CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
5/23/2022
1 SUBJECT:
FY 22-23 General Fund Base Budget Report
RECOMMENDED ACTION:
Accept the report and provide feedback and direction on the proposed FY 2022-23 General Fund Base Budget, position recommendations, Master Fee Schedule, and the FY2022-27 Capital Improvement Plan.
STAFF CONTACT:
Kevin Woodhouse, City Manager
[email protected]
650-738-7409
Yulia Carter, Chief Financial Sustainability Officer
[email protected]
650-738-7301
BACKGROUND:
Each year, the City of Pacifica adopts an annual operating budget that reflects the planned activities for the next fiscal year based on the best information available at the time of adoption.
At mid-year, staff revisits the projections and reports to the Council any changes that are needed to reflect new information and keep the City on track.
The City Council adopted the FY 2021-22 Budget on June 28, 2021, which reflected the second year of the COVID-19 pandemic and included the projected pandemic-induced losses in revenue. On March 14, 2022, staff presented the FY2021-22 Midyear Budget analysis, which showed the budget was on track. During the mid-year budget review, the Council authorized additional adjustments to the FY 2021-22 Budget that included factoring-in salary savings and replenishing some General Fund reserves.
On April 11, 2022, staff presented the Narrative Budget report outlining the Budget planning process, methodology, timeline, and long-term financial forecast and provided the City Manager’s recommended budget strategies. The City's long-term financial forecast continues to project an ongoing structural deficit. Therefore, staff proposed using the modified zero-based budget methodology, a systematic financial management strategy commonly used by local governments to help achieve more cost-effective delivery of public services, which was discussed at length during the meeting.
This report presents the City's FY 2022-23 General Fund Base budget reflecting the current level of services and operations. The base budget is not an exact duplication of the prior year's adopted budget because of actions that the Council may have taken that modified the budget over the course of the year and, most notably, because of the FY 2022-23 budget assumptions used to develop the base budget further described below.
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The goal of a budget process is to develop the City's Budget by completing a full analysis of the City's revenue structure and current service level to identify necessary service increase and/or reduction options, which, when combined, will reach a balanced and sustainable budget.
Staff made a number of revenue and expenditure assumptions in developing the base budget for FY 2022-23. These assumptions were based on known projections and economic conditions and reflected the budget adjustments made by Council during the mid-year budget review. The resulting structural deficit or surplus at the base budget level is critical to discussing departmental or other program funding beyond the baseline to accomplish identified priorities for the upcoming year.
Departmental/program detail and new service-level budget requests will be presented in future budget agenda reports as indicated in the revised budget timeline table below.
PROPOSED 2022-23 GENERAL FUND BASE BUDGET
Tonight's report presents the Fiscal Year 2022-23 General Fund Base Revenue Budget of $46.3 million and Expense Budget of $45 million, leaving a surplus of around $1.9 million. However, this surplus includes a portion of the $4.6 million allocation of American Rescue Plan Act (ARPA) funding. Without ARPA funding, the Base Budget would project a $2.7 million deficit, primarily resulting from the projected losses of the VLF shortfall as further described below and the general increase in salaries and benefits, including the increase in the PERS unfunded liability. The General Fund Base Budget Revenues and Expenditures Summaries are provided in Attachments 1 and 2. The baseline revenues are built on information previously presented regarding the City's financial status. In coordination with other City departments, Finance developed the FY 2022-23 Base Budget assumptions to include all previously approved items by the City Council and factoring in inflationary conditions.
The General Fund is the City's primary operating fund and is used to account for most day-today activities. It receives unrestricted revenues, and the City's general administrative services, public safety, and community development-related activities such as planning, building, and engineering are budgeted in the General Fund. Revenue sources include but are not limited to property tax, sales tax, transient occupancy tax (TOT), business license registration, and current fees for services.
Total FY2022-23 Base Budget revenues conservatively increased by $3.2 million, or 7.4%, over Pacifica City Council 3
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the Mid-Year Revised FY2021-22 Budget. Total FY2022-23 Base Budget expenditures increased by $1.3 or 2.9% over the Mid-Year Revised FY2021-22 Budget level. As a reminder, the base budget reflects current levels of service and current projects and does not factor in yet the cost of enhanced services or new projects. Although this report introduces some positionrelated recommendations, this cost is not included in the Base budget and will be presented with all Proposed Budget recommendations at a later date. In the last two weeks, staff incorporated CIP projects in the Base Budget to demonstrate necessary capital transfers.
Should the Council make changes to the FY22-23 CIP Budget allocations, staff will make necessary adjustments before the next meeting.
Below are some key assumptions applied to the FY 2022-23 Base Budget.
FY 2022-23 Base Budget General Fund Revenues Assumptions Revenue estimates have been modified based on the most current information available from department feedback, external sources, and further analysis. The Revenues presented in this report include the American Rescue Plan of 2021 (ARPA) stimulus of $4,610,512. The City was awarded $9.2 million in ARPA funds paid in two tranches. The City received the first tranche of $4,610,511 in the current fiscal year. See the ARPA Funding section of this report below for a full discussion.
The following revenues are projected to reflect significant changes over FY 2021-22:
• Property Tax is the City's largest revenue source. Historically, Pacifica's property tax base has only very slowly expanded. For the FY2021-22 Budget, property taxes comprise approximately 34% of City General Fund revenues. Both secured and unsecured property taxes are levied based on the assessed real property valuation (the basis for property tax levy) as of January 1, 2022. The COVID19 pandemic, while it delayed home and property sales in the 2020 calendar year, did not impact the growth most Bay Area communities experienced due to the transfer of ownership element that has occurred in the current 2021-22 fiscal year. The property tax revenues are projected at $15.2 million or $0.9 million (6.4%) above the FY 2021-22 Revised Budget of $14.3 million based on the information provided by the County and HdL, the City's property tax consultant.
