Title
Budget Workshop for Fiscal Years 2021-22 and 2022-23 to Provide Direction that will be Incorporated into Budget Adoption Hearing Materials for City Council Consideration in June 2021. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City Manager is proposing a General Fund Budget of $113,416,578 in FY 2021-22 and $116,708,943 in FY 2022-23. The total proposed budget for all funds is $267,771,826 in FY 2021-2022 and $270,283,176 in FY 2022-23. Due to the City entering its second year in the pandemic, this budget includes several unique elements.
The proposed budget does not include the approximately $29 million that the City is expecting to receive over the next two years through the Federal American Rescue Plan Act (ARPA). We anticipate City Council providing direction on priorities for the ARPA once the City receives the Treasury guidance.
In addition, the City is currently facing a tight operating budget in the General Fund while also attempting to balance continued demands in several areas, including but not limited to, addressing Mental Health calls in a different way in the future and continued pressures created by continuing the City’s Homelessness programs.
Finally, the City Manager is recommending out of the $14 million positive fund balance set aside at the end of FY 2019-20 that is scheduled to prepay future pension costs, that City Council allocate up to $10 million of those funds to prepay pension costs and allocate $4 million over the next two years as carry-forward funds to pay for programs included in the General Fund.
Alternatively, the City Council could appropriate a portion of the ARPA funds in place of the funds from the positive fund balance or provide direction to reduce operating costs through elimination of specific programs. In addition, the City Council could reduce the prepayment from the recommended $10 million to increase funding in specific programs.
The City Manager anticipates evaluating the two-year biennial budget further at the mid-cycle budget update in 2022.
BACKGROUND
The May 11, 2021 and May 20, 2021 budget workshops are scheduled to give the City Council and community an opportunity to discuss the factors that make up the overall City budget and consider proposals for changes in service levels and capital improvements.
During the workshop, staff will provide highlights of the City Manager Proposed Budget and answer questions on budget projections and departmental funding changes that are outside of the baseline budget estimates.
Staff is seeking direction from the City Council on the allocation of funding for the upcoming two fiscal years, including guidance on allocation of the American Rescue Plan Act (ARPA) funding. The City of Alameda (City) expects to receive a total of $28.95 million in ARPA funding in two tranches, with the first tranche expected in 2021 and the second tranche expected one year later. The ARPA funds must be spent by the end of calendar year 2024.
A summary of the proposed budget for the City for Fiscal Years (FYs) 2021-22 and 2022-23 is attached in Exhibit 1.
DISCUSSION
Staff has prepared a City Manager proposed budget for FY 2021-22 and 2022-23 covering the General Fund and all other City and Successor Agency funds, summarized in Exhibit 1. Related to the proposed budget, staff also prepared a proposed Capital Improvement Program (CIP) budget. For details on the CIP budget, please refer to File 2021-901.
I. General Fund Revenues
General Fund revenues, including transfers-in, are estimated to increase by $3.1 million, from $108.7 million in FY 2020-21 to $111.8 million in FY 2021-22, and by an additional $2.7 million in FY 2022-23 to $114.5 million. The City’s largest source of General Fund revenue, Property Tax, has remained stable with a modest increase through the COVID-19 pandemic. General Fund revenue sources impacted by the pandemic, such as Sales Tax and Transient Occupancy Tax, are projected to nearly recover to pre-pandemic levels over the next two years.
Expectations for General Fund revenues over the next two years are summarized below:
• Property Tax makes up about 43% of General Fund revenues. Property Tax is expected to increase an estimated 5% from the FY 2020-21 projection of $45.8 million to $48.4 million, and by 3% to $50.0 million in FY 2022-23.
• Property Transfer Tax is conservatively estimated at $12.0 million. Although actual Property Transfer Tax receipts have ranged from $14.1 to $17.6 million over the last three fiscal years, the fluctuation in revenues was due to the sale of large commercial properties that cannot be predicted. City Council may want to consider a policy for the use of the funds generated from the sale of large properties valued over $10 million.
• Sales Tax/Transaction and Use Tax revenue is dependent on consumer spending and on the economy overall. Sales Tax receipts decreased from $11.5 million in FY 2018-19 to $10.1 million in FY 2019-20, and are projected at $9.0 million in FY 2020-21 due to the effects of the COVID-19 pandemic on local sales transactions. In FY 2021-22, Sales Tax revenues are projected by the City’s sale tax consultant, HdL, to rebound to $11.0 million and increase by an additional 2% in FY 2022-23. Transaction and Use Tax (Measure F) revenues are projected to increase from approximately $6.0 million in FY 2020-21 to $7.0 million in FY 2021-22 and increase by an additional 2% in FY 2022-23.
