Title
Adoption of a Resolution Approving and Adopting an Amendment to the City Of Alameda's Operating and Capital Budget for Fiscal Year 2014-2015. (Finance, 2410)
Body
To: Honorable Mayor and Members of the City Council
From: John A. Russo, City Manager
Re: Adoption of a Resolution Approving and Adopting an Amendment to the City Of Alameda's Operating and Capital Budget for Fiscal Year 2014-2015
BACKGROUND
The 4th Quarter Financial Report was presented to the Council at its November 18, 2014 meeting. The results of the Fiscal Year 13-14 were presented in detail and the General Fund results were summarized in the Financial Impact section of that report. As noted in that report, the anticipated FY13-14 Fund Balance not otherwise obligated was anticipated to be $21.2 million. However, the actual Fund Balance not otherwise obligated was $28.6 million of which $15.9 million is required to meet the 20% reserve and $1.3 million is required to meet the needs for work force changes including increased staffing and negotiated wage increases in FY14-15. The remaining $11.5 million is available for allocation to other uses.
The majority of the $11.5 million comes from one time sources of revenue such as unanticipated Redevelopment pass through payments, transfer tax on the sale of two large apartment complexes, and salary savings in both the Police Department and General Government categories (City Council, City Manager, City Attorney, Finance and Human Resources). The remainder is a result of the improving economy and the accumulation of reserves over time above the stated 20% policy.
One time Revenue
Redevelopment Pass Throughs $1,300,000
Transfer Tax $524,000
Lower Expenditures $3,686,300
Improving Economy (On-going) $2,330,390
Reserves Already Above Policy of 20% $3,637,630
TOTAL $11,478,320
DISCUSSION
With the exception of maintaining a 20% operating expense reserve, there are no specific policies that direct how to allocate excess funds. Executive staff has analyzed many options and by applying a combination of best and past practices, such as using one-time funds for one-time expenses (not for annual on-going operations), propose the following recommendations:
Add Additional 5% to Reserves $ 3,965,550
Designate for Anticipated Deficits /Long Term Obligations $ 3,000,000
Appropriate for Emergency Training and Supplies $ 250,000
Transfer to Internal Service Funds $ 2,362,770
Transfer to Unfunded CIPs $ 1,800,000
Transfer to Library Fund $ 100,000
Total $11,478,320
The current City Council policy requires that 20% of proposed expenditures be held in Reserves. Despite the last few years of economic hardship, the City has been able to maintain a healthy reserve of between 25-30% -- a fact that has been positively acknowledged by bond rating agencies and something that has provided a small beacon of financial security during a time of economic uncertainty. For this reason, staff is recommending that an additional 5% be set aside to cover a full three months of annual expenditures, instead of two and one-half.
Additionally, as outlined in the last 5 year forecast, staff has predicted deficits for the foreseeable future as a result of PERS smoothing, labor contracts, and the rising cost of health care (albeit at a slower pace than previous years). While growth assumptions have been conservative (3%) and we do expect the economy to continue to recover (and deficits to be less than anticipated), staff believes it prudent to set aside an additional $3.0 million to safeguard against future deficits or for other long term liabilities. By designating these funds, they will be considered "obligated" and not part of the General Fund's "unrestricted" Fund Balance (though part of the overall General Fund's fund balance) and will require further Council action to be spent.
In order to allocate the remaining amount, more specific Council action is necessary. Exhibit 1 provides the detail for appropriations and transfers for these actions.
Emergency Preparation, Training and Supplies - As Council is aware, the Emergency Operation Center is moving ahead and it is anticipated that construction documents will be out to bid in early Spring of 2015. In light of lessons learned during the Napa earthquake and the current emphasis on resiliency, training and supplies are critical to ensuring a thorough and timely response after an emergency. Training and supplies are not part of the construction budget. To ensure oversight, these items will be placed in the City Manager's budget along with the Emergency Preparedness and Resiliency staff.
Internal Service Funds - Internal Service Funds are funds that account for activities that provide goods or services to other funds or departments, on a cost-reimbursement basis, such as the Equipment/Vehicle Replacement Fund or the Technology Fund. In the City of Alameda, for example, all Departments that operate vehicles annually contribute to the Equipment/Vehicle Fund so that when one must be replaced, there is dedicated funding to do so without taking it from the General Fund's reserves. The proposed contribution to the Equipment Replacement Fund would bring the fund's balance to 100% funded based on two years of historical expenditures. This will ensure that equipment can be secured as needed, even if future revenues run short.
Contributions to the Compensated Absences Fund (future pay-out of accrued vacation) would allow that fund to be 75% funded, based on FY 13-14 preliminary audit. Funding for the Technology Services Fund would strengthen the City's backbone infrastructure and allow for some capacity expansion. Technology is an area that has been severely neglected even before the recession began. And finally, while unable to bring the Worker's Compensation Insurance Fund to full funding, contributions would bring the claims liability funding close to 70% based on projections outlined in the FY 13-14 preliminary audit.
Unfunded CIP - Every two years as part of the biennial budget, staff prepares an "unfunded" CIP list. These are projects that have been identified as necessary but having insufficient funds to complete. The majority of the proposed projects rest within the Public Works or Recreation and Parks Departments. Based on those Departments' recommendations, staff is proposing to fund ADA upgrades for park facilities, irrigation improvements at fields, repairs of pedestrian, sidewalk and bike trails at parks, facility corrections and maintenance, and general sidewalk repairs.
Library - As a result of the recession, the Library fund has been forced to reduce its budget for materials, training and equipment. While additional hours and staff would be preferred, these one-time uses are more appropriate for the nature of the funding source and would be a welcome increase to an area that has seen significant cuts.
The proposed allocation of resources would allow the General Fund to maintain a healthy Reserve of 25%. Many areas that have been either overlooked or underfunded during the recession will receive an infusion of capital not seen in recent years.
Additionally, these actions are allocation of resources and will require staff to follow purchasing and contracting procedures, including bringing individual items to Council for approval, as appropriate.
FINANCIAL IMPACT
The above actions will leave: 1) a reserve of $ 19,827,750 which is 25% of annual expenditures; 2) and a committed reserve of $3,000,000 for future deficits or other long term liabilities; and 3) an otherwise obligated amount (previously restricted funds) of $2,693,186 for a total General Fund Fund Balance of $25,520,936.
The above action will appropriate an additional $250,000 in the General Fund for emergency training and supplies and will transfer out to other funds (CIP, Library, and Internal Services Funds) a total of $4,262,767.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b) (4) of the CEQA Guidelines, because it involves governmental fiscal activities (commitment, appropriation and transfer of funds), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Adopt a Resolution Approving and Adopting an Amendment to the City of Alameda's Operating and Capital Budget for Fiscal Year 2014-2015
Respectfully submitted,
Elizabeth D. Warmerdam,
Assistant City Manager
By,
Juelle-Ann Boyer,
Interim Finance Director
Exhibit:
1. FY 14-15 Commitment of Fund Balance, Appropriation and Transfers to other Funds.
2. Resolution Approving and Adopting an Amendment to the City Of Alameda's Operating and Capital Budget for Fiscal Year 2014-2015.