CC 05-21-2024
#3
May 7, 2024 Minutes
Desk Item
1 CITY COUNCIL STAFF REPORT
DESK ITEM
Meeting: May 21, 2024
Agenda Item #3
Subject
Approval of May 7, 2024 City Council minutes
Recommended Action
Approve the May 7, 2024 City Council minutes
Background:
An amendment was made to the draft May 7, 2024 City Council minutes. The substitute motion on page 5 was corrected to strike ʺ Noneʺ from the Noes vote. See redline attachment.
Attachments Provided with Original Staff Report:
A. Draft Minutes
Attachments Provided with Desk Item:
A. Amended Draft Minutes (redline)
City Council Minutes May 7, 2024
and Son, gave a presentation.
Councilmembers asked questions and made comments.
Mayor Mohan opened the public comment period and the following members of the public spoke.
San R
Lisa
Mayor Mohan closed the public comment period.
MOTION: Moore moved and Wei seconded to direct staff to prepare and send a letter taking a
position of support for Item 3 Senate Bill (SB) 1143 (Allen) ‐ Environmental ‐ Waste Management and to consider Items 1 and 2 separately. The motion carried with the following vote: Ayes: Mohan, Fruen, Chao, Moore, and Wei. Noes: None. Abstain:
None. Absent: None.
MOTION: Moore moved and Chao seconded to direct staff to prepare and send a letter taking a positi
on of support for Item 2 Assembly Bill (AB) 1779 (Irwin) ‐ Public Safety.
The motion carried with the following vote: Ayes: Mohan, Fruen, Chao, Moore, and Wei. Noes: None. Abstain: None. Absent: None.
SUBSTITUTE MOTION: Moore moved and Chao seconded a substitute motion to direct staff to prepare and send a letter taki
ng a “watch” position for Item 1 Bay Area
Affordable Housing Measure (BAHFA) ‐ Affordable Housing, until further information is available. The substitute motion failed with the following vote: Ayes: Chao and Moore. Noes: Mohan, Fruen, and Wei. None. Abstain: None. Absent: None.
MOTION: Wei moved and Fruen seconded to
direct staff to prepare and send a letter
taking a position of support “in concept” for Item 1 Bay Area Affordable Housing Measure (BAHFA) ‐ Affordable Housing.
FRIENDLY AMENDMENT: Fruen made a friendly amendment to include a request for a strong return to source provisions and stronger public oversight of the bond, as per the League of Women Voters Bay Area letter of April 15, 2024 to the ABAG Executive Board. (Wei accepted Fruen’s friendly amendment).
FRIENDLY AMENDMENT: Chao made a friendly amendment for equitable treatment
between residential and commercial properties. (Wei declined Chao’s friendly amendment and it was not includ
ed in the motion).
The amended motion carried with the following vote: Ayes: Mohan, Fruen, Chao, Moore, and Wei. Noes: None. Abstain: None. Absent: None.
CC 05-21-24 Amended Minutes -
CC 05-21-2024
#4
Accounts Payable
Supplemental Report
1 CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: May 21, 2024
Agenda Item #4
Subject
Ratifying Accounts Payable for the periods ending April 5, 2024; April 12, 2024; April 19, 2024; and April 26, 2024
Recommended Action
A. Adopt Resolution no. 24-XXX ratifying Accounts Payable for the Period ending April 5, 2024;
B. Adopt Resolution no. 24-XXX ratifying Accounts Payable for the Period ending April 12, 2024;
C. Adopt Resolution no. 24-XXX ratifying Accounts Payable for the Period ending April 19, 2024; and
D. Adopt Resolution no. 24-XXX ratifying Accounts Payable for the Period ending April 26, 2024
Background:
Staff’s responses to questions received from councilmembers are shown in italics.
Q1: What is: 192504036 02/01/2024 Business Class Internet - Mary, Stevens ck, Jan. 2024 $967.39 (Council member Chao)
Staff Response: The charge from Comcast pertains to a backup connection between City Hall and four separate City locations. These services have been terminated earlier this month as AT&T now reliably connects these locations to City Hall
Q2: What is: 275450 04/03/2024 10291 Imperial Ave, LMAT 100%, 275450 $50,000.00 (Council member Chao)
Staff Response: The release of a labor and materials bond related to completed improvements for the project at the address indicated.
