Item No. 1
Town of Atherton
CITY COUNCIL & AUDIT AND FINANCE COMMITTEE STAFF
REPORT – STUDY SESSION
TO: HONORABLE MAYOR AND CITY COUNCIL
HONORABLE CHAIR AND COMMITTEE MEMBERS
GEORGE RODERICKS, CITY MANAGER
FROM: ROBERT BARRON III, FINANCE DIRECTOR
ROBERT OVADIA, DIRECTOR OF PUBLIC WORKS
DATE: MAY 7, 2025
SUBJECT: REVIEW OF THE FY 2025/26 SPECIAL REVENUE, INTERNAL SERVICE
FUNDS AND CAPITAL IMPROVEMENT PROGRAM
RECOMMENDATION
Review, discuss, and provide feedback Special Revenue, Internal Service Funds and Capital Improvement Program (CIP) for FY 2025/26.
BACKGROUND
This is the third item of the Town’s Budget Meeting Calendar for the FY 2025/26 Budget – Special Revenue Funds, Internal Service Funds, and the Town’s 5-Year CIP.
The Town maintains a variety of Special Revenue and Internal Service Funds that are “restricted funds” designated for a specific purpose. Special Revenue Funds are used to account for revenues derived from specific sources. Revenue to Internal Service Funds comes from the various departmental operational budgets based on allocated charges to those departments. Special Revenue and Internal Service Funds include the Library Fund, Tennis Fund, COPS Grant fund, Equipment Replacement Fund, Workers’ Compensation Fund, General Liability Fund, and Employee Benefit Fund.
The Town’s Capital Improvement Program (CIP) is a five-year program that proposes projects to analyze, repair or improve Town infrastructure, and the funding for those projects. The Town is focusing on capital project needs in the community. We will review, discuss, and provide feedback regarding proposed projects, programs and funding priorities for the FY 2025/26 Capital Improvement Program (CIP), with lookahead through FY 2029/30. The General Fund continues to provide new funding capacity in the next several years for project priorities within the CIP Master Plans. Priority projects are derived from the Bicycle Pedestrian Master Plan, Drainage Master Plan, Green Infrastructure Plan, and Road Improvement Plan.
FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
The CIP program consists of (6) six capital improvement fund sources that the Town uses for capital improvement/infrastructure needs. The capital improvement fund sources include:
• Atherton General Fund
• Measure M – County Congestion Management Fee on vehicle registration • Measure A – County ½-cent Transportation Sales Tax
• Measure W- County ½-cent tax Congestion Relief Plan
• Gas Tax
• Atherton Channel Fund
SPECIAL FUNDS ANALYSIS
This section is a fund-by-fund analysis of the various Town Funds.
LIBRARY FUND
REVENUES
The Town is a member of the San Mateo County Library JPA system. The Library is funded through property taxes that are collected and allocated to library services. Under the JPA, jurisdictions are permitted to retain excess funds generated from the local property taxes as long as the basic library services are met. These excess funds are held in trust by the County of San Mateo. The Town’s most recent use of all excess funds was for the new Library Project– as well as extended library hours of daily operation, utilities, maintenance costs and aesthetic upgrades to the Library café deck. Excess funds were advanced to the Town to allow completion of the Project.
With the completion of the new Library, annual excess funds, minus amounts needed for yearly operation of the Library, are retained by the Library JPA until the total advancement amount is reimbursed. Once the advancement of funds is reimbursed, any remaining funds will be evenly split between the Library and the Town for library-related activities. The County holds all future Town excess funds.
The FY 2024/25 beginning fund balance for the Library Fund is $2,717,591. This includes the SMCL funds in the amount of $2,162,098 held in trust retained by the Library JPA. The remaining balance of the advancement of the SMCL JPA funds to be paid back is $1,157,910. SMCL will deduct the remaining advancement amount from our Library funds held in trust. With the Town advancement of funds fully paid off, any remaining excess Library funds after the Library and the Town Library related activities expenses will be evenly split.
The estimated FY 2025/26 revenue for the Atherton Library JPA is approximately $5.25million and the SMCL operations is estimated at $3.37million. The Town estimate for FY 2025/26 is $1,032,902. After deducting the Library related activities, the remaining excess Library funds is $847,098. This amount will be evenly split between the JPA and the Town at approximately $423,549 each. These funds will be held in the San Mateo County Library Trust for the Town.
FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
EXPENDITURES
The FY 2025/26 projected expenditures for the Library are $1,032,902 for operations, utilities, maintenance costs, use of town facilities, development of spaces and Improvement Project Children’s Nature Garden.
These costs breakdown as follows:
• Contract Maintenance Services - $39,000
• Contract Custodial - $75,000
• Facility Repair/Maintenance - $4,000
• Utilities/Electrical - $120,000
• Utilities/Water - $40,000
• Contract Vector Management - $800
• Building Security - $250
• Other Contract Services - $95,000
• Other Supplies and Materials - $200,000
• Building Improvements/Capital Outlay - $440,000
• Building Maintenance Manager - $18,852
There is an allocation for Other Supplies and Materials of $200,000 for the use of Town facilities for Library programming, various Town programming, and aesthetics needs around the Library outdoor spaces. These include the use of Town facilities at the Park for various Library programs, purchases of various items for the development of spaces such as refresh of tables, canopies, umbrellas, café benches and community room furniture. The budget also includes an allocation of $440,000 for capital outlay related to the Children’s Nature Garden. This project is currently in the design phase and is anticipated to begin construction in the new fiscal year.
OTHER RESTRICTED FUNDS
The Town maintains a variety of Special Revenue and Internal Service funds that are “restricted funds” for specific purposes beyond basic capital improvement. Revenue to internal service funds are in the form of General Fund department charges based on allocations by department and uses.
EQUIPMENT REPLACEMENT FUND
The Equipment Replacement Fund is an internal depreciation fund for the replacement of large assets. The Fund is the Town’s set aside accumulation account to replace large equipment assets over time – such as computer equipment, software assets, vehicles, trailers, emergency equipment, etc. Annual depreciation-style departmental allocations to this Fund reduces the impact to the FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
Town’s Operational year funding to replace the equipment. There continues to remain sufficient funds in the fund to accommodate emergency replacement needs as well as planned needs.
The FY 2025/26, departmental allocations (revenues) total $428,100 and the expenditures total $375,000. The largest allocation charge is $360,000 in the Police Department for FY 2025/26.
This allocaton reflects the purchase of 2 vehicles each year as part of the department’s regular maintenance and replacement schedule and for replacement purchase of new firearms. The Department is seeking the replacement of three (3) motorcycles for a total amount of $180,000 as part of its regular equipment replacement schedule. These are replacement motorcycles to the patrol fleet traffic division. These motorcycles are grant funded, but the transaction (grant revenue and expenditure) will occur within the Equipment Replacement Fund. The Town uses the State and Federal Multiple-Award Schedule pricing to purchase vehicles from the Equipment Replacement Fund.
In FY 2025/26 the Police Department will also purchase $150,000 in new firearem replacements.
These supplemental items include the necessary firearm replacements for all sworn officers. There is a $150,000 allocation expense to the replacement fund in Police Department operations budget for the purchase of these firearms. These were noted in the General Fund Budget presentation.
Also within the Fund, the Finance Department anticipates an upgrade to the Town’s Financial Accounting Software. The cost for upgrade and migration is $45,000. There is sufficient allocation build to this fund for upgrade of the software.
WORKERS’ COMPENSATION FUND
The Workers’ Compensation Fund accounts for the cost and expense of managing the Workers’ Compensation Program through the Town’s self-insurance risk pool, Cities Group Joint Powers Authority. This Fund includes costs related to risk management and prevention – safety training, educational materials, and accident prevention programs. As a member of a JPA, the Town contributes an annual assessment to the JPA based on all recognized and potential liabilities. These assessments or contribution rates are calculated annually based on claims history and any increases in loss recovery due to excessive claims losses.
As has been advised, the Cities Group JPA (Workers' Compensation) is experiencing some challenges. While the challenges do not affect the Town’s costs, they are related to the stability of the JPA and its continued viability. Member agencies have begun discussions to dissolve the JPA.
This will result in the Town and other member agencies having to identify alternatives. Agencies with higher risk exposure (i.e. those with public safety) will need to identify alternative pools with similar risk portfolios. As agencies explore options, the Cities Group JPA Pool agrees that the JPA will continue through the end of the 2025 calendar year and perhaps through June 2026. This will give agencies time to explore alternatives. If the JPA dissolves, each member agency would transition its claims out of the Cities Group and into alternative solutions. Loss tails and liability would follow each agency into any new JPA. The Town is currently exploring two alternative JPA’s for the Town’s Workers’ Compensation coverage.
FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
There are approximately thirteen (13) open claims that have incurred a reserve claims cost of approximately $667,883 in the current year. This is a decrease of $269,168 in reserve claims from the previous fiscal year. Claim costs and reserves are established for each claim; however, these amounts are not indicative of the actual claim paid. The three-year average claim loss/expense is approximately $235,750, a decrease of $80,320.
The Workers’ Compensation Fund tracks expenditures on related expenses across the various departments. Each department is responsible for an allocated cost for Workers’ Compensation.
Allocations vary based on the risk assessed for each department (by type) and the number of employees. The FY 2025/26 budget maintains a 1% charge of salary costs for all departments. In previous fiscal years the charge for the Police Department was 11%, as the Town experienced high claims liabilities in the Police Department. It was then reduced to 7% and now 1%. All other department charges were reduced from 3% to 1%. This was done to build up reserves for the Town’s replenishment of equity reserves with the JPA. The reduction was due to the Workers’ Compensation Fund maintaining enough reserves for future allocations of equity replenishments.
Staff will continue to monitor this expense and with the possibility of moving to a new Worker’s compensation carrier there may be need to increase the allocation in future years to maintain adequate reserves. Due to the Town’s diligence in building up its Workers’ Compensation Fund over the years, there is a healthy fund balance for transition from the Cities Group to a new JPA if there is a requirement for the establishment of an equity reserve.
The current year assessment is $188,709 and is projected to increase $250,000 in FY 2025/26.
Currently, there are enough reserves in the Town’s Worker’s Compensation Fund for equity replenishment and current reserve claims. The FY 2025/26 expense is $256,183 in the fund.
GENERAL LIABILITY FUND
The General Liability Fund accounts for the insurance cost of general liability claims and property losses. The Town is part of an insurance pool administered by PLAN JPA. The activities within this Fund provide for expenses related to general liability insurance, employment practice insurance and self-insured retention claims. Total internal service charges from the General Fund for FY 2025/26 are estimated at $634,331. This is an increase of 3.2%. The total FY 2025/26 projected expenditures for this fund are $734,331. This includes the self-insurance retention expense of $100,000 that allows the payout of four (4) claims at $25,000 per claim. The Town does not anticipate expending retention expenses of four (4) claims in the fiscal year, however, the amount is a requirement established by PLAN JPA. Average retention claims are about 2 per year.
EMPLOYEE BENEFITS FUND
The Employee Benefits Fund tracks expenditures across various departments for employment, unemployment, retirement, and healthcare benefits. The Fund also represents an audit compliant set aside for compensated absences (time earned) – vacation, sick leave, holiday, compensatory time, etc.). Revenue to the fund comes through charges allocated back to each departmental budget based on number and type of personnel within each department. Revenue to the Fund for FY 2025/26 is $437,271. Expenditures for FY 2025/26 are $443,346. The expenditure includes FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
$83,346 for the Town contribution of the minimum retiree health PEMHCA amount to CalPERS.
These costs are included and charged to the respective departments based on retiree health and allocated to the Employee Benefits Fund. The PEHMCA costs are paid directly to CalPERS and are reimbursable from the Town’s OPEB Trust. The Town is no longer budgeting the “pay as you go” retiree health benefit contribution as an operation expense as the retiree benefits are now funded through the OPEB Trust.
Within this fund is also the employee benefits charge of $274,223. This is a charge of 3% to 4% of the General Fund Operational Departments salary expense that is allocated for personal leave contributions of sick, vacation, and holiday pay. The Police Department allocation is 4% and all other departments 3%. The Town has a total compensated absences balance of $1,073,999.
Compensated absences comprise of accrued time-off, vacation, and holiday pay for all employees and are recorded as a liability. These are amounts that would be liquidated or mature due to the termination of Town staff.
Included within this fund are unemployment insurance charges if there are any future claims charged to the Town. This is a charge of 1% of Operational Departments salary expense Any claims would be paid out of this fund. The total budgeted charge is $75,202.
TENNIS FUND
The Tennis Fund projected revenues are $71,200. The majority of this revenue comes through the facility management servies contract with Player Capital. The contract provides yearly revenue of $50,000 to the Park. Keys are sold on an annual basis to any person (resident or non-resident) that wishes to use the Tennis courts. The standard key for residents is $105 and includes clay court key, and the non-resident key increased is $280 and clay court access of $30/ hour.