• Transient Occupancy Tax, or hotel tax, decreased from $2.3 million in FY 2018-19 to $2.0 million in FY 2019-20 and is projected at $1.4 million in FY 2020-21 due to the effects of the pandemic on travel. Transient Occupancy Tax is expected to remain flat at $1.4 million in FY 2021-22 and increase by 14% to $1.6 million in FY 2022-23.
• Utility Users Tax (UUT) is generated on use of cable television, telephone services, natural gas and electricity. After decreasing over the last two years, UUT is expected to increase modestly in the next two years from $8.4 million in FY 2020-21 to $8.7 million in FYs 2021-22 and 2022-23. The growth is due to projected increases in receipts for electricity and gas UUT which offset projected decreases for phone/wireless, cable, and prepaid wireless.
• Franchise Fees are projected to decrease by 6% from $4.3 million in FY 2020-21 to $4.0 million in FY 2021-22 and by another 1% in FY 2022-23 to $3.9 million due to a continuing decrease in Cable TV Franchise and a reduction in the Solid Waste Franchise following re-negotiation of garbage collection rates.
• Business License Tax is projected to decrease by 5%, from $2.2 million to $2.1 million, due to the effects of the COVID-19 pandemic on small businesses.
• Departmental Fees and Charges for Services are expected to increase 16%, to $6.7 million, in FY 2021-22 due to the anticipated recovery of programs affected by the pandemic, such as recreation programs and fire inspections. In the second year, departmental fee revenue is expected to further increase by 4%, due to a higher level of expected fire inspections and recreation program activity.
II. Citywide Expenditures
The City’s operating budget is comprised of a number of different funding sources. The General Fund is the largest single fund and represents the resources over which the City Council has the most discretion.
The City’s total proposed expenditure budget for all funds including transfers out is $267.8 million in FY 2021-22 and $270.3 million in FY 2022-23, both exclusive of Alameda Municipal Power (AMP). The General Fund represents approximately $113.4 million, or 42%, of the total in FY 2021-22 budget and $116.7 million, or 43%, of the FY 2022-23 budget, as shown on the next page.
|
|
FY 2019-20 Actual |
FY 2020-21 Amended |
FY 2021-22 Proposed |
Change |
FY 2022-23 Proposed |
Change |
|
General Fund |
$103,474,000 |
$110,980,959* |
$113,416,578 |
2.2% |
$116,708,943 |
2.9% |
|
All Other Funds |
$220,517,664 |
$186,766,232 |
$153,355,248 |
(17.4)% |
$153,574,233 |
(0.5)% |
|
Total |
$323,991,664 |
$297,747,191 |
$267,771,826 |
(10.1)% |
$270,283,176 |
0.9% |
* Excluding one-time appropriations of approximately $14.1 million for advance pay-down of pension obligations and other post-employment benefit (OPEB) reserves.
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 shown in Exhibit 2.
Staff is not proposing any cost of living adjustments for services or supplies unless specifically provided for in existing contracts with vendors. Increases in personnel costs are due to normal salary increases, cost of living adjustments of 1% to 2% set to take effect in January 2022 depending on bargaining unit and rising pension costs (see Exhibit 3).
III. Workforce Changes
The City Manager recommends increasing the authorized position count (excluding AMP) from the 459.75 full-time-equivalent (FTE) positions approved in the FY 2020-21 Mid-Cycle Budget Update to a total of 467.75 FTEs in FY 2021-22, and 469.75 FTEs in FY 2022-23 (pending available funding resources). Funding for the authorized and proposed positions is incorporated in the FYs 2021-23 City Manager Proposed Budget.
|
Department |
FY 2019-20 Authorized |
FY 2020-21 Authorized |
FY 2021-22 Proposed |
Change |
FY 2022-23 Proposed |
Change |
|
City Attorney |
11.50 |
11.50 |
11.50 |
- |
11.50 |
- |
|
City Clerk |
3.00 |
3.00 |
3.00 |
- |
3.00 |
- |
|
City Council |
0.50 |
0.50 |
0.50 |
- |
0.50 |
- |
|
City Manager |
6.50 |
6.50 |
6.50 |
- |
6.50 |
- |
|
Community Dev |
11.75 |
11.75 |
11.75 |
- |
11.75 |
- |
|
Finance |
17.00 |
17.00 |
17.00 |
- |
16.00 |
(1.00)* |
|
Fire |
117.00 |
117.00 |
117.00 |
- |
117.00 |
- |
|
Human Resources |
8.00 |
8.00 |
8.00 |
- |
8.00 |
- |
|
Information Technology |
5.75 |
5.75 |
6.75 |
+1.00 |
7.75 |
+1.00 |
|
Library |
20.00 |
21.00 |
21.00 |
- |
21.00 |
- |
|
Planning, Building & Transportation |
29.00 |
29.00 |
31.00 |
+2.00 |
31.00 |
- |
|
Police |
124.00 |
125.00 |
126.00 |
+1.00 |
126.00 |
- |
|
Public Works |
74.75 |
74.75 |
77.75 |
+3.00 |
79.75 |
+2.00 |
|
Recreation & Parks |
27.00 |
29.00 |
30.00 |
+1.00 |
30.00 |
- |
|
Total |
|
459.75 |
467.75 |
+8.00 |
469.75 |
+2.00 |
* One limited-term Accountant II position will expire in FY 2022-23.