• Charges for Services is the second largest revenue category, including building, planning, other permits, recreation revenues and rentals, fines, and reimbursements.
Finance staff worked closely with PB&R and Planning departments to review and revise the recreation activities based on pre-COVID level and estimate building and planning revenues. The updated numbers include estimates for the cost-reimbursable level of development permit processing required in FY 2022-23. Due to the reimbursable nature of development permit processing, there will be a corresponding expense for these activities, with no net impact on the overall budget. Overall, this Category shows an increase of $639,269 or 11%.
• Intergovernmental is the third largest revenue category, which includes Federal, State, and County governments, including revenue from other governmental agencies, including the ARPA funding of $4.6 million. This Category shows a $1.1 million or 14% decline over the Revised Budget primarily due to miscellaneous grants that will not continue. Also, the annual cost reimbursement from CalOES for Fire wildfire services, included in the Revised Budget, is not budgeted for FY2022-23 due to the unpredictable nature of these services but will be recorded in the Category when received.
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• Vehicle License Fee (VLF) in Lieu is the fourth largest revenue category. Through the State, there has been insufficient ERAF to fund the VLF in Lieu allocation for the past three years, and there will be insufficient ERAF to fund this next year too. Staff has previously reported to the Council a projected loss (delay) of this major revenue stream ($2 million for FY 2021-22) currently owed to the City by the State. In the past, the State has backfilled the VLF shortfall, but the State's payment lags two years behind the shortfall year.
Staff has just received information that the Department of Finance revised the trailer bill language in connection with the Proposed Budget in a way that will significantly harm counties and cities by permanently “capping” the ERAF funds that would be returned to them (after schools have been fully funded) and, instead, use these local revenues to pay the State’s in-lieu Vehicle License Fee (VLF) backfill obligations. The San Mateo County’s City Managers and Finance Directors have prepared strong opposition letters to the Returned ERAF trailer bill language as both VLF backfill and Returned ERAF are due to the local agencies. The new language, if adopted, would have a severe impact on City revenues, further contributing to the projected deficit and limiting the City’s ability to fund essential services, coastal erosion issues and other emergencies funded by the disaster accounting fund. As this report was about to be published, the City received the estimated FY2022-23 impact on the local agencies which included $216,730 reduction for Pacifica to account for diverting this portion of the Returned ERAF revenues to pay for the VLF backfill. The FY2022-23 Base Budget includes that adjustment to the Returned ERAF revenues and full funding of the FY2020-21 VLF backfill of $2 million included in General Fund.
• Sales Tax is the City's fifth-largest revenue category. Based on discussions with the City's sales tax advisor and sales tax projections prepared by HdL the local sales activities forecast slightly better performance than initially expected. This is due to an increase in the Restaurants and Hotel category of 5.5%, the Transportation segment increasing 4.6%, and the State / County pool allocation for online sales increasing
4.2%% over the FY 2021-22 projections. Total sales tax is estimated at $3.1 million, a
3.1% increase over the Revised FY2021-22 Budget.
• Other Revenue Categories are broken out this year, including Utility Users Tax (UUT) ($1.9 million), Transient Occupancy Tax ($2.1 million), Cannabis Operations tax ($825k), and Business License Tax ($517k) and other taxes ($1.7 million). The FY 2022-23 base budget was based on the historical averages, new development, and the prior year's returns. The hospitality industry was most affected by the pandemic and the shelter-inplace orders prohibiting leisure travel. HdL has provided updated estimates for the Transient Occupancy Tax to increase by about $400,000 or 24%. This is based on the assumption that the hospitality industry projects full recovery from the pandemic in FY2022-23. Plus, the progress work on bringing the short-term rental properties to tax compliance is also factored in and noting the reopening of the Fairfield Hotel under the new name with additional rooms.
• Operating Transfers In include the administrative expenses charged to the Waste Water Fund. The current year's charge of $862,388 is being increased by the CPI inflation factor of 4.24% resulting in a new administrative expense of $899,000 for FY 2022-23. The onetime catch-up payment included in the current year's Waste Water charge has been removed from the Base Budget resulting in a $120,998 decrease in this Category over the Revised Budget.
FY 2022-23 Base Budget General Fund Expenditures Assumptions Pacifica City Council 5
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Total General Fund Base Budget expenditures are projected at $45 million at the Base budget level, $1.3 million or 2.9% higher than the FY2021-22 Revised Budget. Operating Expenses are set consistent with the prior year's actuals and Mid-Year Revised budget adjustments and account for expected inflationary increases.
Attachment 2 demonstrates the General Fund expenditure estimates for FY 2022-23 at the Base Budget level. Below are the key base budget expenditures assumptions:
• Salary and Benefits projections include funding for 173 full-time equivalents (FTE) positions citywide. Funding for part-time positions is consistent with the prior year’s allocation. Overall, salaries and benefits increased by $1.2 million compared to the FY 2021-22 mid-year revised Budget primarily due to removing the $1 million in salary savings included in the mid-year budget. Compared to FY2021-22 Adopted Budget, salaries and benefits are increasing by only $200,000, reflecting year two of the new MOU agreements.
• Vacant positions are budgeted at the top step with the "employee plus one" cafeteria plan assumption for health benefits. Projections also include merit increases for staff members who may be eligible on their performance review dates. • Salaries and Benefits Projections have been funded at 100% and include the recent labor negotiation increases.
• FY 2022-23 PERS retirement rates are budgeted as provided by CalPERS for classic miscellaneous and safety members and Public Employees’ Pension Reform Act (PEPRA) rates for miscellaneous and safety employees without prior municipal experience or who have had a break in service.
• PERS Unfunded Actuarial Accrued Liability (UAAL) payment is budgeted at $5.1 million for Safety and Miscellaneous employees, an increase of approximately $500,000 or 11%.
