CITY COUNCIL STAFF REPORT
May 7, 2024 {{section.number}}b
MULTI-YEAR GENERAL FUND FINANCIAL FORECAST THROUGH FISCAL YEAR 2028-29
AND LONG-TERM CAPITAL PROJECT PLANNING
RECOMMENDATION:
Receive Multi-Year General Fund Financial Forecast through Fiscal Year 2028-29 and summary of Long-Term Capital Project Planning efforts, and provide direction as appropriate.
BACKGROUND:
As part of the FY 2024-25 Budget preparation, staff develops a multi-year financial projection of the General Fund, which is presented in advance of the draft Budget release. This forecast identifies financial trends and risks, assesses the likelihood that services can be sustained at current levels, estimates the level at which capital expenditures/investments can be made, and identifies future commitments and resource demands. The financial projections also provide an opportunity to discuss key variables that impact revenue and expenditures.
The City also has in process numerous long-term capital projects valued at $3 million or more, such as the Cays Park Master Plan, Winn Room Renovation Project and remodel of both fire stations. These projects are forecast to be completed within the next ten years. Their significant cumulative costs warrant a broader discussion of funding strategies.
All projects will be included in the draft Fiscal Year 2024-25 Five-Year Capital Improvement Budget (CIP) that will be presented to City Council on May 21, 2024.
ANALYSIS:
Long-Range General Fund Financial Forecast
Staff is forecasting the General Fund revenues, expenditures, and ending balances through FY 2028-29 using historical data and projected future trends. This forecast is contained in the following analysis. The analysis shows a summary of financial information with current and projected revenues, operating expenditures, and transfers for each of the next five fiscal years.
Recent trends in property taxes, sales taxes, transient occupancy taxes, and other revenues have been recognized for the upcoming fiscal years. The discussion below includes the basic approach for developing projections for the upcoming fiscal years.
General Fund Revenue Projections
Total Revenues are projected to increase from $70.2 million in FY 2023-24 to $92.6 million in FY 2027-28. This average annual increase is approximately 6.4% through FY 2028-29. The revenue forecast for FY 2024-25 assumes continuing growth in property taxes with Transient Occupancy Tax (TOT) and Sales & Uses Tax remaining at the current level, primarily due to a major hotel renovation leading to a reduction in available rooms for an extended period. Nevertheless, the general trend and outlook are optimistic as the FY 2022-23 TOT revenue showed strong growth, following a full recovery from the pre-pandemic level in FY 2021-22.
Property Tax Revenue is projected to increase from the current level for FY 2023-24 of $39.7 million to $52.5 million in FY 2028-29. This projection is provided by a third-party consultant and represents an average annual increase of 6.4% per year for five years. The factors in these projections include Consumer Price Index (CPI) adjustments, estimated transfers of ownership, Proposition 8 value restoration, and new construction, among others.
Similar to TOT, Sales Tax Revenue is projected to remain level in FY 2024-25 due to a major hotel renovation, then increase by 11% in FY 2025-26 before tapering down to a more customary 2-3% in subsequent years.
Collectively, property, sales, and Transient Occupancy Taxes revenue sources represent about 89% (average over the five projected years) of General Fund Revenues.
