CITY COUNCIL STAFF REPORT
Meeting: June 7, 2022
Subject
Public hearing to consider the Capital Improvement Program (CIP); consider the Recommended Budget for Fiscal Year (FY) 202 2-23, adoption of the Budget for FY 202 2-23, establishment of the Appropriation Limit, and related actions.
Recommended Action
1. Adopt Resolution No. 22-XXX establishing an Operating Budget of $ 126,027,164 for FY 2022-23, which include s the following changes to the FY 2022-23 Proposed Budget, published on May 1, 2022:
a. Approve the operating budget of $125,461,857 outlined in the FY 202 2-23 Proposed Budget
b. Approve the 12 position requests outlined in the FY 2022-23 Proposed Budget. The positions include:
i. Administrative Assistant in Administration
ii. Associate Planner in Community Development
iii. Budget Manager in Administrative Services
iv. Code Enforcement Officer in Community Development
v. Communications Analyst (Three-Year Limited-Term) in Administration vi. Community Outreach Specialist in Community Development vii. Maintenance Worker Lead in Public Works
viii. Management Analyst in Public Works
ix. Office Assistant in Community Development
x. Purchasing Manager in Administrative Services
xi. Senior Planner (Housing) in Community Development
xii. Senior Planner (Planning) in Community Development c. Approve an Assistant City Manager position in Administration and appropriations of $386,988 as included in Attachment D
d. Approve a Legislative Aide (Management Analyst) position in Administration and appropriations of $183,365 as included in Attachment D
e. Approve a $180,000 reduction in appropriations for the Economic Development Fuse Fellow as included in Attachment D
f. Approve a $669,046 reduction in appropriations for Fixed Assets acquisition as included in Attachment D
2 g. Approve $348,427 of additional SB 1 revenue as included in Attachment D. h. Approve appropriations of $ 736,500 for City Work Program items as included in Attachment D. The items include:
i. $50,000 for Analyze Potential Revenue Measures
ii. $10,000 for Artwork at the Library/Exhibits/Poetry and Art Day iii. $50,000 for Bicycle Facilities
iv. $12,000 for Community Engagement on Alternative Transportation and Parking
v. $145,000 for Cupertino Store Implementation
vi. $7,500 for Cybersecurity Public Education
vii. $50,000 for Electrification Study
viii. $200,000 for Homeless Jobs Program
ix. $25,000 for Housing for De Anza College Students
x. $15,000 for Hybrid Meeting for City Council and Commission Meetings xi. $30,000 for Integrated Plan for Community Engagement xii. $20,000 for Intergenerational Engagement
xiii. $60,000 for License Plate Readers
xiv. $12,000 for Safe Gun Storage Ordinance
xv. $35,000 for Senior Strategy
xvi. $15,000 for Student Internship Program
i. Approve $107,500 of transfers out from the General Fund to fund City Work Program projects
j. Approve budget adjustments as presented in Attachment D
2. Adopt Resolution No. 2 2-XXX establishing a Capital Improvement Program budget of $12,617,200 for FY 2022-23
a. Approve appropriations of $ 500,000 in the Capital Improvement Program Capital Projects Fund for the Blackberry Farms Pools Splash Pad project b. Approve appropriations of $ 4,000,000 in the Capital Improvement Program Capital Projects Fund for the City Hall and Library Parking Garage: Design and Construction project
c. Approve appropriations of $ 1,300,000 in the Capital Improvement Program Capital Projects Fund for the City Lighting - LED Lighting project d. Approve appropriations of $5 25,000 in the Capital Improvement Program Capital Projects Fund for the De Anza Boulevard Buffered Bike Lanes project e. Approve appropriations of $ 850,000 in the Capital Improvement Program Capital Projects Fund for the Jollyman All-Inclusive Play Area: Adult -Assistive Bathroom Facilities project
f. Approve appropriations of $ 90,000 in the Capital Improvement Program Capital Projects Fund for the Stocklmeir, Bryne and Blesch: Inspection Reports and Analysis project
g. Approve appropriations of $ 95,000 in the Capital Improvement Program Capital Projects Fund for the ADA Improvements project
3 h. Approve appropriations of $ 300,000 in the Capital Improvement Program Capital Projects Fund for the Annual Playground Replacement project i. Approve appropriations of $ 200,000 in the Capital Improvement Program Capital Projects Fund for the Park Amenity Improvements project j. Approve appropriations of $ 75,000 in the Capital Improvement Program Capital Projects Fund for the Street Light Installation - Annual Infill project k. Approve $ 4,308,600 of transfers out from the Capital Reserve to fund the Capital Improvement Program budget in FY 2022-23
l. Approve appropriations of $23,600 in the Blackberry Farm Enterprise Fund for the Blackberry Farm Golf Renovation / Alternative Use Study project m. Approve appropriations of $350,000 in the Recreation Program Enterprise Fund for the Major Recreation Facilities: Use and Market Analysis project
3. Adopt Resolution No. 22-XXX establishing an Appropriation Limit of $122,756,522 for FY 2022-23
4. Adopt Resolution No. 22 -XXX amending the Unrepresented Employees' Compensation Program to add a Budget Manager and Purchasing Manager
Discussion
Article XIIIB of the California Constitution established appropriations limits on government agencies within California. Originally established by Proposition 4 in 1979, the appropriations limit places a maximum limit on the appropriations of tax proceeds by the State, school districts, and local governments in California.