• An additional contribution to the PARS trust is budgeted at $200,000, consistent with the Council funding strategy #5 approved in April. This FY 2022-23 allocation will provide additional contributions toward the Actuarial Determined Contribution (ADC) in addition to the pay-as-you-go payment strategy that has historically been budgeted in prior years.
This change would allow the City to take advantage of the higher discount rate that will substantially reduce the OPEB unfunded liability in the next actuarial valuation report, resulting in the corresponding reduction of the unfunded liabilities in the City's Annual Comprehensive Financial Report (ACFR).
• Most Professional Services contractual obligations were increased by 2% over the FY 2021-22 Revised Budget to account for regular CPI increases unless the further cost increase was noted and factored into the budget by operating departments. The updated numbers in this category shows a $933,799 or 12% increase primarily due to estimated cost-reimbursable level of development activities required in FY 2022-23 and anticipated increase in legal services. Due to the reimbursable nature of development permit processing, there will be corresponding revenues for these services, so this increase will have no net impact on the overall budget.
• Similarly, most of the Material, Supplies, and Maintenance category-budget line items were increased by 1% over the FY 2021-22 Mid-Year Revised Budget to account for regular inflationary increases. The 7.5% increase over the Revised Budget is primarily Pacifica City Council 6
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due to restoring certain reductions made in the budget amendment adopted on 9/27/2022 to fund new MOU provisions.
• Transfers Out Category accounts for a transfer to the Debt Service Fund to fund Pension Obligation Bonds payment and transfer to General Liability internal service fund to fund Self Insurance Retention (SIR) budget. Overall, this Category projects a net decrease of $2 million compared to the Revised Budget because of the onetime General Fund contribution of $3.75 million towards the Civic Center budgeted in the current year.
ARPA Funding
The Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program, a part of the American Rescue Plan Act (ARPA), delivers $350 billion to state, local, and Tribal governments across the country to support their response to and recovery from the COVID-19 public health emergency. The City was awarded $9.22 million and has already received half that amount in the current fiscal year. As the year unfolded, some of the guidelines and reporting requirements applied to ARPA changed to make it easier for small agencies like Pacifica. According to the Department of Treasury guidelines, the City is a Tier 5 local government, which is considered a Non-Entitlement Unit (NEU) of local government with a population of less than 250,000. As a NEU, the City has different reporting requirements than tier 1 to 4 agencies. Also, since Pacifica's award was less than $10 million, new streamlined reporting requirements were recently published by the Department of Treasury. The new rules allow NEUs to treat up to $10 million as all "revenue loss," which is one of their reporting categories. For Pacifica, that leaves significant discretion to the City on how best to use the $9.22 million to help Pacifica maintain essential services and recover economically from the pandemic, other than not using it to fund reserves or pre-fund pension liabilities. The City already began to identify certain limited-term positions and other onetime uses of the $9.22 million included in the FY 2021-22 budget.
Additional recommended limited-term positions are discussed further below, and more information on recommended ARPA uses will be presented at the next budget meeting. The Council-approved ARPA uses to date are summarized in Attachment 3 to this report, providing the remaining amount available for allocation.
Position Recommendations for FY2022-23 Budget
Recruitment and retention of public sector employees are currently experiencing a severe wave of challenges, the most difficult in decades. Private-sector competition, a wave of retirements, housing costs, and other cost of living factors in this region, pandemic impacts, and a shortage of qualified applicants have resulted in many failed recruitments for cities in the region, including Pacifica. This problem has been exacerbated for cities like Pacifica, with lower salaries and higher job workload demands due to lower staffing levels than other cities in the region. A 2019 staffing comparison study for the City showed that Pacifica's staffing levels are an average for all departments of 23% lower than comparably sized cities in the area.
While the City organization prides itself on continuing to provide excellent services to the community through its dedicated labor force, efficient use of resources, and innovative program and service-delivery design, over-stretched staffing resources are reaching a crisis point.
Minimal revenue growth year over year, increased expenditures related to just maintaining existing staffing and service levels, and the resulting structural budget deficit does not allow the City the option of adding permanent staff. In these circumstances, human resource and organizational decisions must focus on incentives to retain existing quality employees, reclassification and recruitment strategies, and stop-gap measures such as the use of onetime funding (such as American Rescue Plan Act funding) for the creation of limited-term (nonpermanent) positions.
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Such strategies are more important than ever for the upcoming FY2022-23 budget. Therefore, the City Manager recommends the following modest set of staffing recommendations designed to maintain existing services while containing ongoing salary expenditures as much as possible.
These recommendations are presented here for Council consideration. Following Council direction, the specific financial impacts will be incorporated into the FY2022-23 Proposed Budget for future Council consideration.
