STAFF REPORT TO THE CITY COUNCIL
DATE: March 26, 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 – Implementing Strategy to Balance the Budget and Eliminate the Fund Deficit RECOMMENDED ACTIONS:
It is recommended that City Council:
Receive a report from staff on the follow-up items from the February 27, 2024 Council meeting; and Direct staff by minute order to begin preparing documents for a Proposition 218 property owner ballot proceeding to increase assessment rates for the Victoria by the Bay Landscaping and Lighting Assessment commencing Fiscal Year 2024/25 to balance the budget and eliminate the cumulative fund deficit over a 10-year period, to be considered for approval at a future Council meeting during the regularly scheduled, annual LLAD assessment approval process; and Select by minute order the cessation of irrigation and maintenance of the landscaping on residential streets, excepting trees, as the preferred cost-cutting option to balance the budget and eliminate the deficit over a 10-year period, should the Proposition 218 proceedings to increase the assessments not pass, and authorize staff to communicate the same to property owners in advance of said proceedings; and Authorize staff by minute order to include the funding of a Lighting and Landscaping Program Supervisor in the Fiscal Year 2024/25 Budget to be considered for approval at a future Council meeting as part of the annual budget adoption process.
BACKGROUND:
The financial status of the Victoria by the Bay Landscaping and Lighting Assessment District No. 2002-1 (Victoria by the Bay LLAD) was discussed in detail at the February 27, 2024 Council meeting and extensive background information is provided in the staff report from that meeting (Att #1). Council directed staff at that meeting to bring the item back for further discussion on March 26th and to provide more detailed budget information, including the funding plan for the LLAD Program Supervisor, and to research who would be responsible to maintain the planter strips on residential streets if the City no longer maintains them. This information is provided in the ANALYSIS section below.
ANALYSIS:
Three alternative funding plans for FY 24-25 for Victoria By The Bay LLAD are detailed below as follows:
Maximum CPI (Consumer Price Index) Increase Allowable
Cost Cutting Measures to Balance the Budget and Eliminate the Fund Deficit in 10 Years Proposition 218 Process to Increase Assessments to Balance the Budget and Eliminate the Fund Deficit in 10 Years.
Revenue and Expense Projections with Maximum CPI Increase As shown in Table 1 above, with the maximum allowable CPI increase (estimated to be 3%) alone for FY 24-25 and FY 25-26, the annual operating deficit is projected to increase from ($168,539) to ($177,181) and the cumulative fund deficit is anticipated to increase from ($450,000) to ($795,720) by the end of Fiscal Year 2025-26.
The financial structural deficit Victoria by the Bay LLAD is experiencing was first detected during the annual rate setting process, confirmed to not be self-correcting over a 5-year financial projection that was completed in May 2023, and an independent 3rd party audit completed in October 2023 determined that the District was being administered properly. The funding shortfall is attributed to the increase in water cost, which has doubled over the past decade, more extreme weather necessitating additional landscaping irrigation, and the maturation of the approximately 4,500 trees in the District which now require frequent pruning using a tree trimming company versus a landscaping company.
As can be determined from Table 1, a total of approximately $213,500 in cost will need to be cut from the Victoria by the Bay LLAD budget to eliminate the projected annual operating deficit ($168,539) and the cumulative fund deficit over 10 years ($45,000) beginning with Fiscal Year 2024-25.
Funding Plan for Cost Cutting Measures
As discussed in Section I and illustrated in Table 2 above, a total of approximately $213,500 in cost will need to be cut from the Victoria by the Bay LLAD budget to eliminate the annual operating deficit ($168,539) and the cumulative fund deficit over 10 years ($45,000/year) beginning with Fiscal Year 2024-25. Cost cutting options which were discussed at the February 27th Council meeting are summarized below.
SUMMARY OF COST CUTTING MEASURES FOR ELIMINATING THE
VICTORIA BY THE BAY LLAD O&M AND FUND DEFICITS
Of the available cost cutting options, eliminating irrigation and maintenance of the planter strips (excepting the trees) on residential streets achieves the necessary savings (estimated to be approximately $260,874). Additionally, each property owner could elect to extend the irrigation and maintenance of their lawn to the planter strip so that it continues to be maintained. Alternatively, Homeowners Associations (HOAs) could maintain the planter strips throughout the neighborhood for consistency purposes, as occurs with the Bayside LLAD. Due to potential liability, the City would continue to maintain the trees in the planter strips. A review of City files relating to the development indicate that the City is responsible for maintaining planter strips in this area, so that maintenance by the HOA or adjacent property owners of the turf and landscaping would be elective and on a voluntary basis. It should be noted that the Development Agreement at Section 4.5 requires the developer and its successors to cooperate with the City to make changes to the LLAD reasonably necessary to provide for the long term operation and maintenance of the landscaped areas of the Project Site.
Funding Plan for Proposition 218 Assessment Increases
As shown in Table 3, two $150/year assessment increases would be needed to eliminate the annual operating deficit and the cumulative fund deficit over 10 years beginning with Fiscal Year 2024-25. Under this plan, no cost-cutting measures would be needed. However, in accordance with Proposition 218, property owners would have to vote in the increase. A similar effort occurred last fall, and property owners did not approve the proposed increase by a 77% to 23% margin. Staff is recommending proceeding again with a Proposition 218 process to raise assessments this Spring while communicating that due to funding shortfalls the City will no longer maintain the planter strips on residential streets if property owners do not approve the increase.
The schedule for the Victoria by the Bay LLAD Proposition 218 proceedings that could be conducted this Spring, which would run concurrently with the annual rate setting process for the other 4 Districts, is as follows:
March 26, 2024: City Council approves strategy to Balance the Budget and Authorizes Victoria by the Bay LLAD Proposition 218 proceedings.
April 9, 2024: City Council adopts Resolution of Initiation.
April 23, 2024: City Council preliminarily approves Victoria by the Bay LLAD Engineer’s Report and proposed assessments and adopts Resolution of Intention.
No Later than May 10, 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 25, 2024: City Council conducts public hearing, closes balloting period, conducts ballot tabulation, declares results of ballot tabulation, and approves final Engineer’s Report and increased assessments, assuming favorable results, commencing FY 2024/25.
Funding Plan for LLAD Program Supervisor
Staff is recommending funding an LLAD Program Supervisor position, primarily to provide better customer service to residents and higher-level oversight of the landscaping and tree trimming contracts. All 5 LLADs would fund the position as follows: 40% Citywide Parks (LLAD 83-2, Zone 10), 50% based upon pro-rata annual Operating & Maintenance Budgets for each of the Districts, and similarly 10% based upon pro-rata streetlight count.
The $28,967 cost for the LLAD Program Supervisor position for Victoria by the Bay will be completely offset as the current staffing performing this function would be reassigned to other duties. Enhanced oversight and customer service will be gained through operational efficiency by having one person assigned to this function instead of multiple people that have other priorities related to buildings, sewer, and streets. The overall impact of this position, should Council wish to proceed, would be presented as part of the annual budget.
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 Supervisor position.
If Victoria by the Bay LLAD assessment revenues are not increased and City Council directs staff to reduce approximately $213,500 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 cumulative fund deficit of $450k will continue to increase exponentially each year with a projected cumulative fund deficit approaching $800k by the end of Fiscal Year 2025-26 as shown in Table 1 of this staff report.
ATTACHMENTS:
February 27, 2024 Staff Report