Title
Adoption of Resolution Amending the Fiscal Year (FY) 2020-21 Operating and Capital Budgets Due to the COVID-19 Pandemic. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
As part of the City of Alameda (City) FY 2020-21 Mid-Cycle Budget Update to the City Council in June 2020, it was noted that due to ongoing uncertainty about the effects of the COVID-19 pandemic on the City’s finances, staff intended to present an update on the City’s budget to the City Council later in calendar year 2020.
Since the presentation of the Mid-Cycle Budget Update, staff has had the opportunity to analyze actual revenues received for the 4th quarter of FY 2019-20 and the 1st quarter of FY 2020-21 and to compare the trend in actuals received since the start of the COVID-19 pandemic with the City’s revenue projections for FY 2020-21.
This report outlines adjustments to General Fund and non-General Fund revenue projections, and adjustments to expenditure budgets where necessary to offset revenue shortfalls.
BACKGROUND
The City Council adopted the Biennial Budget for FYs 2019-20 and 2020-21 on June 18, 2019. After the first year of the budget cycle, City Council approved an update to the second budget year (Mid-Cycle Budget Update) on June 16, 2020. As part of the Mid-Cycle Update, the City Manager noted that due to uncertainty about the effects of the COVID-19 pandemic on the City’s finances, staff intended to present an update on the City’s budget to the City Council later in calendar year 2020 that may include additional recommendations for budget adjustments.
The list of budget adjustments to the General Fund and other funds is attached as Exhibit 1. The updated Capital Improvement Program Spending Plan is attached as Exhibit 2.
Staff recommends the City Council consider adopting these changes to the operating and capital budgets for FY 2020-21. Given ongoing uncertainty about the effects of the COVID-19 pandemic on the City’s finances, staff intends to present a mid-year update on the City’s budget to the City Council in early 2021 (likely at the end of February).
DISCUSSION
I. General Fund Revenues
Property Tax revenues are not expected to be affected by the economic downturn in FY 2020-21, and are expected to be higher than previously budgeted by $1,660,000 according to updated reporting by the City’s property tax consultant, HdL. Although Exhibit 3 shows a small amount of Property Tax revenue collected to date, this is typical as property tax payments are primarily collected in November-December and April with a cleanup payment in August that is accrued back to the prior fiscal year.
At the Mid-Cycle Update, City Council approved a reduction in the Sales Tax budget of $900,000 and staff anticipates at this time a further reduction in Sales Tax revenue expectation by an additional $600,000 to $9,000,000. Staff expects this reduction to be offset by Transaction & Use Tax (Measure F), which came in higher than expected in FY 2019-20, the first full fiscal year in which this new revenue source was collected. Staff estimates the revenue projection for Transaction & Use Tax to increase by $1,800,000, from $4,200,000 to $6,000,000. Sales and Use Tax payments from the State arrive on an ongoing basis about three months after the transactions occurred, so a small amount of collections at this point in the fiscal year is typical.
Due to continuing decreases in cable TV subscriptions and a drop in electricity charges, staff recommends reducing the Utility User Tax revenue projection by $600,000.
The Parking Meter Fund typically transfers $380,000 to the General Fund annually, but due to a substantial revenue shortfall expected in FY 2020-21, discussed further below, the Parking Meter Fund will not have sufficient funds to make a contribution to the General Fund as budgeted.
At this time, staff does not recommend any adjustments to the Transfer Tax revenue estimate of $10,000,000. As of November 2, 2020, the City has received $3,128,667, or 31% of the Transfer Tax budget, as shown in Exhibit 3. Although receipts to date are on-track with the budget given that approximately 33% of the fiscal year has elapsed, Transfer Tax remains a volatile revenue source given that it depends on the volume and size of private property transactions. The receipts to date in FY 2020-21 include two large transactions (>$10 million sale price), and it is not possible to predict whether there will be any additional large property transactions through the remainder of FY 2020-21. Although the median sales price of detached single-family residential properties increased by 5.4% between the second quarter of 2019 and the second quarter of 2020, the number of sales dropped 49% for the same quarter year-over-year. If residential sales activity remains down and there are no additional large property transactions through the remainder of FY 2020-21, the City may not reach the current revenue target. Staff will provide another update on Transfer Tax receipts at the mid-year budget update in early 2021.
These revenue adjustments will result in a net increase in the General Fund revenue projection of $1,780,000. This estimated revenue increase in projection if met would still leave the City at a slight annual deficit pending expenditures.
II. General Fund Expenditures
Given that General Fund revenues are expected to be higher than previously estimated, no General Fund expenditure reductions are recommended at this time.
However, even though not recommended at this time, we will continue to monitor as we enter the mid-year review.
III. Non-General Fund Programs
Measures B/BB Funds (215)
Alameda County Measures B and BB are transportation sales taxes that finance transportation improvements through direct allocations to the City. The allocations for each measure are broken down to be used for Local Streets & Roads, Bike/Pedestrian, and Paratransit projects and programs. Staff project that total Measures B and BB allocations will be approximately $330,000 and $240,000 less than currently budgeted, respectively.
In order to avoid becoming overdrawn going forward, staff recommends reducing the Measures B and BB Local Streets & Roads budgeted transfers in FY 2020-21 to the Pavement Management CIP (Project #96010) by $500,000 and $600,000, respectively.
Reductions to Bike/Pedestrian and Paratransit expenditures are not recommended at this time due to availability of prior year funding allocations.
Tidelands Fund (216)
Staff expect the Tidelands rental income to come in about $35,000 below the current revenue budget of $800,000. To address the shortfall, staff recommend reducing the contractual services expenditure budget by $127,000.
