Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: FISCAL YEAR 2024/25 - BUDGET STUDY SESSION #2 -
ENTERPRISE FUNDS, CAPITAL PROJECTS AND FUNDS,
UPDATED GENERAL FUND
Date: May 13, 2024
Written by: Angela Courter, Director of Administrative Services Recommendation
Study session on the enterprise funds, capital projects and funds, and updated general fund for FY 24/25. No action is proposed.
Background
The goal of this study session is to give an overview to the City Council Members and public and address comments or questions about proposed budget details. Each budget workbook shows the historical actual balances for three years (FY 20/21, FY21/22, and FY 22/23), the adopted budget for 2023/24, the estimated budget for 2023/24 and the proposed budget for 2024/25. The budget format is consistent with how it was presented in prior fiscal years.
While putting together a City Budget, we must take into consideration the limited resources of any budget, the various levels of uncertainty with different funding source, and how to best use the funding or City staff to meet the needs of the majority of the community. The drafted budget strives to strike a balance between continued delivery of efficient city services to our residents and business owners, continuing development of key capital projects, and continuing to pursue further economic development.
As always, community input is appreciated and necessary to ensure a budget that best meets the needs of the community in the City’s areas of responsibility. For this budget study session, it is the goal to obtain feedback going into the development of our final annual budget for adoption by the Council in June.
Analysis/Discussion
With the guidance provided by the City Council and the community during the strategic planning session held on February 20, 2024, and followed with discussions on prioritizations of projects and alignment with City Goals during our first budget study session on April 2, 2024, staff have updated the projects and related expenditures for the capital plan, related required transfers out of resources, confirmed allocation of staffing levels and increased insurance levels within the General Fund and the related allocations to the enterprise funds.
Fiscal Impact
Budgets for Enterprise and Capital Projects are primarily developed by the Director of Public Works and Engineering using approved Rate Studies for the Enterprise Funds as well as our Capital Improvement Plan, consistent with the General Plan and related infrastructure capital and master plans.
Enterprise Funds
The proposed budget includes a combination of conservative revenue projections and conservative operational expenditure projections. Revenue assumptions include consistent consumption with the prior year usage. Any change in consumption would change the expenses and the volumetric portion of rate revenue.
Significant operational expenditures that are best practice, but are discretionary, include:
• Continued transfer to the Internal Services Funds for Compensated Absences Fund and Vehicle Replacement Fund.
• Full prepayment of the regular pension unfunded liability payment and the additional discretionary payment to reduce future pension costs, as proposed in the City unfunded pension analysis report.
Other costs increased in both the water and sewer funds due to the switch to monthly billing, including merchant fees, postage, and printing fees. Items that are not included are critical infrastructure emergency repairs. Merchant fees are estimated to be approximately $50k for both water and sewer funds.
Water Fund Operations
Revenues
o Fiscal year 2023/24 estimated actuals are 1.37% lower than the adopted budget and
8.7% higher than last year’s, FY 2022/23 actuals.
o The proposed budget for fiscal year 2024/25 is conservatively proposing an increase of approximately $80K or 3.5% of the estimated actuals. These increases are mainly due to the approved rate change, offset by continued increased conservation.
Expenditures
o Fiscal Year 2023/24 are anticipated to increase by just over $113K or 5.7% over the prior year and are still within the adopted budget. o The proposed budget for fiscal year 2024/25 is conservatively estimated to increase expenditures by $324K or 15.4%. This increase is driven primarily due to increased aqueduct water usage charges from Sonoma Water, funding for vehicle and equipment replacements, increased electrical utility costs, and contract cost for a rate study review.
Sewer Fund Operations
Revenues
o Fiscal year 2023/24 estimated actuals are 5.9% higher than the adopted budget and
12.2% higher than last year’s, FY 2022/23 actuals.
o The proposed budget for fiscal year 2024/25 is conservatively proposing an increase of approximately $46K or 1.4% of the estimated actuals. These increases are mainly due to the approved rate change, offset by continued increased conservation.
Expenditures
o Fiscal Year 2023/24 are anticipated to increase by just over $211K or 6.1% over the prior year and are over the adopted budget due to a financial transfer requirement to the Sewer Capital Fund of $280K to contribute towards the sewer capital improvements (Cypress Sewer) that are not covered by connection fees. o The proposed budget for fiscal year 2024/25 is conservatively estimated to increase by $228K or 6.2%. This increase is driven due to increased wastewater treatment rates applied by Santa Rosa and an additional transfer of $80,000 to the Sewer Captial Fund to partially fund the completion of the SCADA project and emergency sewer lift station generator.
Enterprise Capital funds include decreased revenues due to reduced connection fees for fiscal year 2023/24 and proposed fiscal year 2024/25. Major capital investments, estimated at $987,843, for the water fund include:
o Water portion of the SCADA System,
o Well 1A/Well 3 Treatment Renewal and Replacement
o West Sierra Tank Recoating
Major projects for the wastewater/sewer system are estimated at $139,643 and include:
o Sewer portion of the SCADA System
o Cypress sewer replacement, which was advanced due to timing of the proposed and partially grant funded street improvement project.
The proposed budget for the Sewer Operations Fund represents a very austere budget. The primary expense is treatment costs with the Santa Rosa Subregional System (approximately $2.5M), with all City operations, maintenance and capital improvements using approximately $1.3M ($3.8M in total operations). Total revenue is projected to be approximately $3.4M, with a projected deficit of approximately $360k, which is a continuation of a longer-term trend in this fund. As a result, the budget projection anticipates approaching the required reserve by the end of Fiscal Year 24/25.
This has been anticipated in the most recent rate studies, as provided in the attached presentation, with gradual intervention implemented by the City Council to avoid rate shocks. This fund is closely monitored and staff intend to continue looking for ways to reduce expenses and re-analyze rates with updated revenues/expenses early in the fiscal year to determine if further corrections are needed. In any case, it is anticipated that it will take several years to completely turn around the sewer operations fund with very limited ability to implement capital projects during this time.
Capital Projects
Capital Projects are funded with a combination of Special Revenue Funds and General Funds as well as matching grant resources. Currently the budget for fiscal year 2024/25 includes capital projects totaling $6.9M of which $604K in offsetting grant funds are expected. These are presented within the Special Revenues Budget workbook. Other capital projects not expected to include matching grant funds are included in the capital project fund 605.
Total projects are estimated at $6.08M for fiscal year 2024/25 compared to $1.3M for fiscal year 2023/24. Capital projects are subject to timing based on City planning and implementation of the pavement management plan or parks master plan. Significant funding was invested in City streets for fiscal year 2021/22 through 2023/24 due to the availability of borrowed street funding obtained in 2021/22. Major projects proposed for fiscal year 2024/25 include:
o Park-and-Ride Replacement Project (Completion)
o Putnam Park Improvements - Phase 1
o 2025 Street Improvements
o Hwy 116/West Sierra Intersection (Design)
o Trash Implementation Plan – Phase 1
o Class 1 Pathway Maintenance
o 2026 Street Improvements (Design)
o Veronda Falletti Ranch Barns (Design)
o Gateway Signage - Marquee Replacement
Financial Considerations
Overall, the budgets are in line with the best City revenues estimates now, using independent tax forecasting experts who develop estimates based on Cotati’s specific mix of businesses. The proposed budget is conservative in both expenditure and revenue forecasts. The City Council has continued to prioritize supporting robust reserves more than the required reserve of 33% of operating expenditures to protect city enterprise services against economic disruptions. Therefore, this fiscally conservative approach allows the proposed budget to protect essential operations.
Environmental Issues
Not applicable. The action proposed is not a project as defined by CEQA.