CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
4/8/2024
1 SUBJECT:
Fiscal Year 2024-25 Budget Planning Process, Timeline and Preliminary Budget Strategies RECOMMENDED ACTION:
Accept the report and provide additional policy direction for the preparation of the FY2024-25 Budget.
STAFF CONTACT:
Kevin Woodhouse, City Manager
650-738-7409
[email protected]
Yulia Carter, Assistant City Manager
650-501-6004
[email protected]
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 to the City Council and staff at the time of adoption. This narrative report is the first step in this process. It is not yet intended to provide detailed budgetary information for FY2024-25. Rather, it is intended to describe the process, timeline, and receive early input from the City Council on several preliminary budget strategies recommended by the City Manager.
The next step in the budget process will be the Council’s adoption of the strategic plan updates and priorities and a detailed FY2024-25 Base Budget presentation, followed by public hearings and budget adoption. Again, this report provides the Council with a general outline of the budget development process, including timeline, methodology, and preliminary budget strategies for the upcoming year.
Budget Calendar
The annual budget cycle begins each year with the development of budget instructions, including policy directives and a budget calendar in January-February, and is completed with the budget adoption by the City Council in June of each year.
A summary of the tentative FY 2024-25 budget schedule is as follows:
Pacifica City Council 2
April 08, 2024
This year's budget cycle launched on March 9, 2024, with the Council’s review of the City’s Strategic Plan and Priority-Setting workshop. The Strategic Plan and priorities update will be presented to the Council’s adoption on April 22, 2024. On March 25, 2024, the Council completed a mid-year review of the FY2023-24 Budget. At that time, the Council reviewed revenues and expenditures and made adjustments that will be factored into the development of the FY2024-25 Base Budget, scheduled to be presented to the Council on May 13, 2024.
Budget Methodology
The Adopted Budget is achieved after an inclusive and interactive budget development process, which aims to reach a balanced and sustainable budget. In the previous year, staff modified the City's budget process to apply a 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. The upcoming FY 2024-25 budget development process will follow the same methodology.
The purpose of the Base Budget is to reflect 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 importantly, because of the FY2024-25 Budget assumptions that will be presented to Council at the next budget study session, which will be held on May 13th.
The Base Budget will reflect the current economic conditions at the existing service level. Once the Base Budget is developed, each department will be given an opportunity to request prioritized program changes for service enhancements or reductions (if needed) and to identify any necessary or desirable service increase or reduction options while maintaining a balanced and sustainable budget.
The City Manager will then review department requests and formulate budget recommendations for service-level changes for the Council's consideration. These recommendations will be based on many factors, including the Council's strategic vision, staffing capacity, and potential impact on the overall City operation and services provided to the Community.
The final proposed budget document will incorporate the City Manager’s final recommendations based on the City Council's priorities and input. Throughout the upcoming budget meetings, the Council will have an opportunity to review and consider budget options and provide direction to the City Manager regarding any changes.
Pacifica City Council 3
April 08, 2024
The City's goal is to achieve a balanced budget with operating revenue equal to or greater than operating expenditures, including debt obligations and any reimbursements from other funds for services. Under this policy, total expenditures can exceed revenue in a given year to fund capital improvement plan projects or other "one-time" non-recurring expenditures. The City's financial position and the resources in each fund will determine the level of services and the projects that the City will be able to deliver to the community in the upcoming fiscal year.
Therefore, these services and projects will be included in the adopted Budget.
FY 2024-25 Preliminary Budget Strategies
The comprehensive update to the Strategic Plan and Priorities is scheduled for presentation and adoption by the Council on April 22, 2024. However, the overarching City goals remained unchanged from the City Council’s March 9 Strategic Planning workshop. During the workshop, the City Council confirmed the following five Pacifica goals for the next six years:
1. Enhance organizational and fiscal stability.
2. Improve and steward City infrastructure, streets, and facilities.
3. Prioritize protection and development of affordable housing.
4. Pursue climate change adaptation and mitigation.
5. Broaden public communications and collaboration.
The Council's input on the following recommended preliminary budget strategies related to these goals will help guide the development of budget recommendations for FY2024-25 that achieve the Council's Strategic Plan Goals and Strategies and continue providing exceptional City services to the Pacifica community.
Strategy #1: Utilize funding strategies to augment professional staffing, while minimizing General Fund impact. (Supports Goal #1)
As in previous years, the City continues to face challenges in adding new positions due to insufficient operating revenue surplus. As previously reported by staff, over the past two years, the City has struggled with a high vacancy rate and difficulties in recruiting and retaining talent.
