended that the City maintain the 50% reserve target. This
exceeds the Government Finance Officers Association (GFOA) standard of 16.7% and exceeds the norm
for California cities of approximately 25%. In the event the City opted to relax the standard, PFM
recommended that the City direct the released funds to capital expenditures or unfunded liabilities.

The City of Rialto, California 33 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Figure 6

On May 2, 2000, the City Council adopted Resolution No. 4633, established the Rialto Working Capital
Fund, and set criteria for its utilization. The City designated Fund Number 030 as the Working Capital
Fund and initially deposited $12.5 million from the Development Agreement related to the Mid-Valley
Sanitary Landfill. The City subsequently supplemented the Working Capital Fund and it now holds $24
million. Staff interprets the Working Capital Fund to be a component of the Operational Reserves.
Staff proposes to allocate all of the operational reserves to the Working Capital Fund so that the City
Treasurer can clearly articulate the amount of reserve funding available each month.

Table 12 forecasts the FY19 General Fund Reserve Balance based upon anticipated revenues and
expenditures. Based upon the budgeted revenues, expenditures, and previously established reserve
priorities, the City will end the FY 19 Budget with Operational Reserves of $31,352,578 (36 %). The City
will not satisfy the 50% target due to its FY18 investments and expenditures. When the City recovers
its investments in property and the Community Choice Aggregation program, it will move closer to the
standard.

The City of Rialto, California 34 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

6/30/2019

FY 19 MYA Operating Budget Operational Capital Totals
Reserves Project
Total Reserves at Mid Year Budget Review Reserves 71,530,305
87,142,763
Deduct: Restricted Reserves/Unavailable 38,891,949 32,638,356 (1,300,000)
Advances to Other Funds (50,290)
Inventory (1,300,000) 0
Reserved-Capital Project-Airport Cont. Liability (50,290) 0 (3,994,000)
0 (3,994,000) =========
Net Available Reserves at Mid Year Budget Review =========
========= 28,644,356 66,186,015
Adjustments Post Mid-Year Review 37,541,659
General Fund Operating Deficit for FY19 (1,342,000) (1,342,000)
General Fund Non-Operating Surplus for FY19 (1,391,768) (3,700,000) (3,700,000)
Purchase RSA Property for Renaissance East 1,689,245 1,038,000 1,038,000
Construction Loan for Renaissance East
Sale of City Property to Cracker Barrel in July, 2018 (118,060) 426,000 426,000
Repayment of Construction Loan on Cracker Barrel in July, 2018 (4,485,000) 472,000 472,000
Sale of City Property to Sonic in October, 2018 530,000 530,000
Repayment of Construction Loan on Sonic in October, 2018 ========= (118,060)
CCA Start Up Costs 38% 33,236,076 0 (4,485,000)
Casmalia Site Purchase 0 =========
(1,883,498) ========= 59,006,955
Adjusted Reserve Balances at June 30, 2018 26,068,356
========= (1,883,498)
New Adjustments & Capital Project Reservations 36% 31,352,578 (1,107,516) (1,107,516)
Retrocative Compensation (5,000,000) (5,000,000)
Streets (16,467,500) (16,467,500)
FS 205 (3,493,340) (3,493,340)
Frisbie Park
Baca/Turch Park ========= =========
- 31,055,101
Reserves after All Adjustments

Table 12

The City has realized significant non-operating revenues from Airport asset sales. By its various actions
approving the Development Agreement for the Airport on December 13, 2016, the City Council
established priorities for the expenditure of these one-time revenues upon deposit to the General
Fund. On July 11, 2017, the City Council adopted Resolution No. 7165 and approved $26.1 million in
specific funding designations for various capital projects and satisfying the assignment standard in
accordance with GASB 54. The Resolution attached to the FY19 Budget will reaffirm specific capital
project commitments funded from General Fund reserves as shown in the table and supersede all prior
reservations.