Departments requested a total of 11 new FTE positions and upgrade of six existing positions, detailed in Exhibit 4. The City Manager recommends adding eight new FTE positions in FY 2021-22 and the remaining three new FTE positions in FY 2022-23, pending available resources. Two positions (in Planning, Building & Transportation and Recreation & Parks) are recommended for upgrade. Recommendations for the other four positions (in Community Development and Finance) are pending the results of classification studies.
The workforce recommendations include transition of 12 firefighter positions from Staffing for Adequate Fire and Emergency Response (SAFER) grant funding to the General Fund. The City received SAFER grant awards from the Federal Emergency Management Agency (FEMA) in 2017 and 2018 that are set to expire in February 2022 and March 2023, respectively. Each grant supports six firefighter positions, for a total of 12 grant-funded positions. When the SAFER grants expire in February 2022 and March 2023, the City Manager recommends transitioning the grant-funded positions to the General Fund. In FY 2021-22, the cost to the General Fund of the six positions for the last five months of the fiscal year would be approximately $532,000. In FY 2022-23, the General Fund cost of the 12 positions (six positions for the entire year and six for the last four months) would be approximately $1,792,000.
IV. Changes in Financial Organization
The proposed budget for FYs 2021-22 and 2022-23 has been prepared according to the financial structure of the City’s new Enterprise Resource Planning (ERP) system that is set to go-live on July 1, 2021. The new financial structure includes consolidation of some special revenue funds according to their fund grouping in the Comprehensive Annual Financial Report.
The most significant change to the financial structure relating to the City’s operating budget is the incorporation of the Recreation Fund in the General Fund. The Recreation Fund previously served as a special revenue fund for collecting Recreation & Parks program revenues and supporting department operations. In recent years, recreation fees have not been sufficient to support department operations, so the Recreation Fund has been receiving General Fund transfers ranging from $1.8 million to $2.5 million annually. This General Fund transfer to the Recreation Fund will be obsolete under the new ERP system, and the portion of the Recreation & Parks operations not covered by program revenues will be covered by other General Fund revenue sources.
It should be noted that the historic budget and actuals data presented as part of this proposed budget has been converted to the new financial structure for comparison purposes. As a result, General Fund revenues and expenditures appear higher than previously presented due to the incorporation of the Recreation Fund in the General Fund.
ALTERNATIVES
• Staff requests that the City Council provide direction regarding staff’s recommendations regarding funding changes for the FY 2021-23 Biennial Budget. The City Council’s direction will be incorporated into the proposed budget for the City Council’s consideration and adoption planned for June 2021.
• Request additional information from staff.
FINANCIAL IMPACT
There is no impact to the General Fund or other funds as a result of this informational item.
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 climate impacts associated with this action. City Council may provide direction to staff on funding priorities for implementation of the Climate Action and Resiliency Plan as part of the budget workshops.
RECOMMENDATION
Provide direction to staff on the FYs 2021-22 and 2022-23 Proposed Biennial Budget.
CITY MANAGER RECOMMENDATION
Provide direction to staff on the Fiscal Year 2021-22 and 2022-23 Proposed Biennial Budget.
The above represents the City Manager’s Proposed Budget. The purpose of the budget workshops 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.
• Goals and projects as established and approved by the City Council;
• Be strategic in nature;
• Balance needs across the organization; and
• Maintain a fiscally prudent budget.
Below are several highlighted elements included in the proposed budget:
• The revenue projection 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.
• The proposed budget will include a recommended allocation for the ARPA funds when it comes back in June for final consideration.
• This proposed budget includes requesting an adjustment to prepayment of pension costs.
• It anticipates $1.8 million in personnel vacancy savings including Public Safety. In previous years these projected savings were included in specific department budgets but have been moved to non-departmental. For instance, anticipated vacancies of five police officer positions were included in the Police Budget the last two years but projected vacancies are now included in the non-departmental account.
• We have provided funding for alternative service levels as recommended to the City Council in March 2021.
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,
Annie To, Finance Director
By,
Jennifer Tell, Budget Manager
Exhibits:
1. City of Alameda Proposed Budget Summary, General Fund and All Other Funds
2. Operating Budget Requests and Recommendations
3. CalPERS Summary
4. Workforce Change Requests and Recommendations
cc: Eric Levitt, City Manager