CITY COUNCIL STAFF REPORT
May 21, 2024 {{section.number}}d
AUTHORIZE TRANSFER OF $10,000,000 FROM THE GENERAL FUND TO THE MAJOR
FACILITIES REPLACEMENT FUND
RECOMMENDATION:
Authorize a one-time transfer of $10,000,000 from the General Fund (100) to the Major Facilities Replacement Fund (436), and amend the Fiscal Year 2023-24 Budget with the transfer.
BACKGROUND:
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). This does not include facilities that are used to accomplish enterprise fee-based activities, such as the Golf Course or the Wastewater activities, which are accounted for in their respective enterprise funds. Funds are accumulated for the eventual replacement or recapitalization of City facilities. The Facilities Replacement Fund balance is approximately $8.5 million as of June 30, 2024. This balance excludes $14.3 million of an inter-fund loan made to the Wastewater Enterprise Fund (520) for partial funding of the Parker Pump Station Rehabilitation project.
ANALYSIS:
The funds set aside in the Facilities Replacement Fund (436) are intended to be utilized on major City facilities for projects that accomplish whole facility replacements, construct new facilities, and/or address major component repair or replacements. Examples of major components are roof systems; Heating, Ventilating and Air Conditioning (HVAC) systems; structural systems; and building envelope components. Maintenance items such as painting, carpet replacement, would not normally be considered major component repair or replacement Contributions to the Major Facilities Replacement Fund (436) The annual contribution to the Facilities Replacement Fund was formulated based on the Asset Management Plan performed in 2015, which evaluated the City’s assets and provided timelines and risk analysis for the projected failure of City facilities and their major components. The analysis concluded that a facilities replacement sinking fund would require an annual contribution of $1,355,000 (in 2015 dollars), to be increased annually, using the prior year’s budget base value and multiplying it by the Construction Cost Index (CCI).
The actual contribution to this reserve fund has been based on funding availability after the General Fund operating expenditures have been budgeted, per the City’s budgeting principles and strategies. A review of transfers to the Major Facilities Replacement Fund (436) since 2016 shows that the fund is estimated to be underfunded by approximately $5.2 million, as shown below. This is primarily due to deferred contributions during the pandemic and the current fiscal year due to anticipated reduction in TOT revenues.
Long-Term Capital Project Planning
The City also has a long and growing list of planned capital investments to support Coronado’s high-quality and large breadth of community services. 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.
*Estimated cost based on CIP Commitee recommendation
Of the estimated total of more than $106 million in unappropriated General Fund projects noted in the table above, more than $72 million are deemed eligible for the Major Facilities Replacement Fund (436).
Based on the projected budgetary needs of high-cost capital projects and the current funded status of the Major Facilities Replacement Fund (436), the request for the one-time $10 million transfer from the General Fund (100) to the Major Facilities Replacement Fund is a prudent budgetary strategy. Excess fund balance from FY 2022-23 is available to fully fund the $10 million transfer without an impact on minimum reserves or operating budget.
CCI
Recommended
Contribution
Actual
Contribution
Funded Status
Over / (Under)
2015 2.56%
2016 1.93% 1,355,000 1,068,000 (287,000)
2017 4.09% 1,389,665 1,500,000 110,335
2018 1.93% 1,416,532 1,500,000 83,468
2019 0.68% 1,474,492 2,700,000 1,225,508
2020 0.25% 1,502,876 - (1,502,876)
2021 5.18% 1,513,020 - (1,513,020)
2022 5.55% 1,516,808 2,350,000 833,192
2023 10.10% 1,595,429 1,000,000 (595,429)
2024 N/A 1,683,976 - (1,683,976)
2025 N/A 1,854,057 (1,854,057)
Total Estimated Underfunded Contribution: (5,183,856)
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 GolfCourse Irrigation Replacement
9,000,000 N/A GolfCourse 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
FISCAL IMPACT:
For FY 2022-23, the City is projecting a net increase of approximately $15.0 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 budgetary surpluses are expected to be incorporated in subsequent years, the actual FY 2022-23 results will enhance the City’s ability to restore deferred contributions to reserve accounts, such as the Major Facilities Replacement Fund (436). Accordingly, the staff recommends a one-time $10.0 million contribution to catch up and supplement the Major Facilities Replacement Fund (436).
If approved, $10.0 million will be transferred from the General Fund (100) to the Major Facilities Replacement Fund (436) and reflected in the FY 2023-24 budget. The estimated General Fund (100) fund balance will decrease from $80.2 million to $70.2 million as of June 30, 2024. The estimated Major Facilities Replacement Fund (436) fund balance will increase from $8.5 million to $18.5 million as of June 30, 2024.
ALTERNATIVE:
The City Council may not approve the transfer of $10.0 million from the General Fund (100) to the Major Facilities Replacement Fund (436) or authorize an alternate amount to be transferred.
CALIFORNIA ENVIRONMENTAL QUALITY ACT:
Not Applicable.
PUBLIC NOTICE:
No notice required.
ATTACHMENTS:
None.
Submitted By: Administrative Services Department / John Kim