title
Workshop to Provide Direction on Fiscal Years 2023-24 and 2024-25 Operating Budget to Be Incorporated into Budget Adoption Hearing Materials for City Council Consideration in June 2023. (Finance 10024056) [Heard on both May 2 and 4, 2023]
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
The City Manager is proposing a General Fund Budget of $153,007,187 in Fiscal Year (FY) 2023-24, including appropriation of $15 million of General Fund residual fund balance for the Aquatic Center, and $140,846,146 in FY 2024-25. The proposed General Fund Biennial Budget recommends the use of Residual Fund Balance totaling $25.3 million in FY 2023-24, inclusive of the Aquatic Center, and $7.1 million in FY 2024-25. The total proposed budget for all funds is $373,566,706 in FY 2023-24 and $312,490,168 in FY 2024-25.
The proposed Biennial Budget absorbed ongoing expenditure increases of approximately $7.4 million in FY 2023-24, and $9.4 million in FY 2024-25, mostly in the General Fund. Compared to the FY 2022-23 budget, these additional ongoing costs have an impact as the City continues to face a tight operating budget in the General Fund, while also attempting to improve existing service delivery, public safety, and services to the City’s unsheltered residents.
The City Manager anticipates evaluating the two-year biennial budget further at the mid-cycle budget update for July 1, 2024.
BACKGROUND
The May 2, 2023 City Council meeting and the May 4, 2023 budget workshop are scheduled to provide City Council and the 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. If necessary, City Council will hold an additional budget workshop on May 11, 2023. The proposed FY 2023-25 Biennial Budget will be scheduled for adoption at the June 20, 2023 City Council meeting.
During the May 2, 2023 City Council meeting, staff will provide highlights of the proposed Biennial Budget and answer questions on budget projections, and the use of estimated unspent expenditure budget from this fiscal year for major time sensitive equipment and vehicle replacement purchases. Additionally, at the May 4, 2023 budget workshop, department directors will provide an overview of their departmental responsibilities, accomplishments from the previous biennial budget period, high-level considerations related to their budget proposals above baseline, along with the specific proposed departmental funding changes outside of the baseline budgets. Staff is seeking direction from the City Council on the allocation of funding for the upcoming two fiscal years.
A summary of the proposed budget for the City for FYs 2023-24 and 2024-25 is attached in Exhibit 1.
DISCUSSION
Staff prepared a proposed FY 2023-25 Biennial Budget including the General Fund and all other City and Successor Agency funds, summarized in Exhibit 1. Related to the proposed Biennial Budget, staff also prepared a proposed Capital Improvement Program (CIP) budget. For details on the CIP budget, please refer to File 2023-3012, also being presented to City Council on May 2, 2023.
I. General Fund Revenues
The General Fund is the City’s main operating fund and typically accounts for approximately 40% of total City revenues.
General Fund revenues in the Proposed Budget, including transfers in, are estimated to decrease by $3.7 million, from $132.1 million in FY 2022-23 to $128.4 million in FY 2023-24, and increase by $5.7 million in FY 2024-25, to $134.1 million. The decrease in the first year of the Biennial Budget is due to the one-time receipt of $7.5 million in American Rescue Plan Act of 2021 (ARPA) revenue replacement funds in FY 2022-23. The City’s largest source of General Fund revenue, Property Tax, remained stable and grew steadily through the COVID-19 pandemic, with modest growth expected over FY 2023-24 and 2024-25, despite an anticipated continued decrease in real estate activity. Transient Occupancy Tax is expected to increase due to both the recovery of travel activity to pre-pandemic levels and the voter-approved increase in the tax rate.
Expectations for General Fund revenues over the next two years are summarized below:
• Property Tax is the largest single source of revenue for the General Fund and represents approximately 44% of General Fund revenues. The property tax is ad valorem, which means that the tax paid on a property is proportional to the property’s assessed value (AV). Under the terms of Proposition 13 passed in 1978: 1) the annual tax owed is a maximum of 1% of a property’s AV and 2) the AV can only increase a maximum 2% each year unless ownership changes or new construction, in which case the prevailing market value assessment is used as the basis for taxation. Over the last 10 years, property tax revenues have grown by 90%. The growth for that period was accelerated by a rapid run up of housing and commercial sale prices and new construction. Property tax is expected to increase an estimated 3% from the FY 2022-23 projection of $54.8 million to $56.5 million, and by 4% to $58.9 million in FY 2024-25.
• Property Transfer Tax (PTT) rate on residential and commercial sales is 1.31% of the value of each real estate transaction. Alameda’s share is 1.2% with Alameda County receiving 0.11%. The tax is triggered by the transfer of property ownership, and both the buyer and seller are responsible for ensuring the tax is paid. PTT is conservatively estimated at $13 million for each year of the proposed Biennial Budget. Although actual Property Transfer Tax receipts have been as high as $21.9 million in FY 2021-22, the fluctuation in revenues was due to the sale of large commercial properties that are intermittent and cannot be predicted. Additionally, with the increase in mortgage interest rates, the City has seen the transfer of real property slow considerably and prices decrease in FY 2022-23. The proposed budget assumes that the real property markets will continue to remain slow during both budget years.