2 Q3: Justification for taking $900.93 from the BMR housing fund for conference fees? AlecV03082024 03/08/2024 Reimbursement for Housing CA Conference_03.06.24 - 03.08.24 $900.93, there is another $9.95 transaction for SJ Mercury News and that doesn’t seem right to me either. (Council member Chao)
Staff Response : Both expenses are appropriately expensed to the BMR Housing Fund as Administrative Costs, in accordance with Section 2.2.2 (B1) Permitted Use of Fees of the BMR, BMR Program Administration.
Q4: I was unable to find a contract in public records for FRSecure. Can you make sure that all contracts are posted under agreements?
39385 04/05/2024 Open Accounts Payable FRSecure LLC $10,437.50 Invoice Date Description Amount BD0004829 03/25/2024 Risk Assessment L2 2023 Final 50% Payment - Project Completed $10,437.50 (Council member Chao)
Staff Response: The question is not germane to the agenda item.
Q5: Note – A/P is inconsistent wrt to child support / garnishment and I think that all names should be redacted (Council member Chao)
Staff Response: The County requires the City to include employee names and other information on all remitted garnishments to ensure accurate application to the correct accounts. Garnishment orders are public records, and the redaction of the names would not likely be justified under the California Public Records Act.
Q6: I see that we did legal advertising for the Teen Commission Vacancy here, WORLD JOURNAL SF LLC. Did we advertise elsewhere? (Council member Chao) Staff Response: The question is not germane to the agenda item.
Q7: There are a number of businesses that do business with the City in Cupertino that do not have business licenses. Can you please check that they have business licenses before they are paid? (Council member Chao)
Staff Response: The question is not germane to the agenda item.
Attachments Provided with Original Staff Report:
A – Draft Resolution 4.5.24
B – Weekly AP Payment Register for the Period Ending 4.5.24 C – Draft Resolution 4.12.24
D – Weekly AP Payment Register for the Period Ending 4.12.24 E – Draft Resolution 4.19.24
F – Weekly AP Payment Register for the Period Ending 4.19.24 G – Draft Resolution 4.26.24
3 H – Weekly AP Payment Register for the Period Ending 4.26.24
CC 05-21-2024
#7
Road Maintenance and
Rehabilitation Account
(RMRA)
Supplemental Report
CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: May 21, 2024
Agenda Item #7
Subject
Fiscal Year (FY) 2024/2025 projects proposed to receive funding from the Road Maintenance and Rehabilitation Account (RMRA), created by Senate Bill (SB) 1.
Recommended Action
Adopt Resolution No. 2024-XXX (Attachment A) establishing a list of projects proposed to be funded by $1,549,796 of SB 1 revenues, estimated to be received in FY 2024/2025.
Background:
No additional background information, only council questions.
Q1: What do you mean by “park pathway improvements”? (Chao and Moore) Staff response: Repair of asphalt pavement at existing pathways, including pathways near Hyde Middle School and Three Oaks Park.
Q2: What exact streets is this referring to? (Chao and Moore) Staff response: A list of streets is provided in the staff report and Resolution.
Q3: CLARIFY: The Staff Report says cities must submit a FY 2024/2025 project list before the end of FY 2024 which is June 30, 2024, to receive the SB1 funds.
BUT after the 2 listed projects, it includes a statement that the staff can change these projects any time and the Council and public will only find out about it AFTER the fact, during the annual reporting process!
What is the process to change the priority of the use of these funds? (Chao and Moore)
Staff response: Any changes to the list of projects that are funded by SB1 dollars would be presented to City Council for authorization prior to award of contract. Such change is allowable under SB1.
Q4: Who makes that priority change decision? Is there any review BEFORE the change is done? (Chao and Moore)
Staff response: Staff recommends funds be used for pavement maintenance and other transportation priorities identified in Capital Improvement Program and the 2016 Bicycle Transportation Plan (BTP). Any changes to the list of projects that are funded by SB1 dollars would be presented to City Council for authorization prior to award of contract.
Q5: CLARIFY: on page 1 of the Staff Report, it appears that so long as the city keeps their Pavement Condition Index at 80 or above, they can spend these SB1 funds on just about anything in transportation, even if it is NOT a high priority item.