Fiscal Impact
The Proposed Budget reflects a total City budget of $138.6 million, a decrease of $10.2 million, or
6.9%, from the FY 20 21-22 Adopted Budget. General Fund expenditures are proposed at $ 94.1 million, funded by General Fund revenues of $93.7 million and $0.4 million of unassigned fund balance. The General Fund is projected to end FY 2022-23 with approximately $48.4 million in unassigned fund balance . This balance may be transferred to the Capital Reserve per the Unassigned Fund Balance and Use of One -Time Funds Policy as part of the City 's FY 2022-23 Mid-Year Financial Report.
Fund Type Proposed Revenues Proposed Expenditures Change in Fund Balance/Net Position
General 93,661,388 94,089,818 (428,430) Special Revenue 16,315,081 11,244,109 5,070,972 Debt Service 2,675,800 2,675,800 - Capital Projects 6,435,000 12,418,600 (5,983,600) Enterprise 6,532,392 9,353,331 (2,820,939) Internal Service 7,909,496 8,862,706 (953,210) TOTAL $ 133,529,157 $ 138,644,364 $ (5,115,207) 4 General Fund
The General Fund is the City 's primary operating fund. It accounts for basic services such as public safety, public works, planning and community development, park maintenance, code enforcement, and the administrative services required to support them. The fund generates revenue from the City 's discretionary funding sources (e.g., sales tax, property tax, transient occupancy tax, and utility tax). As a rule, General Fund resources are used only to fund operations that do not have other dedicated (restricted) funding sources. Operations that rely heavily upon non-General Fund resources, such as street maintenance, solid waste collection, and recreation , are accounted for in other funds. Information on these funds may be found in the Other Funds section of this document.
As illustrated in the following chart, most of the General Fund supports costs for P ublic Works, Law Enforcement, and Community Development.
5 General Fund Expenditures
For FY 2022-23, General Fund expenditure estimates are $94.1 million, an increase of $4.3 million, or 4.8%, from the FY 20 21-22 Adopted Budget . The increase is due to requests for additional staffing and an increase in the law enforcement co ntract with the Santa Clara County Sheriff 's Office. General Fund expenditures increased by $1.1 million from t he $93.0 million in the Proposed Budget printed on May 1, 2022, due to:
• Addition of an Assistant City Manager position: $386,988 • Addition of a Legislative Aide (Management Analyst) position: $183,365 • Removal of the Economic Development Fuse Fellow: ($180,000) • Addition of City Work Program projects: $629,000
• Transfers to fund City Work Program projects: $107,500
6 General Fund Revenue
For FY 2022-23, General Fund revenue estimates are $93.7 million, an increase of $4.0 million, or
4.5%, from the FY 2021-22 Adopted Budget. The increase is due to projected sales, property, and transient occupancy tax increases . There are no changes to revenue estimates since the printing of the FY 2022-23 Proposed Budget. General Fund revenue is shown in the following table:
General Fund – Fund Balance
Unassigned fund balance is fund balance that has not been earmarked for a specific purpose. FY 2022-23 unassigned fund balance is projected to in crease to $48. 4 million, an increase of $2.3 million, or 5.1%, from the FY 2021-22 Amended Budget. FY 2022-23 total fund balance is estimated to be $110.2 million, a decrease of $0.4 million, or 0.4%, from the FY 2021-22 Amended Budget.
