Title
Adoption of Resolutions (1) Approving and Adopting the City of Alameda Operating and Capital Budget Mid-Cycle Update for Fiscal Year (FY) 2016-17; (2) Approving and Adopting the Successor Agency to the Community Improvement Commission Budget for FY 2016-17; and (3) Approving Workforce Changes in the City Attorney’s Office, Finance Department, Information Technology Department, Public Works Department and Police Department. [CITY COUNCIL AND SACIC] (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council;
Honorable President and Members of the Successor Agency Board
From: Jill Keimach, City Manager
Re: Adoption of Resolutions (1) Approving the City of Alameda Operating and Capital Budget Mid-Cycle Update for Fiscal Year 2016-17; (2) Approving the Successor Agency to the Community Improvement Commission’s Budget for Fiscal Year 2016-17; and (3) Approving Workforce Changes in the City Attorney’s Office, Finance Department, Information Technology Department, Public Works Department and Police Department
BACKGROUND
The City Council adopted the biennial Budget for the FY 2015-16 and 2016-17 on June 2, 2015. After the first year of the budget cycle, staff has traditionally brought to the City Council for approval an update to the second budget year (mid-cycle update). The FY 2016-17 mid-cycle update includes changes related to a more refined revenue forecast based on the current economy and expenditure changes necessitated by operating demands or other external factors. A summary of the FY 2016-17 Revised Budget for the City of Alameda is presented to the City Council tonight in Exhibit (1, 2 and 3). Staff recommends City Council adopt these changes to the operating and capital budgets for FY 2016-17. Staff also recommends that the Board of the Successor Agency to the Community Improvement Commission adopt the Successor Agency’s Budget for Fiscal Year 2016-17.
DISCUSSION
Economic Outlook
The U.S. economy continues to show slow but steady improvement. It has been 84 months of economic recovery period after the recession ended in June 2009. The average economic expansion period since 1945 is 58.4 months. Beacon Economics latest report forecasts the national economy to grow 2.5% or more for the year and forecasts an even better outlook for the California economy. In particular, the local East Bay labor market is expanding because many companies formerly located in San Francisco and the South Bay are migrating to take advantage of lower rents across all commercial real estate property types. Nearly every employment sector has posted job gains except for the Financial Activities sector. In Alameda County, the unemployment rate was down to 4.1% in April 2016 compared to 4.6% a year ago. These are all positive indicators for the region, as those individuals entering the labor market will continue to drive taxable sales upward.
A significant portion of the City’s revenue is influenced by both residential and commercial real estate trends in the region. HdL Coren & Cone, the City’s property tax consultants, reported that the median price of all single family residential homes in the first quarter of 2016 was $905,000, which is $42,000 higher than prices seen for the same quarter of 2015. The City’s net taxable assessed value increased 5.92% for the 2015-16 tax roll. Most of the growth is attributed to Proposition 13 inflation adjustments and new homes inventory. Increases for FY 2016-17 tax roll are projected to be lower with the County Assessor applied CPI factor set at 1.525%.
Sources of Risk
Every budget has the risk that estimates will not accurately predict future performance for revenue and expenditures and that conditions will deviate from the assumptions used to make those estimates.
As part of a separate Council presentation, staff is recommending to place on the November 2016 Ballot a measure to modernize the existing City’s Utility User’s Tax (UUT) Ordinance and to reaffirm Alameda Municipal Power (AMP) financial support to the General Fund. Modernization of the UUT Ordinance is estimated to result in a net benefit to the City’s General Fund of $1.5 million annually, which would bring that revenue source back to Fiscal Year 2007-08 levels. Placement of the AMP transfer on the ballot has no financial impact to the City since the amount of the proposed transfer is the same as current practice. However, should the measure fail, the City will likely continue to experience a drop in the UUT revenues, which will be addressed through the budget process. The mid-cycle update of FY 2016-17 presented tonight does not include an assumption of potential increases in UUT revenue and it also does not take into account potential loss of revenue from AMP.
The Fiscal Year 2016-17 Budget and the 5-year projection include assumptions about cost increases that depend on collective bargaining results. Benefit costs will also depend on CalPERS performance, amortization and smoothing policies, and revisions of actuarial assumptions. Other Post-Employment Benefits (OPEB) cost increases are incorporated in the 5-year projection based on the City’s practice of pay-as-go method. All of these risks described above must be taken into account in making decisions about ongoing expenditure and reserve levels.
General Fund Revenue Performance and Update
Overall, City of Alameda annual revenues, including transfers in, are estimated to increase by $1.9 million from the initially approved FY 2016-17 Budget. Most of the general tax revenues showed higher than expected growth in the last two years. To better understand what may happen to the City revenues in the coming five years, staff consulted with Beacon Economics (Beacon) to review and estimate several of the City’s largest revenue sources: property tax, sales tax, transient occupancy tax, property transfer tax and motor vehicle license tax. Both, staff and Beacon, are in agreement that the above listed revenues are on the rise and will continue to grow in the future. However, forecasts prepared by Beacon showed significantly aggressive growth, which staff did not view as prudent nor sustainable. As a result, more conservative estimates were used in preparing this mid-cycle update.
• Property Tax and Property Transfer Tax - Combined, these two sources make up about 41% of General Fund total revenues. Property Tax (excluding “waterfall funds” resulting from dissolution of redevelopment) is expected to increase by $0.7 million or 2.9% from 2015-16 projections and $0.45 million or 1.8% from 2016-17 adopted Budget. Property Transfer Tax is expected to increase $0.7 million or 9% from FY 2016-17 adopted Budget due to increased property values and new housing inventory at Alameda Landing. This estimate includes $0.2 million of one-time receipts for large commercial sales, one of which is the property transfer from the City to the Alameda Point developer.
• Sales Tax - Sales Tax revenue is dependent on consumer spending and on the economy overall. Staff projects FY 2016-17 sales tax revenue to increase 3% from FY 2015-16. Staff is maintaining the original sales tax estimate for FY 2016-17.
• Transient Occupancy Tax - This revenue source directly benefits from increased spending activities. Staff originally estimated 10.2% increase for the FY 2016-17 adopted Budget as the result of an anticipated new hotel. At this time, it is unlikely that the hotel will be built in time to recognize any revenue in the coming year. Nonetheless, revenue has been increased by 3% compared to the FY 2016-17 original estimate mainly as a result of increased hotel and occupancy rates.
• Motor Vehicle License Fee - These fees are being allocated through property taxes and as such have a similar growth pattern.
• Utility User Tax - This revenue source is expected to deteriorate not only in the next two years but throughout the 5-year forecast. This tax is generated on the consumption of cable television, telephone services, natural gas and electricity. As consumers bundle their cable, telephone and broadband services, the tax collected is reduced due to lower pricing. In addition, the City’s Ordinance is outdated and does not provide for the collection of this tax on certain services. To rectify the loss of revenue, staff is proposing to place a measure on the November 2016 ballot modernizing the UUT Ordinance. As mentioned earlier, the potential increase in revenue is not included in this forecast, rather a $100,000 drop is projected compared to the already reduced adopted Budget.
• Franchise Fee - Franchise Fees are expected to experience modest growth. One of the largest sources of revenue in this category comes from the garbage company with a 10% franchise fee applied to ACI’s gross revenue set by agreement. The City also collects franchise fees from gas and cable television providers as well as a Payment In Lieu of Taxes (PILOT) from both enterprise funds (Sewer Fund and Alameda Municipal Power).
In addition, and as contemplated in the City Charter, AMP transfers approximately $2.8 million to the General Fund to support city services. It is expected that confirmation of this transfer will be placed on the November 2016 ballot. The General Fund summary presented in Exhibit 1 assumes the continuation of AMP’s existing practice at the same level
• Business License Tax - This revenue source is projected to show decline of $0.1 million or 5% compared to FY 2016-17 Adopted Budget.