• Sales Tax/Transaction and Use Tax revenue is dependent on consumer spending and on the economy overall, as these taxes apply to retail sale or the use of “tangible personal property.” The two main revenue streams in this aggregated category are the 1% Bradley Burns sales tax and the 0.5% Measure F (2018) Transaction and Use Tax. The City’s sales, transactions and use taxes are approximately 17% of the City’s General Fund revenues. After briefly being impacted by the pandemic in FY 2019-20, this aggregate revenue stream has seen steady year-over-year growth through FY 2021-22. However, the possibility of a recession is impacting the aggregate category with receipts in FY 2022-23 forecasted to dip slightly before recovering to projected $22.5 million in FY 2023-24 and $23.0 million in FY 2024-25.
• Transient Occupancy Tax (TOT) is imposed on occupants for the privilege of occupying room(s) in a hotel, motel, short-term residential rental, etc. TOT decreased briefly during the pandemic. In November 2022, the Alameda electorate approved an increase to the TOT rate increasing from 10% to 14%, thus TOT is forecasted to be $3.3 million in both years of the biennial budget, a $500,000 increase from FY 2022-23.
• The City imposes a Utility Users Tax (UUT) of 7.5% on all residential and commercial utility bills for properties within the city. The UUT is generated on use of cable television, telephone services, natural gas and electricity. UUT is expected to decrease by 4% from the FY 2022-23 projection of $9.6 million to $9.2 million in FY 2023-24 and FY 2024-25. The decrease is due to expected stabilization in natural gas prices, which hit record high prices in late 2022, and the trend in declining cable subscriptions. UUT from cable subscriptions surged to $1.5 million in FY 2020-21 due to the rapid shift to remote work and remote schooling during the pandemic, and this revenue source has been decreasing each year since that peak and is expected to generate $1.0 million in FY 2023-24 and FY 2024-25.
• Franchise Fees are projected to increase by 3% from $3.1 million in FY 2022-23 to $3.2 million in both years of the biennial budget to reflect trends in the Cable TV and Natural Gas franchises.
• The Business License Tax (BLT) is charged annually to all businesses operating within the City. Some businesses pay a flat rate tax and some are assessed based upon gross receipts earned, paying a minimum tax based upon graduated rate bands, while the City’s residential rental businesses pay $20 per unit, and commercial rental businesses pay $20 per 1,000 square feet. In accordance with Ordinance No. 2500 adopted by the City Council in 1990, the minimum tax is adjusted each fiscal year by the percentage change in the CPI. There is no CPI increase to business taxes assessed on residential or commercial rental properties. Due to the structure of the City’s BLT, these revenues typically grow slowly, and account for approximately 2% of General Fund revenues. Business License Tax is projected to increase by 2% from $2.7 million in FY 2022-23 to $2.8 million in both years of the biennial budget. As part of the Proposed FY 2023-25 Biennial Budget, the Finance Department is proposing to implement a new business license collection system to increase the rate of collections.
• Departmental Fees and Charges for Services are expected to increase 15%, to $8.3 million, in FY 2023-24 due to increased collection of ambulance fees and increased recreation program activity. In the second year, departmental fee revenue is expected to further increase by 2% due to inflation adjustments.
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. Prior to consideration of any program or service improvements, the proposed Biennial Budget absorbed ongoing expenditure increases of approximately $7.4 million in FY 2023-24, and $9.4 million in FY 2024-25, mostly in the General Fund, compared to the FY 2022-23 budget. Specifically, due to:
● Increased general liability insurance costs of $2 million in both years;
● Increased CalPERS retirement contributions of $2 million in Year 2;
● Incorporated the CARE Team into baseline budget, $2.4 million in Year 1 and $2.5 million in Year 2, partially offset by $1.8 million one-time grant funding;
● Economic Development moved from the Fleet Industrial Service Center (FISC) Fund, a fund comprised of now nearly depleted one-time fund balance from lease revenues previously generated by former warehouses on the former FISC site (now the home of the new Alameda Landing development) into the General Fund, estimated at $1 million in both years, partially offset by the final remaining one-time revenues of $675,000;
● Aquatic Center financing annual debt service of an estimated $900,000 in both years;
● Alameda Police Department hiring initiative, reducing vacancy savings in both years;
● Ongoing funding of the Safe Parking, Day Center, Overnight Shelter and Winter Warming Shelter programs included in the baseline budget in the amount of $1.1 million in both years, partially offset by approximately $250,000 in annual grant funds.
The proposed Biennial Budget includes key investments in City Council strategic priority areas including:
● House all Alamedans - shifting of staff and budget resources currently housed in Community Development to the City Manager Office for improved program management and addition of 1 full-time equivalent (FTE) management analyst to improve service delivery capacity.
