Title
Adoption of Resolutions (1) Approving and Adopting the City of Alameda Operating and Capital Budget for Fiscal Years (FY) 2017-18 and 2018-19 and (2) Approving and Adopting the Successor Agency to the Community Improvement Commission Budget for FY 2017-18 and 2018-19; [CITY COUNCIL AND SACIC]
Adoption of Resolution Approving Workforce Changes in the Recreation and Parks Department, Public Works Department, Community Development Department and Information Technology Department; [CITY COUNCIL]
Amend the Pension Rate Stabilization Program and Other Post-Employment Benefits Funding Policy; [CITY COUNCIL]
Direct the City Manager or Designee to Deposit $6,043,000 of Committed General Fund - Fund Balance Plus Amounts Authorized by Council in Current and Future Budgets into the Public Agencies Retirement Services (PARS) Post-Employment Benefits Trust to Use for Prefunding of Pension and Other Post-Employment Benefits Obligations. [CITY COUNCIL] (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 and Adopting the City of Alameda Operating and Capital Budget for Fiscal Years (FY) 2017-18 and 2018-19 and (2) Approving and Adopting the Successor Agency to the Community Improvement Commission Budget for FY 2017-18 and 2018-19;
Adoption of Resolution Approving Workforce Changes in the Recreation and Parks Department, Public Works Department, Community Development Department and Information Technology Department;
Amend the Pension Rate Stabilization Program and Other Post-Employment Benefits Funding Policy;
Direct the City Manager or Designee to Deposit $6,043,000 of Committed General Fund - Fund Balance Plus Amounts Authorized by Council in Current and Future Budgets into the Public Agencies Retirement Services (PARS) Post-Employment Benefits Trust to Use for Prefunding of Pension and Other Post-Employment Benefits Obligations.
BACKGROUND
On May 17, 2017, the City Council held a Budget Workshop on the preliminary General Fund Budget for Fiscal Years 2017-18 and 2018-19. This workshop was intended to give the Council and community an opportunity to look more closely into the factors that make up the overall City Budget. During this workshop the City Manager, Department Heads, and CalPERS financial experts provided information and answered questions on budget projections, long-term financial obligations associated with pensions and benefits, and departmental funding requests that were outside of the base line budget estimates. The City Council and community then provided input to staff on the allocation of funding beyond the base budget.
Concurrent with the Council input, on May 8, 2017 the City released the Alameda Budget Challenge, an online simulation that allows residents to engage in the budget and share their priorities. As of May 25, 2017, more than 1,100 people have taken the Challenge, with over 8,000 policy choices made. The most popular choices include:
• Set aside a portion of the one-time surplus to reduce long-term budget shortfalls
• Spend $180,000 for upgraded emergency equipment
• Spend $100,000 for homeless services
• Use existing funds for Mastick Senior Center
• Spend $44,000 to increase library hours and $20,000 to update library technology
• Spend $500,000 on sidewalk repairs
• Raise money to restore the historic Carnegie Library for public use
• Maintain the existing animal shelter facility
• Spend a portion of one-time revenues to reduce unfunded liabilities
The Alameda Budget Challenge will remain live at alameda.budgetchallenge.org <http://alameda.budgetchallenge.org>, and includes the ability to make policy choices and share direct feedback. The latest feedback will be provided to Council during the June 6 Council meeting. This year’s Challenge presents users with a one-time budget surplus of $5 million, followed by long-term budget shortfalls as a result of changing economic assumptions from the CalPERS Board.
As a result of the CalPERS Board changing their return on investment assumption from its current assumption of 7.5% down to 7.0% over the next five years, the City’s financial forecast as discussed in the May Budget Workshop, projected General Fund shortfalls to range from approximately $5.1 to $10.5 million annually, beginning in FY 2019-20. Absent proactive, corrective actions to secure additional locally-controlled funding sources, the City’s available reserves will be reduced to approximately $0.7 million or 1% of projected expenditures by FY 2021-22. Consequently, in the coming months and over the next two years, the City Manager and Council are committed to analyzing a series of options to proactively address how to address the City’s long-term financial liabilities.
The input from Council, staff, experts, and community members have been taken into account in the proposed Budget.
A summary of the proposed budget and forecast for the City of Alameda for Fiscal Year (FY) 2017-18 and 2018-19 is attached in Exhibit 2. This report includes the budgets for both fiscal years. Staff recommends City Council adoption of this operating and capital budget for FY 2017-18 and 2018-19. Staff also recommends that the Board of the Successor Agency to the Community Improvement Commission adopt the Successor Agency’s Budget for Fiscal Years 2017-18 and 2018-19. The City Manager, Finance Director, and Department staff will be available to respond to questions.
