Capitola City Council
May 4, 2022

City of Capitola
Special City Council Meeting Agenda
Wednesday, May 04, 2022 – 6:00 PM
City Council Chambers
420 Capitola Avenue, Capitola, CA 95010
Mayor: Sam Storey
Vice Mayor: Margaux Keiser
Council Members: Jacques Bertrand, Yvette Brooks, Kristen Brown Special Meeting of the Capitola City Council – 6 PM
All correspondences received prior to 5:00 p.m. on the day preceding a Council Meeting will be distributed to Councilmembers to review prior to the meeting. Information submitted after 5 p.m. on that day may not have time to reach Councilmembers, nor be read by them prior to consideration of an item.

1. Roll Call and Pledge of Allegiance
Council Members Jacques Bertrand, Yvette Brooks, Kristen Brown, Margaux Keiser, and Mayor Sam Storey.

2. Additions and Deletions to the Agenda

3. Additional Materials
Additional information submitted to the City after distribution of the agenda packet.

4. Oral Communications by Members of the Public
Please review the Notice of Remote Access for instructions. Oral Communications allows time for members of the Public to address the City Council on any “Consent Item” on tonight’s agenda, or on any topic within the jurisdiction of the City that is not on the “General Government/Public Hearings” section of the Agenda. Members of the public may speak for up to three minutes, unless otherwise specified by the Mayor. Individuals may not speak more than once during Oral Communications. All speakers must address the entire legislative body and will not be permitted to engage in dialogue. A maximum of 30 minutes is set aside for Oral Communications.

5. Staff / City Council Comments
Comments are limited to three minutes.

6. General Government / Public Hearings
All items listed in “General Government / Public Hearings” are intended to provide an opportunity for public discussion of each item listed. The following procedure pertains to each General Government item: 1) Staff explanation; 2) Council questions; 3) Public comment; 4) Council deliberation; 5) Decision.
1 Special City Council Meeting Agenda – May 04, 2022
City of Capitola Page 2
A. Presentation of the Proposed Fiscal Year 2022-23 Budget for the City of Capitola and the Capitola Successor Agency
Recommended Action: Acting as the City Council and Successor Agency, receive the proposed budget, provide staff direction, and continue budget deliberations to the next joint budget hearing scheduled on May 19, 2022.

7. Adjournment
_____________________________________________________
Notice of Remote Access
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2 Special City Council Meeting Agenda – May 04, 2022
City of Capitola Page 3
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Notice regarding City Council: The City Council meets on the 2nd and 4th Thursday of each month at 7:00 p.m. (or in no event earlier than 6:00 p.m.), in the City Hall Council Chambers located at 420 Capitola Avenue, Capitola.

Agenda and Agenda Packet Materials: The City Council Agenda and the complete Agenda Packet are available for review on the City’s website: www.cityofcapitola.org and at Capitola City Hall prior to the meeting. Agendas are also available at the Capitola Post Office located at 826 Bay Avenue Capitola. Need more information? Contact the City Clerk’s office at 831-475-7300.

Agenda Materials Distributed after Distribution of the Agenda Packet: Pursuant to Government Code §54957.5, materials related to an agenda item submitted after distribution of the agenda packet are available for public inspection at the Reception Office at City Hall, 420 Capitola Avenue, Capitola, California, during normal business hours.

Americans with Disabilities Act: Disability-related aids or services are available to enable persons with a disability to participate in this meeting consistent with the Federal Americans with Disabilities Act of 1990.

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3 Capitola City Council
Agenda Report
Meeting: May 4, 2022
From: Finance Department
Subject: Presentation of the Proposed Fiscal Year 2022-23 Budget for the City of Capitola and the Capitola Successor Agency
Recommended Action: Acting as the City Council and Successor Agency, receive the proposed budget, provide staff direction, and continue budget deliberations to the next joint budget hearing scheduled on May 19, 2022.

Discussion: The City of Capitola proposed Fiscal Year (FY) 2022-23 and FY 2023-24 Budget is a two-year financial plan. This year, the plan incorporates the use of additional available resources programmed toward City Council goals and key projects. The proposed budget was prepared based on a combination of known factors, such as increases in CalPERS (Public Employees’ Retirement System) costs, and conservative estimates for both revenues and expenditures.

The budget is the City’s operating plan and a primary mechanism by which the Council’s goals and vision for the City are transmitted to staff for implementation.

The document is organized to present information in several ways. General Fund revenues and expenditures are shown to provide information about longer-term patterns and overall fiscal stability, then revenues and expenditures for the City’s various departments are shown to provide additional detail and information about the City’s programs and projects.

Overall, the FY 2022-23 proposed budget reflects a local economy that is recovering from the fiscal impacts associated with the COVID-19 pandemic. The budget maintains services for residents of Capitola while simultaneously returning essential expenditures as much as possible.

Nevertheless, the City must also remain focused on the long-term budget picture, which includes dramatically increasing CalPERS costs, and a challenging economy in coming years.

While staff is presenting a Proposed FY 2022-23 Budget that is structurally imbalanced by design, during this first budget hearing some of the key discussion points are as follows:
 The proposed budget includes returning the frozen police officer and receptionist positions, and adding one three-quarter time Recreation Coordinator/Lifeguard and one full-time Development Services Technician. The proposed budget maintains frozen vacancies for one three-quarter time position and three partially filled positions (representing a total of two full-time equivalent positions).  Staff seeks direction on the total funding allocation for the Community Grant Program. The proposed budget includes approximately $61,000 of Transient Occupancy Tax (TOT) revenue that is restricted for Early Childhood and Youth programing in addition to $165,000 of general fund money. This is in addition to $497,000 of CDBG grant funds that can be used for senior and nutrition services benefitting low- and moderate-income people.
 Staff estimates the General Fund balance on June 30, 2022, will be approximately $4.3 4 Item 6 A.
million. During the City Council goal setting session Council directed the allocation of $3.55 million of this toward priority projects. Funding for those priority projects is included in this budget. In addition, during goal setting $385,000 was set aside as a resiliency account to navigate any remaining fiscal impacts of COVID-19.

The table below shows funding allocated to the FY 2022-23 City Council goals:

Project Funding
Wharf Rehabilitation $1,500,000
Community Center Repairs 150,000
Library TOT Lot 150,000
Local Hazzard Mitigation Projects:

Study City Hall options 50,000
Stockton Bridge reinforcement project 350,000
Bluff / Cliff Drive study 50,000
Noble Gulch engineering feasibility analysis 50,000
Fire risk reduction (eucalyptus groves) 50,000
Minimal City Hall maintenance 100,000
EV charging stations 20,000
Bike / Pedestrian safety projects 100,000
Peery Park Bridge maintenance 50,000
Internal staff projects 50,000
Deposit in CalPERS Retirement Trust 500,000
Establish Resiliency Fund 385,000
Total $3,555,000
The following tables show a summary of one time and ongoing revenue and expenditures changes:

New Revenues
Grants $1,357,303 One time
Mid-year ongoing 385,000 Ongoing
Property Tax 114,335 Ongoing
Sales Tax 588,333 Ongoing
TOT 100,000 Ongoing
Charges for Services 286,404 Ongoing
New Expenditures
City Council Goals $3,555,000 One time
CalPERS UAL 212,000 Ongoing
MBASIA 138,300 Ongoing
Beach Shuttle 64,000 Ongoing
911 JPA 54,000 Ongoing
PW Engineering 25,000 Ongoing
Gas & Electric Utilities 25,000 Ongoing
Gen/Admin Contracts – ADA Compliance 50,000 Ongoing
Lifeguard Contract (95,000) Ongoing
Other contracts/inflation 81,867 Ongoing
Staffing
3% COLA & Steps 264,200 Ongoing
Addl. Staffing 332,400 Ongoing
5 Item 6 A.

Net change to on-going revenue/expenditures (55,000)
FY 2021-22 mid-year projected on-going 385,000
Budget projected on-going revenue/expenditure 330,000
 The FY 2022-23 Proposed Budget includes additional ongoing revenue above the prior year of approximately $1.1 million and additional ongoing expenditures of $1.15 million.  This first draft of the proposed budget does not include the Capital Improvement Program (CIP) fund. Staff plans to present the proposed CIP budget, incorporating City Council goals, during the May 19 budget hearing.
 The proposed budget includes a FY 2022-23 year ending fund balance of approximately $1.3 million. During budget hearings staff will identify potential uses for a portion of these funds.

The draft budget (Attachment 1) has been distributed and is available for public review in the City Hall lobby, as well as on the City’s website.

Attachments:

1. Proposed FY 2022-23 Budget
Report Prepared By: Jim Malberg, Finance Director
Reviewed By: Chloé Woodmansee, City Clerk
Approved By: Jamie Goldstein, City Manager
6 Item 6 A.

PROPOSED BUDGET
FISCAL YEAR 2022-23

CITY OF CAPITOLA
& CAPITOLA SUCCESSOR AGENCY
Capitola, California
7 Item 6 A.

CITY COUNCIL
Sam Storey, Mayor
Margaux Keiser, Vice Mayor
Jacques Bertrand
Yvette Brooks
Kristen Brown
Jamie Goldstein, City Manager
Andy Dally, Chief of Police
Steve Jesberg, Public Works Director
Jim Malberg, Finance Director / Treasurer
Katie Herlihy, Community Development Director
Nikki LeBlond-Bryant, Recreation Division Manager
Larry Laurent, Assistant to the City Manager
Chloe Woodmansee, City Clerk
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9 Item 6 A.

TABLE OF CONTENTS
Mission Statement ............................................................................................................. 1 City Manager’s Budget Message ..................................................................................... .3 Summary Information ……………………………………………… ............................ …….10 General Fund Revenues ................................................................................................. 21 General Fund Expenditures…………… .......................................................................... 30 Department Overview ................................................................................................... 48 City Council ......................................................................................................... 49 City Attorney ........................................................................................................ 50 City Manager ....................................................................................................... 51 Finance………………………………………………………………………………….55
Police……………………………………………………………………………………57
Public Works…………………………………………………………………………...62
Community Development……………………………………………………………. 69
Recreation ……………………………………………………………………………...71
Capitola Museum ................................................................................................. 73 Capitola Art & Cultural Commission .................................................................... 75 Internal Service Funds .................................................................................................. 76 Stores Fund ......................................................................................................... 78 Information Technology Fund .............................................................................. 79 Equipment Replacement Fund ........................................................................... 80 Self-Insurance Liability Fund ............................................................................... 81 Workers’ Compensation Fund ............................................................................. 82 Compensated Absences Fund ............................................................................ 83 Special Revenue Funds ................................................................................................ 84 Supplemental Law Enforcement Services ........................................................... 87 Restricted Transient Occupancy Tax (TOT) ........................................................ 88 Road Maintenance & Rehabilitation Act (SB1). ................................................... 89 RTC Streets.…………………………………………………………………………....90
Gas Tax……………………………………….………………………… ............. . ….91
Wharf ………. ...................................................................................................... 92 General Plan Update and Maintenance .............................................................. 93 Green Building Education ................................................................................... 94 Public Art ............................................................................................................. 95 Parking Reserve … ............................................................................................ .96 Technology Fee .................................................................................................. 97 Public Education & Government Cable TV Access ............................................. 98 Capitola Village & Wharf BIA .............................................................................. 99 Community Development Block Grants (CDBG) .............................................. 100 CDBG Program Income. .................................................................................... 101 Library………….………………………………………………………………...…….102
HOME Program Reuse .................................................................................... 103 Housing Trust ................................................................................................... 104 Capitola Housing Successor ............................................................................. 105

10 Item 6 A.

Reserves……. .............................................................................................................. 106 Emergency Reserves ........................................................................................ 108 Contingency Reserves ...................................................................................... 109 PERS Contingency Reserves ............................................................................ 110 Facility Reserves ............................................................................................... 111 Multi-Year Assets & Obligations ................................................................................ 112 City and Joint Powers Authority ......................................................................... 115 Pacific Cove Lease Financing ........................................................................... 116 Beach and Village Lot II Lease Financing ......................................................... 118 Successor Agency ...................................................................................................... 120 11 Item 6 A.

MISSION STATEMENT

MISSION
Our mission, as the employees of the City of Capitola, is to provide high quality service for our residents, visitors, businesses & employees.

VISION
Our vision is to be recognized as a model organization that provides excellent and responsive public service that values the people it employs and the community we serve and to always perpetuate a strong work ethic that fosters pride in the work that we do. We will maintain the highest trust and confidence of our City Council and our Community.

VALUES
 We believe in being open, honest and ethical.
 We believe in treating everyone with respect, courtesy and dignity.  We believe in being responsive to all the people we work with and serve, and to act in a timely and sensitive manner.
 We believe in participatory management and teamwork. We are united in our belief to support, respect and encourage individual talents and contributions.  We value innovation and creativity and believe in taking reasonable risks.  We believe in a philosophy of constantly improving the services we provide.  We believe in working with our residents & businesses to prepare for and resolve community issues.
 We believe in the vital nature of planning as a continuing process, to achieve the matching of expectations and resources.

In performing our mission, attaining our vision and adhering to our values, we will first look to our core values: Upholding the Public Trust, Practicing Sound Financial Management and Maintaining a Safe & Healthy Environment.
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Item 6 A.

TO: City Council
FROM: City Manager
SUBJECT: FY 2022-23 Proposed and FY 2023-24 Planned Budget.

CITY MANAGER’S MESSAGE - STATE OF THE CITY
On behalf of City staff, I am pleased to submit the proposed budget for Fiscal Year (FY) 2022-23.

While the local, national, and global economies continue to adjust to the unprecedented fiscal impacts related to the coronavirus (COVID-19) pandemic, Capitola is seeing revenues return to and in some instances exceed pre-pandemic levels. Staff was tasked with developing a budget that continues to deliver the high quality of services the community is accustomed too while also allocating available resources to City Council goals. The result, by design, is a budget in which expenditures exceed revenues by roughly $2.6 million however the budget still projects to end the year with a general fund balance of approximately $1.3 million.

The fund balance in the General Fund is projected to remain positive for the next fiscal year, however, based on known increases related to CalPERS pension costs and current assumptions regarding inflation and the recovery of the economy related to COVID-19, the General Fund will require increasing contributions from Measure F revenues to remain in balance and will become structurally imbalanced in FY 2027-28 upon the sunset of Measure F. The budget provides ample resources to maintain a high level of services for Capitola residents this coming fiscal year.