● Build Resilience to Climate Change & Water Level Rise - $200,000 for the Climate Action and Resiliency Plan 5-year update and revised groundwater analysis.
● Enhance Community Safety & Services - $5.45 million for public safety vehicle replacement and radio replacement.
● Invest in Transportation & Infrastructure - ADA transition plan implementation of $1.25 million, improvements to Civic Center Garage safety improvements of $1 million, safety improvements to other City buildings of $2.76 million in Year 1 and $2.74 million in Year 2.
The City’s total proposed expenditure budget for all funds, including transfers out, is $373.6 million in FY 2023-24 and $312.5 million in FY 2024-25, both exclusive of Alameda Municipal Power (AMP). The General Fund represents approximately $153.0 million, or 41%, of the total in FY 2023-24 budget and $140.8 million, or 45%, of the FY 2024-25 budget, as shown below.
Staff is not proposing any cost-of-living adjustments for services or material and supplies unless specifically provided for in existing contracts with vendors as part of the proposed Biennial Budget.
Increases in personnel costs are due to normal salary increases, City Council approved cost of living adjustments of 3.5% and 2.5% set to take effect in July 2023 and July 2024, respectively, depending on bargaining unit, rising pension costs, and expected increases in the costs of other benefits.
Exhibit 2 details additional funding requests from various City Departments to be discussed during the May 4 City Council meeting and Budget Workshop for approval as part of the proposed Biennial Budget.
III. Workforce Changes
The City Manager recommends increasing the authorized position count (excluding AMP) from the 491.2 full-time-equivalent (FTE) positions approved in the FY 2022-23 Mid-Year Budget Update to a total of 505.0 FTEs in FY 2023-24, and 506.0 FTEs in FY 2024-25. Funding for the authorized and proposed positions is incorporated in the FYs 2023-25 proposed Biennial Budget.
|
Department |
FY 2022-23 Authorized |
FY 2023-24 Proposed |
Change |
FY 2024-25 Proposed |
Change |
|
City Attorney |
21.0 |
21.0 |
- |
21.0 |
- |
|
City Clerk |
3.0 |
4.0 |
+1.0 |
4.0 |
- |
|
City Manager* |
6.0 |
11.0 |
+5.0 |
11.0 |
- |
|
Community Dev |
13.0 |
11.0 |
(2.0) |
11.0 |
- |
|
Finance |
16.2 |
16.0 |
(0.2) |
16.0 |
- |
|
Fire |
124.0 |
126.0 |
+2.0 |
126.0 |
- |
|
Human Resources |
9.0 |
10.0 |
+1.0 |
10.0 |
- |
|
Information Technology |
8.0 |
8.0 |
- |
9.0 |
+1.0 |
|
Library |
21.0 |
22.0 |
+1.0 |
22.0 |
- |
|
Planning, Building & Transportation |
31.0 |
33.0 |
+2.0 |
33.0 |
- |
|
Police |
124.0 |
124.0 |
- |
124.0 |
- |
|
Public Works |
83.0 |
86.0 |
+3.0 |
86.0 |
- |
|
Recreation & Parks |
32.0 |
33.0 |
+1.0 |
33.0 |
- |
|
Total |
491.2 |
505.0 |
+13.8 |
506.0 |
+1.0 |
* To better deliver certain programmatic services, the City Manager proposes to reorganize four existing authorized positions from the Community Development Department to the City Manager’s Office.
Departments requested a total of 14 new authorized positions and an upgrade of seven existing positions, detailed in Exhibit 3.
IV. Organizational Changes
As part of the proposed Biennial Budget, the City Manager is recommending creating the Housing and Human Services Division within the City Manager’s Office. The Housing function will support development of new affordable housing in coordination with Planning, and further the preservation, rehabilitation, or construction of affordable housing. The Human Services function includes supporting programs for low-income residents that preserve safety net services, and addressing homelessness by implementing goals set in the City’s Five-Year Strategic Plan to Prevent and Respond to Homelessness in Alameda. These include:
• Secure a housing future for all Alamedans;
• Increase access to homeless emergency response services;
• Mobilize the citywide response to homelessness.
The above programs were previously housed in Community Development. Community Development will continue to focus on economic development, asset management, and Alameda Point development.
ALTERNATIVES
• Staff requests that City Council provide direction regarding staff’s recommendations regarding funding changes for the City Manager proposed FY 2023-25 Biennial Budget. City Council’s direction will be incorporated into the proposed budget for City Council’s consideration and adoption planned for June 2023.
• 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 action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
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 2023-24 and 2024-25 proposed Biennial Budget.
Respectfully submitted,
Margaret L. O’Brien, Finance Director
By,
Jennifer Tell, Budget Manager
Exhibits:
1. Proposed Budget Summary
2. Biennial Budget Proposals
3. Workforce Change Requests