CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
5/13/2024
1 SUBJECT:
Fiscal Year 2024-25 Base Budget, Long-Term Financial Outlook, and Introduction of the 2024- 29 Capital Improvement Plan
RECOMMENDED ACTION:
Accept the report and provide feedback and direction on the proposed Fiscal Year 2024-25 Base Budget, long-term financial outlook, and introduction of the FY 2024-29 Capital Improvement Plan.
STAFF CONTACT:
Yulia Carter, Assistant City Manager
[email protected]
650-738-7301
Kevin Woodhouse, City Manager
[email protected]
650-738-7409
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.
Then, at mid-year, staff revisits the projections and reports to the Council any changes needed to reflect new information and keep the City on track.
On April 8, 2024, staff presented the Narrative Budget report outlining the Budget planning process, methodology, timeline, and preliminary budget strategies.
As part of this year’s budget process, the City launched The Pacifica Discussion initiative to gather input from residents and the Pacifica community on specific City service needs and priorities. Over 700 responses were received, highlighting priorities such as maintaining storm drains, ensuring timely emergency response, repairing potholes, and improving street conditions, preserving beach cleanliness and coastal areas, and reducing the risk of flooding and mudslides.
Residents also emphasized the importance of preserving Pacifica's parks, beaches, coastline, trails, and recreation opportunities. Addressing road repair remains a top concern due to the city's backlog of repairs and poor road ratings, which pose safety risks and worsen traffic congestion. Safety improvements at school intersections and enhancing infrastructure such as sidewalks, bike lanes, crosswalks, and lighting were also highlighted, indicating the need for additional funding.
The ongoing discussion will continue to engage the community in shaping the city's long-term budget priorities and planning, as further described in the Capital Improvement Program section of this report.
DISCUSSION:
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This report presents the FY 2024-25 Base Budget reflecting the current level of services and operations and the Introduction of recommended non-discretionary FY 2024-25 Capital Improvement Plan projects included with the Base Budget.
Specific budget options and recommendations will be presented as part of the Recommended Budget at the next budget meeting on June 10th, preceding the final Budget adoption hearing on June 24th.
A summary of the FY 2024-25 budget schedule is presented below:
FY 2024-25 BASE BUDGET
The goal of a budget process is to develop the City's Budget by completing a full analysis of the City's revenue and service level expenditures to identify necessary service increase and/or reduction options, which, when combined, will maintain a balanced and sustainable budget.
Staff formulated various revenue and expenditure assumptions to construct the base budget for FY 2024-25. These assumptions were based on known projections and economic conditions and reflected the budget adjustments made by the Council during the mid-year budget review.
The resulting structural surplus or deficit at the base budget level is critical. It informs discussions about departmental or other program funding beyond the baseline to accomplish identified priorities for the upcoming year.
1. FY 2024-25 GENERAL FUND BASE BUDGET
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 tax, and current fees for services. The FY 2024-25 General Fund Base Revenue budget is developed based on the current economic conditions and current projections of the City’s revenue base.
The City's FY 2024-25 General Fund Base Expenditure budget reflects 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 2024-25 budget assumptions used to Pacifica City Council 3
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develop the base budget further described below.
This report presents the FY 2024-25 General Fund Base Revenue Budget of $47.9 million and Base Expense Budget of $45.2 million, resulting in a $2.7 million variance between revenues and expenditures. However, this variance is somewhat misleading, as this base budget does not include what should be an ongoing transfer from the General Fund to the Debt Service Fund. This transfer is not being included this year due to the accumulation of the cash assets in the Debt Service Fund over the past few years, allowing for the FY 2024-25 total debt obligations of $2,037,311 to be paid directly from the available fund balance in Debt Service Fund (fund 40).
Since this debt service transfer relief is one-time in nature, the full debt service payment will be added back as a transfer out of the General Fund and recorded as an ongoing operating expense in the long-term financial outlook in future years. Therefore, after accounting for this expense as a future need, the adjusted General Fund surplus for FY 2024-25 is projected at $0.7 million.