Nevertheless, the City must also remain focused on the long-term budget picture, which not only includes a great deal of uncertainty around general fund revenues but must continue to address increasing pension costs. The erratic revenue data and increasing pension costs will likely result in challenging budgetary decisions for several years. In the coming fiscal year staff will continue to closely monitor general fund revenues, paying extra attention to sales and transient occupancy tax performance, and continue to report to the City Council on a regular basis. Additionally, staff will develop options for Council consideration to balance the near- and longer-term budgets as well as focus on the long-term structural budget issues.

The new Capitola Branch Library celebrated their grand opening June 12, 2021 following 2 ½ years of construction. The planning for a new Capitola Branch Library started in 1999 when the City entered an agreement with the County of Santa Cruz to begin construction on the new library by 2019. Construction of the new Capitola Branch Library began in late 2018. The funding for the new library came from several sources, including the voter-approved Measure S, the former RDA trust fund that was held by the County, a fundraising campaign by the Friends of the Capitola Library, and funding from the General Fund.
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Item 6 A.

The Capitola Mall remains a major funding source for the City, however long-term national and local trends, along with COVID-19, have put significant pressure on existing brick-and-mortar retailers to remain competitive with internet options. The Mall was purchased in 2016 by Merlone Geier Partners, which also acquired the old Sears building in 2018. In FY 2019-20 the new owners initiated a public process, including a public meeting and regional survey of residents to begin evaluating options to redevelop the Mall.

City staff remains actively engaged with Mall ownership to help them navigate the development review processes, however, the COVID-19 pandemic has put the project on pause for the near term. Obviously, the long-term fiscal health of the City is closely related to a successful Mall that meets the community’s needs. As the outcome of any potential Mall redevelopment is unknown at this time, the site remains a major opportunity, and challenge, as the City evaluates its longterm fiscal position.

In 2016 voters passed Measure F to extend a temporary quarter percent local sales tax for an additional 10 years. The City is committed to using this funding source to protect the wharf and beach from storms and rising sea levels, maintain police services, and improve sidewalks, parks, and bike safety. Staff anticipates Measure F revenues in FY 2022-23 to slightly exceed prepandemic levels and the proposed budget continues to implement these commitments.

The first major Measure F projects completed were renovations to the City’s jetty and flume in 2020. Improvements to the jetty and rebuilding the flume that conveys water from the seasonal lagoon to the ocean, allows the City to maintain a world-class beach during the summer.

The Wharf renovation project will be a second important focus for the Measure F funding.

Capitola’s Wharf is a historic icon for the City, allowing countless residents and visitors to experience the Monterey Bay Marine Sanctuary in a unique way. The Wharf renovation project will focus on improving the Wharf’s long-term resilience in the face of rising sea levels and powerful winter storms. The City completed environmental review in 2020 and anticipates bidding the project in the summer of 2022 with construction currently targeted for late 2022.

Funding the wharf project will be an important effort in FY 2022-23. The project currently has $6.2 million of funding with $4.7 million remaining from prior years allocations and an additional $1.5 million budgeted during the City Council FY 2022-23 goal setting session. Staff is preparing to bid the project; however, the current project will not include restroom or floating dock improvements in order to stay within the $6.2 million budget amount. Staff is pursuing additional grant funding and if that, or any other additional funding sources become available, the restroom and floating dock improvements can be added to the project.

The Proposed FY 2022-23 Budget programs a reduction in the General Fund balance of $2.6 million while still ending the year with a projected fund balance of $1.3 million and a Resiliency Account balance of $385,000. This is due to the City building the general fund balance over the last two fiscal years through a conservative and proactive management approach to the pandemic. A summary of major budgetary changes is provided in the table below with details provided on the pages following the tables.

New Revenue Sources Amount Frequency
Grants $1,357,303 One time
Property Tax 114,335 Ongoing
Sales Tax 588,333 Ongoing
TOT 100,000 Ongoing
Charges for Services 286,404 Ongoing
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Item 6 A.

New Project / Expense Amount Frequency
City Council Goals $3,555,000 One time
CalPERS Unfunded Actuarial Liability Increase 212,000 Ongoing Monterey Bay Area Insurance JPA Increase 138,000 Ongoing Beach Shuttle Increase 64,000 Ongoing
Lifeguard Contract (95,000) Ongoing
Other contracts / inflation 236,000 Ongoing
Staffing
Cost of Living and Step Increases 264,200 Ongoing
Additional Staffing 322,400 Ongoing
Net change to on-going revenue/expenditures (55,000)
FY 2021-22 mid-year projected on-going 385,000
Budget projected on-going revenue/expenditure 330,000

BUDGETARY GOALS AND PRINCIPLES
The FY 2022-23 General Fund budget was developed with an emphasis on financial stability, continuing mitigation of the fiscal impacts related to COVID-19 and maintaining core programs and services for Capitola residents and visitors. As a first step in developing the Budget, the City Council identified its budget principles as well as key projects and programs for FY 2022-23.

Those key projects and programs provide a tool for the City to clearly articulate its priorities to the community and to evaluate performance on an annual basis.

The following tables include the Council’s identified budget principles and a workplan for key projects and programs.

Budget Principles
Fiscal Policy Public Service Public Improvements
Maintain a balanced budget
that ensures ongoing
expenditures can be met with
ongoing revenues
Maintain, and improve upon, the
transparency of City operations and
accessibility of government
Maintain the City's infrastructure
by providing maximum funding for
the pavement management
system

Use one-time revenues for
one-time expenditures
Recognize the high priority the
community places on the public's
safety
Maintain and improve Capitola's
natural resources and sustainable
green programs

Ensure the budget plans for
future cost increases and
attainable revenue estimates
Analyze future service level
increases with their long-term
financial impacts to ensure financial
stability
Ensure maintenance and
cleanliness of City facilities,
sidewalks, and streets
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Item 6 A.

Key Projects/Programs - Workplan
Budget
Principle Key Project/Program
Lead
Department Expected FY Outcome
Fiscal
Develop options for Council
consideration to address rising
CalPERS costs
Finance Identify options in budget. Continue
monitoring long term revenueexpenditure projections with FAC and Council
Pursue future revenue options Finance Bring FAC revenue recommendations to City Council for review
Public
Service
Continue working with Capitola
Mall ownership group to
redevelop the mall
Community
Development
Work with Mall owners to prepare mall
redevelopment submittal and establish
City's technical review team
Respond to COVID-19 City Manager Continue to offer services to residents and businesses while maintaining a safe
and healthy workplace.

Public
Improvements
Complete funded CIPs. Public Works Projects progression toward completion maximized
In addition to the Budget Principles and Key Projects/Programs listed in the tables above, the following items were also discussed during the March 1st City Council special goal setting meeting:
 Transition from COVID-19 response back to normal operations, monitor revenue impacts from COVID-19 quickly.
 Explore grant opportunities for public safety, CIP and environmental policies and outreach programs
 Complete parklets in Village (outdoor dining),
o Review village hotel parking permits & Village parking program upon completion of outdoor dining
 Have City Council create and set priorities for community grants  Seek partnership with school district regarding soccer field  Update Admin Policies
 Prioritize affordable housing and building community relationships and projects  Housing Element Update (funded with special revenue)
 Enhance community outreach
 Launch regional bikeshare program
 Update comprehensive city fee study
 Consider potential ballot measures for 2022
 Memorial bench replacement program
 Implement bike patrol for Parking Enforcement Officers  Update special event permit process
The City Council also allocated funding to the following projects:

Project Funding
Wharf Rehabilitation $1,500,000
Community Center Repairs 150,000
Library TOT Lot 150,000
Local Hazzard Mitigation Projects
Study City Hall options 50,000
Stockton Bridge reinforcement project 350,000
Bluff / Cliff Drive study 50,000
Noble Gulch engineering feasibility analysis 50,000
Fire risk reduction (eucalyptus groves) 50,000
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Item 6 A.

Minimal City Hall maintenance 100,000
EV charging stations 20,000
Bike / Pedestrian safety projects 100,000
Peery Park Bridge maintenance 50,000
Internal staff projects 50,000
Deposit in CalPERS Retirement Trust 500,000
Establish Resiliency Fund 385,000
Total $3,555,000
The City has successfully navigated the fiscal impacts from COVID-19 and is not only positioned to continue to deliver a high level of services to City residents, but also provide resources to multiple key projects city-wide.

OTHER BUGETARY HIGHLIGHTS AND PROPOSED CHANGES
While the budget was largely prepared to maintain core services and keep expenditures at the lowest level possible, several changes are identified in this budget.

Staffing
As the City transitions back to “normal” from the fiscal impacts of COVID-19, the proposed budget includes filling one frozen Police Officer position on a permanent basis and one frozen Receptionist position. The proposed budget continues to maintain one three-quarter time vacancy and several partially filled positions throughout city departments that were frozen at the onset of the pandemic. It is important to note that these positions have not been eliminated and staff hopes to include funding for these positions either later in FY 2022-23 or in the FY 2023-24 Proposed Budget that will be presented to City Council in spring of 2023. The combined total of “frozen/partially filled” positions represent an estimated savings of approximately $188,000.

Due to a change in Lifeguard programming and anticipated staffing changes in Public Works, the proposed budget includes one new full-time Development Services Technician and one threequarter time Recreation Coordinator/Lifeguard position. The two new positions represent an estimated annual cost of $153,000, however, this cost will be partially offset by a reduction in contract services related to Lifeguard Services of $95,000 annually.

Recreation Programing
Recreation division staff has returned the Junior Guard and Camp Capitola summer programs to pre-COVID-19 levels. While enrollment was drastically reduced the last two summers to comply with social distancing protocols, staff was happy to be able to continue to offer one of the few, if not the only, Junior Guard and Camp summer programs on the Central Coast.

Youth Funding and Business Group Funding
With the passage of Measure J in 2018, Capitola became one of the first cities in the state to establish a children’s fund that is supported by a dedicated tax measure. Transient Occupancy Tax (TOT) revenues continue to out-pace estimates as well as pre-pandemic revenues. The proposed budget includes an allocation of $61,250 from the children’s fund to support early childhood and youth programming. The budget also includes approximately $70,000 of funding for the Chamber of Commerce and the Village Business Improvement District, also using the restricted Measure J funding.
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Item 6 A.

General Fund Balance
Due to the diligent work of the City Council in taking a pragmatic approach to budgeting, the oversight of the City’s Department Head team, and contributions from every City staff member, the City is projected to be able to close FY 2021-22 year with a general fund balance of approximately $4.3 million of which $385,000 has been designated as a general fund resiliency account. During the City Council goal setting session on March 1st, the City Council dedicated $3.56 million towards key projects and goals. While the allocation of available resources creates a FY 2022-23 Proposed Budget in which expenditures exceed revenues by approximately $2.6 million, the general fund is still projected to end FY 2022-23 with an estimated fund balance of $1.34 million while maintaining the $385,000 Resiliency Account.

This funding is in addition to the City’s established Contingency and Emergency reserves set at 15 and 10 percent of total expenditures, respectively. Staff will continue to closely monitor revenues, expenditures, and fund balance throughout FY 2022-23 and will report to Council during the mid-year budget report.

The FY 2022-23 Proposed Budget includes additional ongoing revenue above the prior year of approximately $1.1 million and additional ongoing expenditures of $1.15 million. When combined with the additional on-going revenue from the FY 2021-22 mid-year budget that equates to approximately $330,000 of unprogrammed ongoing revenue. Current revenue and expenditure projections show revenues not keeping pace with expenditures requiring usage of Measure F revenues to structurally balance the budget in the 5-year forecast.

PRIOR YEAR ACCOMPLISHMENTS
In FY 2021-22 the City completed several significant projects, which provided residents and visitors with increased recreational and public art opportunities, while continuing to strengthen public safety and community development activities. Some of the City’s accomplishments in FY 2021-22 include:
 Addressed the COVID-19 related impacts to the City of Capitola.  Provided services, staff, and equipment to ensure public safety and trust.  Approved projects and programs to maintain and enhance quality of life in Capitola.  City Council and staff participated in unconscious/implicit bias training.  Continued process to digitize and make available public records in electronic formats.  Implemented new agenda management and meeting video system.  Worked with franchise waste hauler to establish food scrap collection.  Launched TOT vacation rental audit and enforcement program  Records Management System (RMS) has projected a go-live date in May/June 2022.  Participated in the 2021 Santa Cruz County Criminal Justice Council Report related to the regional public safety agency policy review and analysis.  Completed construction of new library building
 Started construction of traffic signal control system on 41st Avenue  Completed Phase 1 of the wharf improvement projects
 Completed repairs to Rispin-Peery ped/bike bridge
 Completed road repair project and began resurfacing phase  Continued to Administer the Covid-19 Temporary Use Permits for outdoor dining.  Administered CARES act relief to local non-profits and rental relief to small businesses.  Drafted a permanent outdoor dining ordinance to allow dining in the Village within 25 public parking spaces and on sidewalks.
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 Launched the SB2 grant scope to accelerate housing production through objective planning standards and preapproved prototype Accessory Dwelling Units (ADU).  Contracted with Central Fire Protection District to provide testing and training services that meet or exceed USLA standard.
 Offered new classes with a focus on youth recreation activities.  Earned accreditation from American Camp Association for Camp Capitola  Installed exhibition “Perspectives – Capitola in the Eye of the Beholder” and hosted reception.

CONCLUSION
The development of the annual budget takes a great amount of staff time and effort and must be completed in a compressed timeline. I sincerely appreciate all the department directors and departmental budget liaisons for their contributions. Special recognition is extended to the Finance Department for its efforts in coordinating the budget process and preparing the annual budget document.

As the new fiscal year approaches, I wish to express my thanks and appreciation to the Mayor, and members of the City Council for their leadership and support in planning and conducting the financial operations of the City in a responsible and progressive manner. I know that with continued citizen participation, City Council leadership, and ongoing efforts of dedicated employees, Capitola will continue to be a great place to live, work, and enjoy. 9 20
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SUMMARY INFORMATION
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Budget Process Overview
Each year the City of Capitola prepares an Operating Budget, a Successor Agency Budget, and a fiveyear Capital Improvement Program (CIP) budget. The Operating Budget contains the summary and detail information for revenue and expenditure appropriations for the fiscal year (beginning July 1st and ending June 30th) for several funds as well as a projection for the second fiscal year. The information from the CIP is incorporated, in summary form, in the City’s annual budget. The Successor Agency budget is included in its entirety in the City’s annual budget.

Capitola municipal code (3.200.010 E.) defines a balanced budget as one in which “financing uses including expenditures, inter-fund transfers out, reserves and contingencies should equal financing sources including beginning available fund balance, revenues and inter-fund transfers in.” A key concept in the developmental process for the General Fund Budget revolves around City fiscal policy that current year expenditures are balanced with current year revenue.

The City’s budget process continues throughout the year, with quarterly financial updates published to the Finance Department website and at weekly department head meetings with the City Manager. An outline of the on-going budget process is listed below:

Month Responsibility Budget Function
December Finance Budget Cycle Begins
Finance Finance prepares mid-year calculations
January City Manager / Departments Review accomplishments related to prior year Budget Principles Finance / Departments Provides year-end estimates
Finance Publishes quarterly reports for October - December Finance / City Manager Presents mid-year report to Council and FAC February City Council Establishes Budget Principles
Finance Projects non-departmental revenues and position costs Departments Prepares budget and CIP
March Finance / Departments Continue budget projections Finance Advisory Committee FAC discusses elements of the budget City Manager Reviews departments budget requests
April Finance Adjusts proposed budget based on City Manager review Planning Commission Reviews CIP
Finance Publishes quarterly reports for January - March Finance Advisory Committee Distributes proposed budget
May Finance / City Manager Presents proposed budget and CIP to City Council Finance Advisory Committee Provides recommendations to Council Community Organizations Provides funding request information to Council June City Council Deliberates
City Council Adopts Budget
July Finance Publishes quarterly reports for April - June October Finance Publishes quarterly reports for July - September 11 22
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Financial Policies
Basis of Accounting
The City’s operating budget consists of governmental funds that include the General Fund, Special Revenue Funds, Internal Service Funds, Debt Service Funds and Capital Project Funds for both the City and the Successor Agency. Governmental fund types and agency fund budgets are developed using the modified accrual basis of accounting. This method is consistent with the presentation of the City’s Annual Financial Statements. Under this basis, revenues are estimated for the fiscal year under the condition that they are identifiable and will be collected within sixty (60) days, and sales tax within ninety (90) days, of the close of the fiscal year. Principal and interest on general long-term debt are budgeted as expenditures when due, whereas other expenditures are budgeted for liabilities expected to be incurred during the current period or shortly thereafter.

Level of Budget Control
Both the City and the Successor Agency appropriate (control) the budget at the Budget Unit level. The Budget Unit level is defined as “department, fund, or other organizational unit whose financial activities are accounted for separately.”
Expenditures for the General Fund are considered a Budget Unit at the Department level, with Community Grants controlled at the grantee level. The Successor Agency are considered Budget Units to be at the category level as defined in the budget document.

Budget Adjustments
After the budget is adopted, any supplemental appropriations of fund balance, or budget transfers over $25,000 within a Budget Unit will require Council approval. Budget adjustments that are less than $25,000 and within the same Budget Unit may be approved by the City Manager.

All requests for budget adjustments will include an explanation for the change along with a discussion of fiscal impact. This information will also be documented on a Budget Adjustment Form, which will be reviewed by the Finance Department for fiscal impact, correct account coding, and policy consistency prior to receiving City Council or City Manager approval.

Financial Committees and Boards
The following committees and boards assist the City in the budget review and development process:

Finance Advisory Committee
The Finance Advisory Committee (FAC) works closely with the Finance Director to make recommendations on financial projections or policies identified by the City Council or City Manager. The Committee consists of four Council-appointed members, the Mayor, a Council Member, and the City Treasurer. The FAC meets several times throughout the year and operates in an advisory capacity with the overall fiscal well-being of the City serving as its guiding principle.

Oversight Board to the Successor Agency of the Former Redevelopment Agency As part of the Redevelopment Agency Dissolution Act, the City of Capitola elected to be the Successor Agency to the former Redevelopment Agency (RDA). As part of the dissolution process, a sevenmember oversight board was established to review and approve recognized obligation payments of the Successor Agency, with the fiduciary responsibility to the holders of enforceable obligations and the taxing entities that benefit from property tax distributions. The Capitola oversight board was transitioned to the County-wide oversight board during FY 2018-19. The City anticipates filing its final report and completing the dissolution of the former RDA during FY 2022-23. 12 23
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General Fund Summary
The General Fund continued to remain stable in FY 2021-22 due to a proactive and conservative approach in response to the COVID-19 Pandemic as well as a strong recovery along the Central Coast.

The projected General Fund FY 2021-22 ending budgetary fund balance totals $4.3 million which includes $385,000 designated as the General Fund Stabilization account. The General Fund balance is anticipated to decrease in FY 2022-23 by approximately $2.6 million as available resources are programmed towards the accomplishment of City Council goals.

The chart below summarizes projected and historical General Fund revenues, expenditures, and fund balances. The table illustrates the effects the improving local economy has had on general fund revenue. Revenue variances primarily include an increase in sales and property tax revenues.

An overview of district taxes (Measure O and F), reserves, and internal service funds are provided within this summary section.
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Revenue Summary
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Expenditure Summary
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Emergency, PERS Contingency and Contingency Reserves
In 2000 the City adopted Financial Management policies, establishing a fifteen percent Contingency and a ten percent Emergency Reserve Fund. The Contingency Reserve provides a prudent level of financial resources to protect against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The Emergency Reserve protects against significant one-time costs, which might arise from major unpredictable emergency events.

As the 2011 pipe failure demonstrated, a sufficient Emergency Reserve Fund is needed to respond quickly to local disasters, as well as sustain low debt ratios. Due to the City’s location in an active geologic region, adjacency to the ocean, and proximity to a major creek and highway, the City chose to also increase the Emergency Reserve funding level to ten percent of operating expenditures. In FY 15/16 the City implemented a PERS Contingency Reserve Fund to ensure future funding availability for potential CalPERS contribution increases.

The City was able to navigate the fiscal impacts associated the COVID-19 Pandemic without utilizing reserve funds, however, a failed storm drain resulting in a large sinkhole at Noble Gulch Park required an allocation of $60,000 from the Emergency Reserve to make the necessary repairs. In addition, the FY 2022-23 Proposed Budget is returning most expenditures to pre-pandemic levels which increases the target reserve balance. The FY 2022-23 Proposed Budget anticipates returning the reserve balance to the target amount by FY 2023-24.
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OPEB and PERS Trust Funds
The City has been proactive in planning for future liabilities. The City has established two trust funds for future retirement costs. The two trust funds are the OPEB (Other Post-Employment Benefits) Trust Fund, which is used for retiree health premiums, and the PERS Trust Fund, which is used for future PERS retirement costs.

OPEB Trust Fund:

Balance 6/30/2021 $557,520
FY 2021/22 Contributions 60,250
Estimated Interest Earned 5,000
Estimated Balance 6/30/2022 $622,770
FY 2022/23 Contributions 60,250
Estimated Interest Earned 5,000
Estimated Balance 6/30/2023 $688,020
PERS Trust Fund:

Balance 6/30/2021 $1,015,553
Estimated Interest Earned 10,000
Estimated Balance 6/30/2022 $1,025,553
FY 2022/23 Contributions 500,000
Estimated Interest Earned 10,000
Estimated Balance 6/30/2023 $1,535,553
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General Fund Resources
General Fund resources include reserve funds (Emergency, Contingency, PERS Contingency, Facilities) and Internal Service Funds designated for funding equipment purchases, risk management, workers’ compensation, and compensated absences. The reserve funds have specific purposes and require a vote of the Council to expend.

The following table shows the estimated General Fund available resources:

The corresponding chart and graph illustrate internal service fund expenditures and the impact of transfers on the affected funds.
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Fund Balance Summary
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Fund Balance Summary
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GENERAL FUND REVENUES
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General Fund Revenues
Revenues for the FY 2022-23 General Fund operating budget total $19.6 million, an increase of approximately $740,000 or 4 percent above FY 2021-22 estimated receipts. Property tax revenues remain strong as assessed values (basis for property tax levies) continue to increase with changes in ownership and an additional 2% CPI increase per Prop 13 provisions. Staff anticipates sales tax revenue to increase around 3% over FY 2021-22 exceeding pre-pandemic levels and transient occupancy tax to remain relatively flat following a 37% increase in the prior year as hotels, motels, and short-term rentals returned to normal operations.

A summary of major revenue changes between the FY 2021-22 adopted and FY 2022-23 proposed budgets is listed below:
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General Revenue Information
The City does not receive General Fund revenues in equal monthly increments. While the City receives some revenue regularly throughout the fiscal year, some is received quarterly or annually.

The variable nature of these revenues results in an uneven cash flow. For example, the City of Capitola’s lowest cash balances occur in April and again in mid-December prior to property tax revenue being received. Mid-December in prior years was significantly lower due to the State’s Triple-Flip. The State reduced our sales tax by 0.25 percent and reimbursed the City, through property tax, in December. With the Triple-flip completed, we now receive our sales tax revenue consistently throughout the year. The City developed a cash flow model to assist with on-going cash flow variability and to identify reserve requirements. While monitoring the City’s cash flow has always been a priority, the need to identify patterns became more critical during the disaster recovery period when reserves were nearly depleted. In FY 2012-13 the City approved increasing the Contingency Reserve balance from 10 percent to 15 percent to assist in covering potential cash flow deficits. The City utilized $60,000 of the Emergency Reserve for emergency repairs at Noble Gulch Park and the FY 2022-23 proposed budget anticipates returning the Emergency Reserve to its target balance by FY 2023-24.

Projections for each source of revenue include a review of historical trends, the local economy, new business development, and pending legislation. Due to significant changes, the City is closely monitoring the following five core revenues, which represent over 80 percent of the General Fund:
 Sales Tax $8,662,300
 Transient Occupancy Tax 2,100,000
 Parking Meters 859,275
 Parking Fines 450,000
 Property Taxes 2,972,713
$15,044,288
Additional information related to the five core revenues are detailed within this section. In addition, fiveyear trends for each revenue source are provided in the Revenue Summary.

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Sales Tax
The City of Capitola sales tax consists of one percent Bradley Burns, a quarter percent Capitola District Tax (Measure F), and a permanent quarter percent Capitola District Tax (Measure O). In FY 2021-22 annual sales tax revenue is estimated to be $8.66 million, with approximately $2.3 million in revenues contributed by Measure O, and Measure F.

The Finance Department works closely with HdL, the City’s sales tax consultant, on tax recovery, statistics, and projections. Sales tax projections are based on a combination of “most likely” estimates provided by HdL, internal quarter over quarter analyses, and the impact of one-time events. In FY 2022-23, Bradley Burns sales tax revenue is anticipated to increase by approximately 3 percent, or $252,300, above the FY 2021-22 estimated sales tax receipts. The City’s sales tax collections are heavily dependent on the top five generators and were not negatively impacted due to the COVID-19 pandemic as much as originally anticipated.

The chart below illustrates sales tax performance including the sunset of Measure D and start of Measure F.
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Transient Occupancy Taxes (TOT)
Hotel tax, also known as the Transient Occupancy Tax (TOT), charges rental accommodation of less than 30 days a 12 percent tax of which 0.75% is restricted for local business groups and early childhood and youth programs. In FY 2022-23 TOT tax generally accounts for approximately 11% of General Fund operating revenues. The City’s TOT revenues come from the following sources:
 Hotels, Motels and Inns
 Other Rentals
o Bed and Breakfasts
o Vacation Rentals
The City’s TOT revenues were the most impacted revenue source due to COVID-19; however recent trends show the vacation rental industry making a strong comeback. The projected increase for FY 2022-23 is flat following an approximate 37% increase during FY 2021-22. For the last several years, hotels have experienced high occupancy rates leaving little room for increased TOT revenues and staff has seen occupancy levels returning close to pre-pandemic levels with nightly room rates increasing significantly.

The following chart illustrates TOT revenues within the City. Due to Capitola’s seaside location, proximity to regional attractions, and continued signs of economic recovery, the City is continuing efforts to attract another hotel to the area.
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Parking Meters and Parking Fines
In FY 2022-23 parking meter and parking fine revenues are estimated to contribute approximately $1.3 million to the General Fund. Revenue sources include fees collected from the meters and fines resulting from expired meters and improper parking. Factors affecting these revenues include tourism and seasonal trends. At the end of FY 2013/14, a 226-space parking lot opened adjacent to the existing Pacific Cove Parking Lot and City Hall. The FY 2022-23 proposed budget includes a $100,000 general fund transfer to the parking reserve fund to help meet debt service obligations related to the opening of parking lot. During the summer, the City offers shuttle bus service from the parking lots to the Village, beach, and Capitola Wharf. Projected revenues for each location are estimated below:

The following chart illustrates parking meter revenue and parking citation revenue trends within the City. Overall, the revenue trend has increased for the last several years with an estimated decrease in FY 2016/17 due to a wet winter that reduced visitors. In FY 2015/16 the City implemented 3-hour parking in the Village. The change has had a positive impact on meter revenue while decreasing citations.

The FY 2022-23 proposed budget projects parking meter and parking fine revenue are estimated to increase one-half of one percent compared to the estimated prior year receipts.

Location Spaces
FY 22/23
Proposed
Avg. Meter Rev.
per Space
Village 195 552,750 $ 2,835 $
Cliff Drive 65 $ 1,855 120,600 $
Pacific Cove - Upper Lot 232 130,650 $ 563 $
Pacific Cove - Lower Lot 226 55,275 $ 245 $
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Property Taxes
Property Taxes, an Ad Valorem Tax imposed on real property and tangible personal property, are levied at one percent of the assessed value of the property. The City receives 7.47 percent of each one percent, or 75 cents per $1,000, of assessed property value.

In FY 2022-23 property tax revenue is estimated to be $2.97 million, representing a four percent increase over the estimated collection amount from FY 2021-22. The City’s collections are consistent with information from the County Auditor-Controller’s Office, which indicated that property valuations in Capitola are rising at a rate of four to four and one-half percent annually.

In the FY 2022-23 proposed budget, base property tax revenues are projected to increase approximately four percent. The City based the projection on information from the Auditor-Controller’s Office, historical trends, and a review of the current housing market. A growth factor of four percent of the assessed property valuation was used to estimate FY 2022-23 property tax revenue.