(Chao and Moore)
Staff response: Retaining a PCI above 80 allows the City greater latitude in projects.
Q6: Is there a Council-approved prioritized list of transportation items? (Chao and Moore)
Staff response: The BTP, adopted by Council June 21, 2016, and the Pedestrian Transportation Plan (PTP), adopted by City Council on February 20, 2018.
Q7: If So, where is it? What’s the process to make changes to it? (Chao and Moore)
Staff response: The BTP can be found at:
https://www.cupertino.org/home/showpublisheddocument/3479/63644357834003000 0;
The PTP can be found at:
https://www.cupertino.org/home/showpublisheddocument/16864/6366500349744700 00 The FY 24-25 City Work Plan that is proposed for City Council approval includes an update to these two plans through the creation of an Active Transportation Plan, which will be adopted by City Council prior to finalization.
Q8: When will the Monthly Treasurer’s Reports have this account (270 -85-821 440-437 Intergovernmental SB1) added to them as a separate line item? If not, why? (Chao and Moore)
Staff Response: The Monthly Treasurer’s Reports present information at the Fund level rather than at the individual account level. For detailed information regarding the account 270 -85- 821 440-437 (Intergovernmental SB1), we recommend using OpenGov, the City’s accounting and finance transparency platform.
Q9: Are there other accounts that have or should be added to the Treasurer’s Report due to special reporting requirements for new funding sources? (Chao and Moore) Staff Response: As mentioned in the response to the previous question, individual accounts are not included in the Treasurer’s Report. However, detailed information about such accounts can be accessed through OpenGov, the City’s accounting and finance transparency platform.
Q10: It would be my preference that the SB 1, Measure B 2016, and other funds be broken out of the Transportation fund for clarity, but that does get into the question of where to stop such as grants and individual developer conditions of approval that show up in the AB 1600 report. I do not know what the right balance is, but there should be a capability to break down the Transportation fund by its parts? (Moore)
Staff Response: Thank you for the input on information you would like to see.
Attachments Provided with Original Staff Report:
A. Draft Resolution
CC 05-21-2024
#11
FY 2024-25 Proposed
Budget
Supplemental Report
1 CITY COUNCIL STAFF REPORT
SUPPLEMENTAL 1
Meeting: May 21, 2024
Agenda Item #11
Subject
Initial Study Session on Fiscal Year (FY) 2024 -25 Proposed Operating and Capital Improvement Program Budgets
Recommended Action
Initial Study Session on Fiscal Year (FY) 2024-25 Proposed Operating and Capital Improvement Program Budgets
Background:
Subsequent to completion of the original report, staff compiled information provided by Baker Tilley in support of the analysis provided on revenue assumptions. This timeliness of this effort given the City’s changing budget allowed for a constructive third-party review to ensure alignment with industry best practices. A report of the findings and recommendations are provided as Attachment W.
Staff’s responses to questions received from councilmembers are shown in italics.
Q1: a spreadsheet of the adopted work program with the cost and staff resources, similar to the adopted work program from last year and earlier (Council member Chao) Staff Response: This information is included in the Budget Message ( Attachment C), which can be viewed here.
Q2: a chart of the historic staffing table (since 2013 for example) which is normally in an attachment of the proposed budget. Please include the image in the supplemental report for easy reference (Council member Chao)
Staff Response: Attached are the personnel schedules from the FY 2017-18 Final Adopted Budget and the FY 2024-25 Proposed Budget. These schedules combined provide the information requested.
2 Q3: a chart of the historic annual budget, revenue and expenses, which likely could be created from the interactive budget website. Please include the images in the supplemental report for easy reference. (Council member Chao)
Staff Response: The following chart and link show historical General Fund revenues and expenses from the annual budget.
https://cupertino.opengov.com/transparency#/28184/accountType=revenuesVersusExpenses&emb ed=n&breakdown=types¤tYearAmount=cumulative¤tYearPeriod=years&graph=bar &legendSort=desc&proration=true&saved_view=83836&selection=9C2A43FB322CD4C8B0EBF 19802609C1F&projections=null&projectionType=null&highlighting=null&highlightingVariance =null&year=2025&selectedDataSetIndex=null&fiscal_start=2016&fiscal_end=latest
Q4: The proposed staffing level and the number of currently unfilled positions. A timeline of filling those positions. (Council member Chao)
Staff Response: The following 27 positions are currently vacant. The list includes the five positions being recommended for elimination as part of the FY 2024-25 Proposed Budget.
Position Class Title (working title) Proposed De-funded FY 2024-2025
Recruitment Status
(in
progress/pending
approval)
1 Senior Office Assistant Pending approval
2 Recreation Coordinator Pending approval
3 Senior Planner Pending approval
4 Assistant Planner Pending approval
5 Associate Planner Pending approval
6 Code Enforcement Officer Pending approval
7 Senior Planner Pending approval
8 Planning Manager (Housing Manager) Pending approval 9 Building Inspector Pending approval
10 Senior Housing Coordinator In progress
3 Position Class Title (working title) Proposed De-funded FY 2024-2025
Recruitment Status
(in
progress/pending
approval)
11 Assistant Planner In progress
12 Senior Office Assistant (underfill as Office Asst) Pending approval 13 Special Project Executive Defund NA
14 Management Analyst Pending approval
15 Assistant City Manager Pending approval
16 GIS (IT) Manager Defund NA
17 Senior Management Analyst (underfill Mgt Analyst) In progress 18 Environmental Programs Assistant In progress
19 Assistant Engineer In progress
20 Maintenance Worker II Defund NA
21 Environmental Programs Assistant In progress
22 Public Works Project Manager Defund NA
23 Maintenance Worker I In progress
24 Maintenance Worker I In progress
25 Maintenance Worker I In progress
26 Senior Public Works Project Manager In progress
27 Senior Public Works Project Manager Defund NA
Q5: a summary of staffing in the City Manager's Office (Council member Chao) Staff Response: See attachment from question 2.
Q6: a chart of the historic budget and expenses for the CIP projects (Council member Chao) Staff Response: This can be found at www.cupertino.org/opengov , select budget vs actuals under
reports and then scroll down to views and select “Budget vs. Actual Expenditures for Capital Improvement Program by Project.”
Q7: Why did we choose to replace the org chart to remove the "residents" on top? Could we restore it? (Council member Chao)
Staff Response: The org chart has been revised in the proposed budget to align the actual staff headcounts with the proposed budget. Staff believes this is a better depiction of overall paid positions. Organizational charts normally show the internal structure of an organization and the relationships between the different people, departments or jobs within the organization. However, it goes without saying that citizens of Cupertino elect the City Council, and the City Manager takes direction from the Council. Ultimately, Council and staff are here to support the community.
Q8: Who applied for but did not receive community funding (Mayor Mohan)
Staff Response: Below is a list of all applicants. The top 6 are the ones that were recommended. The others with no recommendation were not recommended to award any funding.
4 Applicant Project Commission
Score
Amount
Requested
Recommended
Award
Amount
Cupertino
Symphonic Band
Band Equipment and
Materials - Purchase of new
sheet music, outdoor uniforms,
marketing banners and rental
fees
95 $6,063.00 $3,000.00
Cupertino Little
League
Scoreboard Replacement -
Purchase of two new
scoreboards at Wilson Park
94 $20,000.00 $16,000.00
West Valley
Community
Services
Gift of Hope 2024 - Provide
gifts and food to homeless and
low income families during the
December holiday season
92 $10,000.00 $3,750.00
AINAK AINAK Eyeglasses - Provide
free eye exams and prescription
eyeglasses to under resourced
students
83 $10,000.00 $2,750.00
STEMBoost Elementary Science
Olympiad Summer
Workshops - Support in
person and online STEM
workshops for Cupertino
students grades 2-5
82 $4,000.00 $3,000.00
Rotary Club of
Cupertino
House Renovations - Partner
with Rebuilding Together to
refurbish two houses or non-
profit facilities
41 $4,000.00 $4,000.00
Special Olympics
Northern
California
2024 Spring Games - Cover
expenses related to the 2024
Special Olympics Regional
Spring Games event in
Cupertino
38 $15,959.00 -
Chinese
American
Coalition for
Compassionate
Care (CACCC)
Loss and Grief Workshop
and Starting the
Conversation - Provide free
workshops to address life,
death, grief and loss, mindfully,
for the Chinese community,
multigenerational Chinese
families and family caregivers
36 $15,000.00 -
Bay Area Urban
Eagles
Summer Aviation Academy
2024 - Facilitate a ten-week
summer educational program
that explores aerospace and
careers in the aviation industry
31 $20,000.00 -
Omniware
Networks
Improve Mental Health for
Low Income Seniors -
29 $4,000.00 -
5 Applicant Project Commission
Score
Amount
Requested
Recommended
Award
Amount
Organize events and outings
for seniors
Monta Vista High
School Speech
Boosters Inc
Monta Vista Speech
Program - Expand speech
program and summer camp
program, cover coaching
workshops and tournament fees
26 $6,500.00 -
TOTAL $115,522.00 $32,500.00
Q9: Salary comparison – PW Project Manager vs Contractor (Council member Moore) Staff Response: Consultants are generally used to supplement existing staff for a variety of reasons including, but not limited to, specialized knowledge, staff bandwidth, and limited need for services such as an uptick in workload. Staff is recommending defunding two vacant Project Manager positions based on the following considerations: dollars available for CIP funding will be greatly diminished for the next five years due to the City’s current budget situation and will likely lead to a temporary reduction in the number of projects proposed. CIP currently has over $40 million dollars budgeted toward projects at various stages of completion. Staff estimates that existing budgeted staff positions and consultants will be sufficient to complete these projects. Savings to the City for each Project Manager position eliminated is estimated at $239,000 annually.
Q10: Debt service budget, Cupertino’s Public Facilities Corporation, add non profit language (Council member Moore)
Staff Response: On Page 623 of the FY 2024-25 Proposed Budget, it states the following:
The Debt Service Program accounts for the payment of principal and interest and associated administrative costs incurred with the issuance of debt instruments for the City’s Public Facilities Corporation.
In the FY 2024-25 Adopted Budget, the description will be updated to state that the Public Facilities Corporation is a non-profit.
Q11: Background on Cost Allocation Plan (CAP) and its recent implementation. Was this part of the Matrix’s study and finding? (Council member Moore) Staff Response: In 2023, Matrix Consulting Group was contracted to conduct a Comprehensive Fee Study and Overhead Cost Allocation Study for the City. Matrix was asked to provide a Cost Allocation Plan (CAP) to help the City appropriately allocate general and administrative costs, and properly identify overhead rates for federal and state grants, user fees, and other funding sources. The updated CAP was incorporated in the FY 2024-25 Proposed Budget. 6 The Fee Study and Cost Allocation Plan reports were presented to Council on February 6, 2024.
Q12: Historical background on allowing contingencies to be included in the proposed budget vs contracts that have contingency (normally 10%) already built into the overall funding. (Council member Moore)
Staff Response: Historically, program contingencies are budgeted for all contracts and materials within that program. This allows funding to be available within a program to cover unexpected program needs. All public work construction projects and certain Innovation & Technology department projects have approved contingency that varies for each specific contract. Program contingency funds not used are reconciled back to the general fund while project contingency funds are returned to the funding source at project closeout.
Q13: This was discussed during the Friday prep session but please provide a confirmation that $160k extra staffing cost has been eliminated from the library budget. If so, why is there a $160K CAP calculated into the proposed budget. (Council member Moore)
Staff Response: Extra staffing costs have been eliminated from the Library budget. CAP costs are still budgeted because the CAP uses data from FY 2022 -23. The CAP is prepared using the most recent full fiscal year’s data.
Attachments Provided with Original Staff Report:
A - Table of Contents
B - Introduction
C - Budget Message
D - Budget Guide
E - Community Profile
F - Financial Policies
G - All Funds Financial Schedules
H - General Fund Financial Schedules
I - Council and Commissions
J - Administration
K - Law Enforcement
L - Innovation and Technology
M - Administrative Services
N - Parks and Recreation
O - Community Development
P - Public Works
Q - Non-Departmental
R - Appendix
S - FY 2024-25 CIP new Project Narratives
T - FY 2024-25 CIP 5-year Project Info
Attachments Provided with this Supplemental Report:
U – FY 2017-18 Personnel Schedules
7 V – FY 2024-25 Personnel Schedules
W- Report from Baker Tilley on budget assumptions.