2019-20 2020-21 2021-22 2022-23 Percent
EXPENDITURES Actual Actual Adopted Proposed Change
Employee Compensation 18,153,833 18,441,609 21,806,721 24,295,660 11.4% Employee Benefits 7,732,290 8,238,449 10,154,044 11,440,636 12.7% Total Personnel Costs 25,886,123 26,680,058 31,960,765 35,736,296 11.8% Materials 4,860,223 4,248,715 6,639,523 7,217,573 8.7% Contract Services 21,528,698 21,106,602 23,773,121 24,949,571 4.9% Cost Allocation 9,786,477 10,473,540 11,948,062 10,385,961 -13.1% Capital Outlay & Special Projects 2,245,576 5,895,185 3,221,800 2,657,378 -17.5% Contingencies 40 293 426,779 451,739 5.8% Other Uses 282,038 319,444 545,000 695,000 27.5% Total Non-Personnel 38,703,053 42,043,779 46,554,285 46,357,222 -0.4% Transfers 30,892,276 15,148,689 11,251,984 11,996,300 6.6% TOTAL EXPENDITURES 95,481,452 83,872,526 89,767,034 94,089,818 4.8%
GENERAL FUND EXPENDITURE SUMMARY
2019-20 2020-21 2021-22 2022-23 Percent
REVENUES Actuals Actuals Adopted Proposed Change
Sales Tax 35,657,215 42,576,587 27,855,559 31,944,089 14.7% Property Tax 26,606,844 28,277,839 27,840,341 30,039,574 7.9% Transient Occupancy 7,286,083 2,141,058 3,000,000 5,000,000 66.7% Utility Tax 3,182,087 3,074,358 3,245,447 2,955,404 -8.9% Franchise Fees 3,418,909 3,368,287 3,380,986 3,230,101 -4.5% Other Taxes 1,402,002 2,639,000 1,248,720 1,787,691 43.2% Licenses & Permits 4,692,845 4,068,238 3,140,195 3,541,012 12.8% Use of Money & Property 4,189,877 4,608,556 1,249,220 1,277,013 2.2% Intergovernmental 747,942 1,451,076 5,093,946 434,491 -91.5% Charges for Services 11,986,328 11,345,222 12,047,922 11,528,436 -4.3% Fines & Forfeitures 327,833 129,394 225,000 427,000 89.8% Miscellaneous 11,681,108 2,308,118 1,320,555 1,496,577 13.3% TOTAL REVENUES 111,179,073 105,987,732 89,647,891 93,661,388 4.5%
GENERAL FUND REVENUE SUMMARY
7 The following table shows changes to fund balance for the General Fund since the close of FY 2019-20:
General Fund Forecast
FY 2021-22 is estimated to end with revenues above expenditures, primarily due to the strong performance of sales ta x. On May 19, 2022, City Council approved the Third Quarter Financial Report, which increased sales tax estimates by $9.1 million to align with FY 2021 -22 year-end projections. As the State continues to recover from the pandemic and businesses continue opening, it is anticipated that sales tax revenues will decline from the highs of FY 2020 -21. Sales taxes are lower than original projections due to a California Department of Tax and Fee Administration (CDTFA) sales tax audit. Property taxes are projected to increase moderately.
Transient occupancy taxes decreased significantly during the pandemic due to travel restrictions.
Transient occupancy taxes are expected to rebound gradually as business travel has been slow to recover. The City's forecast model assumes recessionary periods every four years during which revenues reflect zero growth. The forecast does not include revenues from potential new development projects or hotels. The City's forecast is conservative to reduce the risk of an actual shortfall, which may require disruptive cuts.
General Fund expenditures are expected to grow at a higher rate due primarily to increased costs for additional staffing and the City 's law enforcement contract. In FY 20 29-30, the City's annual debt service payment for Civic Center will be fully repaid, saving $2.7 million annually.
The following chart shows the City’s ten-year revenues and expenditures forecast.
Classification 2019-20
Actual
2020-21
Actual
2021-22
Adopted
Budget
2021-22
Amended
Budget
2022-23
Proposed
Budget
Percent
Change
Unassigned 37,426,951 52,449,546 46,068,178 46,068,178 48,410,834 5.1% All Other Classifications 37,078,871 44,401,243 64,209,752 64,542,526 61,771,440 -4.3% TOTAL FUND BALANCE 74,505,822 96,850,790 110,277,930 110,610,704 110,182,274 -0.4% 8 The following chart reflects a 10-year forecast of the General Fund's annual operating surpluses or deficits. The small deficit in FY 2022-23 will be funded by unassigned fund balance should it materialize.
9 Other Funds
Special Revenue Funds
Special Revenue Funds account for the proceeds of specific revenue sources legally restricted for specific purposes. Special Revenue Funds account for 8% of the citywide expenditure budget. The largest Special Revenue Fund accounts for streets, roads, and transportation. Other funds account for storm drain management, affordable housing programs, and park development.
The Proposed Budget for Special Revenue Funds is $11.2 million, which is a $7.4 million, or 39.7%, decrease from the FY 2021-22 Adopted Budget primarily due to decreases in Capital Improvement Program projects, transportation projects, and City Work Program projects.