Notable revenues from Other Sources include Use of Money & Properties, which has increased significantly since early 2022, primarily due to 11 rate hikes by the US Federal Reserve. With
ACTUAL ESTIMATED
Revenue from Taxes: 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Property (Current) 39,678,822 39,747,663 $ 43,604,820 $ 45,702,212 $ 47,845,646 $ 50,094,391 $ 52,458,846 Franchise Fees 1,304,915 1,210,000 1,260,000 1,297,800 1,336,734 1,376,836 1,418,141 Sales & Use 5,015,515 4,782,006 4,822,876 5,357,000 5,464,140 5,628,064 5,796,906 Public Safety $0.5 Sales Tax (Prop. 172) 522,144 316,000 316,000 387,000 387,000 387,000 387,000 Transient Occupancy 22,741,252 16,500,000 17,500,000 20,000,000 23,000,000 23,690,000 24,400,700 Sub-totalRevenue from Taxes 69,262,650 62,555,669 67,503,696 72,744,012 78,033,520 81,176,291 84,461,593 Revenue from Other Sources:
Licenses, Fines, Fees & Permits 436,052 313,500 315,500 324,965 334,714 344,755 355,098 Charges for Services 1,619,318 1,614,305 1,614,555 1,662,992 1,712,881 1,764,268 1,817,196 Intergovernmental & Other 3,602,743 1,102,340 592,340 1,000,000 1,500,000 2,000,000 2,500,000 Reimbursements 1,121,595 1,335,000 1,330,000 1,369,900 1,410,997 1,453,327 1,496,927 Use of Money & Property 2,913,955 3,266,526 3,067,758 2,500,000 2,000,000 2,000,000 2,000,000 Transfers In 1,000,000 - - - - - -
Sub-totalfrom Other Sources 10,693,663 7,631,671 6,920,153 6,857,857 6,958,592 7,562,350 8,169,221 Grand Total General Fund Revenue $ 79,956,312 $ 70,187,340 $ 74,423,849 $ 79,601,868 $ 84,992,112 $ 88,738,641 $ 92,630,814
GENERAL FUND REVENUE
PROJECTED
anticipation of rate cuts during 2024, the forecast reflects a tapering down of investment revenues in FY 2024-25 and subsequent years. The intergovernmental category is expected to decrease significantly in FY 2023-24, with the State and Local Fiscal Recovery Fund (SLFRF) grants completed in FY 2022-23 and COVID-19 FEMA reimbursements in FY 2023-24. The remaining revenue categories project stable CPI-based adjustments through FY 2028-29. The following table presents the growth assumptions related to projected revenues in the next five years.
General Fund Expenditure Projections
Operating expenditures for the General Fund are projected to increase by an annual average of
6.58% ($69.3 million in FY 2023-24 to $92.1 million in FY 2028-29) over the next five years.
Operating Expenditures are divided into three main categories: Personnel, Services/Supplies/Property, and Transfers from the General Fund to other Funds.
Personnel Expenditures: These costs represent the largest cost element in the General Fund (about 57.4% of operating costs). Personnel costs are expected to increase by $8.9 million to $49.0 million (an average increase of 4.5%) through FY 2028-29. These projections mostly incorporate estimates for both the represented and the self-represented groups, as the current Memorandum of Understanding with the represented groups are scheduled to expire on June 30, 2025.
2023-24 2024-25 2025-26 2026-27 2027-28 2028-29
Property Taxes 0.2% 9.7% 4.8% 4.7% 4.7% 4.7%
Franchise Fees -7.3% 4% 3.0% 3% 3% 3%
Sales & Use Taxes -4.7% 0.9% 11.1% 2.0% 3.0% 3.0%
Public Safety $0.5 Sales Tax (Prop. 172) -39.5% 0.0% 22% 0% 0% 0% Transient Occupancy Taxes -27.4% 6% 14.3% 15.0% 3.0% 3.0% Licenses, Fines, Fees & Permits -28.1% 0.6% 3% 3% 3% 3% Charges for Services -0.3% 0.0% 3.0% 3.0% 3.0% 3.0%
Intergovernmental & Other -69.4% -46.3% 68.8% 50% 33% 25% Reimbursements 19.0% 0% 3% 3% 3% 3%
Use of Money & Property 12.1% -6.1% -18.5% -20.0% 0.0% 0.0% Transfers In -100.0% 0.0% 0% 0% 0% 0%
Total General Fund Revenues -12.22% 6.04% 6.96% 6.77% 4.41% 4.39%
GENERAL FUND REVENUE GROWTH ASSUMPTIONS
ACTUAL ESTIMATED
GF Expenditures 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Personnel $ 35,956,581 $ 40,094,972 $ 42,591,584 $ 44,102,095 $ 45,677,444 $ 47,321,138 $ 49,036,913 Services & Supplies 14,435,351 17,635,885 18,951,279 19,709,330 20,300,610 20,909,628 21,536,917 Community Grants % of GF Revenue (Council
Policy #28) 1,022,886 1,015,000 1,075,000 1,114,000 1,147,000 1,154,000 1,158,000 Total Services & Supplies $ 51,414,818 $ 58,745,857 $ 62,617,863 $ 64,925,425 $ 67,125,054 $ 69,384,766 $ 71,731,831
PROJECTED
Pension costs have been one of the primary drivers of increased costs in the personnel category.
