Title
Adoption of Resolution Amending the Fiscal Year (FY) 2020-21 Budget and Authorizing the City Manager to Redistribute Budget Appropriations between Similar Capital Projects; and
Adoption of Resolution Amending the Salary Schedules for the Management and Confidential Employees Association (MCEA) and for Executive Management Employees (EXME) and Approving Workforce Changes for FY 2020-21. (Finance 2410) [Not heard on February 16, 2021]
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
This report provides a review and an update to the Fiscal Year (FY) 2020-21 budget and revenue and expenditure projections through June 30, 2021. Budget adjustments are proposed for the General Fund, special revenue funds, capital projects funds, enterprise funds, internal service funds, and trust/fiduciary funds. The proposed adjustments would increase the General Fund revenue projection by $966,000, from $102.9 million to $103.9 million, and increase the General Fund operating expenditure budget by $1,205,030, from $104.7 million to $105.9 million.
According to the City Council-approved Pension/OPEB funding policy based on prior year-end results, the proposed adjustments also include additional General Fund appropriations of $14.1 million for the pay down of Pension/OPEB unfunded liabilities.
For non-General Fund programs, staff project a net increase in revenues of approximately $1.8 million and propose an additional $3.3 million in expenditure appropriations.
To facilitate closeout of recurring capital projects, staff recommends authorizing the City Manager to redistribute budget appropriations of up to $75,000, or the City Manager’s signing authority, between similar capital projects.
Further, staff recommends workforce changes, which include the re-classification of three positions, a title change and increase in salary for one classification and the extension of one limited-term position.
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. Due to uncertainty about the effects of the COVID-19 pandemic on the City’s finances, staff presented a budget update to City Council on December 1, 2020, with revenue and expenditure budget adjustments to address COVID impacts on the City’s finances.
This report updates the FY 2020-21 financial projections for the General Fund and proposes current year budget adjustments for various City funds to reflect and respond to the City’s current financial condition, including ever-evolving information about the impacts of the COVID-19 pandemic on City services and revenue sources.
The list of budget adjustments to the General Fund and other funds is attached as Exhibit 1 and the updated General Fund Budget Summary is attached as Exhibit 2.
DISCUSSION
I. General Fund Revenues
General Fund revenues in FY 2020-21 are projected to increase by $966,000 to $103.9 million in total. Staff recommend the following changes to General Fund revenue projections:
Ø Increase Property Transfer Tax, which is charged on the sale of private property, by $2.0 million to $12.0 million. This increase is due to the sale of two large commercial properties in the first six months of the fiscal year, which generated approximately $2 million in unanticipated one-time revenue.
Ø Increase Transient Occupancy Tax by $200,000 based on trends in receipts to date that indicate some recovery in hotel activity since the first quarter of the COVID-19 pandemic.
Ø Reduce Program Revenues in the City Clerk’s Office by $94,000 due to the Clerk’s Office not being able to process passport applications or conduct wedding ceremonies during the COVID-19 pandemic.
Ø Reduce Program Revenues in the Fire Department by a total of $1,140,000. Ambulance service revenues are projected to be down by $675,000 due to reduced calls for service during the pandemic and reimbursements for overpayment. Fire inspection activity is also down due to the pandemic, and fire inspection fee revenue is projected to come in $150,000 lower for apartments and $180,000 lower for commercial buildings than previously budgeted. First Responder Fee and Vehicle Accident Fee revenue is also down by $50,000 and $40,000, respectively, due to inability to separate collection of these fees from ambulance service fees. Alarm Service Fees are also trending lower and the revenues are projected to come in $45,000 lower than previously budgeted.
II. General Fund Expenditures
Operating expenses in total and by department are tracking at or below 50% of the annual budget through the first six months of the fiscal year.
The following General Fund expenditure budget adjustments, totaling an increase in requested appropriations of $1,205,030, are proposed to reflect the following program needs and equipment requirements:
• Non-Departmental - COVID-19 Expenses - $349,030
Staff recommend transferring $1,000,000 from the General Fund to the COVID-19 Project (96027) to cover expenses incurred for COVID-related services and supplies. Expenses have been incurred under the COVID-19 Project for tracking purposes, and a funding source for the project has not previously been identified. City Council previously appropriated $353,970 in State CARES Act funding and $297,000 in non-departmental contingency budget to the General Fund for non-reimbursable/contingency COVID-19 expenses. Staff recommends transferring $1,000,000 to the COVID-19 Project (96027) in Fund 310, including $650,970 of these previously appropriated funds, resulting in a net increase of General Fund appropriations of $349,030.