The City of Rialto, California 35 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

Measure U (Fuel Storage Tax)

On November 4, 2014, Rialto voters approved a tax of up to $1.00 per cubic foot of liquid storage
capacity for any wholesale liquid fuel storage business. The primary targets for the new tax were the
businesses that operate the “tank farm” on Riverside Avenue, south of the I-10 Freeway. The
businesses scheduled to pay the tax included, among others, Kinder Morgan, Tesoro, and Shell Oil. The
tax did not apply to retail service stations. The City Council pledged to reduce the utility tax from 8%
to 6% upon implementation of Measure U.

On February 22, 2017, the Superior Court for the County of San Bernardino ruled in favor of the City of
Rialto and determined that the tax was valid and enforceable. The plaintiff businesses then filed an
appeal with the Appellate Court of the State of California. The parties presented the case to the
Appellate Court in May 2018, with oral briefings approximately 6-9 months thereafter (late 2018 or
early 2019). The City expects a decision before June 2019. Depending upon the outcome, either party
could appeal to the California Supreme Court, lengthening the time before a final determination.

The City holds approximately $26 million in escrow pending the court determinations. The annual
revenue averages approximately $8 million. The pledge to reduce the Utility Tax by 2% reduces the
annual revenue yield by approximately $3.6 million.

Capital Improvement Program

The FY 18 Budget commits substantial funding for capital improvement projects, utilizing the one-time
monies generated from asset sales, grant funding, development impact fee funding, and other sources.
The major projects scheduled for construction in FY 19 include the following:

Street Projects

 Alder Avenue Widening Phase II. This project widens Alder Avenue from Baseline Road to
Renaissance Parkway from two lanes to four lanes improving traffic flow and enhancing public
safety. The Project uses funding from the General, Regional Transportation Development
Impact Fee, Drainage Development Impact Fee, and County Landfill Transfer Fee Funds along
with residual RDA Bond Proceeds. The City received an SB1 grant award of $1.1 million for this
project, which will commence early in 2019.

 Randall Street Widening. This project widens Randall Avenue from Cactus Avenue to Riverside
Avenue. The Project uses funding from Measure I and Transportation Development Impact Fee
Funds. The City also received an SB1 grant award of $1.1 million for this project, which will
commence early in 2019.

The City of Rialto, California 36 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

 Street Resurfacing, Overlay & Pavement Rehabilitation. The City Council appropriated SB1
Funds, Gas Tax, and Pavement Maintenance Fees for this project, which includes the following
streets: Linden Avenue from Foothill Boulevard to 2nd Street, Merrill Avenue from Maple
Avenue to Riverside Avenue, Rialto Avenue from Riverside Avenue to Sycamore Avenue, Valley
Boulevard from Spruce Avenue to 640 feet east of Lilac Avenue, and Valley Boulevard from
Riverside Avenue to the East City Limit.

Parks and Public Facilities

 Joe Sampson Park. The Joe Sampson Park project consists of the development of a 7.5-acre
local park, on a vacant parcel situated at the northeast corner of Cactus Avenue and Randall
Avenue. The $5.6 million Project uses funding from Park Development Impact Fees and General
Fund Reserves (provided by Airport land sales). The Park commenced construction in FY18, and
will open for public use in 2019.

 Frisbie Park. The Frisbie Park expansion project adds approximately 10.7 acres of new facilities
to the existing park. New facilities may include tennis courts, restroom facilities, a skate park,
basketball courts, playgrounds, a new "T" ball, and a new softball field. The Project uses funding
from Park Development Impact Fees and General Fund Reserves (provided by Airport land
sales).

 Fire Station 205. This $7 million Project constructs a new 10,000+ square foot station and
community facility to serve southern Rialto. The station will be located on Willow Avenue,
between San Bernardino Avenue and Valley Boulevard. The City acquired the land in FY18, and
will commence construction in FY 19 for delivery in 2020. The Project uses Fire Development
Impact Fees and General Funds (Airport Land Sales Proceeds).

