STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of May 23, 2023
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Michael Roberts, Public Works Director/City Engineer SUBJECT: Landscape and Lighting Assessment Districts – Review of the Draft 5-year Financial Projections, Recommended Rates for FY 2023-24, and Additional Program Evaluation RECOMMENDED ACTION:
It is recommended that the City Council:
Receive a draft report on the 5-year financial projections and overall health of each of the 5 Landscaping and Lighting Assessment Districts (LLADs); and Provide feedback to staff on the recommended assessment rates for FY 2023-24 for inclusion in the Preliminary Engineer’s Reports scheduled for review by City Council at their June 27, 2023 meeting; and Provide direction on the need to perform additional program evaluation, if any, including addressing the fund deficit for LLAD No. 2002-1 (Victoria by The Bay).
BACKGROUND:
The City of Hercules annually levies and collects special assessments to maintain certain improvements within the City’s five LLADs that encompass the entire City. Each LLAD provides continued maintenance, servicing, administration, and operations of various landscape and lighting improvements and other facilities benefiting parcels within each LLAD. Each property is assessed only for the cost of the improvements from which benefit is received.
The five LLADs in Hercules provide for well-maintained, attractive landscaping and serviceable streetlighting along public streets as well as fire breaks adjacent to open space. They also provide for the upkeep of playgrounds, fields, park furniture, tennis courts, graffiti abatement, lighting, landscaping, water features, and trails in City parks. The expenses associated with the maintenance of these LLADs include labor, material, equipment, utilities, repairs, and administration.
ANALYSIS:
5-Year Financial Projections
On February 14, 2023, Hercules City Council adopted Resolutions initiating the FY 2023-24 LLAD annual approval process and authorizing the preparation of 5-year financial projections for the City’s five LLADs to evaluate their long-term financial health by forecasting revenues and expenditures. The attached 5-year Financial Projections Analysis and Findings Draft Report (“Report”) for the LLADs is being presented for City Council consideration this evening in advance of the scheduled June 27, 2023 City Council meeting, at which time City Council will be asked to preliminarily approve the FY 2023-24 LLAD Engineer’s Reports including the assessment rates. The Report will also be brought back in its final form for approval. The attached Report includes, for each LLAD/Benefit Zone, a 5-year financial projection through FY 2027-28, a trend graph of the 5-year financial projections, and a capital replacement table to determine the recommended target reserve levels.
Please note the attached 5-year financial projections include costs for programmed 5-year Capital Improvement Projects anticipated to be funded by each LLAD but does not account for the replacement of existing park improvements in LLAD No. 83-2 Benefit Zone 10 (Citywide Parks) or projects in the Parks Master Plan as that data is still pending. These park improvements are intended to be funded with grants and other funding sources that become available, to the extent possible.
In summary, the operating budgets for LLAD No. 83-2 (comprised of eleven Benefit Zones), LLAD No. 2004-1 (Baywood), and LLAD No. 2005-1 (Bayside) are trending positively over the 5-year projections. This is in part due to successful Proposition 218 proceedings conducted between FY 2017-18 to FY 2021-22 approving increases to LLAD assessments for six (6) Benefit Zones of LLAD No. 83-2. LLAD No. 2002-1 (Victoria by the Bay) and LLAD No. 2002-2 (Promenade) are currently experiencing annual operating deficits primarily due to the need for increased irrigation watering due climate change, East Bay Municipal Utility District water rate increases which have exceeded the allowable annual consumer price index increase, and higher-level tree pruning work associated with the trees maturing.
Recommended Assessment Rates for FY 2023-24
Based on the attached 5-year financial projections, City staff is recommending proceeding with the LLAD assessments for FY 2023-24 as shown in Table A and discussed below. Please first note though the applicable annual change in the Consumer Price Index (CPI) for FY 2023-24 is 5.3%. However, City Council authorized an assessment increase below the maximum for FY 2022-23 and therefore, the maximum allowable increase is 7.5% for FY 2023-24 for all Districts/Zones, except LLAD No. 2004-1 (Baywood) which has a much higher maximum allowable increase.
Summary of Districts/Zones recommended to be assessed below their respective maximum assessment rates:
Zone 2 (Foxboro) – City staff is proposing no assessment increase from prior fiscal year for this Zone because it is currently generating sufficient revenue to cover annual operating and maintenance expenditures and has adequate reserves.
Zone 5A (Business Park) – Increasing assessments by the 5.3% annual change in the CPI vs. the maximum of 7.5% will generate sufficient revenue to cover annual operating and maintenance expenditures and continue building healthy reserves.