Position Reclassifications: It is appropriate to reclassify positions when the City's business needs on a permanent basis require out-of-class work. The following reclassifications are recommended:
• Public Works Associate Engineer to Project Manager: Coastal engineering expertise, grant procurement expertise, Capital Improvement Program development and management, and complex project management such as for the Beach Boulevard Infrastructure Resiliency Project warrant this reclassification from Associate Engineer to a Project Manager classification;
• Ranger to Lead Ranger: The Ranger classification, of which the City has three rangers, requires one position to lead the group and create development opportunities within the series. The Ranger team is critical to the City's responsibilities for the beach, parking lot, and coastal trail maintenance and enforcement efforts;
• Child Care Assistant Supervisor to Child Care Supervisor: Currently, the City's child care program has only one Supervisor position, which is focused on the administrative side of the program. Given the increasing complexity of child care, the program warrants an equivalent supervisor position focused on the operational side of the program; • Site Coordinator to Senior Child Care Coordinator: The Site Coordinator series warrants a higher-level classification that adds supportive administrative, project management, and leadership responsibilities to the series and creates development opportunities within the series and succession planning related to the Child Care Supervisor role; Limited-Term Positions and Other Personnel Changes: In some instances, it is warranted to use onetime funding for a limited period, such as one to two years, to hire a position for immediate business needs while not creating a permanent financial burden in light of a future projected structural deficit. Currently, due to pandemic impacts and challenges with maintaining existing service levels in numerous departments, onetime American Rescue Plan Act funding can be used to fund limited-term positions. Several were approved for this fiscal year, and the following additional limited-term positions are recommended for the next fiscal year:
• Police Department Records Clerk: The Records Division in the Police Department is responsible for processing all reports, citations, court paperwork, Department of Justice Reporting, crime statistic reporting, new racial identity data reporting in accordance with new state law, submission of cases to the District Attorney, and much more related to report handling, mail processing, phone calls, lobby traffic and more. This division used to have three positions but was reduced to two in 2011 due to budget cuts, yet the workload has increased dramatically in recent years. Comparable cities' Police Departments employ an average of 5 records clerks. With a recently announced retirement, the department will soon be down to one records clerk and risks falling out of compliance with records responsibilities. In addition to recruiting a permanent position to Pacifica City Council 8
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fill the upcoming retirement, the City Manager also recommends a 2-year limited-term and ARPA-funded records clerk to bring the interim staffing level back to three in the division;
• Continuation of Management Analyst for Economic Development and Environmental Sustainability: The City Council previously approved a 1-year limited-term position to support the City's economic development and environmental sustainability efforts. Since that position was not filled until January 2022 due to the pandemic, it is already included in the Base Budget for the full year in FY2022-23. Due to the continuing critical efforts in economic development and environmental sustainability, the City Manager recommends continuing funding this limited-term position for another year. • Senior Accountant: The City is currently undertaking the design and implementation of a new Enterprise Resource Planning system to modernize its financial and human resources systems. This is a major organization-wide undertaking and requires focused project management expertise to roll out over an 18-month to two-year period. The Finance Division, which is severely understaffed compared to comparably sized cities, does not have the capacity to manage this project. Therefore, the City Manager is recommending a 2-year limited-term and ARPA-funded Senior Accountant level position.
The remaining cost associated with implementation of the new system is included in the CIP Budget.
• Child Care Teachers. In addition to the recommendations above, the City Council had previously approved the addition of several child care teacher positions, the hiring for which was put on hold due to pandemic impacts on the child care program. The program will be looking to ramp back up this year and plans to hire these additional teachers, which are projected to be budget neutral due to increased child care revenues for being able to enroll more children.
• City Manager’s Office Reorganization. With the recent departure of the Assistant City Manager/Planning Director, the on-going vacancy of the Executive Assistant/Deputy City Clerk (currently back-filled with temporary assistance), and the increasing demands on the City Clerk and Records function in the City Manager’s Office, the City Manager has evaluated potential reorganization changes and will bring forth specific recommendations and budget impacts related to this reorganization in a future budget session for City Council consideration.
Recommended Capital Improvement Program
Over the past few weeks, Finance and Public Works staff finalized the FY2022-23 Capital Budget recommendations, and capital transfers are now included in this report to provide Council with a full picture of the City’s financial position and available resources after funding the required capital transfers. Once the Council provides feedback on new CIP projects and funding levels, the Finance staff will make any necessary adjustments to the FY 2022-23 CIP Budget. Due to the City’s limited capital funding sources and limited staff capacity to manage major capital projects, the CIP Program recommendations are limited to projects previously approved with dedicated funding sources, legally mandated projects, or those that pose an immediate threat to public health and safety.
We are pleased to report that staff was able to minimize the General Fund contribution towards the FY 2022-23 CIP Program to a $655,000 capital allocation, with the rest of the projects scheduled for the upcoming year funded from a variety of other capital funding sources as presented in Attachment 4 to this staff report.
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The FY 2022-23 Recommended Capital Program budget consists of $21.8 million and includes 58 projects. 17 of them are new at a total cost of $3.8 million, and 25 are related to wastewater services at a cost of $8.9 million.
The City of Pacifica Capital Improvement Program (CIP) is a planning tool used to prioritize capital project needs on a 5-year cycle. Building, improving, and maintaining the physical infrastructure of Pacifica - roads, trails, bridges, stormwater and sewer systems, public buildings, parks, playing fields, and more - requires a significant commitment of public resources and advance planning, involving project design, environmental review, and construction that can span multiple years. The 5-year CIP is the critical planning and budget document behind this infrastructure stewardship work.
The City of Pacifica has perennial funding challenges for its level of operational and capital improvement needs. These challenges make the advance planning and prioritization of capital projects ever more important, ensuring that the City’s limited resources are utilized to meet the highest public safety priorities. This FY2022-23 through FY2026-27 CIP continues this strategic prioritization.
The 5-year CIP is updated every year by identifying new projects, updating the status of existing projects, prioritizing all projects, and recommending adoption of the first year of projects for funding as part of the annual budget. The Engineering Division of the Department of Public Works develops the CIP in coordination with Finance, with input from the various City Departments, the City Manager, and ultimately the City Council. The identified projects in the CIP were selected to make the best use of the City’s limited resources.
The CIP show all projects regardless of funding status - fully funded, partially funded as well as those with funding still to be determined. Potential supplemental funding sources for these projects may come from donations, grants, local sales tax, or other sources. These projects include various infrastructure/building maintenance, storm drainage improvements, park and play field upgrades, and sewer facility improvements.
Council’s approval of the CIP does not constitute appropriation of funds to specific projects; a separate Council action is required for appropriation during annual Budget adoption.