These challenges are currently widespread in the local government sector, especially in highly competitive and costly labor markets like the Bay Area. Some recruitments had to be repeated multiple times without success. Additionally, the City appears to have fewer full-time-equivalent positions than other comparable agencies. A study conducted a few years ago revealed that Pacifica is 23% lower-staffed compared to other cities of similar size and service level. The City Manager has engaged a consulting firm to conduct a quick analysis of the City’s staffing levels.
The preliminary results of this study will be presented to the Council at a later budget session and will serve as a guide in developing future strategies to fulfill the Council’s goal of enhancing organizational stability.
Last month, during the FY 2024-25 Midyear Budget update, the City Council approved changes to the position control, converting five previously approved ARPA-funded limited-term positions into permanent roles. This decision represents a step in the right direction in enhancing the City’s organizational capacity.
Additionally, staff is actively working on identifying additional strategies for staff augmentation to facilitate the effective delivery of projects and services. These strategies will be presented more comprehensively in a future budget session but are generally listed here to receive initial Council feedback:
Pacifica City Council 4
April 08, 2024
1. Fund Interns/Fellows - Lower-cost and temporary positions, such as interns/fellows, can be an effective way to augment staff work. Developing younger employees through these placements is also a great training and recruitment tool for potential future full-time employees. Last year, the City partnered with CivicSpark to host a highly qualified intern who is making significant contributions to the City’s sustainability programs. In order to continue this successful work, for the FY2024-25 Budget, staff will consider adding an in-house intern position in the Planning Department to continue advancing the City's progress in updating the Climate Action and Adaptation Plan. Additionally, the City plans to continue participating in the County-wide Internship program, building on last year’s success of hosting a class of five interns citywide.
2. Additional Contract Planning services - With an anticipated increase in private development applications, continued budgeting for additional contract planning staff services may be warranted and would be reimbursed by private applicants;
3. Salary Savings - Due to the above-mentioned recruitment and retention challenges, the City has experienced substantial salary savings over the last few years. As part of the labor negotiation strategy last year, the City Manager recommended factoring in reasonable and sustainable salary savings estimates in the FY 2024-25 Budget to afford the considerable labor package, including COLA and equity increases offered to all labor groups in year two of the MOU contracts. Building a 3-5% salary savings rate might become an ongoing city strategy to increase the city’s organizational capacity and improve recruitment and retention over the next few years. This strategy would have to be monitored closely throughout the year and reviewed and validated each year during the mid-year budget review.
Strategy #2: Addressing financial uncertainties concerning the Vehicle License Fee InLieu payments from the state (Supports Goal #1).
At the Midyear Budget review on March 25, 2024, staff provided background and the current state of the VLF In-Lieu funding issue. The outcome of this discussion was an approved recommendation for a one-time reduction of the General Fund emergency reserve to fund this year’s state’s takeaway of nearly $1.7 million that was due to the City in FY2023-24.
Based on the state’s continuing position, the ongoing receipt of these revenues appears to be in jeopardy. As discussed during the last meeting, this is an evolving issue that may have a major impact on the FY 2024-25 Budget and beyond, potentially impacting City services long-term.
The San Mateo County City Managers and Finance Officers are working together on a unified response to this economic stability threat, and based on these discussions, the City Manager recommends budgeting the VLF In-Lieu revenues that are due to the City, including an FY 2022-23 shortfall amount of $1,452,355 due to the City in the upcoming year based on the current two-year delayed schedule in remitting these revenues back to cities by the state.
However, if the state does not follow through on its obligations, an additional reduction in emergency reserves might be necessary again at the Midyear Budget review. Staff will continue monitoring this issue closely and provide more in-depth briefing to the City Council during the budget development process if any new information comes to light.
Strategy #3: Maintaining the “status quo” for annual funding of non-profit organizations (Supports Goal #1).
On March 11, 2024, the staff brought forward a policy discussion to consider formalizing the annual Funding process for non-governmental organizations (NGOs). After discussion, the Pacifica City Council 5
April 08, 2024
Council did not direct staff to initiate a formal annual grant funding program for local non-profits but instead to continue with the current funding parameters. To memorialize this direction for the upcoming budget, the City Manager is looking for confirmation that the following nonprofit organizations should continue receiving the same general donation funding not tied to service agreements in the FY 2024-25 at the current funding level as listed in the table below.
Strategy #4: Capital Improvement Program funding for unfunded infrastructure projects (Supports Goals #1 and #2)
The complete FY 2024-29 CIP Program will be presented at the May 13, 2024, budget session.