Every year the Town reviews maintenance requirements for the courts and resurfaces courts as needed. The tennis court resurfacing treatment includes crack filling and taping, followed by a new surface coating and striping. This is done on approximately every 3-5 years on a cyclical basis on each of the five (5) non-clay tennis courts.
The FY 2025/26 budget includes the purchase of tennis keys by residents and non-residents providing annual revenue of approximately $20,000. Each January, new tennis keys go on sale for the new court locks that get installed in February.
For FY 2025/26, the Town anticipates expenditures of $61,000. This includes $13,000 for contract maintenance services for MCE, general court maintenance and facility repairs needs of $45,000 and $3,000 for building security court gates upkeep.
COPS - CITIZEN’S OPTION FOR PUBLIC SAFETY
The COPS Office was created as a result of the Violent Crime Control and Law Enforcement Act of 1994. As a component of the Department of Justice, the mission of the COPS Office is to advance community policing in jurisdictions of all sizes across the nation. Community policing FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
focuses on crime and social disorder through the delivery of police services that includes aspects of traditional law enforcement, as well as prevention, problem-solving, community engagement, and partnerships. In FY 1996/97, the California State Legislature created the Citizen’s Option for Public Safety (COPS) Program. Funds have been available through the State of California to local entities in the form of Citizen’s Option for Public Safety (COPS) Grant. The Town in recent years has seen an increase in funding. Recently received approximately $186,000 from the grant. We project to receive $190,000 in grant funds. These funds must be used for front-line law enforcement only. The Town anticipates receipt of this funding on an annual basis and funds are used for sworn personnel salary related expenditures.
CAPITAL IMPROVEMENT FUND
The five-year CIP proposes projects to analyze, repair or improve Town infrastructure, and the funding for those projects. The major projects are categorized into three areas:
• Streets & Transportation
o Roadway Maintenance
o Bicycle and Pedestrian Improvements (Active Transportation) o Traffic and Safety
• Drainage
o Flood Control
o Regulatory and Green Infrastructure
• Town Buildings, Park and Facilities
o Town Center
o Holbrook-Palmer Park
Projects have been developed based on needs identified by City Council, residents, staff, and adopted master plans.
The 1st year (FY 2025/26) of the CIP is incorporated into the Town’s Budget and is the only year for which the City Council applies available funding. The remaining four (4) years of the CIP reflect proposed projects and funding. These “out years” are revised annually to reflect changes in City Council priorities, direction, needs and funding availability. The CIP is reviewed by the Town’s Planning Commission each year for consistency with the Town’s General Plan. This year’s CIP will be reviewed by the Planning Commission at their May 29, 2025, meeting. The Commission will send their comments in writing to the City Council prior to the Council’s June 18 meeting at which the Council is scheduled to adopt the budget, inclusive of the CIP.
CAPITAL PROJECTS ANALYSIS
This year, the 5-year CIP is being presented to City Council in the Study Session in a more detailed workshop format to allow for questions and discussion of individual projects, general discussion about broader objectives to be considered for future proposed projects and priorities for allocating funds. Though the Capital Improvement Program is funded with a variety of revenue sources, most of the revenue sources have restrictions on how the funds can be used. The General Fund is the FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
primary funding source for the Capital Improvement Program and thus affords the greatest opportunity for discretionary expenditures for capital projects. As such, the majority of the discussion will be focused on the use of General Funds in the CIP.
Following the workshop, staff will implement changes directed by Council and present the CIP to City Council for consideration at the June Council meeting. Specific project direction from the Council will be incorporated into the CIP presented to the Commission at their May 29 meeting.
At the conclusion of the May 7 Study Session, staff needs the following input and direction from the Council:
1. Direction regarding the inclusion of an Additional Discretionary Payment (ADP) toward the Town’s Unfunded Actuarial Pension obligation with respect to the amount and timing of payment.
2. Direction regarding how to process right-of-way improvements for private property development projects that are along identified Class II bicycle routes within the Town’s adopted Bicycle and Pedestrian Master Plan.
3. Specific direction regarding capital improvement projects to include the specific fiscal year for inclusion, and the extent of inclusion (FYs 2025/26 through FY 2029/30).
As staff moves through the CIP with the Council at the Study Session, the Council will have the opportunity to modify the 5-Year Financial Outlook to address programmatic and project priorities, project timing, and funding availability. Larger projects will often require that project design occur in the fiscal year prior to actual project construction.