It is important to note that this surplus exists because a salary savings of $1.2 million is also prudently factored in due to the high level of vacant positions the City has been experiencing in recent years due to recruitment and retention challenges. Without factoring in salary savings and the one-time debt service transfer relief, the General Fund would show a deficit of about $428K at the Base Budget level, allowing no room for critical service enhancements to execute the Council’s strategic vision and FY 2024-25 Workplan without corresponding budget cuts.
The summaries of the General Fund Base Budget Revenues and Expenditures are provided in Attachments 1 and 2. In coordination with other city departments, Finance developed the FY 2024-25 Base Budget assumptions to include all items previously approved by the City Council and factor in inflationary conditions.
Below are some key assumptions applied to the FY 2024-25 Base Budget.
FY 2024-25 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 following revenues are projected to reflect significant changes over FY 2024-25:
• Property Tax is the City's largest revenue source. Historically, Pacifica's property tax base has shown slower growth compared to some other Bay Area cities. For the FY 2024-25 Budget, property taxes comprise approximately 35% 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, 2024. The FY 2024-25 property tax revenues are projected at $16.7 million or $0.5 million (3%) above the FY 2023-24 Mid-Year Revised Budget of $16.2 million based on the information provided by the County and HdL, the City's property tax consultant. • Charges for Services are the second largest revenue category, comprising about 15% of the total General Fund revenue budget. They include building, planning, other permits, recreation revenues, rentals, fines, and reimbursements. This revenue category is projected to decrease by $0.6 million or 7% due to a reduction in cost-reimbursable planning charges. There is a corresponding reduction in the cost-reimbursable planning expenditures to bring these services more in line with the anticipated activity level for cost-reimbursable services and receivables throughout the fiscal year. • Vehicle License Fee (VLF) in Lieu is the third largest revenue category that accounts for 10% of the General Fund revenues. The challenges around the VLF in Lieu revenues have been discussed at length during the mid-year budget review. There has been insufficient ERAF to fund the VLF in Lieu allocation for the past five years, resulting in a shortfall of revenue in the funding source the state traditionally used to cover its in-lieu Pacifica City Council 4
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obligations to cities and counties, and this gap is projected to continue going forward. In the past, the State has backfilled the VLF shortfall, but the State's payment lagged two years behind the shortfall year. As of now, however, the governor's current Budget does not include a true-up for FY 2022-23, which for Pacifica translates into $1,452,355 expected to be paid back to the City in FY 2024-25. The San Mateo County City Managers and Finance Officers are working together on a unified response to this economic stability threat. As discussed with Council on April 8th, the City Manager recommended budgeting the full backfill that is due to the City in FY 24-25 and revisiting this strategy at the mid-year budget review if the state does not follow through on its obligations. Therefore, a corresponding increase of $770,900 or 20% is reflected in the base budget in the VLF category to account for this assumption. • Sales Tax is the City's fourth-largest revenue category. At the midyear budget review, staff reported that the sales tax revenues were down, resulting in a nearly $0.2 million reduction. Based on the most recent discussions with HdL, the City's sales tax advisor, and their sales tax projections, the local sales activities forecast is expected to stay flat, projecting only a 1% or $48,200 increase over the already reduced FY2023-24 Budget, leaving the sales tax revenues of $3.3 million essentially at the same level as the Revised FY 2023-24 Budget.
• Measure Y is a ½ cent Transaction & Use Tax that was passed by the voters in the City of Pacifica in November 2022. The tax became effective April 1, 2023, and FY 2024-25 will be the first full year of collections. Consistent with the sales tax category above, HdL projects this revenue to stay flat at $2.5 million in FY 2024-25. • Other Taxes project normal inflationary increases consistent with historical averages, economic trends, and the prior year's returns. This includes the following:
➢ Utility Users Tax (UUT) is projected to increase by 4% or $100,000 to $2.8 million; Transient Occupancy Tax shows a modest increase of 2% or $58,500 to $2.9 million;
➢ Cannabis Operations Tax is estimated to go up by 4% or $37,000 to $0.9 million based on the current activity trends. However, staff will be closely monitoring this assumption due to reported decreases in cannabis sales tax revenues by HdL; ➢ Business License Tax is also projecting a 4% increase to a total of $0.6 million based on continuing compliance efforts provided by HdL; ➢ Other category includes Franchise Tax, which is estimated to increase by 5% or $64,200 to $1.3 million.
• Intergovernmental revenues comprise state and federal government reimbursements for the City’s childcare program, estimated at $2.4 million, which aligns with the prior year’s activity level. However, adjustments to the childcare program are anticipated at the midyear budget review following the completion of the audit and reimbursement filings.
• Operating Transfers In include transfers from the Gas Tax and Street Construction Fund to cover a portion of the Public Works street maintenance staff budgeted in the General Fund. While the position allocation remains consistent with previous years, the increased transfer amount (up by $130,100 from the prior year) represents higher personnel costs due to substantial labor increases per current labor agreements.
FY 2024-25 Base Budget General Fund Expenditures Assumptions Total General Fund Base Budget expenditures are projected at $45.2 million at the Base budget level, $3.4 million, or 7% less than the FY 2023-24 Revised Budget. This decrease is primarily attributed to a one-time relief to the General Fund, which retained the over $2 million debt service transfer this year instead of transferring it to the Debt Service Fund.
Operating expenses are set to remain consistent with the prior year's actuals and mid-year revised budget adjustments. This includes removing one-time budget allocations from last year and accounting for expected inflationary increases.
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Attachment 2 demonstrates the General Fund expenditure estimates for FY 2024-25 at the Base Budget level. Below are the key base budget expenditure assumptions:
• Salary and Benefits projections include funding for 193.25 full-time equivalents (FTE) positions citywide and include all current MOU provisions. Consistent with the budget strategy presented at the last budget meeting, the Base budget includes built-in salary savings in the amount of $1.2 million or 5% of the total salaries and benefits projections.
This is the first time in recent years that the budget does not fully fund salaries and benefits. Underfunding the City’s largest expense category in a full-service city like Pacifica presents some risks, necessitating close monitoring throughout the year and analysis at mid-year. However, current recruitment and retention challenges, coupled with ongoing needs to increase organizational capacity and a lack of available funds to do so, call for this approach, which will likely become an ongoing city strategy moving forward unless the City’s revenue base changes. Funding for part-time positions remains consistent with the prior year's allocation.
• Vacant positions are budgeted at the top step with the "employee family" cafeteria plan assumption for health benefits. Projections also incorporate all Memorandum of Understanding (MOU) provisions, including equity adjustments, as well as merit increases for eligible staff members on their performance anniversary dates. • FY 2024-25 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 those who have had a break in public service. • PERS Unfunded Accrued Liability (UAL) payment is budgeted at $5.7 million for Safety and Miscellaneous employees, which is a $0.9 million or 20% increase from FY2023-24.
The Base Budget continues to allocate a minimum additional contribution of $167,500 to the 115 trust administered by Public Agency Retirement Services (PARS) to help fund the City's pension obligations in accordance with the previously approved Pension Funding Policy. The Base Budget also includes a continuing contribution to PARS in the amount of $283,750, which represents the funding of the Actuarily Determined Contribution (ADC) per the most recent Actuarial Valuation to fund Other Post Employment Benefits (OPEB) unfunded liability, consistent with the Council funding strategy approved in 2022.
• Funding for the summer internship program is included in the Base Budget consistent with the Council-approved budget strategy, and capitalizing on the City’s successful participation in the San Mateo County regional summer internship program last year, during which the City hosted a class of eight interns.
· Most Professional Services contractual obligations were increased by 2% over the FY 2023-24 Revised Budget to account for regular inflationary increases unless further cost increases were noted and factored into the Budget by operating departments. The category also shows a reduction of $0.9 million or 9%, primarily due to the reductions in cost-reimbursable planning services with corresponding reductions in revenues, as mentioned above. Additionally, this reduction includes the elimination of last year’s budget of $50,000 for the Shop Pacifica and Workation programs. These pilot programs were originally funded by ARPA and approved as one-time initiatives but are not part of Pacifica City Council 6
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the base budget assumptions.