Property taxes are received based on the following distribution schedule:
 December: 50%
 April: 45%
 June: 5%
Property Taxes in-lieu-of Vehicle License Fees
Property Tax in-lieu-of Vehicle License Fee revenue has increased an average of six percent per year over the last several years. However, staff used the same four percent increase projected in FY 2022-

23. This increase continues to be consistent with the rising property values outlined by the AuditorController’s Office. Due to the relatively flat history associated with these revenues, conservative estimates of three percent have been applied to the upcoming fiscal years. 27 38
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Revenue Summary
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GENERAL FUND EXPENDITURES
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General Fund Expenditures
The FY 2022-23 General Fund expenditure budget proposes increases of approximately $3 million from the FY 2021-22 Amended Budget. Increases have been programed in most major categories as our recovery from the fiscal impacts related to COVID-19 continue and we utilize resources that have built up over the last two fiscal years. Key differences between the two fiscal years include:
o Total personnel costs (salary and benefits) are estimated to increase $808,600 from the FY 2021- 22 Amended Budget as we bring staffing back to pre-pandemic levels and increases to the CalPERS Unfunded Actuarial Liability. The City continues to hold 1 full-time position as frozen vacant as well as under-filling three other positions in response to COVID-19, however, the proposed budget does request 1 ¾ new positions.
o Salary costs are estimated to be $536,500 higher as the City enters the second year of the current MOU’s negotiated with labor groups.
o Salary – Permanent increased $481,000
o Salary – Temp increased $55,500 as summer recreations programs return to full capacity. o Overtime is anticipated to increase $8,200 primarily the Police and Public Works departments with the return of most special events.
 Contract services increased by $512.500 or 16% above the prior year primarily related to contract services associated with several grants that the City has received.

The following chart provides an overview of expenditures for FY 2019-20 to FY 2023-24. A complete description of major changes will follow in the related expenditure detail pages. 31 42
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The following chart provides an overview of expenditure trends, excluding transfers. Expenditures are trending upward in FY 2022-23 as we continue our recovery from COVID-19 and utilize resources that have accumulated over the last two fiscal years.

A chart displaying the percentage of expenditures by category is also provided for reference. Although personnel costs are estimated to increase $808,600 from the prior fiscal year, the ratio of personnel services to total expenditures decreased from 69.1 percent to 65.7 percent. Other notable changes were in contract services, which increased from 17.8 percent to 21.5 percent, and internal service charges, which increased from 8.0 percent to 8.2 percent.
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General Fund Department Expenditures
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General Fund Expenditures

SALARIES & BENEFITS
All positions listed in the General Fund are fully funded with full benefit costing. Fully benefited positions are budgeted at their current step plus an assumption that they will move to the next step unless they are already at the top step of their classification. Specialty pays are budgeted as a separate line item.

Positions budgeted for in FY 2022-23 bring total staffing levels back to pre-pandemic levels. While this includes the addition of 1 ¾ new positions or also includes 2 total positions that remain frozen or underfilled.

The table below summarizes the total FTE count by department, and the following page provides a detail summary of the staffing budget changes.
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General Fund Expenditures

SALARIES & BENEFITS
City services are primarily staff delivered; therefore, staffing is the most significant expenditure. The FY 2021-22 proposed budget staffing costs total $10,337,110. This represents an 9% increase from the FY 2020-21 Adopted Budget. This is due to ending concessions by labor groups as response to COVID-19, on-going labor negotiations that were delayed due to COVID-19, and increased costs related to the CalPERS Retirement Fund and inflation.
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General Fund Expenditures
Salaries & Benefits - Salary Assumptions
There are five bargaining groups in the City. Management employees are hired by the City Manager pursuant to a City Council approved compensation plan. Hourly employees are not included in any of these groups and are not represented by a union. The following table lists the different groups and the start and end dates of their current agreements.

Group Current Agreement Expiration Date
Assoc. of Capitola Employees/Gen. Govt. 06/27/2021 06/30/2024 Confidential 07/01/2021 06/30/2024
Mid-Management 06/27/2021 06/30/2023
Police Captains 08/26/2021 06/30/2024
Police Officers Association (POA) 08/26/2021 06/30/2024 Overtime
The following table provides the detail for the overtime budget. The overtime budget for the Police Department increases this year after a decrease in recent years due to multiple vacancies.

Specialty Pay
The FY 2021-22 budget includes the following specialty pays in the calculation of staffing costs, which are also included in overtime calculations: education, longevity, bilingual, motorcycle, detective pay, senior officer, canine, and shift differential pay.

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General Fund Expenditures
Salaries & Benefits – Retirement Assumptions
Benefits – Post Retirement Medical Benefit
The City of Capitola contributes the minimum amount toward retired employees’ health insurance premiums in accordance with Government Code Section 22892 of the Public Employees’ Medical and Hospital Care Act (PEMHCA). This expenditure is accounted for in the City Manager’s personnel department budget. Below is a table showing the PEMHCA minimum over the last 10 years.  January 1, 2013 $115
 January 1, 2014 $119
 January 1, 2015 $122
 January 1, 2016 $125
 January 1, 2017 $128
 January 1, 2018 $133
 January 1, 2019 $136
 January 1, 2020 $139
 January 1, 2021 $143
 January 1, 2022 $149
Benefits – Public Employee Retirement System (PERS)
The City offers various defined benefit retirement plans to safety and miscellaneous employees. These retirement plans are administered by the California Public Employee Retirement System (“CalPERS” or “PERS”). The safety plan benefit formula is 3% @ 50 and the miscellaneous plan is 2.5% @ 55 for “classic” PERS members. For employees hired after January 1, 2013, who are subject to the Public Employees’ Pension Reform Act (PEPRA), the safety benefit formula is 2.7% @ 57 and the miscellaneous plan is 2% @ 62. A CalPERS member becomes eligible for retirement benefits upon reaching the age of 50 with at least 5 years of service credit (total service across all CalPERS employers).

The City’s retirement costs are defined as a percentage of payroll, along with a fixed dollar amount to address the City’s Unfunded Actuarial Liability (UAL), which is actuarially determined annually by CalPERS. The UAL in FY 2021-22 was $1,969,574 and is increasing to $2,181,6445 in FY 2022-23.

The most recent CalPERS actuarial reports estimate the UAL through FY 2027-28 at an amount of $2,723,700 which equates to an increase of approximately 124% over ten years from FY 2018-19.

PERS Rates. The FY 2022-23 PERS total rate for classic safety members is 32.7%, with employees paying 15% and the city 17.7%. Safety PEPRA members are responsible for 13% and the city pays

13.0%. For classic miscellaneous members, the total contribution rate is 20.2%, with employees paying

13.4% and the city 6.8%. Miscellaneous PEPRA employees pay 6.75% and the city pays 7.5%.

The FY 2021-22 PERS total rate for classic safety members was 32.7%, with employees paying 15% and the city 17.7%. Safety PEPRA members are responsible for 13.0% and the city pays 13.0%. For classic miscellaneous members, the total contribution rate was 20.3%, with employees paying 13.4% and the city 6.9%. Miscellaneous PEPRA employees pay 6.75% and the city pays 7.7%.

Public Employees’ Pension Reform Act (PEPRA). On September 12, 2012, Governor Brown signed the California Public Employees' Pension Reform Act of 2013 (PEPRA) into law. PEPRA became effective on January 1, 2013 and requires all employees who are not previously members of the PERS reciprocal system to be placed in an alternate retirement plan. The City’s PEPRA plan for Safety employees is

2.7% at 57 and 2% at 62 for Miscellaneous employees. This new plan requires that the City and plan members contribute an equivalent share of retirement costs. The rates for public safety and miscellaneous employees are 13% and 6.75%, respectively. 37 48
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Retirement Costs Summary
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General Fund Expenditures - Contract Services (5 pages) 39 50
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Community Based Social Service Providers
Community Based Social Service Providers are funded by the General Fund and restricted Transient Occupancy Tax (TOT) revenue. Each year a determination is made for funds available and allocation.

Due to COVID-19 the Community Grant program was funded in FY 2021-22 with a combination of general fund, restricted TOT, and federal grants. The table below shows the general fund and restricted TOT funding while the federal grant funding in highlighted in the Community Development Block Grant Special Revenue funds.
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GENERAL FUND EXPENDITURES

SUPPLIES
The following table provides a history of the supply budgets by department. Additional information is available in the General Fund Department section.

TRAINING AND MEMBERSHIPS
The following table provides a history of the training and memberships budgets by department. Refer to the General Fund Department section for additional information. 46 57
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INTERNAL SERVICES
Internal Service Funds finance special activities and services performed by one City department for another on a cost and reimbursement basis. These funds share costs, designate targeted reserves levels, and allocate costs to all departments benefiting from the activities and services. The methodology for cost allocation for each Internal Service Fund is described in the Internal Service Fund section.

The FY 2022-23 proposed budget provides funding for increased insurance premiums as well as equipment purchases for equipment funded in prior years.

GENERAL FUND TRANSFERS
General Fund Transfers move funds from the General Fund to a specific fund for a designated purpose.

The CIP is detailed in a separate section and debt issuances are detailed in the Multi-Year Assets and Obligations section. Below is a summary of the transfers from the General Fund to other funds/reserves. 47 58
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DEPARTMENTAL BUDGETS

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CITY COUNCIL

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Council is composed of five generally elected Council Members, serving four-year staggered terms. Council members select a Mayor and Vice Mayor annually. In 2002, the voters approved a consecutive term limit of two terms for Council Members. The City's Municipal elections are held the first Tuesday of November in even-numbered years. The Council meets regularly twice monthly, on the second and fourth Thursday.

The City Council establishes local law, sets policy, approves programs, allocates funds, and provides direction to the City Manager and staff to implement its policy. Council also appoints members to local and regional committees, commissions, and boards. Capitola is a General Law City, organized under the general laws of the state. Local laws are established by ordinance, compiled in the Municipal Code, and enforceable by the City. Other directives and policies of the City Council are implemented through Council Resolutions and recorded in Council Minutes.

ESTABLISHED PRINCIPLES OF THE CITY
 Fiscal Policy – practice sound financial management
 Public Service – uphold the public trust.
 Public Improvement – maintain a safe and healthy environment.

FISCAL YEAR ACCOMPLISHMENTS – 2021/2022
 Addressed the COVID-19 related impacts to the City of Capitola.  Balanced budget with reduced revenues.
 Provided services, staff, and equipment to ensure public safety and trust.  Approved projects and programs to maintain and enhance quality of life in Capitola.  Negotiated successor Memorandums of Understanding with bargaining units.  City Council and staff participated in unconscious/implicit bias training.

FISCAL YEAR GOALS - 2022/23 and 2023/24
 Provide services, staff, and equipment to ensure public safety and trust.  Develop projects and programs to maintain and enhance the quality of life in Capitola.  Finalize plans and begin construction for Measure F projects to renovate the Wharf. 49 60
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CITY ATTORNEY

GENERAL GOVERNMENT

DEPARTMENT PURPOSE
The City Attorney represents the City as primary Counsel in all legal matters. The City Attorney is appointed by the City Council. The City Attorney provides legal analysis and advice on interpretation and application of municipal code, State law, and Federal law, drafting legal documents, and laborrelated issues. The City Attorney is currently a contract position with the firm of Burke, Williams & Sorensen

KEY CHANGES
Samantha Zutler of Burke, Williams & Sorensen is Capitola City Attorney FISCAL YEAR ACCOMPLISHMENTS – 2021/22
 Advised City on matters associated with pending legal actions.  Advised City on legal matters related to City policies and procedures.  Represented the City in litigation
 Assisted City in labor negotiations.

FISCAL YEAR GOALS – 2022/23 and 2023/24

FISCAL POLICY
 Advise Council on potential and pending litigation.
 Assist and advise staff on contracts, labor relations, and other legal assessments.  Resolve existing litigation.
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CITY MANAGER SUMMARY

GENERAL GOVERNMENT

MISSION STATEMENT
The City Manager serves the Council and the Community by bringing together resources to meet City needs, provide excellent customer service, and prioritize available resources.

DEPARTMENT PURPOSE
The City of Capitola is a Council-Manager form of government, under which City Council appoints a City Manager who serves as the City's chief administrative officer and is responsible for implementing Council policies.

The City Manager Department is responsible for overall administration of City objectives. The City Manager is the lead position within the City administrative structure and is appointed by Council. The City Manager provides administrative direction and leadership to all City departments, and directly oversees Human Resources, City Clerk, Information Systems, and the Assistant to the City Manager.

KEY CHANGES
Recruited and hired new Deputy City Clerk
FISCAL YEAR 2021/22 ACCOMPLISHMENTS
 Addressed the COVID-19 related impacts to the City of Capitola.  Continued process to digitize and make available public records in electronic formats.  Implemented new agenda management and meeting video system.  Advised and informed the City Council on policy and action matters.  Assisted departments in recruiting and retaining employees.  Worked to improve risk management and reduce potential liability.  Worked with franchise waste hauler to establish food scrap collection.

FISCAL YEAR GOALS - 2022/23 and 2023/24

FISCAL POLICY
 Work with Capitola Mall to improve the mall facility.  Complete review & evaluation of Community Grant Program  Continue to work to create a safer work environment and reduce employee injuries.  Review and prioritize City services.
 Support economic development.
 Seek opportunities to partner with other agencies for greater outcome or savings.

PUBLIC SERVICE
 Encourage and improve citizen participation and communication.  Ensure programs in place to respond to public and private development projects.  Continue to improve public meeting access.
 Continue to improve communication capabilities with public.  Continue efforts to increase transparency, including through the website, public records, and outreach.
 Use dedicated children's fund for youth programming.

PUBLIC IMPROVEMENT
 Continue recycling efforts and increase participation in waste diversion.  Open Rispin Park to the public.
 Continue increased street and facility maintenance through use of Measure D resources.  Work to develop projects to protect and enhance valuable City resources. 51 62
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CITY MANAGER ADMINISTRATION

GENERAL GOVERNMENT

MISSION STATEMENT
The mission of the City Manager’s Office is to ensure that all City programs and services are provided effectively and efficiently.

DEPARTMENT PURPOSE
The purpose of this division is to implement the policies of the City Council and provide leadership and direction to the city departments. Core services of the City Manager’s Office are administrative direction and leadership for City departments, programs, and services to ensure the community receives a high level of service.

In addition, the City Manager’s administrative arm oversees the Council agenda process, oversees public records, provides staff support to the Art and Cultural Commission and Library Advisory Commission, manages sustainability programs, manages the Community Grant process, and oversees Personnel, Information Systems, and the Historical Museum. The department maintains solid waste and recycling programs, management of franchise agreements, and human resources programs including risk management, employee training, safety programs, and benefits administration. 53 64
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CITY MANAGER PERSONNEL

GENERAL GOVERNMENT

MISSION STATEMENT
To provide excellent internal and external customer service and assist departments in recruiting and retaining exceptional employees.

