STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of February 27, 2024
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Mike Roberts, Public Works Director/City Engineer SUBJECT: Victoria by the Bay Landscaping and Lighting Assessment District – Adopt a Resolution Declaring the Results of the Property Owner Protest Ballot Proceedings and Discuss Options to Balance the Budget and Eliminate the Fund Deficit
RECOMMENDED ACTIONS:
It is recommended that City Council:
a) Adopt a resolution declaring the results of the property owner protest ballot tabulation conducted on December 5, 2023 regarding a proposed increase in the maximum assessment for the Victoria by the Bay Landscaping and Lighting Assessment District No. 2002-1 (Victoria by the Bay LLAD) commencing F iscal Year (FY) 2024/25; and
b) Receive a staff report, discuss options to balance the budget and eliminate the fund deficit for the Victoria by the Bay LLAD, and provide direction to staff on the next steps to take.
EXECUTIVE SUMMARY:
Victoria by the Bay LLAD is experiencing a funding shortfall , which is currently being covered by a de facto loan from the General Fund. A 5-year financial projection completed in May 2023 and an independent evaluation in October 2023 confirmed the shortfall would not be self-correcting. On October 19, 2023, notices and ballots were mailed to Victoria by the Bay LLAD property owners, in accordance with Proposition 218, to approve a two- step $150 per year assessment increase for a total annual increase of $300. Results from the ballot tabulation conducted on December 5, 2023 confirmed property owners did not approve the proposed increase to their Victoria by the Bay LLAD assessments by a 77% to 23% margin.
Given all five of the City of Hercules (City) Landscaping and Lighting Assessment Districts (LLADs) have been self-funded through property assessments, balanc ing the operating budget and eliminat ing the fund deficit for the Victoria LLAD would require either increasing assessment revenues or cutting cost by reducing levels of service. Increasing assessments requires the City to obtain approval from property owners through Proposition 218 proceedings.
Alternatively, the primary cost cutting options that could be operationally implemented and not unduly raise liability for the City would be to discontinue irrigation and regular maintenance of specified landscaped areas such that the required savings are achieved.
These potential landscaping areas include:
Arbor Park
Victoria Park
Collector Streets (Craftsman Drive, Victoria Crescent East, Victoria Crescent West) Residential Streets (planter strips between curb and sidewalk in front of homes)
Given the potential negative impacts of reducing levels of service o n neighborhood attractiveness and property values, staff is recommending cost cutting measures be identified at this meeting and then communicated to property owners as part of another Proposition 218 balloting proceeding that could be conducted this spring concurrently with the typical annual LLAD approval process for FY 2024/25. That way , prior to returning their ballot, Victoria by the Bay LLAD property owners will be informed of the specific cost- cutting measures that will be implemented in their neighborhood if the proposed assessment increase is not approved.
BACKGROUND:
The City annually levies and collects special assessments to maintain certain improvements benefiting property within the City’s five LLADs. Each LLAD provides ongoing maintenance, servicing, administration, and operations of various landscape, lighting, and park improvements benefiting parcels within that LLAD. Each property is assessed only for the cost of the improvements from which benefit is received.
The boundaries of the Victoria by the Bay LLAD encompass the residential areas adjacent to San Pablo Avenue located at the northernmost point of the City. The Victoria by the Bay LLAD provides for well -maintained, attractive landscaping and LED streetlighting located along the neighborhood streets, Arbor Park, and Victoria Park, as well as its share of funding for the maintenance of the landscape and streetlighting improvements associated with the City’s arterial roadways.
5-year financial projections presented to C ity Council on May 23, 2023 showed that the operating budget for the Victoria by the Bay LLAD is experiencing an annual operating deficit primarily due to the need for higher-level tree pruning work, the need for increased irrigation watering due to climat e change, and East Bay Municipal Utility District water rate increases which have far exceeded the maximum allowable increase to the annual LLAD assessments. City Council directed staff to evaluate options to address the annual operating deficit and cumulative fund deficit prior to the start of FY 2024/25.
City staff conducted a virtual community meeting on September 19, 2023 with the Victoria by the Bay LLAD property owners , which included informing them of the funding challenges the Victoria by the Bay LLAD is experiencing as well as actively listening to their concerns and providing responses when appropriate.