The City of Rialto, California 37 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

RUA/RWS

 Wastewater Treatment Plant Improvements. The Wastewater Treatment Plant
Improvements expand the existing Plant No. 5 to meet the design capacity of 11.7 Million
Gallons per Day (MGD) and all Federal, State, and local regulations. The expansion will
construct new and upgraded facilities including the headworks, primary treatment, biological
treatment, effluent filtration, chlorination feed system, and solids handling. The $27 million
Project uses funding from the Concession Agreement Facility Improvement Plan and Rialto
Utility Authority Reserves.

Economic Development

 Renaissance Marketplace will open at the southwest corner of Ayala Drive and the 210
Freeway. The shopping center will build out with 460,000 square feet of retail and service
space anchored by Cinemark Theaters (opening in July 2018), 24 Hour Fitness (opening in June
2018), Old Navy, Burlington, Ross, Blaze Pizza, the Habit, Chick-Fil-A, Olive Garden, Panera
Bread, and Septembers Taproom & Eatery. Starbucks Coffee and Panda Express have already
opened.

 Coffee Bean & Tea Leaf will open its first Rialto store at the southeast corner of Riverside
Avenue and Easton Avenue. Coffee Bean serves fresh coffee, tea, and assorted breakfast items.
The Rialto store will accommodate customers with a drive thru, as well as indoor and outdoor
seating.

The City of Rialto, California 38 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

 Renaissance Plaza will commence construction at the northeast corner of Ayala Drive and
Renaissance Parkway, across from the Renaissance Marketplace in May 2018. The project
includes a Cracker Barrel restaurant, Sonic Drive-Thru, and a Holiday Inn Express hotel. Future
construction phases include three multi-tenant buildings. The City expects Cracker Barrel and
Sonic to open in the fall, 2018. The City commenced construction on street improvements
along Renaissance Parkway during the first week of April 2018.

 Aldi Grocery and Warehouse Shoe Store commenced construction at the northeast corner of
Foothill Boulevard and Cactus Avenue. Aldi Grocery is a rapidly expanding small format grocery
store owned by the same company that operates the Trader Joe’s grocery chain. Warehouse
Shoe already operates in Rialto but will relocate from its current location to expand its product
offerings and provide better parking for its customers.

The proposed budget document does not include any carryover budget for multi-year capital projects
and grant programs. Revenues and expenditures typically do not match in funds that are capital
project related because revenues may be received prior to the beginning of the project and others may
be reimbursement-based or grant funded. The budget does not include these funds since the City
Council previously approved the expenditures, and the budgets carry forward the budgets from year
to year until project completion. The City Council will accept new grants at the time of award.

Dilution of City Services

As the City adds new residents and workers, City services should expand. The complement of police
and firefighters and other City employees should expand to maintain service standards. Unfortunately,
given the financial stresses discussed herein the City cannot add employees at the level that would
maintain current or desired service levels. The City must provide services to the best of its ability using
the current (or reduced) workforce complement and use the revenues generated from the new growth
to pay for the forthcoming financial burdens. City employees will carry extraordinary workloads for

The City of Rialto, California 39 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

the near future.

10 Year Financial Forecast

On July 11, 2017, the City Council approved the Fiscal Year 2017-2018 City Budget. On July 25, 2017,
the City Council adopted Resolution No. 7171 establishing a Budget Advisory Committee to prepare a
Long Range Financial Plan and advise the City Council regarding Future Revenue Enhancements and
Expenditure Efficiencies. On September 12, 2017, the City Council engaged PFM Group Consulting
(PFM) to prepare the 10 Year Financial Plan. The 10-year financial plan will help the City analyze the
consequences of its labor, service/supply, and capital expenditure decisions and prudently chart the
City’s financial destiny.

PFM first submitted the draft Long Term Financial Plan on February 28, 2018 with a presentation to
the Budget Advisory Committee on March 8, 2018. PFM revised the draft report based upon
comments received from the BAC and staff, and now takes into account voter approval of Measure M.
The key findings included:

 The City has balanced recent budgets through the Utility User’s Tax. This
tax allowed the City to add back in services cut during the Great Recession, and
continue services over the last five years. The ability to maintain services was improved
with the passage of a continuing UUT by the voters on June 5, 2018.

