Title
Budget Workshop for Fiscal Years 2019-20 and 2020-21 to Provide Direction on Funding Requests.
Body
To: Honorable Mayor and Members of the City Council
From: Eric Levitt, City Manager
BACKGROUND
The City Council is scheduled to hold Budget Workshops on May 15, May 16 and May 17, (if necessary). The Budget workshops are intended to give the City Council and community an opportunity to look more closely into the factors that make up the overall City Budget. During the workshop, the City Manager and Department Heads will provide highlights of the City Manager Proposed Budget and answer 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 then provide input to staff on the allocation of funding.
A summary of the proposed budget and forecast for the City of Alameda (City) for Fiscal Year (FY) 2019-20 and 2020-21 is attached in Exhibit 1, 2 and 3. This report includes the budgets for both fiscal years. The City Manager, Finance Director, and Department staff will be available to respond to questions.
Due to presenting the first Budget as the Alameda City Manager, I am recommending that the Budget for the FY 2020-21 will be approved as a part of the Biannual Budget, but that the Mid-Cycle review will be more extensive than the typical Mid-Cycle review process.
DISCUSSION
I enthusiastically present the Proposed Budget for the City Council review and discussion. The Budget is intended to provide the City Council with a Baseline Budget and to include proposed new positions and non-labor related costs to meet the City’s mission and the City Council’s stated goals for the coming two years. The Proposed Budget is intended to meet the City Council intended goals, but at the same time provide for flexibility for the City Council during the Study Session discussion.
This year, the two year budget will outline the Department requests, the requests included in the City Manager proposed budget, and requests not included for the City Council review.
The proposed budget attempts to balance the many competing priorities. The competing priorities include areas such as unfunded liabilities, new initiatives such as the Climate Action plan, critical facility improvements and staffing to meet demands.
One area the City Council may want to focus on either during the workshops or at a separate meeting is to go over the current Reserves/Fund Balance policy and ensure that the City Council either wants to maintain the policy or revisit it to review how it impacts the various City Council financial priorities.
Staff has prepared a City Manager proposed budget for FY 2019-20 and 2020-21 covering the General Fund and all other City and Successor Agency funds. As part of the proposed budget, staff also included the proposed Capital Improvement Program (CIP) totaling approximately $58.5 million and $25.7 million for FYs 2019-20 and 2020-21, respectively.
The City’s total proposed budget for all funds including transfers out is $342.3 million for FY 2019-20 and $275.4 million for FY 2020-21, both exclusive of Alameda Municipal Power (AMP). The General Fund represents approximately $100.2 million or 29% of the total in FY 2019-20 and $103.2 million or 37% in FY 2020-21. 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 annual General Fund revenues, including transfers in, are estimated to increase by $4.8 million from FY 2018-19 to FY 2019-20 and $2.4 million from FY 2019-20 to FY 2020-21. Most of the general tax revenues showed higher than expected growth in the last two years. The first year increase of $3.8 is attributed to the annualized new Transactions and Use Tax that became effective on April 1, 2019. 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 44% of General Fund total revenues. Property Tax is expected to increase an estimated 4% from the FY 2018-19 projection and 3% from the FY 2019-20 proposed budget. Property Transfer Tax is expected to decrease by about 12% in FY 2019-20 due to exclusion of large one-time payments received in FY 2018-19. Staff estimates to collect $11 million in this revenue source in FY 2020-21.
• Sales Tax revenue - is dependent on consumer spending and on the economy overall. Staff is estimating that Sales Tax will remain flat in both years of the proposed budget.
• Transient Occupancy Tax - directly benefits from increased spending activities. Staff estimates a 0.5% increase in FY 2019-20 and no growth in FY 2020-21.
• 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. The growth is expected as a result of updating the City’s UUT Ordinance for inclusion of modernized services and equipment and increases in the rates providers charge its customers. This tax is generated on cable television, telephone services, natural gas and electricity.
• Franchise Fees - show 6.9% increase from FY 2018-19 to FY 2019-20 and 2.8% increase from FY 2019-20 to FY 2020-21 primarily as a result of proposed fee increases on garbage rates.
• Business License Tax - projected at a small growth of 2% in each of the next two years.
• Departmental Revenues - expected to increase 2.4% in FY 2019-20 compared to FY 2018-19. The increase is attributable to a projection of $223,000 in Fire Prevention fees as this Bureau was recently reinstated and increased ambulance billing fees. In the second year, overall program revenues are expected to increase 12%. Most of the increase is projected in the Fire Department as a result on increase in ambulance billing fees expected with one additional ambulance company. 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 as part of the proposed two year budget. 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 new positions, highlighted below. Additional funding requests from various City Departments to be discussed during the budget workshop that City Manager and staff recommend for approval as part of the Proposed Budget are included in the tables below.