Given the City's current financial position and substantial resources needed to fund the FY 2024-25 Capital Program, funding for non-discretionary capital projects is another ongoing budget challenge that requires strategy development to address.
Over the next few weeks, Finance and Public Works staff will be working on identifying all available funding sources (State Grants, County contributions, Gas Tax, and various other funds) to build in necessary capital transfers to fund capital projects. When no external funding sources can be identified, General Fund revenues will need to be allocated to help fund identified priority capital projects. Similar to past years, this year’s CIP program will contain new and ongoing non-discretionary priority projects and discretionary projects, requiring additional funding.
The current FY 2023-24 Adopted Budget included a General Fund contribution of $1.3 million to the Capital program, including allocation towards the new Civic Center project that is now near completion. Given that the City does not have dedicated capital revenue sources, this level of General Fund contribution towards the CIP program is not sustainable because of the competing strategic priorities and ongoing funding demands for general services. However, this is not sufficient funding to address the City's increasing capital needs, prompting staff to seek alternative funding sources for long-term capital funding.
For the FY 2024-25 Budget, the City Manager recommends starting a competitive consultant selection process by issuing a request for a proposal for a Development Impact Fee, Cost Allocation, and Master Fee Study, which has not been done in decades. Municipal best practices guidelines state that staff should complete a comprehensive review of the cost of providing fee-related services and user fees every 5-7 years, and a cost allocation model should be used as a basis to ensure that the City is accurately accounting for the true cost of providing services. The Development Impact Fee nexus study will review development impact mitigation fees imposed on new development and may result in improving the City’s capacity to fund critical infrastructure needs. The State Legislature passed AB 1600, the Mitigation Fee Act, establishing ground rules for the imposition and ongoing administration of impact fee programs.
The State law provides cities with the ability to impose defensible fees to ensure that new development pays its “fair share for the impact on community facilities and infrastructure.” This Pacifica City Council 6
April 08, 2024
is a major project that will require substantial staff resources and funding, and given the timing of other major projects, strategic scheduling of this work will be a critical budget strategy to allocate staffing and budget resources for the success of the entire project.
If the Council supports the Project, the consultant selection portion of the overall project will be planned for the second half of FY 2024-25. The Development Impact Fee study kick-off will be in the last quarter of FY 2024-25, followed by the Cost Allocation Plan and Master Fee Study update in the following FY 2025-26 Budget.
Strategy #5: Continue allocating a portion of Excess Educational Revenue Augmentation Funding (Excess ERAF) toward funding for affordable housing (Supports Goal #3).
Excess ERAF revenue is not considered a stable ongoing source of annual revenue and is therefore allocated as one-time funding every year it is received. Last year, the Council approved the City Manager’s recommendation to split the Excess ERAF remaining balance of $3.2 million, following allocation to two NGOs (PRC and PBC), between the Disaster Accounting Fund (fund 38) and the Housing In-Lieu Fund (fund 24) to fund future potential affordable housing projects.
The City Manager’s preliminary recommendation for the upcoming FY 2024-25 is to continue this policy and allocate the Excess ERAF funds as follows:
• $100,000 toward the Pacifica Resource Center
• $5,000 toward the Pacific Beach Coalition
• 50% of the remaining balance toward Fund 38 (Disaster Accounting Fund) • 50% of the remaining balance toward Fund 24 (Housing in-Lieu Fund) Depending on the City’s projected financial condition, an alternative recommendation may be developed and presented at a future budget session.
NEXT STEPS
At the next meeting on April 22, 2024, staff will present updates to the Strategic Plan and priorities for Council adoption. This strategic framework serves as a critical roadmap for the organization, outlining the City’s short and longer-term priorities and objectives, that also directly translate into the workplan and budget recommendations for the upcoming FY 2024-25 Budget.
On May 13, 2024, staff will present the FY 2024-25 Base Budget and the recommended funding for the FY 2024-25 Capital Improvement Plan. In subsequent budget sessions, more defined budget options and recommendations will be brought forward before the final adoption of the FY 2024-25 Budget in June.
FISCAL IMPACT:
There is no action or fiscal impact associated with this item. This is an informational presentation seeking the Council’s initial input to help guide the further development of budget recommendations. As reflected in the budget calendar above, staff will be bringing forward the FY2024-25 Base Budget and more in-depth recommendations for budget strategies, policy options, and service change recommendations at future meetings.
ORIGINATED BY:
City Manager's Office
Pacifica City Council 7
April 08, 2024
ATTACHMENT LIST: