STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of May 23, 2023
TO: Members of the City Council
SUBMITTED BY: Dante Hall, City Manager
Edwin Gato, Director of Finance
SUBJECT: Public Hearing on Proposed FY 2023-24 City of Hercules Budget Plan including the First Year of the Ten Year 2023–33 Capital Improvement Plan (CIP) RECOMMENDED ACTION:
Open the Public Hearing, Receive the Staff Report, Take Public Testimony, and Continue the Public Hearing to June 13, 2023.
It is recommended that the City Council discuss and provide policy direction to staff regarding the following:
Approve the proposed budget request.
Approve the appropriation of the partial payment of $2.5 million to CalHFA.
COMMISSION/SUBCOMMITTEE ACTION AND RECOMMENDATION:
The Finance Commission reviewed the proposed FY 2023-24 Annual Proposed Budget and the Ten-Year CIP at their regular meeting on May 17, 2023, and expressed full support of the budget.
BACKGROUND:
The City Council held a series of budget workshops to discuss and review the proposed Five-Year Capital Improvement Plan (CIP) and FY 2023-24 Annual Budget at their regular meeting on March 28 and April 25, respectively. This is the first public hearing of the entire recommended annual budget. Based on Council’s concurrence or alternative direction received this evening, the desired changes (if any) will be incorporated into the final FY 2023-24 Annual Budget and recommended for adoption by the Council on June 13, 2023.
DISCUSSION:
Proposed Policy Questions
Aside from the overall assumptions used and discussed at the budget workshops, a list of significant budget increases is outlined and detailed in Attachment 1. Since the budget discussion at the last meeting on April 25, 2023, the following requests have been added and incorporated into the proposed annual budget:
Special Event - $50,000 (Ongoing)
Grant Writing Services - $50,000 (One-Time)
Business Attraction Grant - $100,000 (One-Time)
Eat Local Program - $50,000 (One-Time)
The budget impact of the following proposed increases is as follows:
There are sufficient available funds in the General Fund and other funds to support this budget increase. Staff recommends that the City Council approve these budget requests to address organizational efficiency and effectiveness gaps.
CalHFA
The City obtained the CalHFA loans under the Residential Development Loan Program (RDLP) and the Housing Enabled by Local Partnerships (HELP) for the construction of the Sycamore North project (the Aventine development). Presumably, income from leasing the residential units would have been sufficient to repay the loans. However, since the cost to complete the project was significantly more than the City and Redevelopment Agency had to pay for the project's construction, the project failed and was marketed to obtain the highest and best offer from a qualified and experienced developer. Thus, the obligation to repay the loans is now the City's obligation. Staff approached CalHFA in 2012 and, after several meetings and counteroffers, negotiated new loan terms that extended the time for payment and lowered the interest rate from 3% to 1.5%. Amendments to the loan agreement on CalHFA Loan No. HELP-080604-03 and RDLP-060506-01 were made and entered into on April 11, 2005, and February 15, 2007, and will expire on April 11, 2027, and August 15, 2026, respectively. Payment of the remaining loan balance is due in full no later than the expiration date of the loan.
On January 10, 2023, Council meeting, the Council approved in concept the option for staff to make a partial payment of $2.5 million and attempt to renegotiate repayment of the remaining balance based on an extended payment plan. As of June 30, 2022, the remaining balance was $5.2 million.
Staff recommends appropriating the $2.5 million set-aside from the money received from the State Budget allocation for local assistance to partially pay down the CalHFA loans and consistent with Council discussion at its January 10, 2023 meeting authorize staff to re-negotiate with CalHFA to repay the remaining balance over time.
FY 23-24 Annual Proposed Budget
The entirety of the proposed FY 2023-24 Annual 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 The proposed FY 2023-24 Budget is a living document that is subject to change until it is finalized and adopted on June 13, 2023. This evening’s public hearing was noticed in the local newspaper on May 11, 2023. The purpose of the public hearing is to provide a formal opportunity for community input. Additional questions or proposals from the City Council will be incorporated into Budget Referrals and brought back for the Continued Public Hearing on June 13, 2023. At the City Council meeting on June 13, 2023, when there will be an opportunity for additional public input, it is anticipated that the City Council will adopt a final budget.
FISCAL IMPACT OF RECOMMENDATION:
Assuming the Council approves and adopts all the proposed budget requests, the City is projected to end the year with a General Fund balance of $692K, and $4.5 million in operating reserve, which is equivalent to 25% of the General Fund budget.
ATTACHMENTS:
FY 23-24 Proposed Annual Budget
FY 23-24 List of Additional Budget Request
CalHFA Loans (RDLP and HELP)
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