 The CalPERS-required employer share of pension costs is projected to increase
significantly over the next 12 years with the implementation of a reduced discount rate.
PFM estimates that by FY28 the City will have contributed an additional $53 million
over a continuation of the FY18 cost. This increased cost will make it difficult for the City
to increase wages, services, or supplement capital outlay over the next decade.

 The City needs to be careful in granting compensation increases or expanding
services. Increasing salaries by an average of 3% per year will result in negative net
revenue in most of the next 10 years, and will not leave room for any expansion of
services, funding of unfunded liabilities, or addressing deferred maintenance expenses.

 The City has long-term unfunded liabilities for pensions, retiree healthcare and asset
recapitalization/deferred maintenance. By funding these costs inconsistently, balancing
future budgets will be difficult as pay-go costs rise for retiree healthcare and municipal
facilities require repairs from the General Fund or fall into further disrepair.

 PFM’s baseline forecast shows the City’s General Fund revenues increasing at a
moderate rate in each year of the forecast. Under PFM’s optimistic revenue growth

The City of Rialto, California 40 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

scenario in which we reflect the City's major revenue sources growing due to planned
development, the City gains more budget space to address its long-term budget issues.
However, these increases in revenues do not replace the potential loss of the UUT in
future votes.

Revenue Enhancements

 Identify potential voter-approved taxes or assessments and other revenues. Over the next
ten years, costs will continue to rise beyond the City's ability to fund with current revenue
sources. If deeper staffing cuts are to be avoided, the City may need to consider local-option
taxes or assessments to raise revenue. There are several options available to the City.
However, it is important for the City to find potential sponsors of specific increases to help
determine what tax or assessment to implement.

 Review and update Master Fee Schedule. On an annual basis, the City should review its Master
Fee Schedule to ensure that it is fully recovering the cost of providing fee- based services where
appropriate. Where there is capacity to increase fees, the City should do so accordingly. While
fee increases are unlikely to result in significant increases in revenues overall, they are relatively
easy to implement, requiring only a vote of the City Council.

 Maintain General Fund reserve levels. Current levels of General Fund reserves are strong, and
the City should continue with a strong reserve policy. Due to the past unpredictability of the
UUT, the 50% Council-policy reserve was warranted. With the UUT revenues stable, the reserve
level could be reduced, based an evaluation of the risks the City may need to cover (e.g.,
recession, earthquake, loss of employers, etc.) with the reserves. However, use of these one-
time funds should be restricted to one-time expenses, such as long-term liabilities or capital
investments. On December 18, 2017, the Budget Advisory Committee recommended that the
City maintain the 50% reserve policy and only use surpluses above that figure toward long-term
liabilities.

 Evaluate potential cost-savings for service contracts and evaluate cost-recovery of current
contracts. The City should continue to evaluate the potential cost-savings for contracted
services. Depending on the nature of the services that the City seeks to contract out, there may
be legal limitations. The courts have generally held that general law cities, such as Rialto, are
prohibited from contracting out for non-special services. Nonetheless, outsourcing certain
services may allow the City to realize operational efficiency and workforce savings

 Promote economic development and expanded business within the City. The City can
increase revenues through expanded or new retail sales, the development of additional hotels
and other commercial properties. While the City does not initiate this type of growth, it should

The City of Rialto, California 41 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

continue to aggressively encourage and promote new business development in the City. A
good deal of development is underway and can be used to stabilize the City’s revenues and
fund needed capital and long-term liability items.

Expenditure Efficiencies

 Develop cost-reduction strategies. It is unlikely that General Fund revenues will increase
enough to cover the projected increases in pension costs by FY27/28. As such, the City needs
to develop cost-reduction strategies to reduce expenses now in order to absorb these cost
increases in the future.

