Title
Adoption of Resolutions: (1) Approving and Adopting the City of Alameda Operating and Capital Budget Mid-Cycle Update for Fiscal Year (FY) 2018-19; (2) Approving and Adopting the Successor Agency to the Community Improvement Commission (SACIC) Budget for FY 2018-19; and (3) Approving Workforce Changes in the Community Development Department, Base Reuse and Transportation Planning Department, Fire Department and Information Technology Department, (4) Amending the City of Alameda City Employees Association (ACEA) Salary Schedule and the Salary Schedule of the Executive Management (EXME) Compensation Plan. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
Honorable President and Members of the Successor Agency Board
From: Elizabeth D. Warmerdam, Acting City Manager
Re: Adoption of Resolutions (1) Approving and Adopting the City of Alameda Operating and Capital Budget Mid-Cycle Update for Fiscal Year (FY) 2018-19; (2) Approving and Adopting the Successor Agency to the Community Improvement Commission (SACIC) Budget for FY 2018-19; and (3) Approving Workforce Changes in the Community Development Department, Base Reuse and Transportation Planning Department, Fire Department and Information Technology Department, (4) Amending the City of Alameda City Employees Association (ACEA) Salary Schedule and the Salary Schedule of the Executive Management (EXME) Compensation Plan
BACKGROUND
The City Council adopted the biennial Budget for the FY 2017-18 and 2018-19 on June 6, 2017. 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). As part of the Mid-Cycle Update, the City Council held a Budget Workshop on May 18, 2018 during which departmental requests previously not included in the Original Budget were discussed and direction was given by the City Council for inclusion in the FY 2018-19 Mid-Cycle Update. In addition, the FY 2018-19 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 2018-19 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 2018-19. Staff also recommends that the Board of the Successor Agency to the Community Improvement Commission adopt the SACIC’s Budget for Fiscal Year 2018-19.
DISCUSSION
Since the adoption of the FY 2017-19 Budget, a number of various Funds and Program Budgets have been amended throughout the year. At this time, staff recommends approving a series of amendments to the FY 2018-19 General Fund Budget based on the updated projections. In addition, the General Fund 5-Year forecast has been updated through FY 2021-22 and is included in the Exhibit 1. A number of non-General Fund program Budget amendments are also recommended for approval.
The discussion below is presented in the following sections:
I. General Fund Revenues
II. General Fund Expenditures
III. Pension/OPEB Funding Status and Policy
IV. General Fund Annual Activity and Forecast
V. Non-General Fund Programs
VI. Post Budget Workshop Requests
VII. Workforce Changes
I. General Fund Revenues
As shown in the following graph, General Fund revenues in FY 2018-19 are projected to increase by $4 million compared to the original budget. Updated revenue projections for a 5-year forecast period through 2022 range from $91 to $95 million.
Ø Property Tax and related taxes are projected to be $2 million higher than the original budget. The projection assumed 4% growth versus the prior year and it includes projections on residual tax increment flowing through SACIC. The City is realizing strong property tax related revenue growth. Future growth in assessed values above the State Prop 13 annual 2% cap is limited to property turnover or new development entering the tax roll.
Ø Sales Tax revenue is also projected to exceed the original annual budget by $0.6 million. The projection assumed 2% growth versus the prior year. Total Sales Tax revenue is highly concentrated within a few major operators. Over 30% of the City’s sales tax is generated by its top 5 producers. Alameda’s sales tax revenue is substantially generated from business and industry sources.
Ø Property Transfer Tax, charged at the point of property resale, continues to generate exceptional revenues for the General Fund for the past years. The forecast for FY 2018-19 is projected to increase by $1.4 million or 15% compared to the original budget. During FY 2017-18 Mid-Year Update, $4 million of the increase had been generated from only three parcel sales (Summer House, Vue Alameda and Panomar Apartment Complexes).
Ø The FY 2018-19 annual projection is based upon the following stratification of tax receipts:
FY 2018-19 Transfer Tax Projection
Properties <$20,000 tax per transaction $ 8,695,000
Properties >20,000 < 500,000 1,690,000
$10,385,000
The baseline projection for future years has been increased to $10.4 million to match the revenue generated from the most likely individual transactions of less than $20,000. Due to the high volatility of this revenue source and the unpredictable sale of larger properties, budgeting and appropriation of revenues from larger properties are recommended to be deferred until after actual receipt of such revenues. With future year projections of 1% assumed growth per year, note that over 10% of the operating budget will be dependent upon ongoing property sales within the City, and as a result, this portion of the budget is particularly susceptible to recession or other fluctuations in real estate activity.
II. General Fund Expenditures
A summary and year-to-date status of General Fund expenditures are presented in Exhibit 1. Operating expenses in total, by category, and by department have all been evaluated by staff taking into account the salary and benefits increases that went into effect in January 2018. With this update, salary and benefits changes are increased by $500,000 due to salary increases received in January 2018, mutual aid overtime, and pension rates offset with the decrease on CalPERS pension costs as a result of the pension reserve payments savings ($1 million) made in December and March 2018. The overall net changes in expenditures for the General Fund is approximately $500,000 increase. Below are the Mid-Cycle augmentations that the City Council provided direction to include in the Mid-Cycle Update during the May 18th Budget Workshop.
III. Pension/OPEB Status and Policy
The City Council adopted a Pension/OPEB funding policy to address a growing unfunded liability for the City’s pension and OPEB (retiree medical) benefit programs. Based upon the most recent actuarial reports, both the City’s CalPERS pension and OPEB plans have accumulated significant unfunded liabilities, and face increasing annual payment requirements.
The projected General Fund share of the annual CalPERS unfunded liability payment is presented in the chart below. Because CalPERS adopted a 7-year payment phase-in for recent changes in actuarial assumptions, including a reduction of the pension plan’s investment earnings assumption from 7.5% to 7.0%, CalPERS is expecting increasing payments toward the City’s unfunded liabilities each year. Annual payments are increasing $1-$2 million per year and are expected to double over 5 years.
Through the City’s Pension/OPEB Funding Policy, the City commits additional funds as available each year to pay down pension/OPEB obligations in advance. Specifically, 50% of the surplus available fund balance at the end of each fiscal year, in excess of a reserve target of 25% of annual operating expenditures, is committed to funding Pension/OPEB obligations. Through advance pay down made to CalPERS in December 2017 ($6.3 million) and in March 2018 ($4.4 million), the City already realized annual savings of over $1 million and has started to mitigate its growing payment obligations. Without mitigation, pension/OPEB payment obligations are at risk of “crowding out” the allocation of general tax dollars to current services and programs.
FY 2018-19 General Fund fund balance is projected to end the fiscal year with $7.9 million surplus above the 25% target reserve of which 50% of this surplus above 25% target will go to pay down pension and OPEB obligations per City Council’s policy. To provide flexibility in the near term, 75% of pension reserves are paid directly to CalPERS, and 25% is contributed to a dedicated Section 115 trust for future payment of pension expenses. This allocation was approved by the City Council in October 2017. OPEB reserves are also contributed to a Section 115 trust restricted to the payment of retiree medical benefits.
As the Council considers its long-term General Fund strategy, the chart above also presents the impact if an additional $2 million annual pension contribution can be built into future budget cycles. This $2 million is not currently included in the General Fund expenditure forecast.
IV. General Fund Annual Activity and Forecast
The proposed FY 2018-19 budget changes and augmentation requests, will update the General Fund revenue to $91 million and operating expenditures to $91 million. The following graph depicts General Fund revenue and expenditure trends, including updated FY 2018-19 revenue projections. For FY 2018-19, the revenue/expenditure gap adopted in the original budget now closes with current FY 2018-19 revenue projections including the new budget requests.
The General Fund available fund balance at June 2018 is projected at $30.7 million, or 32% of the General Fund’s $91 million in operating expenditures. With Pension/OPEB reserve policy for FY 2018-19 results, 50% of the surplus fund balance in excess of 25% will be committed to next year’s Pension/OPEB reserve funding, and the adjusted available fund balance at June 2019 is projected at 29% of annual operating expenditures.
Looking forward into the General Fund 5-year forecast, as detailed in Exhibit 1, a budget deficit between revenues and expenditures for existing service levels is expected to return in FY 2019-20 as shown in the following graph. As the City plans its ongoing programs and services, it will need to balance its increasing cash flow requirements for legacy pension/OPEB obligations with commitment to maintain and enhance City services.
V. Non-General Fund Programs
In addition to the General Fund amendments discussed above, the following adjustments are proposed for programs outside of the General Fund. These adjustments are detailed in the list of budget adjustments presented in Exhibit 3.
VI. Post Budget Workshop Requests
After the City Council Budget Workshop held on May 18, 2018, staff identified a need for additional appropriations for two capital projects that are recommended for Council’s approval.
Ø Jean Sweeney Open Space Park Project - The construction of the first two funded phases of Jean Sweeney Open Space Park (Sweeney Park) will be completed this fall. This site development has been extremely complex, including soil remediation, Union Pacific property negotiations and other challenges during construction. There are a few expenditures that were originally unanticipated or higher than anticipated. An appropriation is necessary to cover these expenditures for the remainder of the current construction project. Staff recommends allocating $184,000 of Recreation Fund available fund balance to cover Union Pacific negotiation costs, including the Associated Right of Way Services consultant and other additional surveying and title work; review costs from the State Department of Toxic Substance Control and Regional Water Quality Board on soil and water remediation issues; and additional Public Works project management and inspection costs. In addition, in January 2018, the Jean Sweeney Open Space Park Foundation donated $39,000 for purchase and installation of benches in the park, which requires an appropriation of both revenue and expenditures. The appropriation for the project is $223,000 and is included in the table presented above.