The proposed 2022-2027 CIP Book (Attachment 1) is a planning document that enumerates recently completed, ongoing, and anticipated public capital improvements and facilities necessitated by new development in the City, Council priorities, and community needs. It indicates the approximate location, size, proposed project start and completion dates, estimated project funding source(s), and other miscellaneous information for all capital improvements and facilities to be financed with development fees, grants and other City funds. The CIP Book lists both projects recommended for funding next fiscal year as well as unfunded CIP projects for future years. Currently, the CIP Book includes an estimated total of $347.6M in projects.
Projects to be funded next year are included in the Proposed Capital Improvement Program Projects - Public Works spreadsheet (Attachment 2). The FY 2022-23 Recommended Capital Program budget consists of $22.39 million (in the new budget allocated) and includes sixty-eight (68) projects. Seventeen (17) of them are new/newly funded at a total cost of $3.8 million, and five (5) are related to wastewater services at a cost of $0.9 million. Once City Council discusses and provides direction on the final CIP program, staff will incorporate any adjustments in the Proposed FY 2022-23 Budget.
Discretionary and Non-Discretionary CIP Projects
The proposed CIP project list to be funded next fiscal year is comprised of 5 discretionary and 63 non-discretionary projects categorized as shown in Attachment 3, which also includes Pacifica City Council 10 May 23, 2022
summary descriptions. Discretionary projects are projects which management has a choice in implementing for the upcoming fiscal year. Non-discretionary projects are projects that are necessary to move forward in the next fiscal year based on criteria, such as administrative need, assessing for future CIP, City Council priority, grant-funded or waiting for grant funding, in-progress, mandated, required for staffing, or required maintenance.
These non-discretionary project criteria are defined in the following paragraph. Administrative need projects are projects that are needed for the administration of the City. Assessing for future CIP projects provides information on needed near future and long-term CIP projects, allowing for infrastructure planning and grant funding opportunities. City Council priority projects are projects that have been identified by Council at the goal-setting session. Grantfunded/waiting for grant funding projects are either grant-funded and require City matching funds or are necessary projects but need grant funding identified. In-progress projects are projects that are completing a current phase and entering another phase, such as going from design and starting construction. Mandated projects are projects that must address regulatory issues, such as environmental or ADA. Required for staffing projects are projects that address necessary staffing needs and required maintenance projects must be completed to address infrastructure deficiencies issues.
Proposed New CIP Projects and Continuing Projects Needing Funding Below is a preliminary list of new projects proposed for FY 2022-23 totaling $3.8M are categorized as non-discretionary as noted below. Discretionary projects are highlighted in yellow below.
1. Community Center Roof Project - $325k - Before installation of the photovoltaic (solar power) occurs, the Community Center roof needs routine maintenance to align the life of the roof with the life of the system being installed. In addition to the cost of materials increasing, the City’s roof consultant specified a more resilient roof that would be more applicable and accommodate the additional weight loads of photovoltaic panels. (Required Maintenance Project)
2. ADA Transition Plan Update - $100k - This project would continue the update steps for the City's ADA Transition Plan, including an updated inventory of disabled accessibility compliance at City facilities and within the public right-of-way. Disabled accessibility improvement projects are currently undertaken, and will continue in the future, as separate CIP projects, such as the annual curb-ramp projects. (Mandated Project)
3. FY 2022-23 Pavement Resurfacing Project - $1.5m - The Project will rehabilitate the pavement along roads designated in the 5-year paving plan. This project will also include pavement grinding for base repair as well as installation of thermoplastic traffic striping, markings and pavement markers. (Required Maintenance Project)
4. Local Roadway Safety Plan - $80k - In order to be eligible for Highway Safety Improvement Program funding, Caltrans has mandated adopted local roadway safety plans. The plan provides a framework for identifying, analyzing, and prioritizing roadway safety improvements on local roads or highway crossings. (Grant Funded Project)
5. Storm Drain Master Plan Phase 2 Inspection - $100k - Inspection and preliminary analysis for priority projects identified in the Storm Drain Master plan. This project is to do inspections of the major storm drain trunk lines. (Mandated Project)
6. Community Center Improvements - $60k - Ongoing maintenance & improvements that are immediately needed include door replacements for security. Future needs include office remodel to accommodate staff, spalling of the exterior, flooring in the dining room, hallway area, new baseboard, carpet replacement and indoor/outdoor painting of the building. (Required for Staffing Needs Project)
7. City Facilities WiFi Upgrade - $100k - The City currently has limited and aging wireless access points at its facilities. An investment to add and replace wireless access points to all City facilities is needed. This upgrade will support today's modern workforce, allowing staff to securely work on their files seamlessly throughout City facilities. (Discretionary Pacifica City Council 11 May 23, 2022
Project)
8. Enterprise Backup Solution -$50k - Due to the increasing threats of ransomware and other cyber threats, the City needs to upgrade its backup solution to incorporate more robust protection features such as immutable backups to prevent infection of backups.
This includes acquiring new storage hardware to support the software. (Administrative Need Project)
9. San Pedro Creek Bank Stabilization Project - $180k - Design and construct creek bank stabilization. The location is upstream from Adobe bridge on City property. Current stabilization is beginning to fail, therefore erosion stabilization work is needed. (Mandated Project)
10. Oddstad Park Building Maintenance - $200k - The Spindrift building has water intrusion coming in from gaps along the rear and front walls. The damage is flooding throughout the bottom floors, causing sheetrock and carpet damage. Work would mitigate current water intrusion areas, by installing a French drain along the face of the building, improve the existing drainage system, and install a water seal to prevent future water intrusion into the building. (Required Maintenance Project)
11. Fire Station 71 Building Maint - $150k - Fire Station 71 needs maintenance on the roof, furnace, water heater, duct replacement, and asbestos removal. This is a Required Maintenance Project recommended to be funded through a one-time reduction of the General Fund’s Facility Maintenance & Replacement Reserve, which will result in reducing this reserve category from $205,000 to $55,000 for the FY2022-23.
12. School Crosswalk Beacon Replacement Project - $40k - In 2014, in-ground roadway lights and flashing signs were installed at five schools. Those systems now have maintenance issues and failures. Standard signs have changed, and thus, replacing those with Rectangular Rapid Flashing Beacons is recommended for this project. One crosswalk will be replaced the first year and five the second year with an additional funding request in the second year. (Required Maintenance Project) Wastewater Enterprise Projects ($0.9M)
13. Linda Mar Pump Station Jockey Pump Upgrade (Breakout from LM PS Upgrade Project) - $50k - Add a new jockey or smaller pump to the pump station, improving wear and tear on bigger pumps and increasing efficiency and lowering power costs. The project includes one new dry pit submersible pump, suction and discharge piping, valves and appurtenances, and VFD. (Required Maintenance Project)
14. Linda Mar Pump Station - Bar Screen Rebuild (Breakout from LM PS Upgrade Project) - $150k - Rebuilt existing bar screen that is damaged. (Required Maintenance Project)
15. Rockaway Pump Station - Bar Screen Rebuild - $150k- Rebuild existing bar screen that is damaged. (Required Maintenance Project)
16. Sharp Park Pump Station Bar Screen Rebuild - $250k - Rebuild existing bar screen that is damaged. This is a larger bar screen than the Rockaway PS. (Required Maintenance Project)
17. Smoke Testing Linda Mar & Park Pacific Drainage Basins (Breakout from LM PS Upgrade Project) - $300k - Perform smoke testing for the entire Linda Mar & Park Pacifica drainage basins to confirm issues to identify Inflow and Infiltration sources. (Required Maintenance Project)
The following continuing Projects will require additional funding in FY 2022-23:
General Capital Projects ($2.0M)
1. Beach Boulevard Public Plaza Project - $50k - This project, previously approved by the Council, will replace the existing landscaping within the picnic area along the southern end of the Beach Boulevard Promenade with resilient improvements that will withstand the ocean environment, including plaza area animal play structures. To be Pacifica City Council 12 May 23, 2022
flexible and compatible with design and construction of the Beach Boulevard Infrastructure Resiliency Project, only the animal sculpture/play structures will be installed for now. They can be moved and reinstalled later. Additional budget is needed to complete the installation of the concrete footings for the sculpture/play structures. (InProgress Project)
2. Urban Forest, Land, and Vegetation Management Plans - $75k - This project, Phase 2 of the Tree Study Program, will hire a consultant to assist in preparing Urban Forest, Land, and Vegetation Plans to address issues related to trees and open space.
Additional funding is needed to increase the current budget to prepare the Urban Forest Management Plan and conduct public engagement events for the project. (Council Priority Project)
3. Corporation Yard Vehicle Storage Project - $40k - Currently, there is not adequate space for vehicles at the corp yard, and there is no storage for vehicles. This project will reorganize the corp yard so that vehicles can be covered from the weather, which will lengthen their useful life. A temporary solution is currently being explored/installed; however, additional funding for 22-23 is needed to put in the desired overhang that will protect the vehicles from the weather and elements. (In-Progress Project)
4. Police Department Radio Infrastructure Improvement - $10k- Pursuant to the Department of Justice requirement, Police Department radio infrastructure equipment needs to be upgraded to the latest security protocols, which involves the replacement of radio infrastructure equipment. (Mandated Project)
5. Fire Station 72 Emergency Signal Restoration - $80k - The stoplight in front of Fire Station 72 (Linda Mar) is in disrepair. It works intermittently and is outdated. A repair or replacement is needed for public and fire safety. (Mandated Project)
6. Pier Handrail Repair Project - $200k - The project looks to repair all of the pier railings and a fallen forty-foot section completely rendered unusable on the Pacifica Municipal Pier damaged by high tides and large waves in early 2021. The project is a full replacement of all handrail panels. The allocation request for additional money is to make up the shortfall that was not able to be grant-funded. (Grant Funded Project)
7. Playground Equipment Improvement (formerly Parks & Recreation Projects) - $1.34m - Improvement to outdated citywide parks playground equipment. Equipment will be prioritized per audit. Encompasses Priority Parks Projects: FY 21-22 - Fairmont rec decks, playgrounds at Oddstad, Brighton, Imperial, Skyridge, and Mar Villa. FY 22-23 work - playgrounds at Edgemar, Saltaire, & Fairway Parks. Additional funding is to cover more park replacements. (In-Progress Project)
8. Parks, Beaches, and Trail Signage Improvements - $5k- Evaluate the Parks and Recreation Sign Inventory document in order to prioritize replacement and/or upgrade of signage at parks, beaches, and trails. Making upgrades to signage at City parks, beaches, and trails will improve the quality, messaging, and communication with facility users. Additional funding is to allow the project to include more signage. (Discretionary Project).
9. Financial / HR Software - $382k- Replace existing financial / human resources software with more efficient and current software. Project will provide City departments with efficient software to meet ongoing Federal, State and local accounting, financial and payroll reporting requirements.
The only new discretionary project is the City WiFi Upgrade. Although listed as discretionary, the project is important to the City as it would add and replace wireless access points improving the system. The continuing Trail Signage project is also discretionary but recommended to replace and upgrade signage at City parks, beaches and trails.
In summary, the CIP book is a 5-year guiding document which helps the City plan for future capital improvements. Staff has provided the Council with the recommended proposed project list for Fiscal Year 22-23 and recommends moving forward with funding for both ongoing and Pacifica City Council 13 May 23, 2022
the new/newly funded CIP projects highlighted in this report due to their importance to the City.
MASTER FEE SCHEDULE & CHARGES
The proposed Master Fee Schedule for FY 2022-23 is provided as Attachment 5 to this report.