• Departmental Revenues - Departmental revenues are expected to increase 10% compared to prior year and 11% compared to original FY 2016-17 projections. The mid-cycle update provides for $15,000 increase in Police Department revenues related to Prop 172 allocation; $795,000 increase in Fire Department revenues related to receipt of one-time $500,000 reimbursement under Ground Emergency Medical Transportation (GEMT) Program, increased fire inspection fees, and Prop 172 allocation; a $100,000 decline in Public Works revenue is a result of lower gasoline prices. In future years, ongoing departmental revenues are projected to remain unchanged.
General Fund One-time Revenues
Staff is adhering to the best practices in using one-time revenues for one-time, non-recurring expenditures. In Fiscal Year 2016-17, the General Fund is projected to receive a $500,000 reimbursement from the Ground Emergency Medical Transportation (GEMT) Program. It is uncertain if this program, sponsored by Federal and State governments, will continue into the future. Therefore, staff considered it prudent not to assume receipt of these funds beyond FY 2016-17. The Fire Department requested to expend $200,000 of these funds on non-recurring expenditures, such as a federal grant match, small medical equipment purchases and training. The remaining $300,000 is allocated to support other General Fund programs. A full list of mid-cycle proposed revenue changes is presented in the Exhibit 3.
Expenditure Assumptions
This mid-cycle update does not provide for cost of living adjustments for contractual services or materials and supplies unless provided by existing contracts with vendors. Increases in labor costs correspond to the terms negotiated in the recent contracts with various City labor groups. Labor assumptions used for the FY 2016-17 proposed revised Budget are 1) COLA increases of 4% and 3% for Safety and Miscellaneous groups, respectively; 2) health care costs increase, on average, of 1.8% and 3.5% for Safety and Miscellaneous groups, respectively; and 3) PERS rates of 33.751% and 19.265% for Safety and Miscellaneous groups, respectively. PERS employer contribution rates increased 2.7% for Safety group and 1.356% for Miscellaneous group compared to FY 2015-16. It should be noted that safety and miscellaneous employees will contribute 15% and 8.868% toward pension costs respectively in FY 2016-17.
General Fund Expenditures Update
As part of this mid-cycle update, staff is proposing changes to the City Council’s benefit package. The City recently conducted a salary survey to compare the Mayor and City Council’s total compensation to other comparable cities. The survey cities used were Berkeley, Fremont, Hayward, Livermore, Pleasanton, San Leandro and Walnut Creek. Although the Mayor and City Council’s base salary was well below the comparable cities, when evaluating total compensation (base salary and other benefits), the City was below three of the seven surveyed cities for the City Council and below four of the seven cities for the Mayor.
Staff is now proposing to link the Council’s health benefit contribution and car allowance to the Executive Management Compensation Plan (EXME) and to provide $100 per month technology allowance. The cumulative impact of these changes is estimated at $15,000 per year, effective January 2017. This amount does not include any potential savings from capping the amount the City contributes to health care and mirrroring the health benefits outlined in the Department Head’s Compensation plan. These savings could range from $149 a month for an employee-only contribution to $387 a month for a family contribution. While these savings could be realized for future Council members, it would not affect current Council members based on current selections.
The Fire Department is adding $300,000 to its FY 2016-17 adopted overtime budget as a result of unfilled positions funded by the SAFER grant. Mid-cycle update includes funding for an additional fire academy to fill those vacancies. The proposed revised FY 2016-17 Budget also reallocates $500,000 of labor vacancy savings that was designated as Non-Departmental to City Manager/Information Technology ($100,000) and Police ($400,000) based on the timing of expected retirements and recruitments. Vacancy savings are non-recurring by its nature and cannot be relied upon as positions get filled. Complete list of mid-cycle proposed expenditure changes are included in the Exhibit 3.