The discount rate is integral to the actuarial assumptions that calculate the required City contribution for unfunded accrued liability. For FY 2024-25, the discount rate will remain at 6.8%.
Any changes to future discount rates would significantly impact the City's pension and corresponding personnel costs and will be closely monitored.
Supplies, Services, and Community Grants Expenditures: Forecasts are primarily driven by CPI, and after hitting a 40-year high of 9.1% in June 2022, it has steadily decreased to 3.5% as of March 2024. FY 2024-25 has a conservative 5% multiplier applied to certain expenditures in this category, gradually tapering to 3% in the subsequent years. As shown below, the Community Grants are projected based on the percentage of the General Fund revenue as established under Council Policy #28.
General Fund Transfers Projections
Transfer Expenditures Accounts: As shown in the table above, this category accounts for transfers to the Sub-funds of the General Fund and other Non-General Funds. The use of separate self-balancing funds for functions such as Recreation, Community Development, Insurance, Solid Waste/Recycling, IT Equipment Replacement, and Vehicle/Equipment Replacement necessitates the use of transfer accounts (in the General Fund) in order to account for the allocation of General Fund resources to these activities.
For the Storm Drain Enterprise Fund, the staff is conducting a rate fee study for a potential future rate adjustment, which projects to decrease the dependence upon transfers from the General Fund over the next five years. The table shows the planned transfers over the next five years.
Capital Projects and Facilities Replacement: Following the budget principles and strategies, the available fund balance will be applied toward the City's General Capital Improvement Program
ACTUAL ESTIMATED
Transfers to Sub-funds of the GF 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Recreation $ 4,200,000 $ 4,200,000 $ 4,200,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 $ 4,000,000 Community Development 2,725,000 1,500,000 1,500,000 1,600,000 1,700,000 1,800,000 1,900,000 GeneralInsurance 500,000 1,700,000 2,800,000 2,500,000 2,700,000 2,916,000 3,149,280 Workers' Comp Fund - - - - - - -
Pension Stabilization 550,000 - - - 550,000 550,000 550,000 Solid Waste & Recycling 280,000 350,000 350,000 300,000 300,000 300,000 300,000 Vehicle & Equipment Replacement 1,000,000 715,300 500,000 1,500,000 1,500,000 2,000,000 3,000,000 IT Equipment Replacement 500,000 700,000 700,000 800,000 800,000 800,000 800,000 Cultural Arts 195,451 195,450 250,000 200,000 200,000 200,000 200,000 Sub-total Sub-fund of the GF 9,950,451 9,360,750 10,300,000 10,900,000 11,750,000 12,566,000 13,899,280 Transfers to Other Funds
CapitalImprovement Projects 1,513,166 716,440 850,000 2,000,000 4,000,000 2,000,000 1,500,000 Major Capital Facilities Replacement 1,000,000 - - 1,000,000 1,500,000 4,500,000 5,000,000 Storm Drain Enterprise Fund 820,220 500,000 500,000 300,000 200,000 - - Sub-total Other Funds 3,333,386 1,216,440 1,350,000 3,300,000 5,700,000 6,500,000 6,500,000 Total Transfers from General Fund 13,283,837 10,577,190 11,650,000 14,200,000 17,450,000 19,066,000 20,399,280
PROJECTED
(CIP) after application toward Operating Expenditures. The projections reflect the 5-year CIP schedule and the result funding estimates based on the projects' timing and scope.