DEPARTMENT PURPOSE
Personnel functions are the responsibility of the City Manager. Functions include employee recruitment and selection, benefits coordination, insurance and retirement programs, labor negotiations, compensation plan maintenance, regulatory training, and risk management. 54 65
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FINANCE

GENERAL GOVERNMENT

MISSION STATEMENT
The Finance Department’s mission is to present timely, accurate and transparent financial information to the public while providing City Management with financial data to facilitate informed decision-making on the allocation of City resources. The department strives to provide excellent customer service to the public, elected officials, and all departments within the City.

DEPARTMENT PURPOSE
The Finance Department oversees all financial transactions of the City to ensure legal and accounting policies are adhered to. The Department maintains all City funds and oversees budget development, the Comprehensive Annual Financial Report, accounts payable, payroll, accounts receivable, cash receipts, banking, business licenses, and transient occupancy tax. The Department provides quarterly and annual financial reports to City Council and the public.

FISCAL YEAR ACCOMPLISHMENTS – 2021-22
 Financially navigated the City through the fiscal impacts related to COVID-19  Launched TOT vacation rental audit and enforcement program  Provided analytical support to operations departments  Provided support for the Successor Agency wind-down
FISCAL YEAR GOALS – 2022-23 and 2023-24
 Prepare and maintain a balanced budget
 Plan for and meet future PERS increases
 Continue monitoring fiscal impacts related to COVID-19  Complete wind-down for the Successor Agency
 Work with the Finance Advisory Committee to identify future revenue opportunities and address increasing costs
 Meet regulatory financial reporting requirements and provide reports on the City website  Develop long term financial plan for Measure F
 Continue partnerships with departments to maintain financial accountability and transparency  Continue to improve City financial transparency to the public 55 66
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POLICE SUMMARY
POLICE

MISSION STATEMENT
The Capitola Police Department prides itself in providing the highest level of safety and service to enhance the quality of life of our community through professional, engaged, and empowered employees.

VISION STATEMENT
The Capitola Police Department is comprised of professional and dedicated members who strive to demonstrate high character, fairness, compassion, and the non-biased delivery of policing services.

CORE VALUES
We pride ourselves on representing the City of Capitola and providing policing services based upon these values:
 Human Life - Nothing is more valuable than the preservation of life  Loyalty - Simple loyalty to our best convictions
 Honesty - The essence of moral character
 Respect - Our success is measured by how we treat others  Integrity - Values, and morals that represent our sincerity and commitment  Diversity - We value differences
 Ethics - Our commitment to principles that govern behavior FISCAL YEAR ACCOMPLISHMENTS – 2021-22
 Replaced two patrol vehicles
 Records Management System (RMS) has projected a go-live date in May/June 2022. This extensive RMS project will improve county-wide interoperability and information sharing.  Participated in the 2021 Santa Cruz County Criminal Justice Council Report related to the regional public safety agency policy review and analysis.  Returned training budget to the pre-pandemic levels
FISCAL YEAR GOALS – 2022-23 and 2023-24
 Return to pre-pandemic staffing levels in Records and Operations  Apply for a two-year Alcohol Beverage Control Grant
 Examine Online Police Reporting System
 Examine Wellness programs to support all staff
 Recover from COVID impacts with the re-introduction of in-person meetings and face-to-face community engagement efforts
 Replace outdated radar trailer with Radar/Message Board  Organize Special Event applications and processes
 Continue to seek grant funding for technology and policing services with public works.  Receive a private donation to offset the police canine program for FY2022/23. 57 68
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LAW ENFORCEMENT
POLICE
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PARKING ENFORCEMENT
POLICE

DEPARTMENT PURPOSE
The Parking Enforcement Unit enforces California Vehicle Code regulations and Municipal Parking Ordinances to minimize parking problems, reduce traffic congestion, and maximize access to parking by visitors and residents alike.

FISCAL YEAR ACCOMPLISHMENTS – 2021/22
 Improved collection, maintenance, and repair processes  Hired new Parking Enforcement Officer. Staffing returned to the historical numbers of three PEOs.

FISCAL YEAR GOALS – 2022/23 and 2023/24
 Expand parking enforcement profile into neighborhoods  Convert a police vehicle into a parking enforcement vehicle  Implement bike patrol for PEOs
 Utilize volunteers as parking ambassadors throughout the Village 60 71
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ANIMAL SERVICES
POLICE

DEPARTMENT PURPOSE
The Animal Services Unit (ASU) promotes and protects public safety and animal care through sheltering, pet placement programs, education, and animal law enforcement. Our purpose is to provide responsive, efficient, and quality animal control services that preserve and protect the public and promote animal safety.
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PUBLIC WORKS SUMMARY

PUBLIC WORKS

MISSION STATEMENT
The Public Works Department’s mission is to provide a broad base of essential services and infrastructure to the community’s residents, businesses, and visitors.

DEPARTMENT PURPOSE
The Public Works Department is composed of two division: Operations which has responsibilities for maintaining streets, parks, facilities, including Capitola Wharf, and the city fleet and equipment. Engineering and Administration is responsible for implementing a Capital Improvement Program, budgeting, permitting and overall administration of programs for the Department. including stormwater pollution prevention and pavement management.

KEY CHANGES
Operationally the department continued to function as always. Two new maintenance workers were hired to fill vacancies.

FISCAL YEAR ACCOMPLISHMENTS – 2021-22
 Completed construction of new library building
 Started construction of traffic signal control system on 41st Avenue  Completed Phase 1 of the wharf improvement projects
 Completed repairs to Rispin-Peery ped/bike bridge
 Completed road repair project and began resurfacing phase FISCAL YEAR GOALS – 2022-23 and 2023-24

PUBLIC IMPROVEMENT
 Award construction contract for the Wharf Rehabilitation Project  Prepare a detailed 5-year Pavement Management program  Complete improvements on Clares Street
 Complete Rispin Park Improvements
 Continue to move funded CIP projects toward completion 62 73
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STREETS

PUBLIC WORKS

MISSION STATEMENT
The Public Works Street Department combines administration, engineering, and maintenance activities into a cohesive unit to develop and maintain a responsive and coordinated team. The Department goals are to serve the public while developing employee growth and development. New and old technologies are used to best achieve outstanding results.

DEPARTMENT PURPOSE
The Street Department provides for maintenance and improvement of the City’s streets. It also provides maintenance of Soquel Creek, Capitola Lagoon, City owned buildings and the municipal wharf. Project design and construction, pavement program management, and transportation and related grant oversight is also performed by this department. Public Works staffs the Commission on the Environment.
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STORMWATER

PUBLIC WORKS

MISSION STATEMENT
The Public Works Stormwater Pollution Prevention and Protection Program implements regulations and inspections to control the discharge of pollutants into the stormwater system, sensitive creek habitats, and the Monterey Bay.

DIVISION PURPOSE
The Stormwater Pollution Prevention and Protection Program ensures compliance with the provisions of the California State Water Resources Control Board’s National Pollution and Discharge Elimination System(NPDES) General Permit.
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FACILITIES

PUBLIC WORKS

MISSION STATEMENT
The Public Works Facilities Department strives to improve and maintain existing City owned buildings and other facilities in such a way as to maximize the benefit to both the public and City staff.

DEPARTMENT PURPOSE
Maintenance and operation of all City owned buildings, including City Hall, Jade Street Community Center, Corporation Yard, and the Municipal Wharf.
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FLEET

PUBLIC WORKS

MISSION STATEMENT
The Public Works Fleet Department maintains all mobile equipment for the City in the safest operating condition possible while striving to minimize repair times and costs.

DEPARTMENT PURPOSE
This Department services all City vehicles, equipment, purchases fuel, and maintains a parts inventory. 67 78
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PARKS

PUBLIC WORKS

MISSION STATEMENT
The Public Works Parks Department is committed to developing and maintaining City parks and other landscaped areas so that all members of our community can enjoy these jewels. Using professional staff and technologies to maintain top rated playing surfaces, beautiful landscaping and safe facilities are top priorities for this department.

DEPARTMENT PURPOSE
To maintain City parks and landscaped areas throughout the City in a safe manner while conserving water and other resources.

KEY CHANGES
Maintaining the status quo.
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COMMUNITY DEVELOPMENT

COMMUNITY DEVELOPMENT

MISSION STATEMENT
The Community Development Department (CDD) promotes safe and orderly development which provides economic vitality while preserving Capitola’s unique cultural and historic character. The Department is dedicated to providing responsive, high-quality services and programs which enhance the quality of life for the City’s residents, businesses, and visitors.

DEPARTMENT PURPOSE
The CDD administers the City's land use policies and standards adopted by the City Council including the General Plan, Local Coastal Program, zoning ordinance, and other regulations. The Department’s key functions include review of land development applications, application of the California Environmental Quality Act, maintenance of the General Plan, Housing Element, Local Coastal Program, building plan check and inspection services, building and zoning code compliance, ordinance and policy development, and implementation of affordable housing and CDBG programs. The Department provides staff support to the City Council, Planning Commission, and the Design and Development Review Committee.

KEY CHANGES
During the past fiscal year, the department hired a Development Service Technician. In response to the coronavirus epidemic, this position was frozen since 2020. The Development Service Technician assists the building department and provide administrative services for the City’s housing program.

Also, the Senior Planner and Building Inspector vacancies was filled.

FISCAL YEAR ACCOMPLISHMENTS – FY 2021-22 Highlights
 Continued to Administer the Covid-19 Temporary Use Permits for outdoor dining.  Administered CARES act relief to local non-profits and rental relief to small businesses.  Drafted a permanent outdoor dining ordinance to allow dining in the Village within 25 public parking spaces and on sidewalks.
 Launched the SB2 grant scope to accelerate housing production through objective planning standards and preapproved prototype Accessory Dwelling Units (ADU).  Completed the LEAP grant scope to update the City’s Inclusionary Housing Ordinance and complete a Nexus Study for affordable housing impact fees.  Participated on Regional Bikeshare Selection Committee and Contract Implementation.  127 planning permit applications submitted, July 1, 2021, through April 19, 2022.  Issued 337 building permits/total valuation of just over $9 million, July 1, 2021 through April 19, 2022.

FISCAL YEAR GOALS – 2022-23 and 2023-24
 Guide application for hotel at 720 Hill Street from entitlement permits through construction.  Continue to work with the mall owner on redevelopment of the Capitola Mall.  Continue to administer CARES act relief to local non-profit organization.  Administer 2021 CDBG Grant funding for local non-profit food assistance.  Launch outdoor dining program for eating and drinking establishments in the Central Village.  Certify SB9 Ordinance within the Coastal Zone
 Certify Objective Standards for Multifamily Residential Ordinance in the Coastal Zone.  Launch 6th Cycle Housing Element Update.
 Launch Regional Bikeshare Program.
 Seek grant opportunities to advance affordable housing goals and protect existing stock.  Provide training opportunities for all staff to encourage growth, job satisfaction, and longevity. 69 80
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RECREATION

CULTURE & LEISURE

MISSION
The City of Capitola Recreation Division’s mission is to enhance recreation, healthy lifestyles, and quality of life for Capitola and the surrounding neighbors through affordable and fun activities and opportunities.

The division has a commitment to excellence, safety and continually strives to improve its programs, procedures, and services, to best meet the needs and interests of the community.

DEPARTMENT PURPOSE
The Recreation Division manages recreation and leisure services offered to residents of Capitola and the broader community as well as the Lifeguard Program which protects swimmers, surfers, and waders in the Capitola Beach area during the summer months and the surrounding weekends. These services include and City-staffed programs such as Junior Lifeguards, Camp Capitola, and Adult Sports Leagues, as well as over 500 classes offered by contracted instructors. The department also manages the Capitola Community Center, Jade Street Park, and Monterey Park.

Camp Capitola and Junior Guards have enrollment of over 1,500 children annually. The Recreation Division receives an additional 3,000 class enrollments throughout the year. The division represents the City through Lifeguards at the beach, programs offered, class instructors selected, seasonal youth hired and trained, and condition of facilities. The Recreation Program provides job training for young people through the Junior Lifeguard Captains Corps and Camp Capitola Junior Leader Program.

KEY CHANGES
The City added a Recreation Coordinator, who will oversee the operation of the newly developed Lifeguard Program along with recreation programs, Junior Lifeguard and Sports. Funds from the Lifeguard Services contract have been redirected toward the development of the Capitola Lifeguard Program and adjustments made to the Junior Guard seasonal staffing fiscally support this change.

Lifeguard services had been contracted to the City of Santa Cruz Fire Department Marine Safety Division since May 2012. The City will continue to contract with Central Fire District during this transition.

FISCAL YEAR ACCOMPLISHMENTS – 2021/22
 Negotiated a 2-year extension with SCFD to provide lifeguard services through October 2022.  Contracted with Central Fire District to provide testing and training services that meet or exceed USLA standard thought June 2022.
 In partnership with SUESD provided “Afterschool Rec Club at New Brighton Middle School” and expanded to elementary students providing transportation from Soquel and Main St Elementary.  Brought back in-person Adult & Youth Classes at the Community Center which ceased due to the pandemic.
 Capitola’s Food Truck Fridays in Monterey Park.
 Winter Movie Series at the Community Center, which incorporated a Halloween Event and Costume Contest in partnership with Capitola-Soquel Chamber of Commerce.

FISCAL YEAR GOALS – 2022/23
 Continue to work with other departments and agencies to improve beach safety.  Continue the development of a City operated Lifeguard program in collaboration with agency partners, Central Fire District and Santa Cruz Fire Department.  Take necessary steps with Central Fire District to become a USLA Certified Agency.  Expand Camp Capitola age limits and provide “Lil’ Campers” offered to 4 & 5 year old’s.  Update operational policies to improve Junior Guard/Lifeguard staff recruitment and retention.  Further develop county recreation agency partnerships to provide regional programs, Park Rx, Family Camp and other programs.
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MUSEUM

CULTURE & LEISURE

MISSION
The Capitola Historical Museum preserves and promotes the history of Capitola through creating exhibitions, maintaining a collection of historic photographs and artifacts, conducting oral histories, and participating in special events.

DEPARTMENT PURPOSE
To promote, through the establishment and maintenance of a museum and allied projects, a program that will bring a better understanding and appreciation by the Capitola community of its history, architecture, culture, technology, and its creative and natural environments.