Ø Seaplane Lagoon (SPL) Ferry Terminal Project - Recently updated designs and cost estimates for the SPL Ferry Terminal project indicate an increase in the project cost estimate of $4 million bringing the total project cost to $22 million. This is due primarily to escalating costs of construction, as well as the requirements identified when moving from concept to actual design and the need to maintain an adequate contingency. As a result, staff recommends that the City Council approve allocation of City funds to assist with the funding of the project with $1 million coming from the Tidelands Fund ($3.1 million currently available fund balance) and $1 million from the Base Reuse Fund ($6.7 million currently available fund balance). The current budgeted project costs of $18.2 million are funded by a $10 million contribution from the Site A developer and $8.2 million from the Alameda County Transportation Commission. Additionally, City staff has formally requested an additional $2 million from the Water Emergency Transportation Authority (WETA) and is actively value-engineering the project to reduce the funding gap, in close consultation with its architects, engineers, contractors and WETA staff.
Staff intends to return to the City Council on September 4th, 2018 with a formal update to the approved Ferry Terminal Plan and with a status update of WETA’s willingness to grant the City’s funding request. This will provide the City Council with an opportunity to review and approve an updated funding plan and the latest SPL Ferry Terminal designs before proceeding with the first phase of construction (i.e., the procurement of the float) in late September. The appropriation request for the project is $2,000,000 and is included in the table presented above.
VII. Workforce Changes
When the City Council adopted the FY 2018-19 budget, it was anticipated that funding for nine grant funded positions at the Fire Department would be exhausted by the end of FY 2017-18. As a result, these nine positions were not allocated in the FY 2018-19 Budget. There is now funding available to maintain the six firefighter positions paid by the SAFER grant through October of 2018 and to also maintain the three positions (two firefighters and one division chief) paid through the Community Paramedicine grant through November of 2018. As a result, it is recommended to allocate these positions in the FY 2018-19 Budget.
Additionally, to ensure the staffing allocation correctly represents the work being performed, three classification changes are recommended:
1) To reflect the actual job assignment, change the classification title of the Director of Base Reuse to Director of Base Reuse and Transportation Planning;
2) To reflect the highly technical work being performed, reclassify an Administrative Technician II position to the new classification of Fire Information and Billing Specialist at the Fire Department and add the new classification to the salary schedule. The cost of this change is estimated at $18,000 annually and is included in the Fire Department’s Budget; and
3) Due to the significant and long-term vertical construction activity involved at Site A and other construction throughout the City, change the allocation of the Combination Building Inspector from a two-year limited-term position to a permanent position. There is no new cost associated with this change, as the cost of this position was previously budgeted, including retirement costs and health benefits.
FINANCIAL IMPACT
The report recommends adoption of the City’s Mid-Cycle Operating and Capital Update of the FY 2018-19 Budget totaling $238,696,664 for all City funds (exclusive of Alameda Municipal Power). The proposed Mid-Cycle Budget amendments to the FY 2018-19 Budget, as detailed on Exhibit 3, will update General Fund revenue to $91 million, and operating expenditures to $91 million. This represents approximately 38% of the city-wide FY 2018-19 Revised Budget. Staff projects that the City will retain an available fund balance in its General Fund of approximately $26.7 million or 29% of Fund’s operating expenditures at the end of the FY 2018-19.
As originally adopted, the FY 2018-19 annual net deficit was projected at slightly below $2.9 million. However, based on the staff’s Mid-Cycle Update, the net deficit is projected at $8,000.
The impact of the proposed expenditure amendments, net of transfers, on all other funds is $14.8 million. These budget requests are paid from restricted grants, developer contributions, fees and accumulated restricted reserves.
Included in the City’s FY 2018-19 Budget is the SACIC FY 2018-19 Budget totaling $12,077,750. The SACIC 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 SACIC 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 which do 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 Mid-Cycle Update for Fiscal Year (FY) 2018-19; (2) approving and adopting the SACIC Budget for FY 2018-19; and (3) approving workforce changes in the Community Development Department, Base Reuse and Transportation Planning Department, Fire Department and Information Technology Department, (4) amending the ACEA salary schedule and the salary schedule of the EXME Compensation Plan
Respectfully submitted,
Elena Adair, Finance Director
Exhibits:
1. FY 2018-19 Mid-Cycle Operating Budget Update
2. FY 2018-19 Mid-Cycle Capital Improvement Program Budget Update
3. FY 2018-19 Proposed Mid-Cycle Budget Amendments