With City Council’s authorization, City staff also secured the services of Bakertilly, a management consulting firm, to comprehensively evaluate the means and methods by which the City is currently delivering services for the Victoria by the Bay LLAD. The consultant from Bakertilly presented findings and recommendations from their evaluation at the October 3, 2023 City Council meeting. The primary recommendation of the Bakertilly evaluation was that the City initiate proceedings pursuant to Proposition 218 for the Victoria by the Bay LLAD to obtain property owner approval to increase assessments with the objective of eliminating the current annual operating deficit, fund deficit including associated loan from the General Fund, and eventually restoring reserves.
At the October 10, 2023 City Council meeting, City Council authorized staff to conduct Proposition 218 property owner ballot proceedings to increase the maximum rates for the Victoria by the Bay LLAD, prelimina rily approved the Victoria by the Bay Engineer’s Report and proposed assessments, and adopt ed the Resolution s of Initiation and Intention. On October 19, 2023, notices and ballots were mailed to all affected property owners in the Victoria by the Bay LLAD , in accordance with Proposition 218, with instructions that ballots must be returned by mail by 5:00 PM on December 5, 2023, or in person b y the c onclusion of public testimony of the Public Hearing to be held at the December 5, 2023 City Council meeting.
City staff conducted another virtual community meeting on November 16, 2023 with the property owners of the Victoria by the Bay LLAD to provide details on the upcoming December 5th Public Hearing, information regarding the proposed assessment increase, and procedures for property owners to submit their ballot. Of the 794 ballots mailed, 300 were returned.
On December 5, 2023, returned ballots were publicly tabulated outside City Council Chambers immediately following the conclusion of public testimony. Property owners for the Victoria by the Bay LLAD opposed increasing their maximum assessment rates 77% to 23%.
The table below outlines the amount needed to balance the current budget and eliminate the fund deficit over a 10-year period for the Victoria by the Bay LLAD.
Estimated Assessment Revenue needed to cover O&M and Eliminate fund Deficit1: $737,000 Estimated FY 2024/25 Assessment Revenue under Current Assessments2: $523,800 Amount Needed to Balance the Budget and Eliminate the Fund Deficit: $213,200
1 Per Estimate of Cost shown on page 8 of Engineer’s Report dated December 5, 2023 with minor modifications.
2The actual maximum authorized assessment for FY 2024/25 will be known in mid -March when the applicable Consumer Price Index is published by the Bureau of Labor and Statistics.
ANALYSIS:
The Victoria by the Bay LLAD structural financial deficit can be cured by either increasing revenue or decreasing expenditures.
I. Eliminating Structural Financial Deficit by Cutting Cost (i.e. Reducing Levels of Service)
City Council could direct staff to implement reductions in levels of services that cut costs approximately $213,200 per year beginning in FY 2024/25, which is the amount needed to balance the operating budget and eliminate the fund deficit over a 10 -year period.
Planning level estimates of cost cutting options that can be operationally implemented are summarized in Exhibit 1 and described in the narrative below. A map depicting the location of improvements maintained for Victoria by the Bay LLAD is also included in Exhibit 1.
EXHIBIT 1
SUMMARY OF COST CUTTING MEASURES FOR ELIMINATING THE
VICTORIA BY THE BAY LLAD O&M AND FUND DEFICITS
Victoria by the Bay LLAD
Expenditure Descriptions
Cost Cutting
Measures
Potential
Savings
Arbor Park Eliminate Irrigation and Maintenance $37,512 Victoria Park Eliminate Irrigation and Maintenance $48,834 Collector Streets Eliminate Irrigation and Maintenance $77,748 Residential Streets Eliminate Irrigation and Maintenance $260,874 Streetlighting Electricity & Maintenance De-energize and no longer maintain 245 streetlights $50,000 Tree Maintenance and Capital Improvement Projects Eliminate tree maintenance and periodic replacement for 5,000 trees $50,000 Transfer for Arterials/Major Roads L&L Maintenance Contribution to landscaping and lighting along City Arterials/Major Roads $29,529 LLAD Program Leader Recommended by City staff to administer the LLAD program (A cost, not savings) ($32,890)
Arbor Park
Eliminating irrigation and maintenance is estimated to save approximately $ 37,512 annually. However, this action will result in the deterioration of non-tree landscaping, such as turf and shrubs, especially in the less visible upper half of the park. Restoration of the park in the future would be challenging due to funding constraints and the cost associated with re-establishing the landscaping.