FISCAL YEAR ACCOMPLISHMENTS – 2021/22
 Continued the exhibition “Capitola – Then & Now” until December 2021  Installed exhibition “Perspectives – Capitola in the Eye of the Beholder” and hosted reception.  Included new painting by local artist Ann Thiermann depicting Indigenous people fishing and foraging for sea life at Capitola Beach and Lagoon in new exhibit.  Published three issues of the museum’s newsletter, Capitola Sunset  Provided weekly historic images and captions for the Santa Cruz Sentinel’s “Focal Point” feature and began participation of other local history museums in the feature.  Created a “Museum Collections” section of the Museum website including posting 360-degree images of some artifacts
 Upgraded and improved museum physical storage space
 Began rotating exhibits at the Capitola Library
 Formalized the Museum’s Image Reproduction and Research Policy  Continued to write articles on museum activities for local newspapers  Continued to give Capitola history lectures for special Zoom sessions and participated in on and off-site events with display tables
 Co-hosted 2022 Museum Advocacy Day event for Santa Cruz County  Posted regularly to the Capitola Museum Facebook page and updated Museum website  Completed the transcription of Helen Benbow letters
 Updated the Volunteer brochure and continued to outreach for new volunteers. Created training video for current exhibit.

FISCAL YEAR GOALS - 2022/23
 Develop and install a new annual exhibition
 Continue to improve community outreach to increase number of Museum volunteers  Continue providing Capitola history lectures and participate in on and off-site special events  Start new costumed history walks
 Create accession files and catalog new collection artifacts  Initiate a volunteer project to identify historic photographs  Continue to install rotating exhibits at the Capitola Library  Continue to post regularly to the Capitola Museum Facebook page and Museum website  Add interviews to the Capitola Memories Project and other content to the YouTube channel  Initiate contact with local school systems to begin developing school programs  75th Anniversary of City Incorporation in 2024
 100th Anniversary of Venetians in 2024
 150th Anniversary of Camp Capitola in 2024
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ART & CULTURE

CULTURE & LEISURE

MISSION
The mission of the Art & Cultural Commission is to foster, assist, and plan events for the City of Capitola and its residents to enhance the community’s cultural fabric, support local artists, create an interesting environment for art and cultural growth, and allow residents and visitors to experience local flavor.

DEPARTMENT PURPOSE
The first Arts Commission was created in 1984. The commission was reorganized by Ordinance #851 effective May 10, 2003 under the new title of Art & Cultural Commission. With the adopted Arts & Cultural Master Plan, the Commission develops and reviews Public Art projects and creates opportunities for a variety of art and cultural experiences for City Council approval. The Commission continues to off-set nearly 50% of its budget by obtaining sponsors for the events.

FISCAL YEAR ACCOMPLISHMENTS – 2021/22
 Summer Twilight Concerts at Esplanade Park returned after year off.  Capitola Plein Air Event largest ever.
 Changed sponsorship program from event specific to entire summer program.  Recommended public art project to the City Council.

FISCAL YEAR GOALS - 2022/23 and 2023/24
 Return to full summer event schedule.
 Continue to look at public art opportunities.
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INTERNAL SERVICE FUNDS

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INTERNAL SERVICE FUNDS
Stores (City Manager): The Stores Fund accounts for general supplies, postage, and rental of office equipment.

Information Technology (City Manager): The Information Technology Fund provides funding for replacement and upgrade of the existing computer network. The number of personal computers, laptops, printers, and servers each department uses forms the basis for department allocations.

Equipment Replacement (Public Works): The Equipment Replacement Fund provides funding for the replacement of city vehicles, including passenger cars, parks maintenance vehicles, police vehicles and other specialty vehicles. Departments contribute to this replacement fund based on the depreciation expense of existing vehicles. This fund also receives the revenue received from the sale, or trade-in, of surplus vehicles.

Self-Insurance Liability (City Manager): The Self-Insurance Liability Fund collects funding from departments to pay for self-insured liability and property protection insurance premiums provided through the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority.

Workers’ Compensation (City Manager): The Workers’ Compensation Fund collects funding from departments to pay for Workers’ Compensation coverage through the MBASIA.

Compensated Absences (Finance): The Compensated Absences Fund accumulates money to pay future employee benefit costs, such as vacation and sick leave payouts, at termination or retirement.

The City Council sets the policy to ensure the City can fulfill future obligations. 77 88
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STORES FUND
The Stores Fund accounts for general supplies and postage. This also includes the rental of the postage machine and the repair and maintenance of shared office equipment. 78 89
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INFORMATION TECHNOLOGY FUND
The Information Technology Fund collects and designates funds for the future replacement of citywide hardware and software. Annual on-going information technology costs are allocated based on the distribution of resources.

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EQUIPMENT REPLACEMENT FUND
The Equipment Replacement Fund is designed to provide funding for replacement of City vehicles, including passenger cars, maintenance vehicles, police vehicles and other specialty vehicles.

Departments contribute to this replacement fund based on the depreciation costs of existing vehicles.

This fund receives revenue from trade-ins and surplus equipment sales. The General Fund charges for services based on the prior year fleet depreciation costs adjusted by the CPI index.

During the annual budget process, the Public Works and the Police Department review the current vehicle inventory listing and make recommendations for vehicle acquisitions and replacements, considering on-going maintenance costs. In FY 13/14, $198,730 was transferred from the General Fund to assist in restoring the Equipment Fund’s balance and to purchase a street sweeper. Typically, new street sweepers are financed with gas tax revenues. However, to achieve interest savings and maintain the City’s debt ratio, the General Fund purchased the equipment. The operating lease with the Gas Tax Fund covers the cost of the street sweeper.

FY 2022-23 CAPITAL OUTLAY
Lifeguard Tower - Recreation $ 45,000
Motorcycle - PD 42,000
Speed Sign - PD 18,000
$ 105,000
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SELF-INSURANCE LIABILITY FUND
The Self-Insurance Liability Fund accumulates funds for deductible expenditures and excess incidents above the City’s liability coverage. The fund pays for the following expenses:
 Excess Insurance Premiums - The City belongs to the Monterey Bay Area Self Insurance Authority (MBASIA) joint powers authority. MBASIA covers all liability expenses, fire, property protection, and general liability claims up to $10,000 per occurrence.  Property Insurance – The City receives property insurance through the Public Entity Property Insurance Program and is insured by Lexington. The City’s premium is $20,000.  Vehicle and Equipment Insurance Coverage - Coverage for vehicles and equipment with a purchase value of $25,000 or more. The annual premium is $4,000 with a $2,000 deductible.  Unemployment Insurance - The California Employment Development Department (EDD) defines the City as a “State Unemployment Insurance Reimbursement Client”. The City does not pay unemployment insurance premiums to the State. When an employee files for and receives unemployment benefits from the State, the City is responsible for that benefit.

Charges for services are allocated to each General Fund department based on their percent of the total operating budget from the prior fiscal year less the budget for unanticipated events. 81 92
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WORKERS’ COMPENSATION FUND
The Workers’ Compensation Fund satisfies the requirements of Capitola municipal code section

3.24.030, which states, “The City Manager and City Treasurer shall establish a reserve fund for purposes of paying future workers’ compensation claims and shall, hereafter, make such annual deposits into that fund as the city is advised are actually necessary to provide a suitable reserve”. This program also covers City volunteers.

The City belongs to a Joint Powers Authority (JPA), Monterey Bay Area Self Insurance Authority, composed of several local agencies: Del Rey Oaks, Gonzales, Greenfield, Hollister, King City, Marina, Sand City, Scotts Valley and Soledad. The City retains exposure to temporary disability payments as long as the injured worker remains an employee of the City. MBASIA purchases excess coverage beyond $500,000 per occurrence up to statutory requirements.

The annual premium that is assessed to each of the participating cities in the JPA is based on three primary factors: the number of employees in each of the two major categories (Safety & Miscellaneous), the experience rate (cost incurred) of each participating agency, and debt service allocation.

When an employee files a claim, the City pays the employee’s salary portion directly from the general fund based upon the standard workers’ compensation formula, for the “temporary” claim. The formulas for employees receiving workers’ compensation are as follows:

1. Public Safety: Compensation is 100% of salary, non-taxable

2. Miscellaneous: Compensation is 2/3 of salary with a cap of $840 per week, non-taxable.

For non-safety staff, City policy allows that accruals (i.e. sick, vacation, etc.) may be used to supplement workers’ compensation payments. If the person becomes “permanently disabled” then the JPA picks up the salary portion. The JPA pays all other costs including legal and medical. While on workers’ compensation status, the safety and non-safety staff continue to accrue sick and vacation leave balances.

Distribution to General Fund Departments:

The allocation methodology for workers’ compensation charges to the General Fund Departments corresponds closely to the cost allocation method used by the JPA. The City divides employees into three classifications: Sworn, Non-Sworn and Volunteers, with cost per FTE calculated. A fund balance accommodates future premium fluctuations, deductibles and excess liability. 82 93
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COMPENSATED ABSENCES LIABILITY FUND
The Compensated Absences Liability Fund accumulates reserves to pay for employee cash-outs, such as accumulated sick leave and vacation, due to employees upon termination or retirement. The following is an itemized description of the various liabilities of this fund.

Vacation > 360 hours: An employee who has accumulated more than 360 hours (504 hours for POA) as of the last pay period in April of any year shall be paid in cash at a rate equal to 100% of his/her current hourly rate for hours exceeding 360 (504 for POA). The hourly rate includes specialty pays.

Vacation - Voluntary Cash Out: In accordance with various memoranda of understanding between the employee bargaining groups and the City of Capitola, employees may elect voluntary cash outs up to 80 hours of vacation.

Police Captain Cashable Sick Leave: Refer to contract.

Final Pay: Upon resignation, employees are eligible for vacation cash outs.

Severance Pay: The City provides the following severance payout packages:

City Manager 12 months
Police Chief 6 months
Public Works Director 4 months
Community Development Director 4 months
Finance Director 4 months

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SPECIAL REVENUE FUNDS

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SPECIAL REVENUE FUNDS
Supplemental Law Enforcement Services (Police): Funds provided by a State of California COPS grant to provide funding for Community Oriented Policing & Problem Solving (COPPS) programs.

Restricted Transient Occupancy Tax (TOT) (City Council): Capitola voters passed Measure J in 2018 increasing the TOT from 10% to 12% and restricting 0.4% for local business groups and 0.35% for early childhood and youth programming.

Road Maintenance and Rehabilitation Act (SB1) (Public Works): Funds received from the state and used for road maintenance, rehabilitation, and critical safety projects on local streets and roads.

Regional Transportation Commission (RTC) Streets (Public Works): Santa Cruz County voters passed a 0.5 percent user sales tax to fund local roads. The RTC Streets fund will be utilized to increase the City’s Street program.

Gas Tax (Public Works): Funds received from gasoline tax revenue from the state and used for new construction, maintenance, and the reconstruction of City streets.

Wharf (Public Works): Accounts for rental income generated from wharf operations and expended on operations and major repairs and improvements.

General Plan Update and Maintenance (Community Development): Funds received as General Plan Maintenance Fee to support future updates to the City’s General Plan, implementing ordinances and plans.

Green Building (Community Development): Green Building funds are solely for program management, training, publications, public educational purposes, incentive programs, materials, and supplies to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning.

Public Art (City Manager): This fund accumulates money received as public art fees to acquire works of art to be displayed in or about public places within the city.

Parking Reserve (Public Works): In 2009 the Council authorized a special reserve fund from the Village parking meters for parking-related projects.

Technology Fee (Community Development): 5% of building permit fee funds permit processing technology.

Public Education & Government Cable TV Access (City Manager): This special revenue fund accounts for PEG cable television fees. The expenditures are restricted to PEG access-related activities.

Capitola Village & Wharf Business Improvement Area (Finance): Established to generate revenue for the exclusive purpose of promoting business in the Capitola Village and Wharf Business Improvement Area.

Community Development Block Grants (Community Development): This fund accounts for active CDBG reimbursement grants that are awarded to the City on a project-by-project basis.

Community Development Block Grant Program Income (Community Development): This fund accounts for income from housing loans that are funded with Community Development Block Grant funds. Loans and interest repaid to the fund are restricted to CDBG approved uses.

Library (City Manager): The Capitola Branch Library has been planned for many years. The City began construction in the fall of 2018 and anticipates completing the project in the spring of 2020. 85 96
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HOME Program Reuse (Community Development): This fund accounts for housing loans due to the City from the recipients of previous HOME Program grants. Receipts in the Home Program Reuse Fund are restricted to affordable housing activities in accordance with the federal HOME program re-use guidelines.

Housing Trust (Community Development): City Council adopted an Inclusionary Housing Ordinance in November 2004, which created an Affordable Housing Trust Fund. It is funded from in-lieu fees, which can be used for new affordable housing and rehabilitation of existing affordable housing.

Capitola Housing Successor (Community Development): When the Capitola Redevelopment Agency dissolved, the City elected to become the Housing Successor to the former Low- and Moderate-Income Housing Fund of the RDA.
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Item 6 A.

SUPPLEMENTAL LAW ENFORCEMENT SERVICES
POLICE
The City of Capitola receives money each year from the State of California Citizens Option for Public Safety (COPS) program. The COPS program requires the funds to be for front-line law enforcement services and not supplant existing funding. These funds were used last year to fund police vehicles and equipment.

The City purchased new police vehicles in FY 2016/17, FY 2017/18, and FY 2018-19. In addition to front line equipment, in FY 2020-21 the Police Department transferred $25,000 to the Equipment Fund to pay for a portion of the Police Communications Radio Tower relocation and $65,000 to purchase new radios. 87 98
Item 6 A.

RESTRICTED TRANSIENT OCCUPANCY TAX (TOT)

CITY COUNCIL
This fund accounts for the 0.75% of restricted Transient Occupancy Tax (TOT) as approved by Capitola voters in 2018. The Restricted TOT Fund is used receive and distribute the 0.40% of restricted TOT revenues for local business groups and the 0.35% of restricted TOT revenue dedicated to early childhood and youth programming.
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Item 6 A.

ROAD MAINTENANCE & REHABILITATION ACT (SB1)

PUBLIC WORKS
This fund accounts for receipt and expenditure of revenue as provided by state law. The Road Maintenance & Rehabilitation Act Fund is primarily used to cover the expenses related to street maintenance and rehabilitation projects on City roads and streets.
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Item 6 A.

REGIONAL TRANSPORTATION COMMISSION (RTC) STREETS

PUBLIC WORKS
This fund accounts for receipts and expenditures of money received from the Santa Cruz County Regional Transportation Commission. A description of proposed projects is listed in the summary section of this budget. 90 101
Item 6 A.

GAS TAX

PUBLIC WORKS
This fund accounts for receipt and expenditure of gasoline tax revenue as provided by state law. The Gas Tax Fund is primarily used to cover the expenses related to maintenance and operation of the City’s traffic signals and streetlights. Other Gas Tax Fund programs includes street maintenance patching and striping project, street sweeper lease payments, and engineering.

The Gas Tax funds must be spent within 5 years of receipt. Future Gas Tax funds cannot be pledged for current projects with future repayment, therefor the funds can only be spent once they have been received.

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Item 6 A.

WHARF

PUBLIC WORKS
The Wharf Fund accounts for rental income generated from wharf operations and expended on operating costs as well as major repairs and improvements. The Wharf Fund accumulates these revenues in order to help meet the majority of its expenditure demands. Major repairs that tend to occur in a 3-5 year cycle require occasional general fund support in order to keep this key public facility open.

With the passage of Measure F, the City will begin to design and construct an improved wharf. The Measure F funds are accounted for in the Capital Improvement Fund (CIP). The Wharf Funds are for maintenance and repair of the current Wharf.
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Item 6 A.

GENERAL PLAN UPDATE & MAINTENANCE

COMMUNITY DEVELOPMENT
In 2002, the State Legislature passed AB 2936 to enable cities to collect fees “reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and determinations”. The General Plan Maintenance Fee is currently 0.5% of the total building valuation with a cap of $100,000 to cover the cost of a future comprehensive update of the City’s General Plan.

Valuation is calculated on a cost per square foot basis. The City of Capitola uses $200/square foot valuation for the average house, and $300/square foot for houses with increased values.

The City adopted a General Plan Update in June 2014, and a Climate Action Plan and General Plan Housing Element in 2015. Staff recently completed a comprehensive update to the Zoning Code, and which was certified by the California Coastal Commission in 2021. The adopted budget provides adequate resources to fund consultant contracts and staff time to continue these efforts.

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Item 6 A.

GREEN BUILDING

COMMUNITY DEVELOPMENT

The Green Building Ordinance (Chapter 17.10 to the Capitola Municipal Code) was adopted in May 2008 and later amended in November 2014. The Green Building Ordinance establishes the Green Building Fund, which provides funding for the administration and implementation of the Green Building program and related sustainability initiatives. The intent of the Green Building fund is to provide resources for programs and initiatives which promote environmental sustainability, resource conservation, greenhouse gas emission reductions, and solid waste reduction.

Application and Use of Funds (per City municipal code): The Capitola Green Building Regulation applies to non-residential additions and/or exterior remodels totaling 1,000 or more square feet and residential additions and/or remodels totaling 350 square feet or more. Building permits which are required to comply with the Green Building Regulations shall be assessed a fee of 0.0025 times the overall valuation of the project.

Revenues collected shall be maintained by the Finance Department as a revolving Green Building Fund and shall be used only for program management, training, publications, public educational purposes, incentive programs, materials and supplies necessary to promote sustainable development, water conservation, storm water pollution prevention, and climate action planning activities. 94 105
Item 6 A.

PUBLIC ART

CITY MANAGER
The City established a Public Arts fee in 2004. The purpose is to ensure that 2% of the cost of eligible municipal capital improvement, renovation, or restoration projects funded in whole or in part by the City of Capitola or any private, non-residential development project with a total building permit valuation of $250,000 or more is set aside for the acquisition of works of art to be displayed in or about public places within the City.

For a private development, there is an in-lieu option to contribute 1% of the total budget to the Public Art Program. As part of the program expenses, up to 20% of the art allocations may be expended on program administration, project management and community outreach activities. There will be 125 hours of the Administrative Assistant for the Art & Cultural Commission time allocated to administering projects.

Completed Art Projects
- Mural at Monte Skatepark
- Sea Lion climbable sculpture
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Item 6 A.

PARKING RESERVE

PUBLIC WORKS
In 2009, as part of a parking meter rate increase, the City Council established the Parking Reserve Fund.

Revenues deposited into this fund represent 16% of parking meter revenues from the Village area (Parking Meter Zone A1). The fund was established to fund parking improvement projects throughout the Village. 96 107
Item 6 A.

TECHNOLOGY FEE

COMMUNITY DEVELOPMENT
On November 12, 2009, the City of Capitola adopted a resolution establishing the Technology Fee. The fee is 5% of the Community Development and Public Works permit fees. The City has updated building, planning, and public works permitting software. The system better coordinates plan review activities among departments and will allow the public to inquire and search records and monitor progress of applications through the internet. The City will continue to make changes to the system in order to provide better service to the public and to improve internal processes. The zoning update process and its implementation will also benefit from the system’s data resources and enhanced reporting capabilities. 97 108
Item 6 A.

PUBLIC EDUCATION/GOVERNMENT CABLE TV ACCESS (PEG)

CITY MANAGER
This Special Revenue Fund accounts for Public, Education & Government (PEG) cable television fees. The PEG Access fee from all cable service providers is 64 cents per subscriber and is due to the City concurrent with the Franchise Fee Payments. The City is required to segregate PEG access fees and related purchases.

The funds received through PEG fees are retained by the City and utilized for capital equipment purchases in support of PEG access only. PEG channels are set aside for the following purposes:
- Public - available for use by the public
- Education - available for use by educational institutions for educational programming - Government – available for programming by local governments 98 109
Item 6 A.

CAPITOLA VILLAGE/WHARF BUSINESS IMPROVEMENT AREA (BIA)

FINANCE
In June 2005, the City of Capitola adopted Ordinance No. 889, which added Chapter 5.10 to the Capitola Municipal Code establishing the Capitola Village and Wharf Business Improvement Area (BIA). It was established to generate revenue for the sole purpose of promoting business in Capitola village and on the wharf. State law requires certain annual actions and public hearing to continue this assessment district. The program is run with the assistance of a BIA Board of Directors, which provides city council with an annual budget proposal.

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Item 6 A.

COMMUNITY DEVELOPMENT BLOCK GRANTS (CDBG)

COMMUNITY DEVELOPMENT
The Community Development Block Grant (CDBG) program is a flexible program that provides communities with resources to address a wide range of unique community development needs. The program is funded though the Federal Department of Housing and Urban Development (HUD) and Capitola participates in the competitive Small Cities Grant Program administered by the California Department of Housing and Community Development.

In recent years, the City has been awarded with CDBG grants to fund the Green Economy/Environmental Economic Analysis and 41st Avenue/Capitola Mall Re-Visioning Plan and a 2008 Disaster Recovery Initiative (DRI) grant for $250,000 to develop the City’s Local Hazard Mitigation Plan (LHMP) and Safety Element of the General Plan Update. In 2021, the City was awarded with a $497,000 CDBG grant to reinstate the City’s Housing Rehabilitation and Mortgage Assistance Programs.

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Item 6 A.

COMMUNITY DEVELOPMENT BLOCK GRANT PROGRAM INCOME

COMMUNITY DEVELOPMENT
This special revenue fund accounts for issuance and repayment of CDBG-funded housing loans made by the City to income-qualifying households. These funds are referred to as CDBG Program Income. CDBG Program Income must be used for CDBG-approved purposes. The three primary sources of CDBG Program Income are the payoff of Loma Vista Mobile Home Park resident loans, CDBG-funded First Time Homebuyer Program loans, and CDBG-funded Rehabilitation Program loans.

If the total amount of Program Income received in any fiscal year is less than $25,000, the funds received are not subject to Federal CDBG regulations. If the amount exceeds $25,000, all Program Income received during that fiscal year is restricted to CDBG-approved Federal spending guidelines. Since the FY 2019-20 Program Income exceeds $25,000, these funds will be spent according to CDBG-approved Federal spending guidelines.
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Item 6 A.

LIBRARY

CITY MANAGER
This special revenue fund accounts for revenue and expenses related to the design and construction of the new Capitola Branch Library. The former Redevelopment Agency contributed $2.6 million to the County of Santa Cruz which was held in a trust fund for the future construction of a new branch library.

The Voters of Santa Cruz County authorized the Santa Cruz Libraries Facilities Financing Authority to issue general obligation bonds in an aggregate principal amount not exceeding $67 million. The City of Capitola will receive $10.0 million from the bonds to be used towards the construction of the new branch library bringing the City’s total available funds to $12.6 million.

The City started utilizing the County Trust Fund money in FY 2016/17 to hire a project manager to oversee the development of plans and ultimately the construction of the Library. Under the trust fund agreement, the City can utilize 15 percent of the funds for pre-construction activities.

The City began construction of the new Library in November 2018 and celebrated their grand opening on June 12, 2021.
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Item 6 A.

HOME PROGRAM REUSE

COMMUNITY DEVELOPMENT
This special revenue fund accounts for revenue from the repayment of Federal Home Investments Partnership Program (HOME) loans. Expenditures in this fund must be used for affordable housing activities in accordance with the Federal HOME Program Reuse Guidelines, including first-time homebuyer loans, owner-occupied rehabilitation projects, and affordable housing assistance projects. As loans are paid off, those funds are returned to the Home Program Reuse Fund and become available for affordable housing activities.

Annual revenue of $12,300 represents principal and interest payments on the 30-year $238,000 Wharf Road Manor Mobile Homeowners Association Acquisition and Rehabilitation Project loan. The funds were loaned in October 2004 with payments deferred until January 2008 after completion of on-site rehabilitation work, including hazardous material abatement and demolition of a building on site, and installation of two new mobile homes.

In January 2009, the City of Capitola entered a Standard Agreement with the California Department of Housing and Community Development for a HOME grant in the amount of $2,000,000 for rehabilitation expenses related to the 109-unit Bay Avenue Senior Apartments Project. Construction of the project was completed in May 2011. The grant was provided to First Community Housing, the Bay Avenue Senior Apartments project developer, as a residual receipts loan at 3% interest. In May 2011, the HOME program increased the grant award by $1.2 million dollars to cover additional costs related to required rent level revisions, which are lower than estimated in the original pro-forma. The grant funds have been received and dispersed.
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Item 6 A.

HOUSING TRUST

COMMUNITY DEVELOPMENT
In November 2004, the City Council adopted an inclusionary housing ordinance as part of the City’s ongoing efforts to provide affordable housing. This ordinance created the Affordable Housing Trust Fund to use as a flexible local source of funding for the creation of new affordable housing, rehabilitation of existing affordable housing, funding of local programs to assist lower and moderate-income buyers purchase affordable housing, or as leverage of local funds for larger State and Federal grants. This housing activity is funded through inlieu fees collected from development projects and do not impact the General Fund.

The Affordable Inclusionary Housing Ordinance refers to a City Municipal Code Section that requires that fifteen percent (15%) of the units in a new for-sale residential construction project be made available to low or moderate-income buyers. Condominium conversion projects are also covered under this ordinance. As outlined in the ordinance, project developers provide the affordable set-aside units or under certain conditions can -lieu fee.

The City’s Housing Trust Fund allows for up to $75,000 per year to be spent on affordable housing program administration. This includes working with developers on fee collection, administration of the Housing Trust Fund, and implementation of the Inclusionary Ordinance. 104
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Item 6 A.

CAPITOLA HOUSING SUCCESSOR

COMMUNITY DEVELOPMENT
In 2011, the California State Legislature passed ABX1 26 to dissolve redevelopment agencies. The legislation was contested and upheld by the California Supreme Court. It requires a number of actions to be taken by the city in the winding down of the RDA. Among other things, it allows cities to elect to retain the former RDA Low- and Moderate-Income Housing Fund. The Capitola City Council elected to retain the former RDA Housing with the following new city special revenue fund, the Capitola Housing Successor.

A further requirement of the legislation is establishment of a program income fund to segregate loan payoffs received by the Housing Successor after the dissolution of the Redevelopment Agency. These funds were initially restricted in their use, repayment, and reuse and the Housing Successor continues this restriction. As payments are received on loans associated with the original RDA Low- and Moderate-Income Housing Fund or the Capitola Housing Successor it will be applied to the Capitola Housing Successor.

Newly implemented SB341 requires annual reporting on the Housing Successor Assets to be included with the Annual Financial Statements and the Housing and Community Development (HCD) Annual Progress Report on the Housing Element of the General Plan.
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Item 6 A.

RESERVES
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Item 6 A.

RESERVES
Emergency Reserves (Finance Department): The City Council established the Emergency Reserve Fund to accumulate funds to meet future unanticipated needs. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the required level of emergency reserves from five to ten percent of operating expenditures.

Contingency Reserve (Finance Department): The City Council established the Contingency Reserve Fund to accumulate a prudent level of financial resources to protect the City against temporary revenue shortfalls or unanticipated operating costs, and/or to meet short-term cash flow requirements. The City of Capitola Administrative Policy III-3, Financial Management Policy, amended on February 28, 2013, to increase the level of contingency reserves from 10 to 15 percent of operating expenditures.

PERS Contingency Reserve (Finance Department): The City Council established the PERS Contingency Reserve Fund in FY 2015/16. The Council discussed possible uses of a General Fund positive ending balance and wanted to set aside funds for future PERS increases. In FY 2017-18 an additional $500,000 was deposited into the Trust to add to the original $300,000 deposit.

Facilities Reserve (Finance Department): The City Council established the Facilities Reserve Fund to serve as a resource to fund capital improvements and major repairs on City facilities. Based on the National Research Council Stewardship of Federal Facility guidelines, the City’s goal is to provide annual contributions equal to two percent of the facility replacement values. This annual contribution will be determined each budget year.

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Item 6 A.

EMERGENCY RESERVES
The City of Capitola adopted an Emergency Reserve Policy as part of the City’s Financial Management Policies. This reserve protects against significant one-time costs that arise from major unpredictable emergency events. In FY 2012/13, the City amended the Financial Management Policies to increase the funding level of Emergency Reserves from five to ten percent of the General Fund budgeted expenditures, or approximately $1.5 million in FY 2021-22.

The Emergency Reserve fund was nearly depleted in March of 2011 due to an underground storm drain failure that flooded Capitola Village and the surrounding area. The City was required to recognize a $1.4 million extraordinary loss on the FY 2010/11 and FY 2011/12 financial statements. An additional $200,000 was needed to fund a related retaining wall project. In FY 2012/13, a settlement was reached with the City’s insurance carrier to pay $1.35 million in damages to the City.

