Title
Recommendation to Allocate General Fund Projected Available Fund Balance In Excess of 20% Reserve Requirement (Approximately $14.5 million). (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Recommendation to Allocate General Fund Projected Available Fund Balance In Excess of 20% Reserve Requirement
BACKGROUND
During the City’s multiple budget workshops held in spring 2015, the members of the City Council directed staff to evaluate the size of the General Fund available fund balance and propose best uses of the excess funds. Staff was further directed to assess the need and estimate cost of additional support in the following areas:
• Alameda Point buildings
• Deferred building maintenance
• Carnegie (former Library) building
• Abandoned vessels in the Estuary
• Emergency water supply
• Citywide Transit and Transportation Demand Management Plans
• Health benefit for part-time employees
• Economic uncertainty/Contingency
• PERS Smoothing/OPEB funding for Existing Retirees
Upon further review, and after analysis by each City Department, the following items were added to the list for consideration:
• Estuary Park funding shortfall
• Emergency park tree maintenance
• Tidal Canal Funding
• Emergency Operations Center/Fire Station #3 Contingency
DISCUSSION
As of June 30, 2016, the General Fund Adopted budget is projected to have ending available fund balance of $30.8 million or 38% of total General Fund expenditures (Exhibit 1). With the exception of maintaining a 20% General Fund operating reserve, there are no specific policies that direct how to allocate funds in excess of the established reserve. Executive staff analyzed many options and applied a combination of best and past practices, such as using one-time funds for one-time expenses (not for annual on-going operations), to develop the following recommendations.
Alameda Point Buildings
There are 17 vacant apartment buildings located at Alameda Point that are no longer habitable and have been recommended for demolition. In June 2015, staff solicited bids for the demolition of these units. The apparent low bid for removal of all the units was $575,000. These bids were based on a demolition plan developed by Vista Environmental and included demolition of the structures and hauling away the environmental waste. Once the June 30, 2015 audited financial statements for the Base Reuse Fund are issued, staff will determine whether there is sufficient fund balance to complete the project at one time, or to phase it in over an extended period of time. Staff does not recommend allocating General Fund resources to this project, at this time.
Deferred maintenance
Deferred maintenance of City buildings is estimated between $15-20 million. A portion of this deferred maintenance is included in Exhibit 2, and includes items such as roofs, heating/cooling systems, and other building equipment beyond its useful life. Deferred maintenance has real consequences. For example, City staff spends time responding to roof leaks when those leaks would not exist if the roof had been replaced when its useful life ended. A third-party expert in facility condition assessments is assisting Public Works in developing a detailed ten-year plan to prioritize and address City building deficiencies and lay out alternatives available to the City Council for funding this plan. In January 2016, Public Works will report to the City Council on the facility condition assessment, plan, and funding alternatives. In the short term, staff recommends allocating $2.0 million from the General Fund’s available fund balance to the Facility Maintenance Fund. These funded projects are listed on Exhibit 2 and will be completed by January 2018.
Carnegie Building
In October 2014, the Council approved an Exclusive Negotiation Agreement (ENA) with Pacific Pinball Museum (PPM) for renovation of the Carnegie Building. PPM has raised and deposited $750,000 of the $3.5 million required to execute a formal lease with the City for the building. PPM has until October 2016, to raise the remaining balance of $2,750,000. The ENA states that in Year 1 PPM needs to have on deposit $2,125,000 and $3.5 million by the end of Year 2. The renovation cost estimate is based on a 2007 report done by the City, which estimated the cost of the required improvements to range from $3.2 to $3.4 million. PPM had the estimate reviewed and updated and the new improvement cost estimate is $4 million.
If the City were to contribute all, or a portion, of the remaining cost of $3.25 million to the renovation of the Carnegie Building, staff recommends that the ENA be restructured to give the City more control over the terms and conditions of the building’s use and the rent structure for PPM’s use of the building. Staff is not, however, recommending allocating additional funds to this project at this time.