Ø Workforce Changes
The 2019-20 City Manager Proposed Budget incorporates funding for 542 allocated full-time positions. These recommendations include an overall increase in the allocation count of seven positions from the 535 full-time positions approved in the 2018-19 Mid-Year Update. Four additional positions are recommended to be added in FY 2020-21 for a total allocation count of 546.
The recommendations for FY 2019-20 include 12 new positions, deletion of five positions, upgrade of seven positions, downgrade of three positions, and the retitling of three classifications.
Six of the 12 new positions recommended in 2019-20 are firefighter positions needed to support a new ambulance. The remaining positions are needed to support program growth.
Departmental requests originally included 21 new positions. However, five positions are not being recommended due to budget constraints.
Additionally, the staffing in the FY 2019-20 budget reflects the reorganization of the Departments of Community Development and Base Reuse and Transportation. Base Reuse is now part of the Community Development Department. Planning, Building and Transportation functions are now combined together into the Planning, Building and Transportation Department.
Other recommended position requests include the extension of six limited-term Firefighter positions to support existing Staffing for Adequate Fire and Emergency Response (SAFER) Grants in the Fire Department, as well as the transfer of position allocations for Information Technology Systems Analysts positions within the Departments of Information Technology, Library, and Planning, Building & Transportation.
Exhibit 2 shows the detail of departments’ requests and City Manager’s recommendations.
Number of Allocated positions by Department
|
DEPARTMENT |
Approved 2018-19 |
Allocation Changes in 2018-19 |
Adjusted 2018-19 |
Recommended 2019-20 |
Recommended 2020-21 |
|
Alameda Municipal Power |
98.25 |
-1 |
97.25 |
94.25 |
94.25 |
|
City Attorney |
9 |
0 |
9 |
9 |
9 |
|
City Clerk |
3 |
0 |
3 |
3 |
3 |
|
City Manager/Council |
6 |
0 |
6 |
6 |
6 |
|
Community Development (Will include Base Reuse starting 2019-20) |
33 |
1 |
34 |
10 |
11 |
|
Planning Building and Transportation (Effective 2019-20) |
|
|
|
28 |
28 |
|
Base Reuse |
5 |
0 |
5 |
0 |
0 |
|
Finance |
14 |
1 |
15 |
17* |
18* |
|
Fire |
111 |
1 |
112 |
117 |
117 |
|
Human Resources |
8 |
0 |
8 |
8 |
8 |
|
Information Technology |
6.75 |
0 |
6.75 |
7.75 |
7.75 |
|
Library |
18 |
0 |
18 |
19 |
20 |
|
Police |
122 |
0 |
122 |
122 |
122 |
|
Public Works |
74 |
0 |
74 |
75 |
75 |
|
Recreation & Park |
25 |
0 |
25 |
26 |
27 |
|
TOTAL |
533 |
2 |
535 |
542 |
546 |
* Includes 2 Limited Term Accountant II’s
Ø Vehicle Acquisition
The City Finance and Public Work Departments staff spent significant time evaluating the citywide vehicle replacement program in preparation for the biennial budget. As a result, a comprehensive list was established of all vehicles and equipment in the City included in the program. In addition, a comprehensive list of vehicles that are due and past due replacement were identified and are proposed to be replaced in the next two years. This accounts for 129 vehicles out of 288 vehicles included in the replacement program. The funding for the program was reengineered and is incorporated in the City Manager’s proposed budget. The only vehicles excluded from the replacement program are large apparatus items for the Fire Department. The current proposal for the funding of these vehicles is a pay-go funding and/or lease financing.