Attachment U
Personnel Schedule
FY 2024-25 Proposed Budget Appendix 639
Attachment V
FY 2024-25 Proposed Budget
Appendix
640
To: Pamela Wu, City Manager
Matt Morley, Assistant City Manager
Kristina Alfaro, Administrative Services Director
Thomas Leung, Budget Manager
From: Steve Toler, Director
Noemi Barter, Project Manager
Steve Montano, Special Advisor
Subject: Cupertino Financial Forecast Review
Date: May 21, 2024
T
he City engaged Baker Tilly to conduct an independent review of the City’s long-range financial forecast and to support the City in developing a fiscal sustainability plan for future years based on any fiscal gap identified within the resulting forecast.
I
n the first phase of this project our focus was
to conduct an independent analysis of the
long-range forecast being prepared as part of
the proposed FY 2025 annual budget. Our
work encompassed five primary activities,
culminating in a report to the City Council of
the results. Those activities included our
independent review and analysis of the items
shown in this graphic.
We
have prepared a comprehensive slide deck that includes an overview our approach, background information on financial forecasting, and our observations and recommendations to improve the forecast, most of which have been incorporated in the City’s FY 2025-2034 financial forecast that is being presented to the Council this evening. The slide deck is attached to this memorandum. We will provide highlights of our work during the Council’s budget study session.
O
verall, we believe that the FY 2025 financial forecast being presented to the Council this evening provides a reasonable basis upon which to inform Council’s decisions for the proposed FY 2025 budget and incorporates the key recommendations that were discussed with staff during this phase of the project.
Attachment: Baker Tilly Slide Deck: City of Cupertino Financial Forecast Review, May 21, 2024 Baseline budget vs. actual data
Revenue and expenditure assumptions
Fund balance reserves and policies
Economic assumptions
City's proposed budget strategies for FY 2025
Attachment W
Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2024 Baker Tilly US, LLP.
City of Cupertino
Financial
Forecast Review
Steve Toler, Director
May 21, 2024
2 Project Overview
CUPERTINO FINANCIAL FORECAST REVIEW
Phase I – Independent Analysis of
Long-Range Forecast
• Review baseline budget vs. actual data
• Review revenue assumptions
• Review expenditure assumptions
• Analyze fund balance reserves and
policies
• Review economic assumptions
• Analyze City’s proposed budget
strategies for FY 2025
• Report results
Phase II – Prepare Fiscal Sustainability
Plan
• Identify additional budget strategies to
address long-term gap (if any)
• Conduct comparative research
• Analyze budget strategies and prepare
budget scenario packages
• Facilitate community engagement
• Support Council decisions on
development of fiscal sustainability plan
• Prepare implementation action plan
3 “Financial forecasting is
basically math. What
makes it powerful is:
Accurate baseline data
Realistic assumptions
The ability to tell a story
about the fiscal health of
an agency
But remember, the
numbers never sleep.”
Financial
Forecasting
4 Financial Forecasting in Local Government
CUPERTINO FINANCIAL FORECAST REVIEW
• Fiscal management tool to inform and
assist in decision-making
• Government policies
• Strategic goals
• Provision of community services
• Identifies future revenue and
expenditure trends
• Integral to annual budget process
• Promotes sound fiscal discipline in
service delivery
• Credible
• Transparency
• Descriptive of external forces
• Within acceptable accuracy tolerances
• Solid set of assumptions
• Understandable
• Clear, simple, reasoned
• Relating assumptions to projections
• Implications
• Linked to sound fiscal practices
• Reserve policies
• Maintaining structural balance
• Long-term fiscal planning
How They Are Used
What Makes Them Useful