Abandoned Vessels in the Estuary
Abandoned boats (also referred to as “derelict vessels” or “anchor outs”) have been a serious concern in the estuary for years. Most of the problem boats are floating, but there have been boats that were intentionally sunk or that sank on their own due to years of damage or neglect. Some of the reasons why abandoned boats are a problem include:
• Obstruction of the navigable portion of the estuary;
• Leakage of gasoline, oil, or other hazardous materials into the estuary;
• Creation of visual blight that adversely affects the quality of life for the many people who are tenants in the City’s marinas as well as visitors to the area; and
• “Live Aboard” persons who move about the estuary committing thefts in the Oakland and Alameda marinas, and who deal stolen property on the estuary.
In 2013, a 10 month, multiagency cleanup effort removed between 40-50 boats above and below the surface of the estuary. This was accomplished with one-time grant funding from the Environmental Protection Agency. It is now a shared responsibility of the City of Alameda and the City of Oakland to manage the problem. Removal and extraction of these derelict vessels costs approximately $10,000 per vessel. There are limited grant opportunities available through the California Department of Boating and Waterways, but they are reimbursement based and are not guaranteed to be repaid.
At any given time, there are 2-5 anchor outs that move about the estuary. They are usually occupied by the same people, who have made this their career. Alameda Police Department (APD) and Oakland Police Department conduct regular enforcement, including citations and arrests, but the problem persists. It is recommended that the City set aside $50,000 to allow APD to abate up to five vessels this year.
Emergency Water Supply
The City of Alameda is an island community with its water supply provided by the East Bay Municipal Utility District (EBMUD) through three major pipelines that enter the City across the Oakland/Alameda estuary. The City’s Disaster Mitigation Plan has identified the possibility of a major earthquake as the highest hazard that our City faces within a wide spectrum of potential vulnerabilities. In the event of a major earthquake, the water mains that supply Alameda will be at risk for fracture, causing a loss of domestic water supply for firefighting operations.
The fire department has extensively researched emergency water supply systems that would use salt water from the bay for firefighting operations in the event that the City loses domestic water pressure due to a disaster. The systems researched include water tenders (water tanker); above ground water mains (hose) supplied by portable pumps; underground storage tanks placed throughout the City; and an in-ground saltwater main system.
The Fire Department has determined that water tenders are the most cost effective system that will have the least amount of impact on the operations of the fire department, such as additional training and staffing. This option is also the quickest to implement. A water tender is a type of tanker that is a specialized firefighting apparatus designed specifically for transporting water from a water source to a fire scene (Exhibit 3). The City’s existing fire boat, which can provide 2,000 gallons of water per minute, would supply salt water from the bay or estuary to the water tenders. A minimum of two tenders are necessary to work concurrently to provide a system of constant water supply. As one is supplying water at the fire incident, the other would be refilling at the fire boat. Once at the fire scene, the tenders would either supply the fire engines directly, or dump their 2,500 gallon water capacity into portable pools from which the fire engines would then draft the water. City firefighters are already familiar with the use of water tenders, so additional training would be minimal. An estimated cost of two fully equipped water tenders is approximately $800,000.
Staff requests an additional allocation of $75,000 to retain a consultant to study other methods for emergency water delivery systems as means for building redundancy. While water tenders are the most cost effective and efficient solution at this point in time, it is important to note that they are part of a long-term strategic planning process. Water tenders will be able to provide immediate protection to the community while the City reviews additional emergency water supply methods designed specifically for firefighting operations. If an alternative water supply system is implemented in the future, the water tenders will then be used as a separate backup system that will provide both flexibility and additional protection.
Citywide Transit and Transportation Demand Management Plans
The City Council directed staff to prepare a comprehensive citywide transportation planning and implementation effort. At the April 1, 2015 City Council meeting, staff received authorization to move forward with a Request for Proposals (RFP), including a draft work scope for Citywide Transit and Transportation Demand Management (TDM) Plans. These Plans will identify ways for the City to sustain its high quality of life during a time of regional population growth from 7 million to an expected 9 million population in 2040. Staff estimates that the cost of preparing the Citywide Transit and TDM Plans could range from $250,000 to $400,000, depending on the approved scope of work. The funding will come from Base Reuse Fund, various Public Works streets and transportation funding sources and the General Fund. Staff is requesting $200,000 from General Fund available fund balance to fund the remainder of the proposed scope of work.