Victoria Park
Eliminating irrigation and maintenance is estimated to save approximately $ 48,834 annually. However, this will result in the deterioration of non-tree landscaping, such as turf and shrubs in the park, which serves as a focal point and is highly visible, potentially impacting property values. Restoration of the park in the future would be challenging due to funding constraints and the cost associated with re-establishing the landscaping.
Collector Streets
Eliminating irrigation and maintenance is estimated to save approximately $ 77,748 annually. However, this would result in the deterioration of non-tree landscaping, such as turf and shrubs. While there are no homes directly fronting the collector streets, collector streets are driven to access residential streets so the visual impact would be significant .
Restoration of landscaping on collector streets in the future would be challenging due to funding constraints and the cost associated with re-establishing the landscaping.
Residential Streets
Eliminating irrigation and maintenance in the planter streets is estimated to save up to $260,874 annually. In consulting with a licensed arborist, the trees in the planter strip would be likely to survive, but some may die, so funding would need to be allocated every year to remove and potentially replace them. The turf in the planter strips are very durable, but consume enormous amounts of water. Past recommendations include replacing the turf with hardscape and/or drought tolerant landscaping. Property owners could elect to expand the watering and maintenance of the turf in their front yards to the planter strip or the Victoria Bay the Bay Homeowners Association (HOA) could take over the maintenance. If instead the turf dies, it could be the first step towards replacing the planter strips with drought tolerant landscaping or hardscape.
The Alexandria at Victoria development (Gardenia Loop) has drought tolerant landscaping instead of turf, but no hardscape which reduces water usage but requires much more intensive maintenance. In a similar manner, the adjacent property owner could maintain and irrigate the landscaping in the planter strip in front of their home or it could be performed by the HOA.
Streetlighting
De-energizing and no longer maintaining the 245 streetlights located throughout the neighborhood could save up to $50,000 annually. While streetlights play an important role in enhancing the safety of all street users and serve as a deterrent against crime, it's worth noting that some communities choose not to have them. Working with PG&E to de-energize the lights would likely take months, negatively impacting the initial savings.
Tree Maintenance and Capital Improvement Projects
Eliminating tree maintenance for the 5,000 trees in the Victoria by the Bay LLAD is estimated to save approximately $25,000 annually. However, neglecting maintenance would lead to risks such as falling limbs, obscured stop signs, damage to homes, and hazards for pedestrians due to low -hanging branches. For this reason, this cost cutting option is not recommended. If water is turned off and trees are not irrigated, an additional $25,000 would be needed annually to replace dead trees which otherwise could be accumulated for necessary capital replacement projects.
Transfer for Arterials/Major Roads
Each of the City’s five LLADs contribute to landscaping and lighting located along the City’s Arterials/Major Roads. Eliminating Victoria by the Bay LLAD’s funding contribution is estimated to save approximately $29,529 annually but would leave this program underfunded.
Addition of LLAD Program Leader
Staff is recommending the addition of a LLAD Program Leader position. VBB proportional cost to fund the position would be $ 32,890. The LLAD Program Leader position would be dedicated to and responsible for administering the City’s LLA Ds, including all of the public parks. Its highest priorities would be working with community members to resolve issues and providing quality assurance/quality control on the landscape maintenance contracts. Duties would include field inspection, monitor ing water usage, overseeing extra work beyond the base landscaping contract, processing progress payments, monitoring the district budgets, performing streetlight audits, overseeing streetlight contract work , tree pruning work, and sidewalk repair due to damage from tree roots. Currently there is insufficient staffing to adequately perform these duties, which are spread across different positions, which creates inefficiencies and coordination challenges. All five of the City’s LLADs would contribute their fair share of cost to funding this position, which would be based upon the proportional benefit they receive. If there is an interest in funding this position, staff would determine the potential savings from other City personnel costs for duties this position would supplant.