• Similarly, most of the Material, Supplies, and Maintenance category assumes a modest 1% inflationary increase from the FY 2023-24 Mid-Year Revised Budget, leaving the Base Budget allocation for this category practically unchanged at $3.8 million. • The Operating Transfers Out Category accounts for a transfer to the Debt Service Fund to fund Pension Obligation Bonds and other debt obligations, as well as transfers to the Internal Service Funds to fund General Liability, Motor Pool operations, and Fire Equipment replacements. As described above, over the past few years, the Debt Service Fund accumulated cash assets because Pension Obligation Bonds were paid directly from the General Fund and not from the Debt Service Fund. This allowed for a one-time relief to the General Fund this year, as this year’s total debt service obligations of $2 million will be paid directly from the cash balance of the Debt Service Fund without the need for an additional transfer from the General Fund. It is important to note that this is a one-time relief and cannot be counted towards the surplus of the General Fund to fund any ongoing services, as the ongoing debt service obligations will resume as an ongoing operating transfer out of the General Fund to the Debt Service fund next year. • Capital Transfers Out Category includes an allocation of $75,000 for the City Facility Electric Vehicle Infrastructure project, which is further described in the Capital Improvement Program section of this report. This is the only CIP project that the General Fund contributed to this year. As demonstrated in the attached financial forecast, the General Fund does not have the means to fund an ongoing CIP Program.
Projected Fund Balance Structure - General Fund
After factoring in the Base Budget assumptions and incorporating the built-in salary savings, the Base Budget projects an adjusted surplus of $0.7 million available to fund the FY 2024-25 workplan items. Without budgeting for the salary savings, the budget would have projected a deficit of about $0.4 million.
As described above, factoring in salary savings will likely become an ongoing budget strategy to ensure a positive outlook for a structurally balanced budget for FY 2024-25 and beyond, with $0.7 million available to meet critical Council priorities for the upcoming Budget.
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Again, the numbers presented in this report only reflect the current Base Budget level of services and include funding for non-discretionary capital projects. It does not consider all budget strategies and other recommendations by the City Manager that will be brought forward at future budget meetings for a more in-depth discussion of the proposed budget and the Council's direction on how to reach a balanced and sustainable budget at a desirable level of services.
CAPITAL IMPROVEMENT PROGRAM
As reported previously, the City does not have a designated funding source to fund the robust Capital Improvement Program at the desired level. Due to the City's financial limitations and limited staff capacity to manage major capital projects, the FY 2024-25 CIP Program recommendations are only limited to projects with available grant funding sources, legally mandated projects, or projects that pose an immediate threat to public health and safety. These projects are considered non-discretionary.
Below is a preliminary list of new non-discretionary projects proposed for FY 2024-25 funding included with the Base Budget:
General Capital Projects:
1. Annual Pavement Striping & Marking Refresh Project $75k- This annual project will refresh centerlines, bicycle lanes, edge lines, crosswalks, stop bars, and more striping on City roads.
2. FY 2024-25 Pavement Resurfacing Project $2.86m- Project will rehabilitate the pavement along roads designated in the 5-year paving plan. It will also include pavement grinding for base repair as well as installation of thermoplastic traffic striping, markings and pavement markers. The project was previously approved on April 8th, 2024. In working with Finance on the balancing process the allocation of funds between various street funds have changed as reflected in Attachment 5.
3. FY 2024-25 Concrete and ADA Improvement Project $205k - Improvement of ADA curb ramps in the vicinity of the yearly resurfacing project and associated sidewalk Pacifica City Council 8
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sections.
4. Civic Center Generator $300k - The project will install backup power generation infrastructure to ensure uninterrupted electricity supply during emergencies.
5. City Facility Photovoltaic Infrastructure $75k - This project involves installation of solar panels on the rooftops of city facilities to harness renewable energy and reduce electricity cost.
6. City Facility Electric Vehicle Infrastructure $475k - This project involves the installation of electric vehicle charging stations to support sustainable transportation options for visitors and employees at the Civic Center, Community Center, Corp Yard, and Rockaway Beach.
7. Community Center HVAC Upgrade $175k - The Community Center's HVAC air handlers have reached their useful life and are continuing to fail. Upgrades are needed on all air handlers in order to continue operation.
8. Sharp Park Road Slope Erosion Repair $30k - This project will repair slope erosion due to storm damage at Sharp Park Road.
Wastewater Projects
9. CCWRP Headworks Feasibility and Improvements $230k - This Project will evaluate adding bar screening facilities at the Plant, address headworks channel lining degradation, install new grit classifier and demolish existing hypochlorite tank.
10. CCWRP Laboratory Room Improvement $5k - Purchase new equipment and furniture for the laboratory room at the CCWRP. Improve HVAC in the laboratory.
11. CCWRP Security & Gate System $100k - Purchase new security (security cameras), gate systems, and mangate for the CCWRP.
12. Sewer System Master Plan Update Phase 2 (New Development Data) $100k - Perform a flow study and update the existing Sewer System Master Plan. Incorporate in the update new development data.
13. Sharp Park Pump Station R&R Project $80k - Improvements to the Sharp Park Pump Station which include but not limited to odor control, sanitary sewer mainline relocation and wet well improvements
14. Linda Mar Pump Station R&R Project $1.1m- Replace outdated and aging electrical and instrumentation components at the Linda Mar Pump Station. The project includes replacing and upgrading such components as MCC panels, breakers, switches, level control devices, and flow meters. Jockey pumps may be added to more efficiently pump dry weather flows.
15. Collection System Rehabilitation & Replacement Projects: Vallemar and Rockaway Beach Avenue $557k - Work includes the replacement of approximately 26,000 LF sewer main and appurtenant work in the Vallemar neighborhood.
16. Linda Mar Peralta Project $1.55m - Improvements along Linda Mar and Peralta Blvds, including pipe bursting approximately 1000' and open trench replacement (approximately 500 feet) of sanitary sewers.
The following continuing non-discretionary Projects are currently underway and will require additional funding in FY 2024-25:
General Capital Projects
1. Fire Station 71 Roof Project $205k - Re-roof Fire Station 71 to stop leaks in the building and prolong useful life of roof and building. Additional funding is requested in order to award the bids that were opened on April 10, 2024.
2. Old WW Treatment Plant Garage Roof Project $125k - Re-roof garage at old Wastewater Treatment Plant Yard to stop leaks in the building and prolong useful life of roof and building. Additional funding is requested in order to award the bids that were opened on April 10, 2024.
3. Community Center Improvements $100k - On-going maintenance & improvements are needed such as door replacement for security, office remodel to accommodate staff, spalling of exterior, flooring in dining room, hallway area, new baseboard, carpet Pacifica City Council 9
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replacement and paint indoor/outdoor of building.
4. Long-Term Trash Load Reduction $50k - This project includes installation of new Trash Capture Devices and additional street sweeping at critical areas citywide.
5. San Pedro Creek and Pacifica State Beach Total Maximum Daily Load (TMDL), Monitoring Plan and Best Management Plan $65k - The San Francisco Regional Water Quality Control Board requires through the Total Maximum Daily Load (TMDL), the development and implementation of a bacteria water quality monitoring and best management plan for San Pedro Creek and Pacifica State Beach bacteria.
6. Lateral Grant Assistance $200k - The City will continue implementation of a voluntary private service lateral replacement program to reduce the addition of I&I from defective private service laterals.
7. Painting of Fire Station 72 $100k - Prepare, prime and paint exterior of Fire Stations
72. Including all necessary repairs/ or replacement of damaged siding, fascia boards and items suffering from extensive rust from 30 years of exposure. Prepare and paint Apparatus Bay/ Ceiling of Station 72.
Wastewater Projects
8. Collection System Projects $100k - Various projects to repair and/or replace the aging sewer mainlines around the City. Location will be determined and evaluated annually.
9. Digesters - ATAD Modification Phase 3 $175k - This Project will upgrade the existing nozzle configuration in each of the 4 ATAD tanks.
10. CCWRP Pump Replacement $50k - On-going purchase to replace aging pumps, valves and motors for the Calera Creek Water Recycling Plant.
11. Calera Creek and Wetlands Maintenance $50k - On-going Maintenance and Monitoring requirements for the restored Calera Creek wetlands and frog ponds.
12. CCWRP SCADA and PLC Upgrade $600k - Upgrade the Supervisory Control And Data Acquisition (SCADA) and Programmable Logic Controller (PLC) Systems at the Calera Creek Water Recycling Plant. Other upgrades needed will be to improve the communication between the Plant and pump stations.