The Special Revenue Funds are funded by $ 13.3 million in restricted department revenue, and $3.0 million in transfers, bringing total funding sources to $16.3 million. Fund balance is projected to increase by $5.0 million. Increased revenue is primarily due to housing mitigation revenue in the BMR Housing Fund.
Capital Projects Funds
Capital Projects Funds typically account for the acquisition or construction of major capital facilities. The Capital Improvement Project Fund, Stevens Creek Corridor Park Fund, and Capital Reserve Fund are Capital Pro jects Funds. Capital projects are identified in the five-year Capital Improvement Program (CIP).
The Proposed budget for the Capital Projects Funds for FY 2022-23 is $12.4 million, a decrease of $7.1 million, or 36.3%, from the FY 2021 -22 Adopted Budget. This decrease is due to reductions in Capital Improvement Program projects. A detailed list of proposed CIP projects can be found in the budget adjustments section of the staff report.
Transfers from the General Fund to the Capital Reserve are budgeted at $2.5 million. In the past, transfers to the Capital Reserve were not budgeted and instead adjusted at mid-year. Given the City's aging infrastructure and capital project needs, the City is budgeting transfers to facilitate Capital Improvement Program forecasting.
Enterprise Funds
Enterprise Funds are for specific services funded directly by fees charged for goods or services.
Enterprise Funds consist of Resource Recovery for the solid waste collection franchise, Blackberry Farm for the City -owned golf course, Sports Center for the Cupertino Sports Center, and Recreation Programs for cultural, youth, teen, sports, and physical recreation programs.
The Proposed Budget for Enterprise Funds is $9.4 million, a decrease of $0. 1 million, or 0.7 %, from the FY 2021 -22 Adopted Budget. The Enterprise Funds are funded by $5.8 million in program revenue, $0.4 million in transfers from the General Fund, $0.4 million in transfers from the Capital Reserve, and $2.8 million in reserves. The Enterprise Funds are projected to begin the year with $7.5 million in reserves and end with $4.7 million in reserves, decreasing by $2.8 million. 10 The Enterprise Funds are projected to draw down on reserves that have been increasing in recent years. During the pandemic, the Parks and Recreation funds built up reserves as revenues were higher than expenditures.
Internal Service Funds
Internal Service Funds are used for areas where goods or services are provided to other City departments or governments on a cost-reimbursement basis. Internal Service Funds include funds and programs for innovation and technology, workers ' compensation, equipment, compensated absences, long-term disability, and retiree medical insurance.
The Proposed Budget for Internal Service Funds is $8.9 million, similar to the FY 2021-22 Adopted Budget. The costs for the acquisition of fixed assets are not included and will be brought to City Council at a later time. The Internal Service Funds are funded by $4.5 million in program revenue, $3.4 million in transfers from the General Fund, and $1.0 million in reserves. The Internal Service Funds are projected to begin the year with $3.7 million in reserves and end with $2. 7 million in reserves, decreasing by $1.0 million. Reserves are decreasing because the City is eliminating the General Fund transfer to the Retiree Medical Fund. The City plans to fund Other Post- Employment Benefits (OPEB) costs with the City 's Section 115 OPEB Trust because the City 's OPEB plan is over 100% funded.
STAFFING
Personnel Assumptions
The City is currently negotiating with its bargaining groups because labor agreements expire on June 30, 2022. Due to the uncertainty, personnel budgets only account for step increases and changes in CalPERS retirement rates. The budget does not include any cost-of-living adjustments (COLA) or equity adjustments. Employees who have yet to reach the top step in their classification's salary range are eligible to receive a step increase on their anniversary date.
Typically, classifications have five steps, with each increase equivalent to a 5% increase in salary.
Currently, approximately 41% of employees are below Step 5.
New Position Requests
The FY 2022-23 Proposed Budget recommends a total of 2 25 positions (including Councilmembers), an increase of 14 positions from the previous fiscal year. The FY 2022-23 Proposed Budget recommends a total of 225 positions (including Councilmembers), an increase of 14 positions from the previous fiscal year. Two of the requested positions, the Budget Manager and Purchasing Manager , are new job classifications. The new job descriptions and the revised Unrepresented Employees’ Compensation Program, which adds these job classifications to the agreement and sets the salaries, are included as attachments G to J.
11 The Assistant City Manager and Legislative Aide (Management Analyst) positions were added after the FY 2022-23 Proposed Budget was printed. The table below describes all position requests.
Position Purpose FTE Salaries and
Benefits
Administration
Administrative Assistant Address increased workload in the City Clerk's Office
1 138,055
Assistant City Manager Oversee strategic planning and
outreach, especially in legislative
issues and advocacy, oversee outreach
to the communities (residents,
developers, and property owners), and
oversee engagement with affordable
housing developers on various ways to
deliver low-income and middle-
income housing.
1 386,988
Communications Analyst
(Three-year Limited-Term)
Support consistent engagement across
the organization (developing a plan
and training) as well as involvement in
individual project communications
1 183,365
Position Department FTE
FY 2021-22 Adopted Budget 208.75
FY 2021-22 Amended Budget
City Attorney Administration 1.00
Senior Assistant City Attorney Administration 1.00
Community Relations Coordinator Administration 0.25
FY 2021-22 Amended Budget 211.00
FY 2022-23 Proposed Budget
Administrative Assistant Administration 1.00
Communications Analyst (Limited-Term) Administration 1.00 Assistant City Manager Administration 1.00
Legislative Aide (Management Analyst) Administration 1.00 Budget Manager Administrative Services 1.00
Purchasing Manager Administrative Services 1.00
Community Outreach Specialist Parks and Recreation 1.00 Associate Planner Community Development 1.00
Code Enforcement Officer Community Development 1.00
Office Assistant Community Development 1.00
Senior Planner (Housing) Community Development 1.00
Senior Planner (Planning) Community Development 1.00
Management Analyst Public Works 1.00
Maintenance Worker Lead Public Works 1.00
FY 2022-23 Proposed Budget 225.00
12 Position Purpose FTE Salaries and
Benefits
plans to ensure consistency. This
position will also support a higher-
touch involvement with our residents
and their concerns.
Legislative Aide (Management
Analyst)
Support the City Council on legislative
matters and government relations.
1 183,365
Total Administration 4 891,773
Administrative Services
Budget Manager Dedicated resource to manage the
City's budget process and additional
research and analysis workload
1 263,996
Purchasing Manager Provide a centralized position for
purchasing compliance,
administration, and policy
development
1 263,996
Total Administrative Services 2 527,992
Parks and Recreation
Community Outreach Specialist Support marketing and outreach such as surveys, mailings, pop-up events,
and community meetings for
recreation programs, events, City
Work Program items, park-related
Capital Improvement Projects, and
recreation facilities.
1 147,868
Total Parks and Recreation 1 147,868
Community Development
Associate Planner Help with project management and the
increased demand and volume of
applications/permits.
1 183,923
Code Enforcement Officer Provide better weekend coverage and alleviate the high volume of cases and
inquiries and meet expectations from
the community.
Provide better interdepartmental and
interagency coordination and support.
1 158,125
Office Assistant Provide more efficient administrative
support and coverage throughout the
divisions and functions.
1 114,703
Senior Planner (Housing) Alleviate the increased demand and volume of work and continue to
provide efficient project management
and coordination.
1 195,607
13 Position Purpose FTE Salaries and
Benefits
Senior Planner (Planning) Help with project management and the increased demand and volume of
applications/permits.
1 195,607
Total Community Development 5 847,965
Public Works
Management Analyst Risk and workload - One person with
responsibility for all budget, finance
and contract actions in Department
1 183,365
Maintenance Worker Lead Workload - Pavement maintenance within program
Reporting Structure - one lead for 8+
Maintenance Workers
Critical Work - keeping the streets safe
a priority
Accountability - Lead MW will ensure
continued productivity
1 146,133
Total Public Works 2 329,498
TOTAL ALL POSITIONS 14 $2,745,096
SUMMARY OF BUDGET ADJUSTMENTS (ATTACHMENT D)
The budget adjustments are presented in three primary groups. The first group pertains to the City Work Program. Due to the timing of the City Work Program 's adoption, many items were not able to be included in the Proposed Budget. The second group accounts for the City's Capital Improvement Program. The third and final group are for operating changes and generally represent items that were unknown when the Proposed Budget was published. These changes are discussed further below and are also detailed in Attachment D.
Addition of Assistant City Manager Position
This item was added via City Council motion at the Proposed Budget study session. An Assistant City Manager would oversee strategic planning and outreach, especially in legislative issues and Fund Type
Proposed
Expenditures
as of May 1, 2022
City Work
Program
Capital
Improvement
Program
Operating
Changes
Proposed
Expenditures
as of June 7, 2022
General 92,962,965 736,500 - 390, 353 94,089,818 Special Revenue 11,219,109 25,000 - - 11, 244,109 Debt Service 2,675,800 - - - 2, 675,800 Capital Projects 175,000 - 12,243,600 - 12, 418,600 Enterprise 8,979,731 - 373,600 - 9, 353,331 Internal Service 9,449,252 82,500 - ( 669,046) 8,862,706 TOTAL $ 125,461,857 $ 844,000 $ 12,617,200 $ ( 278,693) $ 138,644,364 14 advocacy, oversee outreach to the communities (residents, developers, and property owners), and oversee engagement with affordable housing developers on various ways to deliver low - income and middle-income housing
Addition of Legislative Aide (Management Analyst) Position This item was added via City Council motion at the Proposed Budget study session. A Legislative Aide would support the City Council on legislative matters and government relations. This classification doesn't currently exist in the City's classification plan. It is costed at a Management Analyst level based on information received at the study session.