The March 2011 pipe failure repairs were paid from the City’s Emergency Reserve Fund. As funding in the Emergency Reserve Fund fell short of the flood-related costs, additional funding to respond to the flood event was provided through interfund loans from the Contingency Reserve Fund and Capital Improvement Fund. In FY 2011/12, the Emergency Reserve Fund balance was $410,000 lower than the targeted balance. In FY 2012/13, funds were transferred from the internal service funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing the reserves.

In FY 2014/15 and FY 2015/16, $465,100 and $213,000, respectively, were budgeted for transfer to the fund to prepare for any unforeseeable emergencies and to meet the new Emergency Reserve targeted levels. As the chart below shows, the reserve balance is currently below the target level for FY 2022-23 in part due to the transfer of $60,000 for the Noble Gulch Park emergency storm drain repair. The other factor is that budgeted expenditures are higher in the proposed budget due to the utilization of existing fund balance, staff is proposing a level approach to return the balance to the target level by the end of FY 2023-24.
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Item 6 A.

CONTINGENCY RESERVES
The City of Capitola adopted a Contingency Reserve Policy as part of the City’s Financial Management Policies. This reserve was established to provide a prudent level of financial resources to protect against temporary revenue shortfalls, unanticipated operating costs, and/or to meet short-term cash flow requirements. In FY 2012/13, the City amended the Financial Management Policies to increase the Contingency Reserve target from 10 to 15 percent of General Fund budgeted expenditures, or approximately $2.25 million in FY 2021-22.

Due to the expenses associated with the March 2011 pipe failure, a loan was made from the Contingency Reserves Fund to the Emergency Reserves Fund. As a result, Contingency Reserves were $727,000 below their Financial Management Policy funding goal in FY 2011/12. In FY 2012/13, funds were transferred from the Internal Service Funds, Measure O revenue receipts, and the General Fund operating balance to assist in replenishing and building the reserves.

In FY 2014/15 and FY 2015/16, a total of $182,600 and $89,400 were transferred to the fund to meet the new Contingency Reserve targeted levels. As the chart below shows, the reserve balance is currently below the target level for FY 2022-23 due to the utilization of existing fund balance, staff is proposing a level approach to return the balance to the target level by the end of FY 2023-24. 109
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Item 6 A.

PERS CONTINGENCY RESERVES
The City of Capitola established a PERS Contingency Reserve as part of the FY 2015/16 Budget process. The fund was setup to help stabilize the City’s finances and help manage future increases in PERS contributions.

The PERS Contingency Fund initially funded with a $300,000 transfer from the General Fund. The $300,000 allows for two years of PERS projected increases and time to evaluate options to address the larger unfunded liability and yearly obligations
In December 2016, $300,000 was invested in a moderately conservative trust fund with Public Agency Retirement Services (PARS). The FY 17/18 budget transferred an additional $500,000 into the PERS trust fund to offset rising pension costs. During the FY 2022-23 goal setting session the City Council allocated $500,000 of existing fund balance to the PERS Trust reserve. 110
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Item 6 A.

FACILITIES RESERVES
The Facilities Reserve Fund was established in FY 2014/15 to serve as a resource to fund capital improvements and major repairs on City facilities. The National Research Council Stewardship of Federal Facilities recommends setting aside two to four percent of building replacement costs to preserve or extend the life of facilities. The estimated replacement value of the City’s facilities is $17.5 million.

The Facilities Reserve is used to fund future facility needs of the City. The Proposed FY 2022-23 Budget does not provide any funding to the facility reserve; however, it should be noted that proposed budget does include $450,000 of funding from the City Council goal setting session which has been budgeted for projects directly in the respective facility budgets within the Public Works department. 111
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Item 6 A.

MULTI-YEAR ASSETS & OBLIGATIONS

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Item 6 A.

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Item 6 A.

MULTI-YEAR ASSETS & OBLIGATIONS
City & Joint Powers Authority (JPA) Multi-Year Obligations: The City of Capitola has six multiyear obligations, two of which are part of a Joint Powers Authority. The obligations are paid from various funding sources.

Pacific Cove Lease Financing: In March 2011, a pipe failure flooded the City-owned Pacific Cove Mobile Home Park. The City of Capitola entered into a $2,390,000 lease/sublease agreement to finance the relocation of mobile home residents and close the park.

Beach and Village Parking Lot II: The City of Capitola initiated a $1,372,500 California Infrastructure and Economic Development Bank (I-Bank) loan to fund the development of a parking lot and related improvements at the site of the former Pacific Cove Mobile Home Park. 114
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Item 6 A.

CITY/JOINT POWERS AUTHORITY MULTI-YEAR ASSETS & OBLIGATIONS

GENERAL GOVERNMENT
The City of Capitola has seven multi-year obligations, three of which are part of a Joint Powers Authority. The obligations are paid from various funding sources. All obligations are shown in the budgets of the applicable funds and all payments are current.

Current employee
compensated absences (a) $ Accrual Ongoing 983,076 On-going. No interest due. (Refer to Compensated Absence Fund)
Net Pension Liability 28,040,165 $ Actuarial N/A Pension Liability to CalPERS.

Pacific Cove Lease
Financing $ 817,830 Financing
Lease 20 years
$2,390,000 loan - 20 year term beginning 9/2012,

3.25% fixed rate through 10 years, then resets to 10
Yr. T-Bill + 1.5%.

Beach & Village Parking Lot II
Lease Financing $ 895,732 Tax Exempt
Lease 20 years $1,372,500 I-Bank loan - 20 year term beginning FY 2013/14, 2.26% interest.

Total City Multi-Year
Obligation $ 30,736,803
Santa Cruz Consolidated
Emergency Communications
Center (SCCECC) JPA Bond
$ 3,965,000
JPA
membership
and paid via
premiums
22 years
In 2002, SCCECC issued $5.76 milion in lease
revenue refunding bonds, which were refinanced in
April 2012, at $3,965,000. Payments are made to
Santa Cruz Regional 911 from the Police
Department's contracts services budget. The Use
Agreement between Capitola and SCCECC is
effective through June 15, 2034.

City Multi-Year Obligations
Principal
balance
June 30, 2022
Form of
payment
Original
Obligation Other Terms
(a) Compensated absenses and Net Pension Liability are as of June 30, 2021.

JPA Bond Obligations
Original
Principal
Form of
payment
Original
Obligation Other Terms
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Item 6 A.

PACIFIC COVE LEASE FINANCING

DEBT SERVICE
The City of Capitola owns 426 Capitola Avenue, which formerly housed the 41 mobile home Pacific Cove Mobile Home Park. On March 24, 2011, a 72” storm drain that carries Noble Gulch Creek water from Bay Avenue to Soquel Creek catastrophically failed following a heavy rain storm. This resulted in flooding of the Pacific Cove Mobile Home Park, City Hall and village residences and businesses.

The initial estimate to bring the park up to code was $1.33 million. Due to the high cost and potential for future liability, Capitola City Council approved a Relocation Impact Report (RIR) for the closure of Pacific Cove Mobile Home Park in January 2012. The RIR provided a cost estimate for relocating residents and professional relocation consultants to help displaced residents find suitable replacement housing. The City executed a $2.39 million lease/sublease agreement using the existing City Hall site and adjacent upper parking lot as the pledged property. The City verified income status as part of the relocation process and determined that a percentage of Housing Trust Fund monies could be used to repay the debt service at a proportion no greater than the number of low income mobile home occupants that were relocated. The funding sources for debt service payments will be determined annually. Any General Fund monies for the share of allowable costs from other funding sources may be reimbursed in subsequent years as funds become available.

At the time the loan was issued, there was some uncertainty as to whether the property would be developed for public or private use. This resulted in the City entering into a 20–year taxable lease/sublease agreement at an interest rate of 5.14%. In FY 12/13, the City determined that the site would be converted to a public parking lot, now named Beach & Village Parking Lot II (BVPL II). This public use allows the City to refinance the existing debt at a 3.25% tax-exempt interest rate with a 10- year Treasury Bill reset + 1.5% in year 10. As a result of the refinancing, annual loan payments were reduced by approximately $28,000, with an estimated nine-year interest savings of approximately $350,000. In FY 12/13 the City reached a $1.35 million insurance settlement related to the pipe failure. This resulted in a principal reduction of $476,200, with a prepayment penalty of $23,800. 116
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Item 6 A.

Payment
Date Principal
Interest
/Prepmt
penalty Total Fiscal Year
9/1/2012 30,815 $ 53,893$ 84,708$
3/1/2013 35,871 60,632 96,503
6/28/2013 476,200 23,810 500,010 $ 681,221
9/1/2013 42,440 22,843 65,283
3/1/2014 53,207 29,326 82,533 147,816
9/1/2014 46,196 36,337 82,533
3/1/2015 46,947 35,586 82,533 165,066
9/1/2015 47,710 34,823 82,533
3/1/2016 48,485 34,048 82,533 165,066
9/1/2016 49,273 33,260 82,533
3/1/2017 50,074 32,459 82,533 165,066
9/1/2017 50,887 31,645 82,533
3/1/2018 51,714 30,819 82,533 165,066
9/1/2018 52,555 29,978 82,533
3/1/2019 53,409 29,124 82,533 165,066
9/1/2019 54,277 28,256 82,533
3/1/2020 55,159 27,374 82,533 165,066
9/1/2020 56,055 26,478 82,533
3/1/2021 56,966 25,567 82,533 165,066
9/1/2021 57,891 24,641 82,533
3/1/2022 58,832 23,701 82,533 165,066
9/1/2022 59,788 22,745 82,533
3/1/2023 60,7 60 21,773 82,533 165,066
9/1/2023 61,747 20,786 82,533
3/1/2024 62,751 19,782 82,533 165,066
9/1/2024 63,770 18,763 82,533
3/1/2025 64,807 17,726 82,533 165,066
9/1/2025 65,860 16,673 82,533
3/1/2026 66,930 15,603 82,533 165,066
9/1/2026 68,017 14,515 82,533
3/1/2027 69,123 13,410 82,533 165,066
9/1/2027 70,246 12,287 82,533
3/1/2028 71,387 11,145 82,533 165,066
9/1/2028 72,548 9,985 82,533
3/1/2029 57,304 7,887 65,191 147,724
9/1/2029 - - -
3/1/2030 - - - -
9/1/2030 - - -
3/1/2031 - - - -
9/1/2031 - - -
3/1/2032 - - - -
TOTAL 2,390,000 $ 897,681$ 3,287,681$ $ 3,287,681
Pacific Cove Financing Lease Debt Service
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Item 6 A.

BEACH & VILLAGE PARKING II – LEASE FINANCING

DEBT SERVICE
In April 2013, the City of Capitola received $1,372,000 in funding from the California Infrastructure and Economic Development Bank (I-Bank) for development of a parking lot on the former Pacific Cove Mobile Home Park site. The funding was used to create the 226 space Beach & Village Parking Lot II. The project included grading, pay station installation, shuttle bus stops, landscaping, pedestrian walkways, and pay stations for the upper parking lot. The I-Bank loan is 2.26% tax exempt reimbursement financing.

This project improved parking capacity for Capitola Village, Capitola Beach, and Capitola Wharf, and is especially helpful during peak seasons. The additional parking spaces are also anticipated to facilitate the development of a hotel. The parking lot contributes about $44,000 annual revenue to the General Fund and the I-Bank annual debt service of $88,616 is paid with funds transferred from the General Fund.
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Item 6 A.

Payment
Dates Principal Interest Total
Fiscal
Year
8/1/2014 55,040 $ 15,922 70,962
2/1/2015 14,887 14,887 $ 85,849
8/1/2015 56,284 18,840 75,124
2/1/2016 14,251 14,251 89,375
8/1/2016 57,556 18,035 75,591
2/1/2017 13,601 13,601 89,192
8/1/2017 58,857 17,212 76,069
2/1/2018 12,936 12,936 89,004
8/1/2018 60,187 16,370 76,557
2/1/2019 12,256 12,256 88,812
8/1/2019 61,547 15,509 77,056
2/1/2020 11,560 11,560 88,616
8/1/2020 62,938 14,629 77,567
2/1/2021 10,849 10,849 88,416
8/1/2021 64,360 13,729 78,089
2/1/2022 10,122 10,122 88,211
8/1/2022 65,815 12,809 78,624
2/1/2023 9,378 9,378 88,002
8/1/2023 67,302 11,868 79,170
2/1/2024 8,618 8,618 87,788
8/1/2024 68,823 10,905 79,728
2/1/2025 7,840 7,840 87,568
8/1/2025 70,379 9,921 80,300
2/1/2026 7,045 7,045 87,344
8/1/2026 71,969 8,915 80,884
2/1/2027 6,231 6,231 87,116
8/1/2027 73,596 7,886 81,482
2/1/2028 5,400 5,400 86,881
8/1/2028 75,259 6,833 82,092
2/1/2029 4,549 4,549 86,641
8/1/2029 76,960 5,757 82,717
2/1/2030 3,680 3,680 86,396
8/1/2030 78,699 4,657 83,356
2/1/2031 2,790 2,790 86,146
8/1/2031 80,478 3,531 84,009
2/1/2032 1,881 1,881 85,890
8/1/2032 82,297 2,380 84,677
2/1/2033 951 951 85,627
8/1/2033 84,156 1,204 85,360 85,360
Total $ 375,736 1,372,500 $ 1,748,236 $ 1,748,236 $
Beach & Village Parking Lot II Lease Financing
Debt Service
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Item 6 A.

SUCCESSOR AGENCY

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Item 6 A.

SUCCESSOR AGENCY

CAPITOLA OVERSIGHT BOARD
California Redevelopment Agencies were dissolved February 1, 2012. The City of Capitola elected to become the Successor Agency of the former Capitola Redevelopment Agency and oversee the winding down of its obligations. The full obligations of the Successor Agency were approved by the California State Department of Finance (DOF), the State Controller’s Office (SCO), and the Santa Cruz County AuditorController’s Office. Subsequent actions of the Successor Agency in paying these obligations are reviewed, approved, and audited by each these agencies, as well as by a representative seven-member Oversight Board. Payments are authorized through Recognized Obligation Payment Schedules (ROPS) and paid for with allocations of property tax proceeds. The DOF, SCO, and County Auditor-Controller audit each ROPS submission, prior period reconciliation, and Redevelopment Property Tax Trust Fund (RPTTF) cash flow and balance.

FISCAL YEAR GOALS – 2022-23

FISCAL POLICY
 Wind down Successor Agency obligations in an expedient manner  Submit Final ROPS to California Department of Finance 121
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Item 6 A.