FY 2025/26 and beyond include established priority projects that include the Annual Road Maintenance Program, necessary Traffic and Safety Improvements, and the completion of ongoing projects. As noted above, funding for the CIP consists of a variety of sources, some of which are restricted, such as Measures A, Measure M, and Measure W funds, as well as funds from Gas Taxes, and the General Fund. These funds are already allocated to the maximum extent to the projects that they support. The established priority projects and ongoing projects noted for FY 2025/26 and continuing years are the following:
Project Allocation Note
Roadway Maintenance $840,000 Allocated Annually
Accessibility $100,000
Green Infrastructure $150,000 $100k for FY 25/26 - $25k after Town Center Improvements $150,000 Allocated Annually
HPP – General Assessments/Repairs $100,000 Allocated Annually Inlet Marker Replacement $10,000 2
nd/final year
Alameda Traffic/Safety Improvements $1,150,000 $1.75m total including other funds Bike/Ped Master Plan Update $50,000
Upper Atherton Channel Relining $1,500,000 $2m total including other funds HPP Playground & Restrooms $350,000
Town Facility Replacement Fund $300,000
FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
These projects are listed in the attached spreadsheet and include approximately $4.7 M in general fund allocations for FY 2025/26.
The remaining unallocated General Fund balance available for Capital Improvement Project for FY 2025/26 is approximately $5,950,898.
The attached spreadsheet includes various projects and estimated costs and is intended to guide the Council discussion for consideration and prioritization proposed through the five-year CIP lookahead. Though the spreadsheet is categorized by program, the Council should consider each project independently. As noted above, some of the Town’s Master Plans are dated and should be refreshed to assist in identification and prioritization of community needs. Specific projects for which staff anticipates Council policy feedback are:
• Bicycle Pedestrian Master Plan Implementation Program o Support for El Camino Complete Streets – Project Initiation Document and Project Approval and Environmental Documents phases by others
o El Camino Real/Selby Lane intersection Improvements
• Traffic Safety Improvement Program
o Streetlight painting
o Middlefield Road/Fair Oaks Lane/Palmer Avenue traffic signal o Middlefield Road/Watkins Avenue traffic signal
• Drainage Improvements Program
o El Camino Real Drainage Solutions (North Segment)
o El Camino Real Drainage Solutions (South Segment)
o Drainage Master Plan Update
• Park Master Plan Implementation Program
o Clay Court Conversion Project
o HPP Master Plan Update
FISCAL IMPACT
There is no fiscal impact of the review and discussion of the CIP. Upon Council approval of the projects and funding for FY 2025/26, those approved projects will be incorporated into the Town’s Budget and their approved amounts will be reflected in the Budget and in remaining fund balances.
PUBLIC NOTICE
Public notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting in print and electronically. Information about the project is also disseminated via the Town’s electronic News Flash and Atherton Online. There are approximately 1,200 subscribers to the Town’s electronic News Flash publications. Subscribers include residents as well as stakeholders – to include, but be not limited to, media outlets, school districts, Menlo Park Fire District, service provides (water, power, and sewer), and regional elected officials.
FY 2025/26 Special Revenue, Internal Service Funds & CIP May 7, 2025
The Town maintains a Fiscal Transparency web portal and includes all budget information on its website. Links to these various areas are below:
Fiscal Transparency Web Page:
http://www.ci.atherton.ca.us/index.aspx?NID=269
Archive of Town Budgets:
http://www.ci.atherton.ca.us/index.aspx?nid=273
Financial Data Portal (OpenGov):
http://www.ci.atherton.ca.us/index.aspx?nid=361
Financial Audit Archive:
http://www.ci.atherton.ca.us/Archive.aspx?AMID=39&Type=&ADID= Actuarial Valuations Archive:
http://www.ci.atherton.ca.us/Archive.aspx?AMID=61&Type=&ADID= Labor Contracts, Agreements, and Salary/Benefit Information:
http://www.ci.atherton.ca.us/index.aspx?nid=192
ATTACHMENTS
1. FY 2025/26 Internal Service, Library, Tennis Funds & Other Special Revenue
2. FY 2025/26 Capital Improvement Program Projects List Spreadsheet
3. FY 2025/26 5-Year Financial Outlook
4. FY 2025/26 Draft Five Year-CIP Lookahead