Removal of Economic Development Fuse Fellow/Limited-Term Management Analyst Subsequent to submitting this proposal, staff reassessed this budget proposal due to the emergence of a critical factor: updated cost-sharing model parameters. Until recently, Fuse Corps supported a 50/50 cost-sharing model over two years. However, staff recently learned that Fuse Corps does not guarantee this model. The City may have to bear the total cost, which led staff to reconsider how best to move forward with Council prioritized work items.
Alternatively, the same goal of adding bandwidth could be accomplished with a two -year limited-term analyst to support the work of the Division for a similar cost. This item was removed via City Council motion at the Proposed Budget study session. As stated at the Proposed Budget study session, the removal of this proposal/position will result in the Visitor Center and Youth Who Work City Work Programs items being removed due to insufficient staff resources.
Removal of Fixed Assets Requests
This item was removed via City Council motion at the Proposed Budget study session. Fixed assets requests will be brought to City Council at a later time when additional information is available.
Updated SB 1 Revenue Estimates
Public Works recommends increasing Senate Bill ( SB) 1 revenue estimates by $348,427 to $1,337,044 to align with projections from the State. SB 1, also known as the Road Repair and Accountability Act of 2017 or " Gas Tax, " provides funding for local streets and roads maintenance. The amount received by the City is tied to overall State gas consumption.
Capital Improvement Program (CIP)
The CIP recommends $8,308,600 in new projects, which will be funded by the Capital Reserve.
FY 2021-22 Amended Budget fund balance for the Capital Reserve is estimated to be $13,579,991.
This is in addition to the $ 10,000,000 Capital Projects reserve in the General Fund that was established in the FY 2021-22 Mid -Year Financial Report. The current Proposed Budget recommends transferring $2,500,000 annually to the Capital Reserve. With the proposed transfer of $2,500,000 and proposed projects of $8,308 ,600, the Capital Reserve's fund balance would 15 decrease by $5, 808,600. If all CIP projec ts are approved, the Capital Reserve will have approximately $7,771,391 available for future programming.
The Capital Improvement Program (CIP) also requires interfund transfers, which are transfers between funds, to fund the projects. The first table below illustrates the capital projects' budgetary impacts. The FY 2022-23 CIP will use $ 8,308,600 in fund balance. The second table below illustrates the necessary interfund transfers between the Capital Projects Fund s and the Enterprise Funds.
Capital Improvement Program Project Revenue Expense Fund Balance
CAPITAL PROJECTS FUNDS
Blackberry Farms Pools Splash Pad - 500,000 (500,000) City Hall and Library Parking Garage: Design and Construction - 4,000,000 (4,000,000) City Lighting - LED Lighting - 1,300,000 (1,300,000) De Anza Boulevard Buffered Bike Lanes - 525,000 (525,000) Jollyman All Inclusive Play Area: Adult-Assistive Bathroom Facilities - 850,000 (850,000) Stocklmeir, Bryne and Blesch: Inspection Reports and Analysis - 90,000 (90,000) ADA Improvements (Category 2 - Multi-Year Funding) - 95,000 (95,000) Annual Playground Replacement (Category 2 - Multi-Year Funding) - 300,000 (300,000) Park Amenity Improvements (Category 2 - Multi-Year Funding) - 200,000 (200,000) Street Light Installation - Annual Infill (Category 2 - Multi-Year Funding) - 75,000 (75,000) TOTAL CAPITAL PROJECTS FUNDS - 7,935,000 (7,935,000)
ENTERPRISE FUNDS
Blackberry Farm Golf Renovation / Alternative Use Study - 23,600 (23,600) Major Recreation Facilities: Use and Market Analysis - 350,000 (350,000) TOTAL ENTERPRISE FUNDS - 373,600 (373,600) TOTAL ALL FUNDS -$ 8,308,600$ (8,308,600)$ Fund Revenue Expense Fund Balance
Capital Projects Funds - 7,935,000 (7,935,000) Enterprise Funds - 373,600 (373,600) TOTAL ALL FUNDS -$ 8,308,600$ (8,308,600)$ Fund
Revenue
(Transfer In)
Expense
(Transfer Out) Fund Balance
Capital Projects Funds 3,935,000 4,308,600 (373,600) Enterprise Funds 373,600 - 373, 600 TOTAL ALL FUNDS 4,308,600$ 4,308,600$ -$ Fund Revenue Expense Fund Balance
Capital Projects Funds 3,935,000 12,243,600 (8,308,600) Enterprise Funds 373,600 373,600 - TOTAL ALL FUNDS 4,308,600$ 12,617,200$ (8,308,600)$ FY 2022-23 CIP Budget (excluding transfers)
FY 2022-23 CIP Transfers
FY 2022-23 Total CIP Budget and Transfers
16 City Work Program
The City Work Program for FY 20 22-23 was adopted by City Council on May 1 7, 2022, after the Proposed Budget was published on May 1, 2022. As a result, the following items and adjustments are recommended to account for City Council's actions.