5 Financial Forecasting in Local Government
CUPERTINO FINANCIAL FORECAST REVIEW
• Setting fees and charges
• Determining what services and level of
services to provide
• Determining service delivery model
(e.g., employee, contract, shared
services)
• Establishing staffing levels
• Setting compensation and benefit
levels
• Determining type and level of
investment in capital
project/infrastructure investment
• Increasing taxes
• Economic trends
• Recessionary impacts
• Private investment in development and
retail business
• Travel and tourism
• Pension costs
• Bond market interest rates
• Emergency events and emergency
response
Things Within the City’s Control
Things Outside the City’s Control
6 City’s Forecast – Our Initial Reactions
CUPERTINO FINANCIAL FORECAST REVIEW
Excel-based model
Trend analysis of
historical actual
results
Future trends at
detailed categories
for revenues and
expenditures
Tracks overall
impacts to
reserves
Provides good
storytelling
graphics to inform
decisions
Has ability to grow
based on the
agency’s needs
7 Executive Summary of Our Independent Review
CUPERTINO FINANCIAL FORECAST REVIEW
FY 2025 financial forecast provides a reasonable basis upon which to inform Council’s decisions for the proposed FY 2025 budget
Staff has improved the forecast based on our interactions and discussions during the project
Improvement recommendations will not significantly change the story of the City’s fiscal health, but should be considered to better refine future forecasts 8 Economic Assumptions in the Region
CUPERTINO FINANCIAL FORECAST REVIEW
Recessionary impacts Not likely to hit local government until 2027 Investment returns
Soften within 12 months
Glideslope to around 2% over the next several years
Interest rates
Same softening trend
Impact on housing vs. household earnings
Real estate prices
Prices leveled off in midst of lingering interest rates Commercial vacancies and Prop 8 appeals
9 Analysis of Key Assumptions Used in City’s
Forecast - Revenues
CUPERTINO FINANCIAL FORECAST REVIEW
Category
City’s Original
FY 2024 Assumptions
Fiscal
Impact1
City’s Revised
FY 2025 Assumptions Baker Tilly’s Comments
Recessions Start in FY 2025, flatline
for all revenue
categories; repeats
every 4 years
Start in FY 2028,
repeat every 7 years
Start in FY 2028 with 7-year cycle is reasonable; future forecasts should revise impact based on revenue
category assuming 3-year recovery period (e.g., sales
tax, TOT, development fees)
Property
tax
3.7% in FY 2024,
reducing to 2.9% by FY
2033
3.7% in FY 2025
tapering to 2.8% by
2034
Historical growth of 4.7% included significant
development; long-range expectations will depend on
commercial occupancy recovery
Sales tax Combined average 2%
growth per year
Combined average
3.3% growth per year
Revised assumptions better approximate historical
trends extracting impact from CDTFA decision
Hotel tax
(TOT)
3.3% in FY 2024,
reducing to 2.1% by FY
2033; pre-Pandemic
levels not achieved until
FY 2033
3.1% in FY 2024,
reducing to 2% by FY
2034; pre-Pandemic
levels not achieved
until FY 2032
Realistically conservative assumptions; business travel growth and occupancy rates must be monitored
closely; other agencies in region seeing 3.5% growth on average and have recovered back to pre-Pandemic
levels in FY 2024
1 – Net positive impact on forecast Net neutral impact Net negative impact 10 Analysis of Key Assumptions Used in City’s
Forecast - Revenues
CUPERTINO FINANCIAL FORECAST REVIEW
Category
City’s Original
FY 2024 Assumptions
Fiscal
Impact1
City’s Revised
FY 2025 Assumptions Baker Tilly’s Comments
Development
fees
3% growth in FY 2024
leveling off to average
1.7% after FY 2026
6.7% and 8.9% in FY
2025 and 2026,
reducing to average
1.7% after FY 2028
Higher development fees is reasonable based on
development in pipeline and historical trends; future
forecasts should consider detailed calculations of
projects in pipeline and reasonably expected to
complete.