The City Council established the transfer to the Major Capital Facilities Replacement Fund (Fund 436) in FY 2015-16. The contribution formula provides for the increase in the replacement cost due to inflation and would approximate $1.4 million of recommended annual contribution.
However, due to the anticipated reduction in revenue for next fiscal year, the forecast includes a continued deferral of contributions for FY 2024-25, before recommencing in FY 2025-26.
Contributions from FY 2025-26 to FY 2027-28 projects to be higher than the recommended annual amount, ranging from $1.0 million to $5.0 million. The Major Capital Facilities Replacement Fund's estimated fund balance is $8.5 million on June 30, 2023. Note that a higher than budgeted ending General Fund Balance for FY 2023-24 is expected to allow for an infusion into Fund 436 to offset the deferred contributions.
Pension Stabilization: In 2015, the City established an irrevocable trust account to contribute savings from the advance payments made to CalPERS, reducing the City's annual employer contributions. Assets placed in trust allowed for greater diversity in investment allocations designed to provide higher returns over time based on the risk tolerance level set by the City.
The City previously made a $5.0 million prepayment to CalPERS towards unfunded pension liability, and the estimated annual saving of $450,000 in required contributions has been budgeted for contribution to the pension stabilization fund, along with any additional General Fund contributions. Due to the projected budgetary impact of TOT reduction, the forecast does not include any contribution beyond $450,000 for FY 2024-25, with additional contributions recommencing in FY 2025-26. Based on CalPERS's most recently published report, the City's Pension Plans collectively have a funded status of 74.1% as of June 30, 2022. While this is a decrease from the prior year, mostly due to the investment loss of -6.1% during FY 2021-22, Coronado's status is expected to remain healthy and above the consolidated CalPERS funded ratio. Furthermore, this funded status does not include the pension stabilization irrevocable trust account balance of $14.8 million as of June 30, 2023, which would increase the funded status to approximately 80.0%.
General Fund Sources and Uses of Funds Projections
ACTUAL ESTIMATED
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 BEGINNING BALANCE $ 66,118,504 $ 81,376,161 $ 82,240,454 $ 82,396,440 $ 82,872,883 $ 83,289,941 $ 83,577,817 Revenues 79,956,312 70,187,340 74,423,849 79,601,868 84,992,112 88,738,641 92,630,814 Expenditures & Transfers:
PersonnelCosts 35,956,581 40,094,972 42,591,584 44,102,095 45,677,444 47,321,138 49,036,913 Services, Supplies & Property 15,458,237 18,650,885 20,026,279 20,823,330 21,447,610 22,063,628 22,694,917 Transfers to Sub-funds of GF 9,950,451 9,360,750 10,300,000 10,900,000 11,750,000 12,566,000 13,899,280 Transfers to Other Funds 3,333,386 1,216,440 1,350,000 3,300,000 5,700,000 6,500,000 6,500,000 Sub-total Expenditures and Transfers 64,698,655 69,323,047 74,267,863 79,125,425 84,575,054 88,450,766 92,131,111 Net Increase (Decrease) ofRevenues -
Expenditures & Transfers 15,257,657 864,293 155,986 476,443 417,058 287,875 499,703 ENDING FUND BALANCE $ 81,376,161 $ 82,240,454 $ 82,396,440 $ 82,872,883 $ 83,289,941 $ 83,577,817 $ 84,077,520
PROJECTED
Sources and Uses of Funds: The table above shows the summary results of Revenues (Sources of Funds) and Expenditures (Uses of Funds) for the five-year period from FY 2024-25 through FY 2028-29. The impact of a temporary reduction in TOT revenues for FY2023-24 and FY2024-25 will be mitigated by continued increases in other revenue sources and a reduction in the General Fund transfers to other funds. This strategy will help the City maintain a balanced General Fund budget for the next five years.
Restricted General Fund Balance: The City has adopted a policy that provides a Minimum Reserve of six months of operating expenditures to provide adequate resources in the event of an economic downturn or other events that result in limited or significant reduction in current revenues. The amount set aside for this factor ranges from $36.0 million in FY 2024-25 to $47.3 million in FY 2028-29. The City Council has also set aside two other reserves for future reductions in Property Tax Revenues from Mills Act (historic designation) properties. The amount set aside for this purpose is $500,000. The City Council also provided a reserve of $4 million to be used for future Capital Projects. The following table portrays these reserves and the amount of the total Fund Balance that exceeds the reserve requirements, as explained.
ACTUAL ESTIMATED
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 ENDING FUND BALANCE $ 81,376,161 $ 82,240,454 $ 82,396,440 $ 82,872,883 $ 83,289,941 $ 83,577,817 $ 84,077,520 Minimum Reserve Requirement:
six months operating expenditures not including
transfers (31,525,000) (33,314,000) (36,458,900) (37,912,700) (39,437,500) (40,975,400) (42,815,600) Committed for CapitalImprovement Projects (4,000,000) (4,000,000) (4,000,000) (4,000,000) (4,000,000) (4,000,000) (4,000,000) Committed for Historic Preservation (500,000) (500,000) (500,000) (500,000) (500,000) (500,000) (500,000) Total Minimum Reserve Requirement (36,025,000) (37,814,000) (40,958,900) (42,412,700) (43,937,500) (45,475,400) (47,315,600) Ending Fund Balance Exceeding
Minimum Reserve (f - g) $ 45,351,161 $ 44,426,454 $ 41,437,540 $ 40,460,183 $ 39,352,441 $ 38,102,417 $ 36,761,920
PROJECTED
Putting the Results Together: For FY 2022-23, the City is projecting a net increase of $15.3 million in the General Fund balance. This is a result of a few significant financial results, as summarized below:
o Property Taxes: $39.7 million exceeded the budget by approximately $2.3 million. o TOT: $22.7 million exceeded the budget by approximately $4.2 million, primarily due to continued strong demand for tourism.
o Use of Money & Property: $2.9 million exceeded the budget by approximately $2.6 million, primarily due to continued increase in the interest rate environment. o Personnel: $36.0 million was below the budget by approximately $2.0 million, primarily due to continued staffing turnover and vacancies.
o Services & Supplies: $14.4 million was below the budget by approximately $2.2 million, primarily due to staff shortage and resulting delays in certain planned projects and tasks.
While some of the budgetary surpluses are expected to be incorporated in subsequent years, the estimated actuals from FY 2022-23 will enhance the City’s ability to restore deferred contributions to reserve accounts, such as the Major Facilities Replacement fund or the Pension Stabilization fund. The City also has a list of planned long-term priority projects with significant funding requirements, which will be covered later in this staff report.
As a result, the general outlook remains positive, with the City maintaining a healthy General Fund balance over the next five-year period. The fund balance on June 30, 2029, is projected at $84.1 million, above the projected minimum reserve requirement estimated to be $42.8 million.
Ultimately, the growth or decline in fund balance will depend upon actual revenue and expenditure growth.
Long-Term Capital Project Planning
The City has a long and growing list of planned capital investments to support Coronado’s highquality and large breadth of community services. Annually, the City prepares a Five-Year Capital Improvement Plan (CIP) to detail the list of projects, their time spans for design and construction, funding requirements and identified funding sources. In the annual budget, allocations are made for that fiscal year’s financial requirements. The five-year planning tool provides a vital near-term look, but in anticipation of larger projects on the horizon, the City initiated work this Spring for project planning to 10+ years.