1 Lawson Middle School Bikeway ($40,000) was included in the FY 2022-23 Proposed Budget printed on May 1, 2022. 2 Vision Zero ($80,000) was included in the FY 2022-23 Proposed Budget printed on May 1, 2022. 3 Visitor Center ($40,000) is on hold until additional staff resources are allocated. 4 Youth Who Work ($70,000) is on hold until additional staff resources are allocated. 5 Study Session on City-Owned Properties ($90,000) is funded in the CIP budget under Stocklmeir, Bryne and Blesch:
Inspection Reports and Analysis.
6 Blackberry Farm Golf Course Needs Assessment ($ 23,600) is funded in the CIP budget under Blackberry Farm Golf Renovation / Alternative Use Study.
City Work Program Project Revenue Expense Fund Balance
GENERAL FUND
CWP - Analyze Potential Revenue Measures - 50,000 (50,000) CWP - Artwork at the Library/Exhibits/Poetry and Art Day - 10,000 (10,000) CWP - Bicycle Facilities - 50,000 (50,000) CWP - Community Engagement on Alternative Transportation and Parking - 12,000 (12,000) CWP - Cupertino Store Implementation - 145,000 (145,000) CWP - Electrification Study - 50,000 (50,000) CWP - Homeless Jobs Program - 200,000 (200,000) CWP - Integrated Plan for Community Engagement - 30,000 (30,000) CWP - Intergenerational Engagement - 20,000 (20,000) CWP - Safe Gun Storage Ordinance - 12,000 (12,000) CWP - Senior Strategy - 35,000 (35,000) CWP - Student Internship Program - 15,000 (15,000) CWP - Lawson Middle School Bikeway 1 - - - CWP - Vision Zero 2 - - - CWP - Visitor Center 3 - - - CWP - Youth Who Work 4 - - - TOTAL GENERAL FUND - 629,000 (629,000)
SPECIAL REVENUE FUNDS
CWP - Housing Programs for De Anza College Students - 25,000 (25,000) TOTAL SPECIAL REVENUE FUNDS - 25,000 (25,000)
CAPITAL PROJECTS FUNDS
CWP - Study Session on City-Owned Properties 5 - - -
TOTAL CAPITAL PROJECTS FUNDS - - -
ENTERPRISE FUNDS
CWP - Blackberry Farm Golf Course Needs Assessment 6 - - -
TOTAL ENTERPRISE FUNDS
INTERNAL SERVICE FUNDS
CWP - Cybersecurity Public Education - 7,500 (7,500) CWP - Hybrid Meeting for City Council and Commission Meetings - 15,000 (15,000) CWP - License Plate Readers - 60,000 (60,000) TOTAL INTERNAL SERVICE FUNDS - 82,500 (82,500) TOTAL ALL FUNDS -$ 736,500$ (736,500)$ 17 ONGOING CHALLENGES
Retirement Benefits
Cupertino provides retirement benefits for its employees through the California Public Employee's Retirement System (CalPERS). Poor investment returns during the Great Recession significantly decreased the plan's assets. In addition, enhanced benefits and actuarial assumption changes due to increased life expectancies increased the plan's liabilities. As a result, the City's pension costs have increased significantly and are one of the City's largest financial obligations.
The City's projected CalPERS costs as of the June 30, 2020, actuarial valuation are shown below.
In December 2016, the CalPERS Board of Administration lowered the discount rate from 7.5% to
7.0% with a three-year phase -in beginning in FY 2018- 19. This change result ed in significant increases in retirement costs but improved the financial stability of the pension system.
In FY 2020-21, CalPERS earned an investment return of 21.3%, 14.3 percentage points above the 7% discount rate. The investment return triggered the Fu nding Risk Mitigation Policy, lowering the discount rate to 6.8%. The discount rate reduction partially offsets the effect of the investment gain. The investment gain and discount rate reduction will impact the City's pension costs starting in FY 2023- 24. In FY 2027-28, when the investment gain is fully phased in, the City's annual costs are expected to be $1.3 million lower than previously projected.