DISCUSSION
Staff has prepared a revised proposed budget for FY 2017-18 and 2018-19 covering the General Fund and all other City and Successor Agency funds as a result of the Council and community input described above. As part of the proposed budget, staff also included the proposed Capital Improvement Program (CIP) totaling approximately $33.7 million and $23.8 million for Fiscal Years 2017-18 and 2018-19, respectively.
The City’s total proposed budget for all funds including transfers out is $240.5 million for FY 2017-18 and $223.7 million for FY 2018-19, both exclusive of Alameda Municipal Power (AMP). The General Fund represents approximately $97.3 million or 40% of the total in FY 2017-18 and $95.9 million or 43% in FY 2018-19. The attached financial summaries of the budget document contain extensive financial information, and comparative data and details by fund, department, and program as well as graphic representations of revenue and expenditures by sources and uses (Exhibits 1, 2 and 3).
Revenue Performance
Overall, City of Alameda annual General Fund revenues, including transfers in, are estimated to increase by $2.9 million from FY 2016-17 to FY 2017-18 and $1.0 million from FY 2017-18 to FY 2018-19. Most of the general tax revenues showed higher than expected growth in the last two years. To get a better understanding on what may happen to City revenues in the coming five years, staff consulted with several City revenue consultants to review and estimate three of the City’s largest and most volatile revenue sources: Property Tax, Sales Tax and Property Transfer Tax. This Proposed Budget includes their combined analysis.
• Property Tax and Property Transfer Tax - combined make up about 41% of General Fund total revenues. Property Tax is expected to increase an estimated 4% from the FY 2016-17 projection and 3.4% from the FY 2017-18 proposed budget. Property Transfer Tax is expected to decrease by about 5% in FY 2017-18 due to exclusion of large one-time payments received in FY 2016-17. Staff estimates an increase of 3% in this revenue source in FY 2018-19.
• Sales Tax revenue - is dependent on consumer spending and on the economy overall. Staff is estimating that Sales Tax will grow slightly by 1.6% in FY 2017-18 and 1.6% in FY 2018-19.
• Transient Occupancy Tax - directly benefits from increased spending activities. Staff estimates a 0.5% increase in FY 2017-18 and no growth in FY 2018-19.
• Motor Vehicle License Fee - allocated through property taxes and as such have a similar growth pattern.
• Utility User Tax (UUT) - expected to increase in the next two years and throughout the 5-year forecast, back up to FY 2008-09 levels. The growth is expected as a result of updating the City’s UUT Ordinance for inclusion of modernized services and equipment. This tax is generated on cable television, telephone services, natural gas and electricity.
• Franchise Fees - show over 30% decline from FY 2016-17 to FY 2017-18 due to an accounting reclassification of AMP’s transfer from a “Franchise Fee” to a “Transfer In”. Excluding the AMP transfer, franchise fees are projected to increase 4% in FY 2017-18 with a slight increase in FY 2018-19.
• Business License Tax - no growth is projected in the next two years.
• Departmental Revenues - expected to increase 10% in FY 2017-18 compared to FY 2016-17. The largest increases are attributable to a projection of $350,000 in Fire Prevention fees as this Bureau was recently reinstated, $150,000 in gross revenues from pet license fees in the Police Department due to the proposed renegotiated agreement with the Friends of the Alameda Animal Shelter, as well as $100,000 in abandoned vehicles abatement revenue, which was previously accounted for in another Fund. In future years, Departmental revenues are projected to increase slightly or stay flat.
Expenditures
Staff is not proposing any cost of living adjustments for contractual services or materials and supplies unless specifically provided for in existing contracts with vendors. Increases in labor costs are due to normal salary increase as well as estimated 2% safety and 3% miscellaneous cost of living adjustment (COLA), rising costs for the retirement system, expected increases in the cost of other benefits and the addition of five new positions, highlighted below. The three reinstated firefighter positions the Council approved previously for the Fire Prevention Bureau are included in the baseline Budget. Additional funding requests from various City Departments discussed during the budget workshop that staff recommends for approval as part of the Proposed Budget are included in the tables below.