This expanded planning horizon is necessary because the City has new, long-term and high-cost projects under development that may not fully appear in the traditional five-year CIP for several years yet require financial planning now. For instance, over the past two years, several major capital initiatives that had been stalled saw renewed focus and are on the cusp of City Council final decisions. These projects, including the Cays Park Master Plan, Downtown Beautification and the Winn Room Renovation project, entail significant costs and their funding sources are not fully known. The City is also planning for substantial investments in public buildings and facilities for ongoing maintenance and replacement, such as the City’s two fire stations and the police station which have large cumulative cost impacts.
2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 Ending GF Balance 81,376,161 82,240,454 82,396,440 82,872,883 83,289,941 83,577,817 84,077,520 Minimum GF Reserve 31,525,000 33,314,000 36,458,900 37,912,700 39,437,500 40,975,400 42,815,600 GF Excess % 258% 247% 226% 219% 211% 204% 196%
The following sections of the report provide a summary of major factors in the analysis of capital needs and funding strategies:
Long Term Capital Projects
The first step of this work was to characterize the known major projects that could begin construction in 6-10 years. The following is a list of long-term capital improvement projects valued at $3 million or more, currently on the planning horizon within the next ten years. The list does not include the reconstruction of the Aquatics Center and replacement of the Parker Pump Station, as those projects were previously appropriated and are already in construction. *City Council CIP Subcommittee funding recommendation.
**Total includes high range estimate of $3 million for the Animal Care Facility project.
Five-Year Facilities Capital Improvement Study
In 2021, the City updated its Five-Year Facilities Capital Improvement Study. The study estimated major maintenance needs and costs for most, but not all, of the City’s facilities. In total, 94 total major maintenance projects with an estimated cost of $45 million were included in this report.
Major maintenance typically includes roof systems, HVAC, and structural systems. Costs were estimated in the following facility categories: restrooms, fire and police stations, pump stations, playgrounds and parks, golf course, recreation facilities, and City buildings. In addition to the major maintenance projects, the study contemplated two facility replacement projects: the Parker Pump Station and the Golf Maintenance Shop. The Parker Pump Station project is now underway while the Golf Maintenance Shop project has not yet begun.
While the Five-Year Facilities Capital Improvement Study is an excellent point of reference to ensure proper maintenance of major systems, additional replacement costs for certain aging facilities will need to be added to the plan for those nearing their end of life within the next ten years. Other large long-term projects need to be fully assessed to determine their potential costs and replacement timeframes, such as the replacement of the Glorietta Bay Marina promenade and docks A, B and C within the next twenty years. Staff proposes to update the Five-Year Facilities Capital Improvement Study to include costs for large facility replacement projects that may be outstanding and to update the costs currently contained in the study to reflect the significant increase in construction costs we have observed in recent years. Funds to conduct this updated study are budgeted in the Proposed FY 2024-25 Budget.
Priority Project
($3 million+)
Total Estimated
Cost General Fund Funding Source
Estimated
Project Design
Begins
Estimated
Construction
Completion
Downtown Beautification Project* $ 3,400,000 $ 2,650,000 General Fund/TransNet FY 2024/25 FY 2025/26 Golf Course Irrigation Replacement 9,000,000 N/A Golf Course FY 2024/25 FY 2027/28 Coronado Gateway Improvements 5,300,000 N/A Coronado Bridge Tolls FY 2024/25 FY 2027/28 Fire Station #37 (Cays) 30,000,000 30,000,000 General Fund FY 2025/26 FY 2029/30 Fire Station #36 (Main) 30,000,000 30,000,000 General Fund FY 2025/26 FY 2029/30 Winn Room Renovation 9,700,000 9,700,000 General Fund FY 2025/26 FY 2028/29 AnimalCare Facility $1-3 million $1-3 million General Fund FY 2025/26 FY 2027/28 Cays Park Master Plan 31,000,000 31,000,000 General Fund FY 2025/26 FY 2031/32 Total** $ 121,400,000 $106,350,000
Next, with a plan to obtain a refined understanding of the capital requirements over the next 10 years, staff reviewed existing funding resources (Facilities Replacement Fund, CDA Funds, feebased revenues) and summarized some larger financing strategies the City may examine:
Facilities Replacement Fund (Fund 436)
Redevelopment funding was previously used to construct many existing City facilities. With the dissolution of redevelopment in 2012, this significant source of funding for facilities is no longer available. As a result, in 2015, the City established a Facilities Replacement Fund (Fund 436) to provide a reserve for the repair and renovation of most of the City’s capital facilities across their lifecycle for the next 60 years (barring unforeseen natural disasters). The Facilities Replacement Fund balance stands at approximately $8.5 million.