• Administration - Finance Contractual Service - $90,000
Re-appropriate $90,000 in unspent budget from FY 2019-20 for contractual services for long-term financial planning services.
• Administration - Finance Personnel - $(38,000)
Reduce the Finance Department personnel budget by $38,000 to reflect funding changes for three positions. Staff recommends: (1) re-classifying an Accounting Technician position to the Administrative Management Analyst job class, which would cost an additional $20,000 for the last four months of the fiscal year, or about $60,000 annually; (2) shifting 80% of the labor distribution for an Account Clerk position from the Cash Management program to the Rent Stabilization Program for annual General Fund savings of $80,000; and (3) shifting 20% of the labor distribution for an Accounting Technician position from FISC Lease (Fund 256) to the General Accounting program at an annual cost of $22,000.
• Community Development - Homelessness - $498,000
Increase expenditure budget appropriations for costs associated with services for unhoused persons during the COVID-19 pandemic, including operation of the day center, safe parking, and FEMA trailers.
• Fire Operations - $155,000
Increase Fire Department services and supplies expenditure budget appropriations for costs associated with modifying the training facility due to COVID-19; personal protective equipment (PPE) for new personnel, wildland gear, and marine operations; and outfitting the fire engines with LifePak EMS equipment.
• Public Works - Street Lighting - $111,000
Appropriate an additional $111,000 to correct the labor distribution for a Maintenance Worker II position from the Urban Runoff Fund (351) to the General Fund Street Lighting program.
• Public Works Operations - $25,000
Appropriate an additional $25,000 for debris removal services.
• Recreation & Parks Operations - $15,000
Appropriate an additional $15,000 for new park and educational signage for the re-named Chochenyo Park.
III. Pension/OPEB Status and Policy
The proposed General Fund expenditure adjustments also includes the City’s discretionary Pension/OPEB contribution, which is estimated based on the FY 2019-20 year-end results. 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 General Fund available fund balance at the end of each fiscal year, in excess of a reserve target of 25% of annual operating expenditures (20% operating reserve plus 5% economic uncertainty reserve), is committed to funding Pension/OPEB obligations.
According to the City’s Pension/OPEB Funding Policy, as of June 2020, the General Fund had approximately $14.1 million in fund balance reserves committed to the pay down of pension/OPEB obligations. By policy, 75% of pension reserves, or $10.6 million, would be paid directly to CalPERS, and 25%, or $3.5 million, would be contributed to a dedicated Section 115 trust for the future payment of pension expenses. OPEB reserves are also contributed to a Section 115 trust restricted to the payment of retiree medical benefits. With the proposed budget amendment and pre-payments to CalPERS, the City would (1) realize budget savings in future years as the liabilities are reduced, and (2) mitigate the risk of growing payment obligations crowding out the allocation of General Fund tax dollars to current services and programs.
Over the past 10 years, the assets of the Safety and Miscellaneous CalPERS plans have grown at a slightly faster rate than the unfunded liabilities, but the gains in the funded ratio have been modest. Between June 2010 and June 2019, the assets of the Safety Plan grew from $171.0 million to $294.9 million, or an increase of 72%; and the unfunded liability grew from $119.4 million to $191.1 million, or an increase of 60%. During this period, the funded ratio (assets / accrued liability) of this plan ranged from 57.9% to 66.1%, and the ratio was 60.7% in the most recent year available, as shown below.
The assets of the Miscellaneous Plan increased from $147.3 million in 2010 to $221.1 million in 2019, or an increase of 50%; and the unfunded liability increased from $63.7 million to $86.0 million in 2019, or an increase of 35%. The funded ratio ranged from 69.8% to 81.5% over the 10-year period, and was 72.0% in the most recent year, as shown below.
Based on the most recent CalPERS actuarial reports, required unfunded liability payments are projected to increase by approximately $1-2 million per year over each of the next five years, assuming a 7% rate of return on investment each year. If returns are lower than 7%, required payments will be higher in the future. The CalPERS rate of return at the end of FY 2019-20 was 4.7%.
As shown above, plan assets are sensitive to market returns, especially if CalPERS does not meet the 7% investment return target in a given year. To mitigate the risk that a market downturn could lead to substantially higher required unfunded liability payments in lean revenue years, which could require cutbacks in municipal service levels, staff recommends using the FY 2019-20 year-end reserves to make the discretionary CalPERS payment for reducing unfunded liabilities in accordance with the City’s Pension/OPEB Funding Policy. Advance payment of unfunded liabilities will result in lower required CalPERS payments in future years.
IV. 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 included in the list of budget adjustments presented on Exhibit 1.
• COVID-19 Project (96027) - Capital Projects Fund (310) - $1,000,000 Revenue increase and Expenditure appropriation for transferring budget to cover non-reimbursable expenses for services and supplies related to the response to the COVID-19 pandemic.
• Pension Stabilization Fund (721) - $18,000 Expenditure appropriation to cover the costs of administering the Pension/OPEB trust.
• Police/Fire Pension 1079 Fund (801) - $500,000 transfer out to the PARS Pension Rate Stabilization Program Fund (812). The City’s Pension Funding Policy calls for applying excess funds from the closed Police and Fire 1079 Pension Plan to the Pension Trust.
• Public Art Fund (285) - $20,000 Expenditure re-appropriation of unspent budget from the prior fiscal year for disbursement of grant awards through the Public Art Small Grants Pilot Program.
• Rent Stabilization Fund (265) - $80,000 Expenditure appropriation for re-distribution of 80% of Account Clerk position costs.
• FISC Lease Fund (256) - $22,000 Expenditure reduction for re-distribution of 20% of Accounting Technician position costs.
• Unemployment Insurance Fund (715) - $225,000 Expenditure appropriation for unemployment claims due to furlough of part-time workers as a result of the COVID-19 pandemic.
• Library Fund (210)
o $140,000 Revenue increase and Expenditure appropriation for reimbursable expenses associated with the National Parks Service Japanese American Confinement Sites Grant.
o $79,000 Expenditure re-appropriation of unspent budget from the prior fiscal year for LED lighting at the Main Library.
• Community Development Fund (209)
o $500,000 Revenue decrease due to suspending collection of Code Enforcement penalty fees.
o $27,000 Expenditure appropriation for extending a limited-tenure Permit Tech III position beyond the original expiration of March 2021.
o $5,000 Expenditure appropriation for upgrading a Permit Tech I position to Permit Tech III.
• Police Asset Seizure Fund (219) - $21,000 Expenditure appropriation for equipment acquisition.
• Capital Improvement Projects Fund (310):
o Restore $600,000 in Measures B/BB Local Streets & Roads (215.1 & 215.11) funding, and appropriate a $175,000 CalRecycle grant for Pavement Management (96010).
o Transfer $1,835,512 in unspent budget from Pavement Management (96010) to Pavement Management (91810) for closeout.
o Transfer $2,455 in unspent budget from Lagoon Maintenance (96007) to Lagoon Maintenance (91807) for closeout.
o Transfer $22,463 in unspent budget from Urban Forest - Trees (96002) to Urban Forest - Trees (91802) for closeout.
o Return $12,918 in unspent budget from Citywide Transit/TDM Plan (91625) to funding sources for closeout.
• Fleet Replacement Fund (701) - $150,000 Expenditure appropriation for up-fitting of 18 previously purchased new Police Department vehicles.
• Urban Runoff Fund (351) - $465,000 Expenditure decrease for re-distribution of costs associated with a Maintenance Worker II, 60% of an Associate Civil Engineer, and 30% of a Supervising Civil Engineer position.
• Sewer Services Fund (602) - $72,000 Expenditure decrease for re-distribution of 30% of the costs of a Project Manager III position.
• Public Works Engineering & Administration Fund (310.05) - $426,000 Expenditure appropriation for re-distribution of costs associated with 60% of an Associate Civil Engineer, 100% of a Supervising Civil Engineer, and 50% of a Project Manager III position.
• Facilities Maintenance Fund (707) - $45,000 Expenditure appropriation for part-time pay for fogging City Hall.
• Golf Fund (280.5)
o $180,000 Revenue increase for rental income, cell tower lease income, and concessions income.
o $50,000 Expenditure appropriation for drainage and ADA ramp improvements.
o $14,000 transfer out to the Recreation Fund (280) to cover a portion of Recreation & Parks Director labor costs under agreement with Greenway.
• Recreation Fund (280)
o $231,000 Revenue increase for aquatics program fees and swim center facility fees.
o $204,500 Expenditure appropriation for part-time pay and aquatics program supplies and services.
V. Redistribute Budget Appropriations between Similar Capital Projects
The City budgets for capital improvement projects in the two-year capital budget, which is aligned with the operating biennial budget. The City manages multiple recurring capital projects, including but not limited to Pavement Management and Lagoon Maintenance, that are allocated funding in each two-year budget cycle. Currently, staff are not authorized to transfer budget between similar projects from different capital budgets and are required to seek City Council approval for project closeout.
To facilitate capital project management, staff recommend that City Council authorize the City Manager to redistribute budget appropriations between similar capital projects. The maximum transfer would be $75,000, in conformance with the City Manager’s signing authority.