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.
|
Department |
Vehicle Count |
Funding Source |
Total Vehicle Costs for FY2019-20 & FY2020-21 |
|
Police |
45 |
Vehicle Replacement Fund |
$2,377,500 |
|
Fire |
12 |
Vehicle Replacement Fund |
$779,019 |
|
Public Works |
43 |
Sewer and Vehicle Replacement Fund |
$3,978,062 |
|
Recreation & Parks |
20 |
Vehicle Replacement Fund |
$810,668 |
|
Library |
1 |
Vehicle Replacement Fund |
$37,050 |
|
Planning/ Building/ Comm. Development |
8 |
Vehicle Replacement Fund |
$292,320 |
|
Total |
129 |
|
$8,278,618 |
Ø Capital Program Funding
Staff identified number of citywide capital projects. The City Manager reviewed the proposed list with the staff, including those projects that require allocations from the General Fund. Due to limited General Fund resources, City Manager’s proposed budget either fully or partially funds certain selected projects. The selection was based on the critical needs, cost-efficiency efforts, and Council set priorities. Projects listed below are General Fund funded over the two-year period. Full list of the projects proposed in the current budget are included in the Capital Improvement Program Budget.
|
Department |
Project |
Funding Source |
Total One-Time Capital Costs |
|
Public Works |
Urban Forrest |
General Fund |
$400,000 |
|
Public Works |
Lagoon Dredging |
General Fund |
$400,000 |
|
Public Works |
Central Ave. Improvements |
General Fund |
$748,000 |
|
Public Works |
Otis Dr. Improvements |
General Fund |
$300,000 |
|
Parks and Recreation |
Park Maintenance Improv. |
General Fund |
$500,000 |
|
Parks and Recreation |
Mastick HVAC |
General Fund |
$100,000 |
|
Parks and Recreation |
Pool Design |
General Fund |
$150,000 |
|
Fire |
FS#1 Gender Related Mods |
General Fund |
$150,000 |
|
Public Works |
Veteran’s Court Improv. |
General Fund |
$650,000 |
|
Public Works |
LED Lights |
General Fund |
$560,000 |
|
Public Works |
Street Lights Replacement |
General Fund |
$300,000 |
|
Information Technology |
Financial and HR/Payroll System Replacement |
General Fund |
$1,909,000 |
|
Police |
Police Dispatch Software |
General Fund |
$500,000 |
|
Total |
|
|
$6,667,000 |
The General Fund allocated resources amounted to $4,745,000 in FY 2019-20 and $1,922,000 and FY 2020-21.
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 FYs 2019-20 and 2020-21 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 estimates the City’s FY 2019-20 and 2020-21 biennial Budget totaling $342,463,161 and $275,416,409, 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 $27 million or 27% of General Fund total expenditures and transfers out at the end of the FY 2019-20. The projected available fund balance at the end of FY 2020-21 is $26.3 or 26% of expenditures and transfers out. The City Council policy is to maintain a 25% General Fund reserve (also known as the available fund balance). The above percentages take into account amounts set aside for the funding of unfunded pension and OPEB liabilities as set by the City Council funding policy. The attached summary includes the financial budgets for the General Fund for FY 2019-20 and 2020-21 and forecasts through FY 2022-23.
Included in the City’s FY 2019-20 and 2020-21 biennial Budget is the Successor Agency FY 2019-20 and 2020-21 biennial Budget totaling $22,912,856-- and $23,030,202, 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
Provide direction to staff on FY 2019-20 and 2020-21 Proposed Biannual Budget.
The above represents the City Manager’s Proposed Budget. The purpose of the Study Sessions are to provide the City Council the opportunity to review the proposed budget and make additions and revisions as the City Council sees appropriate.
The Budget as proposed is intended to meet several objectives.
• The City Council goals as outlined in the City Council workshop.
• Be strategic in nature
• Balance needs across the organization
• Maintain a fiscally prudent budget.
A few elements that I want to bring awareness to you are as follows:
• The proposed budget provides for implementation of the facility improvement plan over 12 year timeframe.
• Funding for design for a future pool is included
• It provides for fully funding the vehicle replacement fund (with the exception of current leased large vehicles).
• The revenue projection in particular for the property transfer tax may be on the conservative side due to some unknown sales and concerns that it may not be able to maintain the revenue levels of previous years.
• I provided cushion in the budget due to projecting a grant to assist in funding a fourth ambulance.
• While there are additional funds remaining in FY 2019-20, the out years show potential deficits prior to funding for capital improvements in the General Fund.
• Finally, I believe it is important that the City Council visit the current Pension Policy and how it relates to the City’s Fund Balance to ensure it consistent with current priorities of the City Council
There may be a few requests that will come in after the Proposed Budget is submitted including potential requests for funding for mental wellness in the schools and promotion of tourism.
In closing, I look forward to the upcoming discussions to ensure that we provide funding in a way to meet the priorities of the City Council and needs of the community.
Respectfully submitted,
Elena Adair, Finance Director
Exhibits:
1. Proposed All Funds and General Fund Budget Summary
2. Requested and Recommended Workforce Changes
3. Vehicle Replacement Schedule