The City makes designated annual General Fund contributions to Fund 436 using an index-based formula that uses the prior year’s budget base value and multiplies it by the San Diego area Construction Cost Index (CCI). The estimated contribution for Fiscal Year 202024-25 calculates to $1.4 million. However, due to the estimated reduction to the City’s Transient Occupancy Tax from a major hotel renovation, contributions to Fund 436 were temporarily paused for FY 2023- 24 and are recommended to be paused again in FY 2024-25. Note in a prior discussion in this report, excess General Fund balance from higher than budgeted revenues in FY 2022-23 may be proposed to restore these deferrals.
There is also $14.3 million intrafund loan from the Facility Replacement Fund to the Wastewater Fund for the Parker Pump Station Project. A schedule for repayment of these funds by the Wastewater Fund will be developed in tandem with completion of the Wastewater Rate Study, which will be completed next year. At that time, the Fund 436 resources would be available for re-appropriation for other projects.
As part of the updated Facilities Capital Improvement Study referenced in the prior section, the annual Fund 436 formula will be recalibrated to account for the new estimation of facility needs and the current cost of construction. This recalibration will inform the City to properly save for our future facility needs.
CDA (Community Development Agency) Loan Funds
The City established the Community Development Agency (CDA) Loan Fund for the repayment of loan proceeds (loans that were made to the CDA from the General Fund) from the Successor Agency (formerly the Community Development Agency) to the General Fund. This fund retained the annual loan repayments of $2,780,754 from the Successor Agency in past years. In October 2018, the City refinanced the balance of all loans with bonds and transferred the proceeds of $33 million to this fund.
The fund's estimated balance is $16.6 million as of June 30, 2024 and can only be used for designated eligible capital projects. It is required (for Federal taxation purposes) that the fund balance be depleted entirely by the time that the TARB are paid off (estimated to be early FY 2028). In addition, $9.8 million of CDA funds were transferred to a Relinquishment Fund reserve, in anticipation of maintenance costs for SR-75 and -282 once relinquishment was effected. Given the deadline to expend the entirety of the CDA Funds in just over 3 years, the City Council will need to evaluate how to spend down the total ~$26 million within the approved project list.
Fee Studies
The City receives some revenues to support select public facilities from use fees. Fees must comply with Section 66000 et seq. of the Government Code, which states fees must be related to the level of service provided by the local jurisdiction and the portion of the public facility attributable to the development on which the fees is levied.
Fees for many City services have not been updated in recent years to reflect the cost of providing services. The City currently has a number of fee study updates that have recently been completed or are in progress. For example, in November 2023, the City Council approved a revision to green fees as part of the golf fee study, which will support the golf course irrigation project. Staff will return to City Council this year with updates to recreation, ambulance, and development fees.
Once these studies have been completed and rates adjusted, the City will have refined estimates of fee revenues that can be used to help fund a portion of facility replacement costs related to those services over time.