Emergency Park Tree Maintenance
Due to the severe drought, a number of large mature trees in Alameda Parks are now showing signs of distress. As is seen throughout California, many trees are stressed due to the lack of rain and significantly reduced (or eliminated) levels of irrigation. This also results in the trees developing diseases due to their weakened state. The City’s Parks Manager has been working with an arborist to complete an assessment report on current conditions and recommendations for trees that are of concern. Most or all of the mature park trees need deep root watering and mulching. In the case of seven large Sequoias in Franklin Park, extensive hand pruning is also required to remove all branches infected by a fungal canker, which is affecting trees throughout the Bay Area. The requested emergency tree allocation of $65,000 will provide for the tree pruning plus purchase of a water trailer and a part-time employee to regularly deep water trees throughout the parks that do not have a nearby accessible water source.
Estuary Park
Estuary Park is a new eight-acre park located on the West End of the island that includes athletic fields and a community park. The park design is 95% complete and under review for required City permits. The total engineer’s estimate for Phase 1, including the four-acres of athletic fields, is $4.1 million. The construction funding available to date from grants, private donations and Development Impact Fees, totals $3.1 million. One of the grants for this project is $201,000 from the State of CA Housing-Related Parks grant program. This grant expires by April 2016 and all expenditures must be submitted for reimbursement by that time. In order to reach this deadline and avoid losing the grant funding, the project must be under construction by January 2016. To address the funding shortfall of $1 million, staff proposes to allocate $500,000 from the Recreation Fund available fund balance and $500,000 from the General Fund available fund balance.
Tidal Canal Funding
The Oakland Inner Harbor Tidal Canal ("Tidal Canal") is located between Oakland and Alameda and is currently owned by the Army Corps. The Army Corp desires to transfer ownership of the Tidal Canal to one or more public entities at no cost and has legislative authority to do so. The Army Corps has offered to convey half of the Tidal Canal (split down the middle) to the City of Oakland and the other half to the City of Alameda. A transfer to private ownership would allow the City to enforce its building and zoning ordinances along the Tidal Canal, which has been halted due to the fact that the shoreline is currently federally owned and the Army Corps imposed a building moratorium in 2004.
The City Attorney has determined that the best way to address the concerns raised by the City Council is to structure the deal as a near simultaneous close of escrow between the Army Corps (as seller) and the City (as buyer) on the one hand, and the City (as seller) and the adjacent property owners (as buyers) on the other hand. This minimizes the amount of time the City is in the chain of title and drastically reduces the City’s environmental liability exposure as a result.
Staff has had preliminary discussions with the Army Corps, the Regional Water Quality Control Board (primary regulatory agency for environmental hazards along the Tidal Canal shoreline), the homeowners association’s executive committee and at least one commercial owner regarding the purchase of the property. All have been supportive of the proposed approach and the adjacent residential property owners have expressed strong interest in purchasing the portion of the Tidal Canal that is adjacent to their property. The City staff will negotiate with each individual adjacent commercial property owner separately. The buyers, both residential and commercial, would pay the fair market value or the transaction costs, whichever is higher. Due to the commercial use, it is likely that the fair market value for each commercial lot will be greater than the allocated transaction costs; however, the City could still become the long-term owner of some commercial properties.
