STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of June 14, 2022
TO: Members of the City Council
SUBMITTED BY: Dante Hall, City Manager
Edwin Gato, Director of Finance
SUBJECT: Public Hearing on Proposed FY 2022-23 City of Hercules Budget Plan including the First Year of the Five Year 2022–27 Capital Improvement Plan RECOMMENDED ACTION:
Open the Public Hearing, Receive the Staff Report, Take Public Testimony, and Continue the Public Hearing to June 28, 2022.
COMMISSION/SUBCOMMITTEE ACTION AND RECOMMENDATION:
The Finance Commission reviewed the proposed FY 2022-23 Budget at their regular meeting on May 18, 2022, and special meeting on June 8, 2022, and expressed full support of the budget.
FISCAL IMPACT OF RECOMMENDATION:
Presuming Council approves all of the changes and adopts all of the proposed, the City is projected to end the year with a General Fund balance of $760K, $1.6 million of American Rescue Plan (ARPA) Funds in the revenue loss category, and $4 million in operating reserve, which is equivalent to 25% of the General Fund budget.
DISCUSSION:
The City Council received an introduction of the proposed Five-Year Capital Improvement Plan (CIP) and FY 2022-23 Enterprise and Internal Service Fund Budget at its April 26, 2026, City Council meeting. On May 10, 2022, the second phase of the budget introduction was presented for the proposed FY 22-23 General Fund and other restricted funds budget. This is the first public hearing of the full recommended budget. Based on Council’s concurrence or alternative direction received this evening, the desired changes (if any) will be incorporated into the final FY 2022-23 Budget and recommended for adoption by the Council on June 28, 2022.
Cautiously Optimistic
The City of Hercules has worked hard to maintain quality services to the public in these trying economic times. Although the City’s finances are stable today, expenses continue to grow, and future challenges associated with pension costs, workforce retention and attraction, and aging infrastructure also loom. Recent expenditures indicate significant future cost increases for goods and services (as a result of high inflation), market disruptions from the war in Ukraine, and supply chain issues (due to the impacts of the COVID-19 pandemic). Additionally, Hercules relies on UUT proceeds to fund a wide range of services including maintenance of public properties, staffing, and providing for public safety. If the UUT is allowed to expire in January 2025 without being continued, the loss of approximately $3.5 million a year in revenue would drastically impair the City’s ability to provide even a minimal level of service. If we are required to make budget cuts that may include police and neighborhood patrols, street maintenance, parks, senior services, youth programs, and economic development, we risk a decline in our quality of life. Given these concerns, the FY 2022-23 Operational Budget is focused on modest to net-neutral operational adjustments to better align public demand with available resources.
Alignment with City Council 2022-2023 and Multi-year Priorities The City of Hercules held a Council goal-setting workshop on Saturday, April 30, 2022, to review and discuss priorities, celebrate recent successes, and strengthen teamwork. City Council members established that substantial progress on the Regional Intermodal Transit Center (RITC), long-term financial sustainability of the organization, and the continuance of quality service delivery to the community as the top priorities for FY 2022-23.
The budget proposal incorporates an overall increase of 3% increase to account for inflation and a few other adjustments to address gaps in organizational efficiency and effectiveness. The chart below describes the notable changes, along with the economic impact associated with each adjustment.
Proposed Policy Questions
On May 10, 2022, staff recommended approval of several Statements of Financial Principles and Policies (listed below). Approval or disapproval of these policy recommendations has no impact on the budget document presented this evening. However, staff seeks direction on these policy questions moving forward.
Reserve Policy - Does the City Council agree that the reserve policy should be increased from 16% to 25%?
Long-Term Capital Improvement Project Funding - Does the City Council agree that a funding model be employed that proactively funds long-term capital improvement projects from existing resources and operating transfers into capital improvement reserves? General Fund Surplus Allocation –
25% to Contribution to Pension/OPEB - Does the City Council agree that 25% of any available general fund surplus should be put into a Trust Fund or directly into paying off the CalPERS unfunded liability? 25% to Operating Reserve - Does the City Council agree that 25% of the available general fund surplus should be put into Operating Reserves up to 25% of the General Fund? 50% to Contribution to unmet/deferred infrastructure and maintenance needs – Does the City Council agree that 50% of the available general fund surplus should be put into Long-Term Capital Improvement Project Funding? The proposed FY 2022-23 Budget is a living document that is subject to change until it is finalized and adopted on June 28, 2022.
The entirety of the revised proposed FY 2022-23 Budget, including the City Manager’s Budget Message, is available online on the City’s website (www.ci.hercules.ca.us) and through the following link: https://www.ci.hercules.ca.us/government/finance/budgets This evening’s public hearing was noticed in the local newspaper on May 31, 2022. The purpose of the public hearing is to provide a formal opportunity for community input. In addition, additional questions or proposals from the City Council will be incorporated into additional Budget Referrals and brought back for the Continued Public Hearing on June 28, 2022. At the City Council meeting on June 28, 2022, when there will be an opportunity for additional public input, it is anticipated that the City Council will adopt a final budget.
ATTACHMENTS:
FY 22-23 Annual Budget
4/26 Staff Report – Budget Introduction: Five-Year CIP, Sewer Enterprise fund and Internal Service funds. 5/10 Staff Report – Budget Introduction: General Fund and Other Governmental funds Date Page 1