Ø Workforce Changes
The proposed workforce changes reflect the goal to fund only critical positions out of the General Fund and the long-term goal of looking at every positions potential impact to the City’s long-term pension and benefit obligations. Consequently, only half of the Department requests for additional staff presented in the Budget Workshop are proposed for funding and the Combination Building Inspector is included as a limited term position depending on the construction permit and inspection workload in Community Development. The Recreation and Parks maintenance staff are necessary and critical in order to maintain the new parks currently under construction. These two positions have a net cost to the City of $40,000 in FY 2017-18 and $41,000 in FY 2018-19, due to expenditure offsets from reclassifications of 3 retiring Park Maintenance Worker I positions to Gardeners and anticipated water efficiency savings of $111,000 in FY 2017-18 and $122,000 in FY 2018-19.
|
FTE |
Department / Position |
Funding Source |
FY 2017-18 & FY 2018-19 Total Cost |
|
1.0 |
Recreation and Parks - Maintenance Supervisor |
General Fund |
$284,000 |
|
1.0 |
Recreation and Parks - Maintenance Worker II |
General Fund |
$184,000 |
|
1.0 |
Public Works - Maintenance Foreperson |
General Fund |
$34,000 |
|
1.0 |
Community Development - Combination Building Inspector (2-year limited term position) |
CDD Fund |
$218,000 |
|
1.0 |
Information Technology - Systems Analyst |
CDD/Information Technology Fund* |
$295,000 |
|
|
|
|
|
|
5.0 |
Total |
|
$1,015,000 |
*The Information Technology (IT) Fund is an Internal Service Fund paid for by all Funds, including the General Fund
Ø Vehicle Acquisition
The replacement vehicles that meet the City’s replacement vehicle schedule included in the proposed budget are detailed in Exhibit 4. All replacement vehicles are older than the replacement policy allows because they exceed either the age or the maximum mileage of the policy. Most of the vehicles proposed for replacement far exceed these criteria as a result of deferred acquisition due to funding availability in previous years. As requested during the Budget Workshop, the mileage of the ten year old Fire Engine 3 has 56,200 miles and the four year old ambulance has 31,800 miles but is intended to replace the current backup ambulance, which is 21 years old. The Fire Engine 3 will replace the current reserve Fire Engine 503, which is 26 years old, nine years beyond its maximum life.
The Public Works pool vehicle replacements have been reduced by one and will include the lease of electric rather than gas vehicles. This acquisition has also been postponed to FY 2018-19 in order to allow sufficient time to install electric vehicle rechargers for the new electric vehicles.
|
Department |
Vehicle Count |
Funding Source |
Total Vehicle Costs for FY2017-18 & FY2018-19 |
|
Police |
8 |
Vehicle Replacement Fund |
$308,000 |
|
Fire |
2 |
General Fund |
$1,308,000 |
|
Public Works |
21 |
Sewer and Vehicle Replacement Fund |
$1,118,000 |
|
Recreation & Parks |
4 |
Vehicle Replacement Fund |
$106,000 |
|
Comm. Development |
2 |
CDD Fund and Vehicle Replacement Fund |
$54,000 |
|
Total |
37 |
|
$2,894,000 |
Ø Capital Program Funding
The budget workshop identified a number of critical and cost-efficiency efforts, including converting from a completely outdated paper payroll and timesheet system to a paperless one in order to achieve significant efficiencies. To continue to meet our own high standards and respond more quickly to the public and Council, we need all City Departments to have the technology to be able to query reports, search records through electronic document management, and manage their budgets with the accuracy and speed that modern technology allows. The other Capital one-time costs included in this budget include half of the funds requested for additional building maintenance. Sidewalk repair in the CIP maintains existing levels and is proposed to be funded through Gas Tax revenues and the City’s Construction Improvement Fee. Other improvements are included that do not rely on General Fund dollars that enhance the quality of life for our residents, including upgrades to the computer labs at the library, and upgrades to Mastick Senior Center.
|
Department |
Project |
Funding Source |
Total One-Time Capital Costs |
|
Information Technology |
Citywide Wi-Fi |
General Fund |
$200,000 |
|
Information Technology |
System and IT Infrastructure Replacement |
General Fund |
$1,500,000 |
|
Information Technology |
Electronic Document Management/GIS |
General Fund |
$1,500,000 |
|
Public Works |
Building maintenance |
General Fund |
$1,000,000 |
|
Public Works |
Sidewalk maintenance |
Gas Tax/Construction Improvement Fee |
$500,000 |
|
Fire |
Emergency radios |
General Fund |
$179,000 |
|
Community Development |
Quonset Hut project (carryover) |
FISC |
$125,000 |
|
Library |
Technology upgrade |
Library |
$98,000 |
|
Recreation and Parks |
Mastic Center Improvements |
Mastick Center |
$215,000 |
|
Recreation and Parks |
Computer and kitchen Equip. Replacement |
Adams Street (Bequest) |
$65,000 |
|
|
|
|
|
|
Total |
|
|
$5,382,000 |
Ø Other Items
Most significantly, the budget workshop on May 17, 2017 included an overview of the General Fund available fund balance declining in the next five years. The decline in the General Fund fund balance is a direct result of a change in CalPERS assumptions that CalPERS will reduce its 7.5% rate of return on its investments in FY 2017-18 to 7.0% in FY 2020-21. Although the City began working on the pension liability through its labor agreements several years ago that require all miscellaneous employees to pay 8.868% of their salary toward their retirement plan and public safety employees pay 15.0% of their salary toward their retirement plans, additional contributions and proactive efforts will be needed. Consequently, staff is proposing that one-half of each year’s surplus over the 25% fund balance be put into a Trust Fund or directly into paying off the CalPERS unfunded liability for either pensions or post-employment benefits. The attached revised Pension and OPEB Funding Policy formalizes this proposal (Exhibit 5). This policy enforces fiscal prudence and promotes long-term strategic sustainability.