13. CCWRP Blower Replacement $50k - On-going purchase to replace aging blowers and motors for the Calera Creek Water Recycling Plant.
15. CCWRP R&R Project $100k - The CCWRP is more than 20 years old and a Condition Assessment has identified equipment and processes in need of replacement, , rehabilitation or enhancement.
16. Ultraviolet Disinfection System Upgrade $2.88m - CCWRP is now more than 20 years old and the ultraviolet System is nearing the end of its useful lives. This project will perform Feasibility Study of different new technology on Ultra-Violet disinfection system to replace or enhance the existing system at CCWRP. The Project also includes design, UV equipment purchase, construction which will also include temporary UV.
17. CCWRP Electrical Condition Assessment and Improvements $50k - The Plant electrical system has been updated as needed but is aging with some existing replacement parts no longer available. The purpose of the project is to conduct a condition assessment of electrical systems including backup generation to identify improvements for future CIP Projects. Several critical projects were identified and City will proceed with.
18. Lower Linda Mar Rehabilitation and Repair Project (Renamed) $6.3m - Work includes the replacement of approximately 28,000 LF of sewer main and appurtenant work in Lower Linda Mar area.
19. Pump Stations SCADA and PLC Upgrade $250k - Upgrade the Supervisory Control And Data Acquisition (SCADA) and Programmable Logic Controller (PLC) Systems at the Pump Stations. Other upgrades needed will be to improve the communication between the Plant and pump stations.
20. CCWRP Admin Building Elevator Assessment $50k - The building elevator operation has been requiring servicing visits more frequently over the past year. The purpose of this Project is to assess the current condition and determine how to move forward. Since Pacifica City Council 10 May 13, 2024
it is unclear on what will be recommended, only the assessment is in the CIP for now.
21. Rockaway Pump Station R&R Project (Formerly PS Upgrade) $200k - The existing generator is nearing the end of its useful life and will be replaced with a portable temporary emergency generator.
Staff has identified probable funding sources for these projects as listed in Attachment 4. These include Federal and State Grants, County contributions, Gas Tax, and various other tax measures. Other projects are funded from available fund balances of various capital and special revenue funds, including Measure A, Measure W, Roy Davies, and Disaster Accounting Funds.
All capital transfers and appropriations for projects referenced above and in Attachment 4 have already been included in the Base Budget. However, once the Council provides additional direction regarding this list or other CIP projects, staff will incorporate the final FY 2024-25 CIP Budget recommendations in the complete five-year CIP program.
Other Previously Approved active CIP projects that are non-discretionary ongoing projects not requesting funding, rollover projects that were not started last year due to staffing constraints, unfunded discretionary projects, and projects awaiting FEMA review are included in Attachment
4. Additionally, Attachment 5 provides information on the currently unfunded projects and estimates the funding needed to address the City’s infrastructure needs within the next five years, totaling over $150 million.
The Pacifica Discussion initiative, as mentioned above, serves as an important platform for community engagement and dialogue on various municipal matters, including diverse infrastructure needs. Given the City’s constraints in funding its CIP Program to address these critical infrastructure needs, the City’s limited financial resources and staff capacity limitations for managing major capital projects necessitate a strategic approach to prioritizing the City’s capital needs.
Through the Pacifica Discussion initiative, residents can contribute their input to help inform decision-making processes about essential infrastructure priorities. As the City navigates these challenges, the input from residents becomes invaluable in guiding the allocation of resources towards projects with the greatest impact and urgency, ensuring that the City’s infrastructure remains resilient and responsive to the needs of the community.
OTHER FUNDS - BASE BUDGET
The Base Budget revenue and expenditure for all other funds have also been updated and are summarized in Attachment 3. This includes all 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 2024-25). The Base Budget figures include the CIP budget allocations.
Staff used the same basic assumptions for all other funds to factor in a 2% cost of living increase for the contract services category and 1% for material, supplies, and maintenance.