Staff has progressed as far as possible without a formal allocation of funding for this project and is now requesting a budget allocation of $350,000 to move this project forward. The steps needed to prepare the property for transfer include: a surveyor to survey and map the property and submit a tentative subdivision map to subdivide the property into 108 separate lots; an appraiser to prepare an appraisal report regarding fair market value; a title company to handle all of the escrow and title insurance work; an environmental/regulatory lawyer to assist in negotiating limits on potential City environmental liability; and a real estate lawyer to assist in drafting form documents for the transfers as well as residential disclosures. Staff anticipates that the City will recoup these project costs as well as its internal staff time costs if the residential transaction is successful. If the transaction fails for any reason, then the costs expended to date will likely be lost. However, if a stumbling block is reached, the transaction may merely be postponed until such time as there is money and/or the political will to resolve the issue.
Emergency Operations Center/Fire Station #3 Contingency
The City performed a base line hazardous materials survey in conjunction with the acquisition of the Belt-Line Property in 2006-2008 which indicated the presence of a limited amount of hazardous materials. In 2012, the Public Works Department performed another hazardous materials survey of the Fire Station #3 and Emergency Operations Center (EOC) site also with findings within acceptable limits.
In July 2015, the City executed a contract with Alten Construction (Alten) for the construction of Fire Station #3 and the EOC. In late July, Alten mobilized their grading contractor, Bay Cities, and they performed additional hazardous materials testing on the site to confirm that the soil could be disposed in a regular landfill. Unfortunately, those results came back showing higher levels of lead than originally identified. AECOM performed additional testing that has confirmed high levels of lead. The lead appears to follow the old railroad line through the site and may have come from lead based paint that was used on railroad cars. During the time between mid-July and mid-August, Alten was unable to work on site which resulted in a $1,298 per day delay claim against the project. The delay claim cost is currently estimated to be $39,959.
On August 15, 2015, the Public Works Department entered into a sole source contract in an amount not to exceed $305,698 with AECOM for containment, off-haul, disposal, and reporting of hazardous soil from the EOC/Fire Station 3 project site. The contract estimate was based on the analysis available at the time. As work progressed, additional testing costing about $18,000 showed that an entire volume of soil had to be disposed of as hazardous waste at an added cost of $93,000. With the discovery of hazardous material on site plus the project delay costs, the contingency for the project has been depleted. As the project has just begun, it is likely there will be additional unforeseen conditions that will require a contingency. Therefore, staff is requesting replenishment of the contingency in the amount of $457,000.
Benefits for Part-Time Employees
During the 2015 budget workshop, the Mayor requested staff review the benefits for the City’s part-time employees. The City has approximately 200 part-time employees. During the summer months, this count increases to approximately 450-500 employees. Currently, part-time positions are not budgeted as authorized positions. Rather, departments budget a pool of funds to pay for part-time staffing, adjusting the number of employees and/or work hours to meet fluctuations in operating needs throughout the year. As a result, any exploration of enhancing part-time employment with the City would first require cross-departmental review of the impacts on City operations and financial and staffing resources.
To estimate financial impact of providing health benefits to the part-time (PT) employees, staff narrowed the review to all PT employees that worked on average at least 20 hours per week during the last fiscal year. The count was further adjusted for new, separated, and seasonal PT staff bringing the count to 54. Staff estimates on-going health benefits cost for these employees of $1.2 million annually. This cost will change with the fluctuations in health premiums that have been steadily increasing in the last several years. Based on the rates published by CalPERS for calendar year 2016, Kaiser Health premiums will increase 4.5%.
Additional consideration should also be given to the fact that most of the City programs that use part-time labor are funded by fees that are set to recover cost for services provided. As program costs increase so will the fees unless City Council approves to subsidize those programs with General Fund resources. Departments most sensitive to this are Recreation and Parks, Library, and Community Development. For the above stated reasons, staff does not recommend launching a project of this magnitude at this time.
In addition, staff analyzed the cost of bringing these part-time employees to full-time equivalent with associated benefits. It would cost the City approximately an additional $0.8 million in wages and $1.7 million in benefits, of which $1.2 million is for health premium (Exhibit 4). An increase in wages does not factor in the California minimum wages increase effective January 1, 2016. There are a number of factors in addition to the financial impact that should be researched and considered before launching a project of this magnitude. To name a few: a) this action will likely require a meet and confer with the bargaining groups; b) these newly established full-time positions will become subject to Civil Service rules; and c) some employees prefer or can only work part-time hours, including those that work non-traditional hours.