II. Eliminating Structural Financial Deficit by Increasing Revenue The other option to cure Victoria By The Bay’s structural financial deficit would be to increase revenue by raising property assessments. This would require Propositio n 218 proceedings (i.e. property owner approval). The currently authorized Victoria by the Bay LLAD maximum annual assessment is estimated to be ~$620 per single-family home for FY 2024/25. The actual maximum annual assessment for FY 2024/25 will be known in mid-March when the applicable Consumer Price Index (CPI) is published by the Bureau of Labor and Statistics. If City Council directs staff to conduct Proposition 218 prop erty owner ballot proceedings , staff recommends proposing the maximum assessment be increased by a total of $300 through a two -step fixed increase, which could be implemented in FY 2024/25 and FY 2025/26 if approved by property owners. Therefore , the Victoria by the Bay LLAD maximum annual assessment for each single -family home would increase by $150 (or $12.50 per month) from ~$620 to $770 for FY 2024/25 and
would increase again by $150 from ~$770 to $9 20 for FY 2025/26. The total $300 proposed annual assessment increase through FY 2025/26 would be utilized as follows:
Eliminate Current Annual Operating Deficit: $209.00 Eliminate Cumulative Fund Deficit over 10-year period: $53.00 LLAD Program Leader Position*: $38.00
Total annual VBTB LLAD assessment increase through FY 2025/26: $300.00 *Staff recommendation discussed in detail above.
The tentative schedule for the Victoria by the Bay LLAD Proposition 218 proceedings that could be conducted this spring is as follows:
March 12, 2024: City Council adopts Resolution of Initiation and authorizes Proposition 218 proceedings.
April 9, 2024: City Council preliminarily appr oves Victoria by the Bay LLAD Engineer’s Report and proposed assessments and adopts Resolution of Intention.
April 26, 2024: Mail required Proposition 218 notices and ballots to Victoria by the Bay LLAD property owners (must occur a minimum of 45 days prior to public hearing).
June 11, 2024: City Council conduct s public hearing, close s balloting period, conduct s ballot tabulation, declare s results of ballot tabulation, and approve s final Engineer’s Report and increased assessments, assuming favorable results, commencing FY 2024/25.
Given the potential negative impacts of reducing levels of service on neighborhood attractiveness and property values, staff is recommending the identifi ed cost cutting measures be communicated to property owners as part of another Proposition 218 balloting proc eeding that could be conducted this spring concurrently with the typical annual LLAD approval process for FY 2024/25. That way, prior to returning their ballot, Victoria by the Bay LLAD property owners will be informed of the specific cost -cutting measures that will be implemented in their neighborhood if the proposed assessment increase is not approved.
III. Other Significant District Costs
City Personnel
Currently 0.78 of a full-time equivalent (FTE) is allocated to the Victoria by the Bay LLAD at a cost to the District of $108,000. This includes labor for Maintenance Workers, Public Works Superintendent, Specialist/Inspector, Permit Technician, and City Clerk.
Examples of city personnel activities include overseeing the landscape maintenance contract, bidding out and overseeing annual street tree maintenance, delivering capital improvement projects, maintaining the streetlights, invoicing, resp onding to citizen complaints, picking up litter, emptying trash cans, and graffiti abatement. If significant reductions in levels of service were to be implemented, the allocation for City staffing would be adjusted to reflect the reduced level of effort.
City Overhead Cost Allocation
The City’s overhead costs for Victoria By The Bay LLAD is $37,000 per the adopted Cost Overhead Allocation formula and account for the time of the Public Works Director, City Manager, administrative staff, and use of office facilities, information technology, and vehicles. If significant reductions in levels of service were to be implemented , the allocation for City staffing would be adjusted to reflect the reduced level of effort.
FISCAL IMPACT:
If City Council directs staff to conduct Proposition 218 proceedings and Victoria by the Bay LLAD property owners approve the proposed two-step assessment increase, the City will be able to generate additional annual revenues in FY 2024/25 and FY 2025/26 to eliminate the current annual operating deficit , begin restoring reserves, and provide a contribution toward funding the new LLAD Program Leader position.
If Victoria by the Bay LLAD assessment revenues are not increased and City Council directs staff to reduce approximately $213,200 in services beginning in FY 2024/25, the operating budget will be balanced and the fund deficit will be eliminated over a 10-year period.
If no action is taken, the Victoria By The Bay LLAD fund deficit amount of $450 k will continue to increase each year by approximately $213,200.
ATTACHMENTS:
I. Resolution Declaring the Results of the Property Owner Protest Balloting Proceedings for Victoria by the Bay LLAD conducted on December 5, 2023.