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 2024- 25 total enterprise funds base expense budget is $34.3 million, which is 36% 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 $19.0 million are based on a 3.5% rate increase in FY 2024-25. The sewer operating expenditures include the same inflationary base budget assumptions. The Salaries and Benefits costs of approximately $6.4 million are based on 15 FTE allocated to the Sewer Fund and include all current MOU provisions, as well as the same salary savings rate of 5%. The Beach Parking Fund is used to account for parking services to residents and visitors. The Enterprise Funds revenues are projected at $20.9 million, which is in line with the FY 2023-24 Revised Budget.
Special Revenue and Capital Funds are used to account for specific revenue sources or Pacifica City Council 11 May 13, 2024
financial resources for which expenditures are restricted by law or administrative action to specific purposes. This Category includes Gas Tax and Streets Funds, General Capital, Drainage, Housing Successor, Housing in-lieu, Parking in-Lieu, Park in-Lieu, PB&R Special Revenue and Roy Davies Trust, Disaster Accounting, and other funds. The Housing Successor was added to the Special Revenue to match the reporting in the audited financial statements.
The FY 2024-25 expenditures of $8.7 million for this Category represent around 9% of the City's total Budget.
Internal Service Funds serve the City’s needs 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.
The FY 2024-25 budget for this Category is $5.3 million, which is 6% of the City's Budget.
Debt Service Fund is used to account for long-term debt obligations. The FY 2024-25 budget for the debt service category is based on the updated debt service schedule and paid directly from the cash balance of the Debt Service Fund this year, as described above. The FY 2024-25 budget for this Category is $2.5 million, which is 3% of the City's Budget.
Projected 10-Year Financial Forecast
This report also presents the Long-Term Financial Forecast for FY 2024-25 (Attachment 6).
Staff will further fine-tune and refine the FY 2024-25 forecast before budget adoption and will update it for the FY 2024-25 Proposed Budget. However, this financial forecast provides a general overview of the City's long-term fiscal challenges at the current Base Budget level.
The forecast considers current revenue and expenditure trends at the upcoming base budget and projected forward. It also adjusts for PERS retirement and modest assumptions for future labor contracts and annual debt service obligations. Since the forecast's objective is to demonstrate the City’s long-term financial sustainability rather than attempting to balance a budget deficit, this forecast does not include any built-in salary savings beyond FY 2024-25.
Also, it does not assume any ongoing future general fund contributions toward the capital improvement program because even without any contributions to Capital, the General Fund is projecting an ongoing structural deficit at the existing revenue base and the baseline level of services. It is important to note that this forecast only projects forward the current level of services and does not take into account any future potential revenue measures, service enhancements, or reductions that may be reflected in the final FY2024-25 Budget once it is developed and adopted, as well as future years.
With these preliminary updates, the City's Operating Budget covering ongoing services to the Community will remain in balance during the upcoming 2024-25 and the following fiscal year.
However, it will begin projecting a structural deficit in FY2026-27 and continue until FY 2030-31 (projected payoff of the Pension Obligation Bonds). Additionally, by FY 2028-29, the unassigned fund balance would fall below the GFOA-recommended guidelines of two months of operating expenditures.
It is important to note that the deficit could occur as early as the upcoming year if the state does not follow through on its VLF In-Lieu Backfill obligations.
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*FY2024-25 balance includes a one-time relief to the General Fund for a $2 million debt service obligation payment
NEXT STEPS
At the next budget meeting on June 10, 2024, staff will be presenting the proposed FY 2024-25 Operating budget. All departments are currently working on their budget recommendations for service changes that will be submitted to the City Manager in order of department priorities.
Over the next few weeks, the City Manager will meet with each department to review and discuss their requests and ultimately formulate a plan for the balanced FY 2024-25 budget. FY 2024-25 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.
ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 - FY 2024-25 General Fund Baseline Budget Revenue Summary (PDF) Pacifica City Council 13 May 13, 2024
Attachment 2 – FY 2024-25 General Fund Baseline Budget Expenditures Summary (PDF) Attachment 3 – FY 2024-25 Fund Balance Summary (PDF)
Attachment 4 – FY 2024-25 Recommended Non-Discretionary CIP Budget (PDF) Attachment 5 – List of Unfunded CIP Projects (PDF)
Attachment 6 -Long-Term Financial Forecast wAssumptions (PDF) Attachment 7 – Unfunded Pension and OPEB Liability Funding Strategy (PDF)