Economic Uncertainty Reserve/Contingency
The current City Council policy requires that 20% of proposed expenditures be held in Reserves. Due to staff vacancies, careful management of expenditures and better than anticipated revenue growth, the City has been able to maintain a healthy reserve expected to reach 38% by the end of Fiscal Year 2015-16. This reflects positively on the City’s ability to achieve financial security during a time of economic uncertainty. For this reason, staff is recommending that an additional 5% or $4.035 million be set aside to cover a full three months of annual expenditures, instead of two and one-half, which would raise the total General Fund contingency to 25%.
PERS Smoothing/OPEB funding
As outlined in the last 5 year forecast, staff has predicted deficits for the foreseeable future as a result of PERS smoothing 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 improve, staff believes it prudent to set aside additional money to safeguard against future deficits of these long-term liabilities. Staff recommends allocating $3.04 million of the General Fund available fund balance to a PERS smoothing fund.
In the April 2015, the City Council approved safety employee labor contracts that require creation of an Other Post-Employment Benefits (OPEB) Trust for the purpose of setting aside and accumulating funds to be used toward the payment of OPEB benefits for those sworn employees in the City’s Fire and Police Departments who pay into the Trust and retire after January 1, 2019. Although this was a significant step in addressing the City’s OPEB obligations for the future retirees, it does not address the obligation for the City’s existing retirees. In 2014, to deal with this debt, staff set up an OPEB Trust account for which prior City Council authorized $300,000 seed funding. However, no permanent funding stream was established. Staff recommends allocating $3 million to continue funding OPEB obligation for existing retirees.
By designating $6.043 million, these two funds 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.
FINANCIAL IMPACT
There is no financial impact with the acceptance of this report. After City Council selects areas to provide additional funding, staff will return to Council with a separate staff report to amend the Fiscal Year 2015-16 budget based on Council action tonight.
Recommended funding for the proposed areas is summarized below:
|
Proposed Funding Areas |
Estimated Cost |
Recommendation |
|
Alameda Point buildings |
$575,000 |
$0 |
|
Deferred building maintenance |
$20,000,000 |
$2,000,000 |
|
Carnegie Building |
$3,250,000 |
$0 |
|
Abandoned vessels |
$50,000 |
$50,000 |
|
Emergency water supply and study |
$875,000 |
$875,000 |
|
Citywide Transit and Transportation Demand Management Plans |
$400,000 |
$200,000 |
|
Estuary Park funding shortfall |
$1,000,000 |
$500,000 |
|
Emergency parks’ tree maintenance |
$65,000 |
$65,000 |
|
Tidal Canal Funding |
$350,000 |
$350,000 |
|
Emergency Operations Center/Fire Station #3 Contingency |
$457,000 |
$457,000 |
|
Health benefits for part-time employees |
$1,228,000 |
$0 |
|
Economic uncertainty/Contingency |
$4,035,500 |
$4,035,500 |
|
PERS smoothing |
unknown |
$3,043,000 |
|
OPEB funding for existing retirees |
$91,000,000 |
$3,000,000 |
|
Total |
$123,285,500 |
$14,575,500 |
If the City Council accepts the above recommended allocation, the projected GF available fund balance will be reduced to $16,142,330, which is 20% of total annual expenditures as prescribed by the City Council’s General Fund reserve policy. In addition, a 5% economic uncertainty reserve would allow the General Fund to maintain a buffer for future downturns.
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.
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 (acceptance of the Treasury report), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Allocate General Fund Projected Available Fund Balance In Excess of 20% Reserve Requirement.
Respectfully submitted by,
Elena Adair, Finance Director
Exhibit:
1. General Fund Adopted Budget Summary
2. High Priority Deferred Building Maintenance
3. Water Tanker Drawings
4. Part-Time Employees Estimated Cost