California Public Employee Retirement System (CalPERS)
During Fiscal Year 2015-16 CalPERS approved a new risk-reduction strategy related to the discount rate that is currently set at 7.5%. The new approach assumes that strong years will be followed by down periods that will cancel out much of the profit earned. As a result, when CalPERS has a year in which it exceeds the forecast by at least 2%, the discount rate will be reduced by a maximum of 0.25%. The plan would take an estimated 19 years to fully implement. This comes in addition to the new amortization and smoothing policy implemented in the current Fiscal Year. All these changes will improve CalPERS funding levels by putting City plans on a path to be fully funded in 30 years. However, it does come at a cost to all agencies contracted with CalPERS. The employer contributions rates will be more volatile and short term contribution rates will increase.
Other Post-Employment Benefits (OPEB)
Based on the most recent actuarial valuation, the City’s OPEB liability went up $22 million to $113 million total. Although most of the increase relates to an implied subsidy calculation and does not represent real dollars paid out, the obligation is still required to be recognized. With current safety contracts, the City has made a one-time $5.25 million contribution in January 2016 to an irrevocable OPEB Trust with average ongoing biweekly contributions of approximately $12,000. Additional funding needs to be identified to address this long-term obligation particularly as the health care costs grow. Staff expects to bring this topic for City Council discussion later this year.
General Fund Reserves
It is the City Council’s policy to maintain General Fund reserves, also referred to as available fund balance, at 20% of annual operating expenditures and transfers out. The proposed mid-cycle update changes bring FY 2016-17 General Fund reserve level to 24%. As outlined in the 5-year forecast (Exhibit 2), the available fund balance is projected to drop to 10% in FY 2019-20. Government Finance Officers Association (GFOA) suggests maintaining General Fund available fund balance at 16.67% (or two month of operating expenditures). It is important to note that in September 2015, City Council approved spending down of the General Fund reserves from 38% to 20%, which also included allocations to OPEB liability of $3 million, PERS Smoothing of $3 million and economic uncertainty of $3.5 million, all of which remain in-tact.
Non-General Fund Changes
A detailed list of mid-cycle proposed revenue and expenditure changes for non-General Fund programs is included in the Exhibit 3. The most significant proposed updates are discussed below:
• Base Reuse - Staff is proposing to increase revenue by $0.75 million and expenditures by $1.0 million. Increased revenue comes from leasing activities at Alameda Point. Staff is requesting additional appropriations to cover the costs of port services and real estate managers.
• Rent Stabilization - This is a new program established by the City Council in the early spring of this year. The program provides funding for the City Attorney’s Office, Finance, Community Development and Housing Authority. Until such time as the fee is approved to cover the cost of the program, City Council has authorized a contract with the Housing Authority through December 31, 2016 for day to day program management and operation, which is funded with General Fund money. It is staff’s expectation that $0.5 million of General Fund support will only be used in the interim, which will reduce the anticipated FY 2016-17 General Fund deficit to approximately $250,000.
• Fleet Industrial Supply Center (FISC) - Staff is proposing to increase the FISC fund’s appropriations by $0.4 million from available fund balance. Most of these funds will be used to pay for the cost of Economic Development Strategic Business Plan and to provide assistance for the Quonset Huts project.
• Public Art - Staff is expecting to receive close of $0.2 million under the Public Art Ordinance. Appropriation of funds is requested to cover the costs of expected Public Art activities. Staff will be bringing a revised Public Art ordinance back to the City Council in July, with a recommendation on how to allocate funding to the arts community.
• Development Impact Fees - Staff anticipates to receive substantial revenue in the coming year from the Del Monte project, 2100 Clement and Alameda Landing developments of which $0.2 million is requested to be appropriated to fund Estuary Park construction management services.
• Capital Improvement Projects - In the past few years, the City has received several donations and grants, and earned interest on fund balances not spent in the various projects within the Capital Improvement Program. However, these amounts have not been appropriated in the respective project accounts. This oversight was discovered during a review of all projects and will be adjusted accordingly.