Some fees charged for City services are set at a flat dollar amount meeting the consistency benchmark with the neighboring agencies and the needs of the community (i.e., recreation class fees), while others are result of the comprehensive study and also depend on the amount of time spent on services (i.e., development review). In this latter case, the City uses an hourly rate that reflects the staff costs to provide the service. The Cost Allocation Plan and Fee Study developed in 2013 helped determine the appropriate hourly rate and have been used as a baseline in budgets since that time, adjusted annually by CPI.
For 2022-23, we are proposing to increase applicable hourly rates and fees by the change in the Consumer Price Index (CPI) of 5.2% or Construction Cost Index (TBD), if deemed appropriate by the department administering the fees or specified in the Municipal Code. Any proposed new fees are highlighted in yellow in the Master Fee Schedule attachment. The following summarized fee schedule amendments, other than routine annual adjustments:
• Public Works - Staff recommends establishing a $5,000 initial deposit for plan or map checking fees, as the cost of these services is approximately $5,000. The Wastewater fees have been revised to reflect the changes set forth in the recently Council-approved rates.
A study of the impact of utility cuts and construction vehicles to Pacifica’s pavements was presented to Council and discussed at the March 14, 2022 Council meeting. As discussed, Utility Pavement Cut and Construction Vehicle Impact Fees are recommended and are added to the Master Fee Schedule.
The Utility Pavement Cut Fee is paid based on the pavement area affected, the functional class of the street, and age group. An example of the fee for a homeowner requiring a sewer lateral replacement and needing a Sewer Lateral Compliance Certificate is $640 based on a typical 4’x4’ cut for this work. Homeowners not requiring a Sewer Lateral Compliance Certificate would be charged a minimal fee of $500. A developer would receive partial or full credit for this fee for completing frontage roadway paving associated with their project. The Utility Pavement Cut Fee will not be charged for any ADU that is under 750 square feet or an ADU of any size when the ADU is being constructed at the same time, under the same permit, as a new main residential unit or an expansion of the main unit that make payment of the fees as required.
Construction Vehicle Impact Fees are imposed due to damage to the pavement caused by heavy construction vehicles during construction. The recommendation includes a per square foot price for residential, multi-family, and commercial developments of $1.19/square foot of new structure. This would translate to a one-time fee of $2,142 for a new 1800 sf single-family home or $952 for a new 800 sf multi-family unit. The Construction Vehicle Impact Fees shall not be charged for any ADU that is under 750 square feet or an ADU of any size when the ADU is being constructed at the same time, under the same permit, as a new main residential unit or an expansion of the main unit that make payment of the fees as required. The Council has also directed staff to evaluate policies to incentivize affordable housing production by reducing fees during the Housing Element development and implementation.
Projected Fund Balance Structure
The FY 2021-22 Operating and Capital Budget was adopted as a balanced budget, meaning that the City's operating expenditures did not exceed general revenues.
Pacifica City Council 14 May 23, 2022
At the last City Council budget session meeting, staff reported the long-term financial outlook that showed that the ongoing services to the community will remain in balance during the upcoming fiscal year but will face a projected long-term structural deficit starting with FY 2023-
24. This is in part due to the availability of ARPA funds that offset losses of City revenues during the COVID pandemic. Since these onetime funds will be spent by the end of 2024, the ongoing structural deficit is projected in the future years.
To demonstrate the structural nature of the financial challenges, staff completed the FY 2022-23 Base Budget at the current level of services with and without factoring in the ARPA funds. As shown in the table below, the operating surplus of $1.9 million is projected when the full ARPA revenues are taken into account. However, when the ARPA revenues are backed out, the Base Budget shows a structural deficit increase to $2.7 million.
The structural deficit exists when the ongoing operating expenditures consistently exceed the ongoing operating revenues. This means that the general revenues could no longer support operating expenditures without new revenue sources or applying additional budget strategies or cuts to balance the budget moving forward (after onetime ARPA funds run out).
Major components of this deficit are due to the severe impact of the COVID-19 pandemic on the City's revenue base, as well as the anticipated loss (delay) of the Vehicle License Fee (VLF) revenues as described earlier and the increased cost of the unfunded pension liability.
Again, the numbers presented in this report only reflect the current Base Budget level of services and proposed CIP funding. It does not consider the implementation of budget strategies and recommendations that staff will be bringing forward at future meetings for more in-depth discussion and the Council's direction on how to reach a balanced and sustainable budget at a desirable level of services.
Budget Deficit - Hypothetical Deficit Balancing Scenario Pacifica City Council 15 May 23, 2022
The $2.7 million deficit without ARPA funds is being presented for illustrative purposes only, just to demonstrate the magnitude of the financial challenge of continuing operations at the current service level that is being kept afloat by the use of ARPA funds in the upcoming year but will be more apparent in the future years. Since, by statute, the City will have to adopt a balanced budget, the services would likely have to be reduced or reimagined in order to balance the budget in the future years unless the City's revenue base is increased.
The table below provides a hypothetical distribution of the $2.7 million deficit between departments based on the current share of the General Fund Budget. To balance the $2.7 million deficit, each department would be required to submit program requests for structural and programmatic service-level cuts to their budget of approximately 6% to balance the budget if the City's revenue base remains the same.
The table is just meant to provide perspective. An across-the-board cut does not take into consideration the City Council or community priorities but can serve as a useful tool to begin the discussion.
The City of Pacifica is a full-service City. The Personnel Cost is the City’s largest expense, representing approximately 66% of the General Fund Budget. As a reference point we are presenting a total payroll cost of a few sample positions throughout the organization.
Public Safety and Public Works positions do not include specialty pay, as it may vary based on experience, certifications and tenure It is important to note that the reduction targets above only show the required economic value that would need to be identified. Although all departments will be required to submit program changes that meet these target cuts, the Council may prioritize some programs and departments over others based on the nature of services and overall impact on the community.