In contrast, 2022 has been a volatile year for stocks. Financial conditions are expected to remain tighter with heightened geopolitical risk, supply chain bottlenecks and persistent inflation, and the Federal Reserve's pivot to less accommodative monetary policy. If CalPERS' s investments earn less than the 6.8% discount rate, the City can expect increas ed pension costs. CalPERS investment earnings would affect the City's costs starting FY 2024-25 and would gradually increase over five years.
In May 2018, the City implemented a Pension Rate Stabilization Program (PRSP), a Section 115 Trust, to reduce pension rate volatility on the City's budget. The Section 115 Trust can be used to fund pension costs if CalPERS costs increase.
Revenue Volatility
The City 's sales tax revenue is highly dependent on a volatile revenue source: business-to - business (B2B) sales taxes. Business-to -business sales tax revenues are sensitive to economic fluctuations, as Cupertino experienced during the dot-com crash from 2000 to 2004. The loss of one of the City's top three sales tax producers in FY 2013-14 made the City more reliant on a single tax producer, making the City more vulnerable.
18 The City's sales and transient occupancy tax revenues have experienced significant fluctuation since the outbreak of COVID-19 in 2020. While restaurants and hotels, general consumer goods, and automotive industry groups were severely impacted, the City 's business-to -business and County pool allocation share increased substantially. Statewide shelter -in-place mandates reduced sales tax revenue from restaurants and brick and mortar retail but increased sales tax revenue from online sales. Additionally, the conversion to remote work throughout the State increased the demand for computer and electronics equipment, which also increased the City 's sales tax revenues. T he City's sales tax revenues spiked to historic highs in FY 2020 -21, but the City considers it one -time. As the State rebounds from the pandemic and businesses continue their opening, it is anticipated that the City's restaurant and hotels, general consumer goods, and automotive industry groups will recover and increase. However, these increases will only slightly mitigate the anticipated declines in the City's business-to-business and County pool allocation as online sales fall from recent historic highs. Transient occupancy remains d evastated due to reduced business travel during the pandemic. Although recovery is anticipated by FY 2023-24, the extent of the post-pandemic recovery is unknown.
Budget Study Session
On May 17, 2022, and May 19, 2022, City Council held study sessions to review the FY 2022-23 Proposed Budget. City staff presented General Fund revenues, expenditures, and forecasts. City Council provided input and requested clarifications for which staff responses were attached.
General Plan Consistency and Environmental Compliance of the Capital Improvement Plan State law and the Cupertino Municipal Code (Section 2.32.070.C) require the Planning Commission to review the CIP for consistency with the City 's General Plan (General Plan:
Community Vision 2015 - 2040). The Planning Commission reviewed the FY 2022-23 Proposed CIP Budget on April 12, 2022, and found that the FY 2022-23 Proposed CIP is consistent with the City's General Plan and that this consistency determination is exempt from CEQA (see draft resolution Attachment L).
City staff has independently studied the Proposed CIP and determined that the CIP is exempt from environmental review pursuant to the exemption in Title 14-California Code of Regulations, §15061(b) (3), and §15378, in that it can be seen with certainty that there is no possibility that this CIP budget action will have a significant effect on the environment due to the approval of the budget, and does not involve approval of any specific project that may have a significant effect on the environment. Each pro posed CIP project will be evaluated to determine if the California Environmental Quality Act (CEQA) applies . A s applicable, each project will conduct the appropriate level of environmental analysis.
Prepared by: Thomas Leung, Acting Finance Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Dianne Thompson, Assistant City Manager
19 Attachments:
A – Draft Resolution – Operating Budget for Fiscal Year 2022-23 B – Draft Resolution – Capital Budget for Fiscal Year 2022-23 C – Draft Resolution – Appropriations Limit for Fiscal Year 2022-23 D – Budget Adjustments Summary and Detail
E – Appropriation Limit for Fiscal Year 2022-23
F – Appropriation Limit Price and Population Factors for Fiscal Year 2022-23 G – Budget Manager and Purchasing Manager Job Descriptions H – Draft Resolution Amending Unrepresented Employees' Compensation Program 06.07.2022 I – Unrepresented Comp - Revised - 06.07.2022 Clean Draft - Adding Budget and Purchasing Manager
J – Unrepresented Comp - Revised - 06.07.2022 Redline Draft - Adding Budget and Purchasing Manager
K – Proposed Budget Questions and Answers
L – Planning Commission Draft Resolution
M – CIP Supplemental Information