• IT Equipment Replacement - With the establishment of an IT Department, it is the Department’s goal to improve and modernize the City’s IT infrastructure and systems. Staff is requesting appropriation of $0.2 million to prepare an IT Strategic Plan to identify and prioritize the City’s specific IT needs including network and security upgrades. One of the important undertakings that is contemplated by staff is a replacement of a new Finance/HR system to improve efficiency, enhance transactions tracking and reporting capabilities.
Workforce Changes
The following workforce changes are recommended as part of the Mid-Cycle 2016-17 Budget:
City Attorney
The City Attorney’s Office is requesting to add one Assistant City Attorney II position. This new attorney will provide support to the rent stabilization program, code enforcement and perform other general legal work. This position will be funded in the 2016-17 Fiscal Year through fees from the Rent Stabilization Program ($118,000) and the General Fund ($118,000). The City Attorney’s Office reduced its contractual services and part-time labor budget by $58,000 to offset the cost of additional position in the General Fund with a net increase of $60,000.
Finance
The Finance Department is currently using part-time accounting staff in order to support the work related to budget oversight and development. Combining part-time positions into one full-time position will allow for consistency in staffing, assuring oversight and timeliness of the budget process. The additional General Fund cost for the 2016-17 Fiscal Year will be $4,000 achieved through reduction in the part-time labor budget. The Department is also requesting to add one Accounting Technician position to support the Rent Stabilization Program. The estimated cost of this position is $93,000 fully supported by the Rent Stabilization Fund.
Information Technology
Currently, the cost of an Information Technology Services Coordinator position is shared between Alameda Municipal Power and the General Fund. Based on the duties and work performed by the position, staff has determined that the cost of this position should be fully supported by the General Fund. Additionally, it is requested to add one Information Technology Systems Coordinator and eliminate one Technology Services Coordinator. The impact of these changes to the General Fund for the 2016-17 Fiscal Year will be $74,000.
Police Department
The Police Department is asking to create a new classification and position of Crime Prevention Technician. This position will be responsible for community outreach including coordinating Neighborhood Watch, Business Watch, Citizen's Academy, Alameda Bike Safety, and other community outreach programs as well as overseeing the Department’s volunteer program. Currently, many of these programs are coordinated by sworn personnel. With the proposed new position that will be filled by civilian personnel, sworn staff will be redeployed to patrol activities. The Department is also asking to delete a vacant Crime Scene Specialist position. With the deletion of the Crime Scene Specialist, there is no additional cost to adding this position.
Public Works
Public Works is proposing to eliminate four positions and add four new positions in order to better meet the operational needs of the Department. A majority of these changes will impact the Department’s newly formed Project Management unit and ensure the correct positions are allocated to meet the demands of the unit. The Project Management Unit was formed in 2015 as part of Public Works’ effort to boost its ability to complete more projects on-time and under budget.
In the Project Management Unit, the Department is requesting to eliminate three positions and add three positions. It is requested to eliminate one Assistant Engineer and add a Public Works Project Manager I in order to improve the managerial and contract management capacity of the unit tasked with the City’s street resurfacing program, which has doubled over prior years. The Department is also requesting to add a Construction Management Inspection and Survey Supervisor and delete a Construction Inspector in order to provide greater supervision to this unit given the amount and complexity of construction inspection services required for Alameda Point. Also, requested is the deletion of a Public Works Project Manager II and the addition of a Project Manager III. A more senior level position is needed to manage the City’s ambitious plan for facility capital repairs.
Finally, Public Works proposes to delete a Program Specialist I and add a Program Specialist II. Currently, the Department has three Program Specialist IIs and one Program Specialist I assigned to the Environmental Specialist Unit. This unit administers the City’s integrated waste franchise (a $17 million yearly contract) and clean water program. The increasing complexity of the storm water program requires a position that allows for more independence in the performance of duties.