 Evaluate the creation of a Pension Stabilization Reserve. CalPERS costs are increasing
significantly in the short-term, driven by a reduction in discount rate. It is possible that further
discount rate reductions could again spike rates in the next few years, depending on how well
CalPERS does with its investments. As a safeguard against funding pressures resulting from the
year-over-year rate increases (including known and unknown factors), the City should establish
a City-controlled Pension Stabilization Reserve (PSR) with a target balance of 5% of General
Fund payroll (approximately $1.0 million in FY18). Given the ongoing budgetary and economic
challenges, it may take several years for the City to achieve the target balance of 5% of payroll
in the PSR. At a minimum, PFM recommends the City contribute 1% of payroll per year into
the PSR. Under such a funding approach, the City would achieve the target reserve level of 5%
of payroll over a five-year period.

 Create a plan to fund long-term liabilities. The City has long-term liabilities for buildings, parks,
roads, and retiree health care that have not been adequately funded. As the City manages its
budget, funding for these long-term liabilities should be added to annual expenses. The City
should develop a plan to phase in this funding over the next five to ten years.

As part of the Long Term Financial Plan, the City received an Excel model that for updating as the City
makes financial decisions. The City may run scenarios (as illustrated in the Plan) that show the effect
of alternate decisions. The model outputs forecasted revenues, expenditures and general fund
balances.

Summary and Acknowledgements

While the recommended FY19 Budget is cash balanced and adds significant service to the community,
it required implementation of several one-time measures that cannot be sustained into the future.
Most significantly, the City must confront the challenged posed by the increasing cost of its post-
employment benefits to its employees. During FY18, the City performed an assessment of its pension
and OPEB actuarials and identified pathways for restoring financial sustainability. During FY19, the

The City of Rialto, California 42 Annual Budget FY 2018 - 19

Budget Message
Fiscal Year 2018/2019

City Council and City Staff must identify and commit sources of funding. The consequences of inaction
on this subject will significantly compromise the City’s ability to compensate its employees and support
its public services in the future. City Staff remain committed to constantly find new revenue sources
and cost efficiencies.

I wish to thank the City Council and its Budget Committee for guidance and support throughout the
development of this proposed budget. In addition, I wish to thank the Management and Finance
department staff, all of the employees of the City, the members of the Budget Advisory Committee,
and the interested citizens who have contributed to make this budget a reality.

Respectfully submitted,

Ahmad Ansari
Interim City Administrator

The City of Rialto, California 43 Annual Budget FY 2018 - 19

Grant Funding

 $996,975 - Proposition 47, Community intends to use the funds for technology,
Services communications, and safety equipment.

 $30,000 - National League of Cities,  $28,773- Edward Byrne Memorial
Food Service Grant, Community
Services Justice Assistance Grant (JAG) from the

 $20,000 - National Endowment for the U.S, Police. Department of
Arts (NEA), Community Services
Justice/Bureau of Justice Assistance.
 $70,000 - Community Development
Block Grant, Community Services The Police Department will use JAG

 $900,000 – Intergovernmental Transfer Funds to purchase Motorola Radios with
(IGT), Fire. This is not a grant but
participation in the program generates software.
restricted revenue that is used to
enhance Emergency Medical Service  $194,000 - from the California Office of
delivery without general fund cost. Traffic Safety for the Selective Traffic
Enforcement Program, Police. This
 $25,000 - Homeland Security Grant program funds a variety of law
Program (HSGP), Fire. Funding for enforcement operations and traffic safety
tactical mobile data tablets. programs on an overtime basis for first
line officers and supervisors, training for
 $23,800 – Emergency Management Traffic Officers, a Collision
Performance Grant, Fire. Funding for Reconstruction System, and needed
Emergency Operations Center (EOC) Checkpoint supplies.
equipment.
 $27,496– Homeland Security Grant
 $3000 – Regional Homeland Security Program from the U.S. Department of
Grant, Fire. Funding for technology Homeland Security/Federal Emergency
services to disaster preparedness. Management Agency, Police. Grant to
fund a small unmanned aircraft.
 $206,407 - from California Citizens’
Option for Public Safety (COPS) Grant,  $30,681 – Homeland Security Grant
Police. This is a state grant to be Program from the U.S. Department of
specifically used for front-line municipal Homeland Security/Federal Emergency
police services. The Police Department Management Agency, Police. Grant to
intends to use the funds for technology, fund a Mobile Field Force training
communications, and safety equipment. exercise.

