STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of June 13, 2023
TO: Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Edwin Gato, Director of Finance
SUBJECT: Public Hearing on Proposed FY 2023-24 City of Hercules Annual Budget Plan including the First Year of the Ten-Year 2023–2033 Capital Improvement Plan (CIP) Budget RECOMMENDED ACTION:
Open the Continued Public Hearing, receive a Staff Report, Take Public Testimony, Close the Public Hearing, and Adopt the following resolutions (Attachments 1-3):
Approving the FY 2023-24 City of Hercules Budget Plan which includes the First Year (2023-24 Fiscal Year) of the Ten-Year (2023-2033 Fiscal Years) Capital Improvement Plan (CIP) Budget and making certain designations and fund balance adjustments, approving annual contracts for services in a total amount of $4,932,662.
Approving the FY 2023-24 Hercules Public Financing Authority Budget Plan Consisting of Debt Service in the amount of $2,025,414.
Establishing the Appropriations Limit for the FY 2023-24 in accordance with Proposition 111 and Article XIII B.
COMMISSION/SUBCOMMITTEE ACTION AND RECOMMENDATION:
The Finance Commission reviewed the proposed Ten-Year (FY 2023-2033) CIP and FY 2023-24 Annual Budget at their regular meeting on March 15, 2023, and special meeting on April 19, 2023, and expressed full support of the budget.
BACKGROUND:
The City Council held a series of budget workshops to discuss and review the proposed Ten-Year (FY 2023-2033) Capital Improvement Plan (CIP) and FY 2023-24 Annual Budget at their regular meeting on March 28 and April 25, respectively. The first public hearing of the entire recommended annual budget was conducted on May 23, 2023, and the public hearing is continued tonight for adoption.
DISCUSSION:
The proposed FY 2023-24 Budget including the City Manager’s Budget Message is available on-line 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 budget proposal incorporates a Cost-of-living adjustments (COLA) increase in labor costs of 4.5% and a one-time retention bonus of 3%, and an overall increase of 3%, an 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.
Also, the Council approved, at the first public hearing, the appropriation of $2.5 million of set-aside money received from the State Budget allocation for local assistance to partially pay down the CalHFA loans and authorize staff to re-negotiate with CalHFA to repay the remaining balance over time.
Following the closing of the public hearing this evening, the City Council is requested to consider approval of the budget recommended by the City Manager. The Budget Resolution sets forth designations necessary to ensure they are appropriately shown in the annual audit. Finally, the resolution approving the Budget also approves several annual contracts for services for which funding is included in the Budget.
The contracts being approved are set forth in the following table:
The revenue estimates and expenditure appropriations in the budget are for all City funds and include operations, capital and internal transfers for all programs and support functions of the City. Fund summaries and financial schedules showing two prior years actual results, FY 2022-23 projections, and FY 2023-24 proposed budget are presented for each City budgetary unit in the budget document.
In addition to the proposed budget, the following related items are presented for Council approval:
Hercules Public Financing Authority (PFA) Budget
The Hercules Public Financing Authority (PFA) budget plan for FY 2023-24 consists of debt service in the amount of $2,025,414. The PFA Debt Service Funds include the following:
2020 Public Financing Authority (PFA) Lease Revenue Refunding Bonds – This bond issue helped pay for the Hercules Community Library construction and is paid for solely out of the General Fund. Debt Service payment for FY 2023-24 is $564,937. 2009 Public Financing Authority (PFA) Taxable Lease Revenue Bonds – Bio-Rad/Venture – This bond was issued to pay for the Venture Building on Linus Pauling Drive and is fully paid for by lease revenue and a guaranteed investment contract (GIC). Debt Service payment for FY 2023-24 is $907,159. 2021 Public Financing Authority (PFA) Wastewater Revenue Bonds – This bond issue was to finance improvements to the City’s wastewater system and is paid for solely out of the wastewater fund. Debt Service payment for FY 2023-24 is $553,318.
Successor Agency to the former Hercules Redevelopment Agency The Successor Agency depends on the receipt of property tax increment revenue to pay obligations of the former Hercules Redevelopment Agency. To receive the tax increment, the Successor Agency submits a Recognized Obligation Payment Schedule (ROPS) annually to an Oversight Board and the State Department of Finance. After approval by the Oversight Board, tax increment funds are distributed to the Successor Agency by the Contra Costa Auditor Controller’s Office. The use of tax increment is restricted, and the Successor Agency does not receive excess tax increment. Excess tax increment after payment of debt and administrative costs are distributed to other taxing entities such as the City of Hercules, Cities within Contra Costa County, the State of California (for schools), and special districts.
Successor Agency revenue is expected to be sufficient for all debt service obligations for bonds in FY 2023-24. The total FY 2023-24 Successor Agency budget of bond debt service payments is about $3.6 million. As property values increase and more tax increment becomes available, there is sufficient funding for administration, developer obligations and pass-through payments approved by the State Department of Finance.
Appropriation (GANN) Limit
The California Constitution limits growth in local government spending and establishes a maximum limit for expenditures from general taxes. The law, commonly known as the Gann Limit, requires that the limit is recalculated and approved annually by the City Council at the beginning of each fiscal year. The Gann Limit is indexed to specified growth factors approved by the Legislature and applied to revenue appropriations. The annual Appropriation (GANN) Limit establishes the maximum amount that can be appropriated to the General Fund.
Article XIII B of the California Constitution was approved by California voters in 1979 and has been amended several times since its adoption. Article XIII B creates a restriction on the amount of revenue that can be appropriated in any fiscal year.
Article XIII B requires all local government entities to establish an annual appropriation limit. The appropriation subject to limitation is to be based on the 1978-79 appropriation adjusted for changes in cost of living and population.
California Government Code Section 7910 requires each local government to establish its appropriation limit by resolution. Adoption of the attached resolution will approve the FY 2023-24 annual Appropriations Limit. For FY 2023-24, the Appropriations Limit has been determined to be $536,017,008.
FISCAL IMPACT OF RECOMMENDATION:
The proposed FY 2023-24 Citywide Budget appropriates expenditures of $37 million, of which General Fund is $18 million, Special Revenue, Capital Projects and Debt Service funds are $9 million, Sewer Enterprise Fund is $7 million, and Internal Service Funds is $3 million. There are sufficient revenues and accumulated fund balance to fund these appropriations.
The City’s General Fund is projected to end the year with an available fund balance of $692K, and $4.5 million in operating reserve, which is equivalent to 25% of the General Fund budget.
ATTACHMENTS:
Annual Budget Resolution
PFA Resolution
GANN Resolution
FY 2023-24 Annual Budget
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