The net impact of the changes for Public Works the 2016-17 Fiscal Year will be $47,067. There is no General Fund impact as a result of these changes. Recruitments will be conducted in order to fill all of the new positions.
In sum, with the requested workforce changes, the number of full time allocated positions in the City will be 521 including the 96 Alameda Municipal Power employees. This is an increase of three positions over the revised 2015-16 Budget allocation of 518 positions.
Unfunded Requests (“Parking Lot”)
During the City’s multiple budget workshops held in Spring 2015, the City Council directed staff to evaluate the size of the General Fund available fund balance accumulated over several years, address specific unfunded items that Council identified during the budget workshops, and propose best uses of the excess funds. In September 2015, staff presented and Council approved allocations to the following areas:
|
Funding Areas |
Estimated Cost |
As Approved by Council |
|
Alameda Point buildings * |
$575,000 |
$575,000 |
|
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 |
$800,000 |
|
Citywide Transit and Transportation Demand Management Plans |
$400,000 |
$200,000 |
|
Estuary Park funding shortfall |
$1,000,000 |
$500,000 |
|
Emergency park 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 |
$3,460,500 |
|
PERS smoothing |
Unknown |
$3,043,000 |
|
OPEB funding for existing retirees |
$91,000,000 |
$3,000,000 |
|
Total |
$123,285,500 |
$14,500,500 |
* Paid for by the Base Reuse Fund (not the General Fund)
Since September 2015, city staff and Council members have identified other one-time and on-going initiatives that could receive financial support, such as:
Ø Alameda Museum
Ø Public Art (returning to Council in July)
Ø Friends of Alameda Animals Shelter
Ø Jean Sweeney Open Space Park
Ø Finance/HR financial system (ERP) replacement
Ø Disaster preparedness equipment and supplies
Ø Social services support
Staff recommends continuing this discussion in the late Fall 2016 after the FY 2015-16 audit is completed.
FINANCIAL IMPACT
This report recommends adoption of the City’s mid-cycle update of the FY 2016-17 Budget totaling $212,760,968 for all City funds (exclusive of AMP). The General Fund represents approximately $84.7 million or 40% of the citywide FY 2016-17 Revised Budget. Staff projects that the City will retain an available fund balance in its General Fund of approximately $20.3 million or 24% of Fund’s operating expenditures and transfers out at the end of the FY 2016-17. The City Council’s policy is to maintain a 20% General Fund reserve (also known as the available fund balance).
As originally adopted, the FY 2016-17 annual net deficit was projected at slightly above $1.2 million. However, based on the staff’s mid-cycle update, the net deficit is projected at $0.7 million. This amount is expected to be further reduced by $0.5 million should the City Council approve a fee to fund the Rent Stabilization program, which currently relies on the General Fund support. The attached summary includes the financial budget for the General Fund for FY 2016-17 and forecasts through FY 2019-20.
Included in the City’s FY 2016-17 Budget is the Successor Agency FY 2016-17 Budget totaling $12,734,000. The Successor Agency will fund its expenditures with Redevelopment Property Tax Trust Fund (RPTTF) revenues received in June and January of each year. Any other revenues received by the Successor Agency will be used to pay debt service and enforceable obligations.
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 (approving and adopting the operating and capital budget for fiscal years 2015-16 and 2016-17), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Adopt Resolutions (1) Approving the City of Alameda Operating and Capital Budget Mid-Cycle Update for Fiscal Year 2016-17; (2) Approving the Successor Agency to the Community Improvement Commission’s Budget for Fiscal Year 2016-17; and (3) Approving Workforce Changes in the City Attorney’s Office, Finance Department, Information Technology Department, Public Works Department and Police Department.
Respectfully submitted,
Elena Adair, Finance Director
Exhibits:
1. Fiscal Year 2016-17 Budget Transmittal Letter
2. City of Alameda FY 2016-17 Budget Summary, General Fund and All Other Funds
3. FY 2016-17 Mid-Cycle Proposed Budget Amendments