Utility users
tax 0.7% growth long-term 0.7% growth long-
term
UUT may increase significantly in FY 2025 based on
PG&E rate increases; long-term growth typically seen at 3% or more depending on gas and electric rate increase
expectations; telecom is typically stagnant
Franchise fees Average 1.7% long-term
growth
Average 1.7% long-
term growth
Reasonable given cord-cutting impact on video
services; refine estimates in FY 2026 based on solid
waste anticipated impacts
1 – Net positive impact on forecast Net neutral impact Net negative impact 11 Analysis of Key Assumptions Used in City’s
Forecast - Revenues
CUPERTINO FINANCIAL FORECAST REVIEW
Category
City’s Original
FY 2024 Assumptions
Fiscal
Impact1
City’s Revised
FY 2025 Assumptions Baker Tilly’s Comments
Cost
allocation
plan
Reset based on study;
2.5% growth long-term
Reset based on study;
3.5% growth long-
term
Increased growth assumptions better match personnel
cost expectations
Interest
earnings
Used 0.5% growth based
on baseline year
Assumes current
investment yield,
tapering to 2% return
long-term
Interest earnings now calculated based on reserve
balances; better approximation of interest earnings
that fluctuate based on reserve balances and yields
Summary: Revised revenue forecast better approximates future results based on currently -
known market
trends; continued improvements in refining impacts from future recessions, and updating TOT revenues and future development projects will be helpful to refine future forecasts 1 – Net positive impact on forecast Net neutral impact Net negative impact 12 Analysis of Key Assumptions Used in City’s
Forecast – Expenditures (Personnel Costs)
CUPERTINO FINANCIAL FORECAST REVIEW
Category
City’s Original
FY 2024 Assumptions
Fiscal
Impact1
City’s Revised
FY 2025 Assumptions Baker Tilly’s Comments
Salaries and
employee
compensation
Long-range placeholder
based on reduced CPI
estimate
Long-range
placeholder based on
increased CPI estimate
Updated assumption is more realistic as a placeholder
based on historical trends and potential future CPI
trends
Health
insurance
5.9% increase in FY
2024, reducing to 5%
by FY 2033
5.9% increase in FY
2024, reducing to 5%
by FY 2033
Assumptions are within reason; most agencies used a
6% growth factor based on historical PEMHCA trends
Pension costs
Employer normal and
UAL costs based on
2022 CalPERS report
Employer normal and
UAL costs based on
2023 CalPERS pension
outlook tool
Continue to use the most updated CalPERS pension
outlook tool to project future costs
Vacancy rates
Assumed reduction in
force of up to 45 FTE by
FY 2033, no other
vacancy
Placeholder vacancy
rate of 2% of salaries
and benefits from
turnover
Vacancy assumptions better reflect baseline forecast
trends based on historical averages
Summary: Revised personnel costs forecast will better approximate future trends; watch health care costs closely in future years based on latest information from PEMHCA 1 – Net positive impact on forecast Net neutral impact Net negative impact 13 Analysis of Key Assumptions Used in City’s
Forecast – Expenditures (Non-Personnel Costs)
CUPERTINO FINANCIAL FORECAST REVIEW
Category
City’s Original
FY 2024 Assumptions
Fiscal
Impact1
City’s Revised
FY 2025 Assumptions Baker Tilly’s Comments
SCSO Law
Enforcement
6.3% growth in FY 2025
reducing to average
4.5% long-term
5% in FY 2025 reducing
to average 4.4% long-
term
Reasonable assumptions based on anticipated
increase in FY 2025; County negotiations with SCSO
and pension costs should be monitored closely to
inform future trends
Materials and
other services
4.3% growth in FY 2024
reducing to 2.3%
average long-term
3% growth in FY 2025
reducing to average
2.4% growth long-term
Current market trends assume long-term CPI of over
3% long-term; to the extent that the City implements
cost efficiency strategies, trend should be achievable
Transfers out Transfers based on
unique needs
Transfers based on
unique needs
City’s practice of estimating future transfers based on transportation, capital projects, Blackberry Farm and
Sports Center subsidies and retiree medical set-asides
appear reasonable
Expenditure
savings (non-
personnel)
No assumptions No assumptions
Consider expenditure savings from non-personnel
costs in future forecasts (perhaps up to 2% of
budgeted amounts)
Summary: Reevaluate CPI assumptions and impacts from negotiated contracts with SCSO employee groups; consider expenditure savings from non
-
personnel costs in future forecasts
1 – Net positive impact on forecast Net neutral impact Net negative impact 14 Executive Summary - Recap
CUPERTINO FINANCIAL FORECAST REVIEW
FY 2025 financial forecast provides a reasonable basis upon which to inform Council’s decisions for the proposed FY 2025 budget
Staff has improved the forecast based on our interactions and discussions during the project
Improvement recommendations will not significantly change the story of the City’s fiscal health, but should be considered to better refine future forecasts Questions?
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Steve Toler
DIRECTOR
M: +1 (650) 740-7007
E: [email protected]