The proposed resolution would allow for unspent General Fund appropriations from completed projects to be transferred to unappropriated capital reserves, and authorize the City Manager to transfer up to $75,000 of unappropriated capital reserves to approved capital projects. The City Manager would also have authority to transfer up to $75,000 in remaining budget from completed projects to their funding source(s) to facilitate project closeout.
VI. Workforce Changes
The FY 2020-21 budget includes funding for 562 allocated full-time positions. There are no new positions recommended as part of the FY 2020-21 Mid-Year Budget Update. Staff are recommending the reclassification of three positions and the extension of a term limited position. Additional costs associated with these recommendations are discussed above.
The effective date of all approved workforce changes would be February 28, 2021 pending City Council approval.
The recommendations include:
• City Manager’s Office - Change the title and salary of the Public Information Officer classification to Communications and Legislative Affairs Officer and move the position from the Management and Confidential Employee Association to the Executive Management Employee Compensation Plan (EXME). The duties of this position have been expanded to include a larger role in citywide communications strategy and the responsibility for managing legislative affairs for the City. The top step of the salary range would be increased from $129,130 to $146,255. The estimated cost of the upgrade is $4,000 for the remainder of the fiscal year.
• Finance Department - Reclassify one vacant Accounting Technician position to Administrative Management Analyst. In 2020, an organizational review of the Finance department was completed by an outside consultant. The consultant recommended and the department concurs that more support is needed within the department in the areas of budget, policy and procedure development, procurement/purchasing, and supporting ongoing ERP duties. The estimated cost of the upgrade is $20,000 for the remainder of the fiscal year.
• Planning, Building and Transportation
o Reclassify one Permit Tech I to Permit Tech III in order to have additional staff available to perform the most complex permitting duties. The estimated cost of this reclassification is approximately $5,000 annually.
o Extend one limited term Permit Tech III for an additional two years. This will ensure there are sufficient staff to support the significant permitting activity currently experienced by the Department. The current expiration of the limited term is April 2021. The position would be extended through April 2023.
• Fire Department - Reclassify one Senior Fire Code Compliance Officer to Fire Apparatus Officer. This position change was included in the FY 2020-21 budget and included in the Budget presentation to City Council in June 2020 but was not included in the required Workforce Resolution.
ALTERNATIVES
• Authorize the budget amendments, capital project budget redistribution authority, and workforce changes proposed in the staff report.
• The City Council could decide to fund the Block by Block program for the remainder of the year at a cost of $178,000 for four months.
• City Council may take no action, in which case the previously adopted and revised FY 2020-21 budget and authorized positions would remain in effect.
• City Council may provide further direction on these proposed budget amendments, capital project budget redistribution authority, and workforce changes.
FINANCIAL IMPACT
The proposed FY 2020-21 budget adjustments will increase the General Fund revenue projection by $966,000 to $103.9 million, and will increase the operating expenditure budget by $1,205,030 to $105.9 million, and to $120.0 million in total expenditures with the proposed Pension/OPEB Funding Policy reserve payment of $14.1 million, as shown in Exhibits 1 and 2.
The FY 2020-21 Mid-Cycle Budget projected an operating deficit of approximately $2.0 million this year due to a drop in revenues from the COVID-19 pandemic. With previous budget revisions and the proposed budget adjustments, the operating deficit is projected to increase to approximately $2.1 million in FY 2020-21. With the Pension/OPEB reserve payment, expenditures are projected to exceed revenues by $16.1 million.
The General Fund available fund balance at the end of June 2021 is projected at $31.5 million, or approximately 30% of the General Fund’s $105.9 million in operating expenditures.
The General Fund 5-year forecast will be presented in the FY 2021-23 Biennial Budget scheduled for City Council adoption in June 2021.
The net impact of the proposed adjustments on all other funds will be an increase in the revenue projection by $1.8 million and additional expenditure authority of $3.3 million.
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; implementation of the Climate Action and Resiliency Plan continues to move ahead with available funding.
RECOMMENDATION
Adopt a resolution amending the FY 2020-21 budget, authorize the City Manager to redistribute budget appropriations between similar capital projects, and adopt a resolution approving workforce changes for FY 2020-21.
CITY MANAGER RECOMMENDATION
The City Manager recommends amending the FY 2020-21 budget. The Block by Block program is not included in the proposed amendment but is provided with associated funding if the City Council desires to fund it for the remainder of the Fiscal Year.
Respectfully submitted,
Annie To, Finance Director
By,
Jennifer Tell, Budget Manager
Exhibits:
1. FY 2020-21 Mid-Year Budget Adjustments
2. General Fund Budget Summary
3. EXME Salary Schedule
4. MCEA Salary Scheudle