Pacifica City Council 16 May 23, 2022
Across the board cuts are not a best-practice; rather, the City Manager likely would recommend a strategic approach with careful consideration of each program and service reduction in light of the value and benefit that it brings to the community and the long-term implications on the City's ability to provide high-quality municipal services.
Vision 2025 & Beyond - Exploring Revenue Options
At the February 14, 2022 meeting, the City Council received an update from staff on the Vision 2025 & Beyond fiscal sustainability program. This update included a presentation and discussion of potential revenue options the City could consider to cover the $2 to $3 Million per year structural budget deficit that is projected to begin in the 2023-24 fiscal year. (This projection assumes that the upcoming 2022-23 operating budget will be balanced in part by using the second tranche of ARPA funds and the State's repayment of VLF In Lieu funds in the coming fiscal year as discussed above).
The Council directed staff to explore the possibility of placing a Revenue Measure on the November 2022 ballot, which would be one of three revenue options - Local Sales Tax (.50 cent per dollar) estimated to raise $2.6 Million per year, Utility User Tax (reduce the rate from 6.5% to 5% and broaden the base to include telecommunications and water) estimated to raise $2 Million per year, or Transient Occupancy Tax (an increase from 12% to 15%) estimated to raise $350,000 per year. The City Manager has retained Lew Edwards Group and FM3 Research to poll Pacifica voters to obtain data on these three potential revenue options. Information about polling results is being presented in a separate agenda item tonight.
OTHER FUNDS
The Base Budget revenue and expenditure for all other funds have also been updated. This includes all of the Special Revenue, Debt Service, Enterprise, and Internal Service Funds. The full budget discussion will include "All Funds," which we typically divide into the General Fund (the majority in terms of dollars and completely discretionary) and Other Funds (largely designated for specific purposes) as well as the Capital Budget (significant projects expected to begin or continue in 2022-23). The Base Budget numbers do not include the CIP budget allocations that will be added for the next meeting as mentioned above.
Staff used the same basic assumptions for all other funds to factor in 2% cost of living increase for the contract and professional services categories and 1.5% for materials and supply.
Enterprise Funds consist of Sewer/Wastewater and Beach Parking funds. Enterprise funds are used for services that are financed and operated as a private business enterprise. The FY 2022- 23 total enterprise funds base budget is $27.1, which is 30% of the City's overall budget. Sewer funds are used to account for sewage collection, treatment, major replacements, and maintenance and protection improvements to the sewer system. Sewer charges of $18.6 million are based on a 3.5% rate increase in FY 2022-23. The sewer operating expenditures include the same inflationary base budget assumptions. The Salaries and Benefit costs of approximately $5.4 million are based on 14 FTE allocated to the Sewer Fund and include all current MOU provisions. Beach Parking Fund is used to account for parking services to residents and visitors. The revenues are projected at $18.6 million, which is in-line with the FY 2021-22 Revised Budget
Special Revenue and Capital Funds are used to account for specific revenue sources or financial resources for which expenditures are restricted by law or administrative action to Pacifica City Council 17 May 23, 2022
specific purposes. This Category includes Gas Tax and Streets Funds, General Capital, Drainage, Housing in-lieu, Parking in-Lieu, Park in-Lieu, PB&R Special Revenue and Roy Davies Trust, Disaster Accounting, and other funds. The FY 2022-23 revenues for this category is $18.7 million and includes revised estimates for the Returned ERAF revenues of $3.2 million projected in the Disaster Accounting Fund per the most recent information from the County. This is a decrease of $216,730 that is assumed to be diverted to pay VLF backfill per the DOF amended budget language. Also included in this category an increase in Gas Tax revenues of $0.2 million and another $0.2 million in Street Maintenance Fund to account for the new Impact Fees as presented in the Master Fee Schedule section, assuming the Council’s adoption of the Master Fee Schedule. The FY 2022-23 expenditures of $18.6 million for this Category represent around 19% of the City's total budget and include the recommended FY 2022-23 CIP Budget allocation.
Internal Service Funds serve the needs of the City and are used to account for Citywide services on a cost-reimbursement basis. These funds accommodate the motor pool, employee benefits, and risk management needs of the City and are supported by the funds that receive benefits, including the General Fund. The FY 2022-23 Budget for this Category is around $3 million, which is 3% of the City's Budget.
Debt Service Fund is used to account for long-term debt obligations. The FY 2022-23 budget for the debt service category is based on the updated debt service schedule. The changes include a change in accounting for the General Fund repayment for the Wastewater Enterprise loan payment of $0.4 million that is now being recorded as part of the annual debt service and not year-end adjustment as it was done in the past.
NEXT STEPS
At the next budget meeting on June 13, 2022, staff will be presenting all program options and recommendations for the FY 2022-23 Budget. All departments are currently working on their budget recommendation for service changes that will be submitted to the City Manager in order of department priorities. The City Manager is in the process of meeting with each department to review and discuss their budget requests and will ultimately formulate a plan for the balanced FY 2022-23 Budget. FY 2022-23 Budget recommendations will be based on many factors, including the Council's strategic vision and service-level impact on the overall City operations and services provided to the community.
FISCAL IMPACT:
There is no action associated with this item; this is an informational presentation only with Council comments being sought to help guide preparation of the Proposed Budget for future Council consideration. As reflected in the budget calendar above, staff will be bringing forward specific strategies to balance the FY 2022-23 Budget at the future meeting on June 13, 2022.
ORIGINATED BY:
Finance Department
ATTACHMENT LIST:
Pacifica City Council 18 May 23, 2022
Attachment 1 - General Fund Baseline Budget Revenues Summary (PDF) Attachment 2 - General Fund Baseline Budget Expenditures Summary (PDF) Attachment 3 – Updated ARPA Allocation (PDF)
Attachment 4- 22-23 Capital Budget Draft (PDF)
Attachment 5 - Proposed FY22-23 Master Fee Schedule (PDF)