 $231,593 - from California Citizens’  $25,000 – Grant Assistance Program
Option for Public Safety (COPS) Grant, (GAP), Police, administered by the
Police. This is a state grant to be Department of Alcoholic Beverage
specifically used for front-line municipal Control. This program funds a variety of
police services. The Police Department alcohol related details on an overtime
intends to use the funds for technology, basis.
communications, and safety equipment.
 $66,397 - Federal Highway
 $162,988 - from California Citizens’ Administration – National Highway
Option for Public Safety (COPS) Grant, Performance Highway Bridge Program
Police. This is a state grant to be through the California Department of
specifically used for front-line municipal Transportation for Preliminary
police services. The Police Department Engineering on the Riverside Avenue
Overhead at the Union Pacific Railroad
Project.

The City of Rialto, California 44 Annual Budget FY 2018-19

Grant Funding

 $359,960 - SAFETEA-LU DEMO Grant  $1,450,000 – from Cycle 1 Caltrans
from the California Department of
Transportation for Preliminary Active Transportation Program (ATP)
Engineering on the Riverside Avenue
Overhead at the Union Pacific Railroad The planning grant will establish a SR2S
Project.
Program, identify and prioritize

infrastructure deficiencies for

 $446,200 - California Department of improvements.
Transportation Safe Routes to School
(SR2S) Cycle 10 Program Grant for the  $629,000 – from Cycle 2 California
Rialto Avenue and Cedar Avenue Department of Transportation – Active
improvements. The Project will improve Transportation Program for the Etiwanda
sidewalks, pedestrian crossing at the Corridor Project. The Project will
railroad and construct bike lanes to
improve pedestrian and bicyclists’ improve sidewalks and construct bike
safety. lanes to improve pedestrian and
bicyclists’ safety.

 $103,000 - California Department of  $200,000 – from California Department
Transportation Safe Routes to School of Transportation, Planning for a
(SR2S) Cycle 10 Program Grant for the sustainable communities grant under the
Rialto Avenue and Cedar Avenue Road Repair and Accountability Act of
improvements. The Project will improve 2017 (SB-1) to develop a Rialto Active
sidewalks, pedestrian crossing at the Transportation Plan.
railroad and construct bike lanes to
improve pedestrian and bicyclists’  $2,291,000 – from California Department
safety. of Transportation, Local Partnership
Competitive Program grant under the
 $900,000 - California Department of Road Repair and Accountability Act of
Highway Safety - State Local 2017 (SB-1) for the construction of Alder
Partnership Program Grant for widening Avenue and Randall Avenue widening.
Ayala Drive from SR210 to Baseline
Road.

 $3,345,600 - U.S. Department of  $300,000 – TDA-Article 3 grant through
Transportation, Federal Transit SBCTA supplemental funding for the
Administration (FTA) for the Metrolink Etiwanda Corridor Project. The Project
Parking Lot Expansion Project. will improve sidewalks, pedestrian
crossing at the railroad and construct
 $1,500,000 - Proposition 1B, Public bike lanes to improve pedestrian and
bicyclists’ safety.
Transportation Modernization,

Improvement and Service Enhancement  $250,000 – TDA-Article 3 grant through
SBCTA supplemental funding for the
Account (PTMISEA) Funds, through San Rialto Avenue and the Cedar Avenue
Improvements. The Project will improve
Bernardino County Transportation sidewalks, pedestrian crossing at the
railroad and construct bike lanes to
Authority (SBCTA) for the Rialto improve pedestrian and bicyclists’ safety.

Metrolink Parking Lot Expansion Project.

 $800,000 - Local Transportation Funds  $196,200 – from the Caltrans HSIP-
through SBCTA for the Rialto Metrolink Cycle 7 grant to install 4.5 miles of Class
Parking Lot Expansion Project.

The City of Rialto, California 45 Annual Budget FY 2018-19