Project Financing Options
With approximately $100 million in unappropriated General Fund projects on the planning horizon, examination of funding strategies is critical for the timing and sequencing of projects. Several potential financing mechanisms are available to the City and projects could be funded, in whole or in part, through:
Facilities Replacement Fund (Fund 436)
Enhanced or targeted contributions may be made annually to the Facilities Replacement Fund to build the required balance to complete an identified project. In addition, one-time lump sum contributions based on available resources may be made. This is pay-as-you-go strategy requires time to build cash balances.
User Fees
While not a primary source, revenues from user fees can be available to augment select capital projects. Facility maintenance/replacement costs must be fairly and accurately accounted for in the development of fees.
Grants & Federal and State Funding
The City will pursue grants more assertively in the coming year and has programmed funds for a grant consultant in the Proposed FY 2024-25 Budget. This consultant will assist the City in identifying potential grants, assessing project eligibility and writing grant documents.
The City will also continue its requests for project funding through Federal and State awards. The City has had recent success in both, receiving grants for the Parker Pump Station (Federal) and Library enhancements (State).
General Obligation (GO) Bonds or Other Financing
Another potential option to explore is the issuance of general obligation bonds backed by tax revenues to pay debt service or other financing vehicles. The City has not preferred financing in the past, but this mechanism is worthy of investigation if the City wishes to advance larger scale projects more quickly than a pay-as-you-go approach. A thorough analysis of these options will be conducted in partnership with a financial advisor experienced in working with city clients on financial planning, capital investments, and bond issuance support and would consider the interest rate environment and cost of borrowing.
Tax Change Options
A change to transient occupancy tax (TOT), sales tax, real estate transfer tax, or the introduction of a utility users tax are options explored by cities to raise revenue for a variety of purposes. At present, the City’s TOT tax rate is 10 percent and there is no local sales tax or utility users tax.
Next Steps
To advance the City’s analysis of long-term capital planning, staff recommends the following steps:
First, staff seeks City Council direction on sequencing the listed Long-Term Priority Projects.
Based on the sequencing, staff will update project schedules and program costs for selected projects within the draft FY 2024-25 Five Year CIP Budget for City Council review at the May 21st City Council meeting.
Next, imbedded in the Proposed FY 2024-25 Budget is funding for an update to the existing FiveYear Facilities Capital Improvement Study. The revision encompasses assessment of previously excluded projects, adjusting existing estimates for inflation, and creating a more refined plan for future replacement of facilities. Staff requests the Council’s support for this budget expenditure for the FY 2024-25 Budget.
Once complete, staff will utilize these updated costs to make future recommendations to the City Council on potential contributions to the Facility Replacement Fund Policy and utilization of other potential funding sources beyond the General Fund.
Development of a long-term project financing plan would also include collaboration with a financial consultant to review the various financing options available to fully fund the selected long term projects and determine which courses of action would be most financially advantageous for the City for completion of these projects within the next ten years.
Finally, in the Proposed FY 2024-25 Budget are funds for a grant consultant to support in the identification and application for Federal, State and private grants. Staff requests the Council’s support of this budget expenditure for the FY 2024-25 Budget.
FISCAL IMPACT:
No fiscal impact is associated with receiving a report on the financial projections and long-range capital planning. The revenue and expenditure projections are intended for a high-level review.
This multi-year projection presentation provides a backdrop and context for the upcoming Fiscal Year 2024-25 Budget Hearing. Several assumptions are used in these projections. Two guiding principles which are employed throughout these estimates are as follows:
1) Operating revenues and expenditures are shown using historical data and projected future trends. Future trends are projected based on current financial conditions and anticipated changes.
2) Departmental operations are maintained at the current level, and current revenues are matched with current operational needs before being allocated for other purposes, i.e., new Capital Improvement Program (CIP) projects or Facilities Replacement projects (legacy facilities).
ALTERNATIVE:
None.
CALIFORNIA ENVIRONMENTAL QUALITY ACT:
Not Applicable
PUBLIC NOTICE:
No notice required.
ATTACHMENTS:
None
Submitted By: Administrative Services Department / John Kim