Zone 5B (Commercial Parcels) – City staff is proposing no assessment increase from prior fiscal year for this Zone because it is currently generating sufficient revenue to cover annual operating and maintenance expenditures and has adequate reserves.
Zone 8 (Trees and Flowers) – Increasing assessments by the 5.3% annual change in the CPI vs. the maximum of 7.5% will generate sufficient revenue to cover annual operating and maintenance expenditures and continue building healthy reserves.
LLAD No. 2004-1 (Baywood) – Increasing assessments by 7.5% will generate sufficient revenue to cover annual operating and maintenance expenditures and repay a loan corresponding to the replacement of trees throughout the neighborhood. If approved, this increase will result in an annual assessment amount of $2,048, which is well below the maximum annual assessment of $2,807 for FY 2023-24.
Summary of Districts/Zones recommended to be assessed at their respective maximum assessment rates (7.5% increase from prior fiscal year):
Zone 1 (Hercules by the Bay) – The maximum assessment rate is needed to continue gradually eliminating the Zone deficit and repay a loan corresponding to the replacement of deteriorated wooden pole streetlights with cost-effective LED lighting on metal poles.
Zone 3&4 (The Gems/Birds) – The maximum assessment rate is needed to continue repaying a loan corresponding to the replacement of deteriorated wooden pole streetlights with cost-effective LED lighting on metal poles and continue building adequate reserves.
Zone 5C (Misc. Parcels) – The maximum assessment rate is needed to continue gradually eliminating the Zone deficit.
Zone 6 (Village Parkway) – The maximum assessment rate is needed to continue gradually eliminating the Zone deficit and repay a loan corresponding to the replacement of deteriorated wooden pole streetlights with cost-effective LED lighting on metal poles.
Zone 7 (Heights) – The maximum assessment rate is needed to continue repaying a loan corresponding to the replacement of deteriorated wooden pole streetlights with cost-effective LED lighting on metal poles and continue building adequate reserves.
Zone 9 (Birds and Country Run) – The maximum assessment rate is needed to continue gradually eliminating the Zone deficit.
Zone 10 (Citywide Parks) – The maximum assessment rate is needed to fund annual operating and maintenance expenditures.
LLAD No. 2002-1 (Victoria by the Bay) – This District is anticipated to experience a significant operating deficit for Fiscal Year 2023-24. The maximum assessment rate is needed to fund operating and maintenance expenditures. City staff is recommending undertaking Proposition 218 proceedings in the fall of 2023 to provide funding for the City to continue the same levels of service.
LLAD No. 2002-2 (Promenade) – This District is anticipated to experience a significant operating deficit for Fiscal Year 2023-24. The maximum assessment rate is needed to fund operating and maintenance expenditures. This District has sufficient operating reserves to cover the operating deficit for Fiscal Year 2023-24. However, City staff recommends evaluating this District again in calendar year 2024.
LLAD No. 2005-1 (Bayside) – The maximum assessment rate is needed to fund annual operating and maintenance expenditures and continue building adequate reserves.
Below is a summary table of the recommended assessments for Districts/Zones for FY 2023-24.
Table A
Additional Program Evaluation
The Report contains the 5-year financial projections as directed at the February 14, 2023 meeting. If so desired, Council could direct staff at this time to have the Landscaping and Lighting Assessment District program evaluated more comprehensively this calendar year. While staff has an intimate knowledge of the program, it may be beneficial to contract with an outside, 3rd party, who can offer a fresh and new perspective.
LLAD No. 2002-1 (Victoria by the Bay)
Victoria by the Bay is operating in a fund deficit. Staff is recommending steps be taken to allow services to be maintained at the same level into the future (i.e. no service cuts). In the past, this entailed initiating Proposition 218 proceedings to allow residents to vote to increase rates. Staff is recommending this occur in the fall of 2023.
FISCAL IMPACT:
The FY 2023-24 assessment rates for the City’s five LLADs will be based on direction provided by City Council this evening and will be included in the LLAD Engineer’s Reports scheduled to be preliminarily approved at the June 27, 2023 City Council meeting.
If assessments for the LLADs are not levied, there would be an estimated revenue loss of $3.2 million for FY 2023-24 to fund the maintenance and operations associated with the City’s public parks, landscaping, streetlighting, and open space areas.
ATTACHMENTS:
Attachment 1 LLADs 5-Year Financial Projections Analysis and Findings Report