In addition to the $5,100,000, which is half of FY 2016-17 fund balance above the 25% reserve Fund Balance, the proposed budget appropriates $6,043,000 previously set aside by Council in 2015. Consequently, a total of $11,143,000 can now be transferred into the Public Agencies Retirement Services (PARS) Post-Employment Benefits Trust that the Council adopted on March 21, 2017. All funds transferred into this Trust must be used solely for the prefunding of Pension and Other Post-Employment Benefits Obligations as the Council directs. Council will be presented with more detailed information and options for its consideration in the coming months.
The remaining items identified in the table below are to enhance the quality of life for our residents, including homeless assistance into permanent housing and additional library days at each branch. The Public Arts funding is for administrative support of the program over two years in order to ensure 100% of the developer contributions go directly for the Arts.
|
Department |
Description |
Funding Source |
Total Net Costs |
|
Community Development |
Public Arts part-time support |
General Fund |
$20,000 |
|
Non-departmental |
Homeless assistance |
General Fund |
$61,000 |
|
Non-departmental |
Pension/OPEB obligations |
General Fund |
$5,100,000 |
|
Community Development |
Sister City |
FISC |
$20,000 |
|
Library |
Open extra day each branch |
Library |
$88,000 |
|
|
|
|
|
|
Total |
|
|
$5,289,000 |
Sources of Risk
Every budget has the risk that estimation will not accurately predict future performance for revenue and expenditures and that conditions will deviate from the assumptions used to make estimates.
The proposed budget for Fiscal Years 2017-18 and 2018-19 Proposed 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-you-go method. All of these risks described above must be taken into account in making decisions about ongoing expenditure and reserve levels.
FINANCIAL IMPACT
This report recommends adoption of the City’s FY 2017-18 and 2018-19 biennial Budget totaling $240,545,955 and $223,693,208, respectively, including all City funds (except for AMP). With the proposed budget, it is projected that the City will maintain an available fund balance in its General Fund of approximately $23.9 million or 23% of General Fund total expenditures and transfers out at the end of the FY 2017-18. However, excluding large one-time costs, the General Fund available fund balance increases to 27% of on-going transfers out and expenditures in FY 2017-18. The City Council policy is to maintain a 20% plus an additional 5% General Fund reserve (also known as the available fund balance). The projected available fund balance at the end of FY 2018-19 is $23.4 or 24% of expenditures and transfers out. The attached summary includes the financial budgets for the General Fund for FY 2017-18 and 2018-19 and forecasts through FY 2021-22.
Included in the City’s FY 2017-18 and 2018-19 biennial Budget is the Successor Agency FY 2017-18 and 2018-19 biennial Budget totaling $12,456,000-- and $12,477,000, respectively. 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
Adoption of Resolutions (1) Approving and Adopting the City of Alameda Operating and Capital Budget for Fiscal Years (FY) 2017-18 and 2018-19 and (2) Approving and Adopting the Successor Agency to the Community Improvement Commission Budget for FY 2017-18 and 2018-19;
Adoption of Resolution Approving Workforce Changes in the Recreation and Parks Department, Public Works Department, Community Development Department and Information Technology Department;
Amend the Pension Rate Stabilization Program and Other Post-Employment Benefits Funding Policy;
Direct the City Manager or Designee to Deposit $6,043,000 of Committed General Fund - Fund Balance Plus Amounts Authorized by Council in Current and Future Budgets into the Public Agencies Retirement Services (PARS) Post-Employment Benefits Trust to Used for Prefunding of Pension and Other Post-Employment Benefits Obligations.
Respectfully submitted,
Elena Adair, Finance Director
Exhibits:
1. Fiscal Years 2017-18 and 2018-19 Budget Transmittal Letter
2. City of Alameda Budget Summary, General Fund and All Other Funds
3. Capital Improvement Program (CIP)
4. Fiscal Year 2017-18 and 2018-19 Vehicle Replacement Schedule
5. Pension Rate Stabilization Program and Other Post-Employment Benefits Funding Policy