This fund is projected to have an operating deficit of approximately $525,000 in FY 2020-21. Although the fund has sufficient fund balance to cover the shortfall in FY 2020-21, staff will continue to monitor and report to City Council on the long-term fiscal sustainability of this fund.
Parking Meter/Garage Fund (224)
With reduced use of the Civic Center Garage and conversion of many on-street parking spaces on Park and Webster Streets to 15-minute zones or outdoor spaces for businesses, revenue from parking meters is down substantially. Based on actual receipts in the beginning of FY 2020-21, staff recommends reducing the projection for (1) on-street parking meter revenues by $1,100,000 from $1,463,000 to $363,000; and (2) garage meter revenues by $130,000 from $142,700 to $12,700.
To partially offset the revenue shortfall, staff recommends reducing the contractual services budget by $550,000, canceling the planned transfer from the Parking Fund to the General Fund of $380,000, and canceling the planned transfer of $327,000 to the Parking CIP (Project #96016).
With these adjustments, this fund is projected to have an operating deficit of almost $700,000 in FY 2020-21. Although the fund has sufficient fund balance to cover the shortfall in FY 2020-21, staff will continue to monitor and report to City Council on the long-term fiscal sustainability of this fund.
Commercial Revitalization Fund (227)
Revenue sources for the Commercial Revitalization Fund include profit participation from the movie theater and rental income from the theater complex. Since the movie theater remains closed as of the writing of this report, staff recommends reducing the theater revenue budget of $170,000 to $0 in FY 2020-21, and reducing the property rental income budget by $110,000 from $460,000 to $350,000. To offset this shortfall, staff recommends reducing the contractual services budget by $38,750.
With these adjustments, the fund is projected to have an operating deficit of approximately $258,000 in FY 2020-21. Although the fund has sufficient fund balance to cover the shortfall in FY 2020-21, staff will continue to monitor and report to City Council on the long-term fiscal sustainability of this fund.
Recreation Fund (280)
The COVID-19 pandemic has had a substantial impact on Recreation programs and facility rentals. As a result, staff recommends reducing (1) the Program Fees revenue budget by $1,080,000, from $2,509,485 to $1,429,485; and (2) the Rental Income revenue budget by $249,000, from $581,479 to $332,479. The proposed revenue decrease totals $1,329,000.
To offset the revenue shortfall, staff recommends reducing the budgets for (1) part-time staff and reallocating some full-time positions to the General Fund Park Maintenance program for salary savings of $819,000; (2) contractual services by $241,000; (3) materials and supplies by $105,500; and (4) the contractual services budget for the Encinal Boat Ramp Design capital project by $28,267. The expenditure reductions total $1,193,767.
The Recreation Fund operating budget is projected to have an imbalance of expenditures exceeding revenues by approximately $230,000 in FY 2020-21. Although the fund has sufficient fund balance to cover the shortfall in FY 2020-21, staff will continue to monitor and report to City Council on the long-term fiscal sustainability of this fund.
Other Funding Sources
Staff is monitoring a variety of other funding sources to determine the extent of the COVID-19 pandemic on the City’s finances. Two of these major funding sources are the Gas Tax and Road Maintenance and Rehabilitation Accounts (RMRA) (Fund 211) and Base Reuse (Fund 858).
Gas Tax and RMRA revenues decreased at the onset of the COVID-19 pandemic and the shelter-in-place orders in March through the end of FY 2019-20. However, as shown in Exhibit 4, in the first four months of FY 2020-21, Gas Tax and RMRA revenues are meeting their targets relative to prior years, pre-COVID due to a combination of fuel consumption gradually returning to pre-COVID levels, and annual inflation adjustments and a new tax on zero emission vehicles that went into effect on July 1, 2020.
The primary funding source for the Base Reuse Fund (858) is property rental income from commercial tenants at Alameda Point, the former Naval Air Station. In October 2020, City Council authorized the City Manager to negotiate and execute rent relief agreements with certain Base Reuse tenants that have been impacted by the pandemic via a $1.5 million loan conversion assistance program (File 2020-8439). As of the end of October 2020, or 33% through FY 2020-21, the City has collected $4.9 million of the fund’s $13.2 million revenue estimate, or 37% of the revenue budget. Therefore, staff is not recommending any adjustments to the Base Reuse revenue estimate or expenditure budget at this time.
ALTERNATIVES
• Authorize the budget amendments proposed in the staff report.
• City Council may take no action, in which case the previously adopted and revised FY 2020-21 budget would remain in effect.
• City Council may provide further direction on these proposed budget amendments.
FINANCIAL IMPACT
The financial impact of the proposed revenue and expenditure adjustments are shown below by fund. Funds where revenues-less-expenditures shows a positive balance are projected to add to fund balance compared to the current budget at fiscal year-end, whereas a negative balance would drawdown fund balance at year-end.
General Fund (001)
Parking Meter/Garage Fund (224)
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.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Adopt a Resolution amending the fiscal year (FY) 2020-21 Operating and Capital Budgets due to the COVID-19 Pandemic.
CITY MANAGER RECOMMENDATION
The City Manager concurs with the Budget Manager and Finance Director recommendations.
Respectfully submitted,
Annie To, Finance Director
By:
Jennifer Tell, Budget Manager
Exhibits:
1. Proposed Budget Adjustments
2. Capital Improvement Program Spending Plan Update
3. General Fund Budget Summary
4. Year-over-Year Revenue Comparisons
cc: Eric Levitt, City Manager