CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
6/10/2024
1 SUBJECT:
Fiscal Year 2024-25 Proposed Budget Program Options
RECOMMENDED ACTION:
Review and discuss the Fiscal Year 2024-25 Proposed General Fund and Other Funds Budget and provide additional policy direction on the desired budget options and strategies for the upcoming budget.
STAFF CONTACT:
Kevin Woodhouse, City Manager
650-738-7409
[email protected]
Yulia Carter, Assistant City Manager
650-738-7301
[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 at the time of adoption.
At mid-year, staff revisits the projections and reports to the Council any changes needed to reflect new information and keep the City budget on track.
The City Council adopted the current FY 2023-24 Budget on June 26, 2024. On March 25, 2024, staff presented the FY2023-24 Midyear Budget review, which showed some reductions in general revenues, but overall the budget was still on track. During the mid-year budget review, the Council authorized additional adjustments to the FY 2023-24 Budget that were incorporated into the new FY2024-25 proposed budget.
On April 8, 2024, in the first budget study session, staff presented the Narrative Budget report outlining the planning process, methodology, timeline, and preliminary budget strategies.
On May 13, 2024, the City Council reviewed the FY 2024-25 Base Budget, long-term financial outlook, and the recommended Capital Improvement Program. The Base Budget included some strategies previously presented to the Council, including built-in salary savings of 5% to help project a balanced budget that can achieve a number of critical service enhancements to meet the Council’s Strategic Priorities. There is an approximately $0.7 million preliminary projected surplus available to address ongoing service needs and meet Council priorities for the upcoming Budget.
The 10-year financial forecast highlights the City's long-term fiscal challenges, projecting a structural deficit starting in FY 2026-27 and continuing until FY 2030-31, with the unassigned fund balance falling below recommended guidelines by FY 2028-29 without future revenue Pacifica City Council 2
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measures, service-level changes, or budget balancing strategies like building-in salary savings beyond FY 2024-25. These strategies all together emphasize the need for careful strategic planning to ensure long-term financial sustainability.
As part of this year’s budget process, the City also 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, 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 reflected in the recommended Capital Improvement Program.
At the past budget study sessions, staff received feedback from the City Council on developing the Recommended Budget options, which is the subject of this report. Since the last meeting, staff has prepared the Proposed FY 2024-25 Budget for all city funds.
The primary focus of today’s discussion is to provide Council with the recommended program options for the FY 2024-25 Proposed Budget and get additional policy direction for any additional inclusions in, or changes to, the budget prior to the adoption at the next meeting.
FY 2024-25 Budget Strategies
During the Budget Study session on April 8, 2024, City Council approved the following Budget Strategies:
Strategy #1: Utilize funding strategies to augment professional staffing while minimizing Pacifica City Council 3
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the General Fund impact (Supports Goal #1).
A number of the City Manager’s budget recommendations below serve this strategy. These include new staffing recommendations, funding interns and fellows and additional contract planning services, allocating staff to other funds as appropriate to ensure the General Fund’s cost recovery from other funds, and building a sustainable salary savings rate into the operating budget to be able to fund the recommended service enhancements as further described in Attachments 4-6.
Strategy #2: Addressing financial uncertainties concerning the Vehicle License Fee InLieu payments from the state (Supports Goal #1).
At the Midyear Budget review, staff discussed the ongoing VLF In-Lieu funding issue and recommended a one-time reduction of the General Fund emergency reserve to cover the state's $1.7 million shortfall for FY2023-24. The City Manager also recommended budgeting these revenues for FY 2024-25, including a full shortfall of $1,452,355 from FY 2022-23 that is due to the City in the upcoming year. At the time, staff shared that another reserve reduction may be needed during the FY 2024-25 Midyear budget review if the state fails to meet its obligations.
On May 29th, staff learned that both houses of the legislature included the County’s FY 2022-23 $70m VLF shortfall in their two-party deal on the 2024-25 state budget. This promising development, made possible by strong advocacy and state delegation support, could help mitigate local financial uncertainties despite the state budget’s projected shortfall. The Legislature is expected to finalize the budget by June 15th. In the meantime, San Mateo County agencies will continue advocating with the Governor to ensure our reimbursement remains, as he can line-item veto areas of the budget. Nevertheless, this is certainly a positive development.
Strategy #3: Maintaining the “status quo” for annual funding of non-profit organizations (Supports Goal #1).
During the budget study session on April 8th, the Council discussed the annual funding of nonprofit organizations and directed staff to increase the allocation to the Pacific Beach Coalition to $10,000. The Council also discussed potential one-time funding for FogFest at $25,000 and Pride at $5,000. The Recommended FY 2024-25 Budget includes placeholder funding for these three organizations from projected ERAF revenues, pending the City Council’s discussion and approval.
Strategy #4: Capital Improvement Program funding for unfunded infrastructure projects (Supports Goals #1 and #2)
The complete FY 2024-29 CIP Program was presented to Council on May 13, 2024, when staff received Council direction and is now preparing the CIP budget document. The City Manager also recommended issuing a request for proposals for a Development Impact Fee, Cost Allocation, and Master Fee Study in FY 2024-25 to study potential future funding for infrastructure and other critical projects.
This project has not been conducted in decades, although the best practices suggest reviewing fee-related services and user fees every 5-7 years and using a cost allocation model to accurately account for the cost of services. The Development Impact Fee nexus study will assess mitigation fees for new development, potentially enhancing the City's capacity to fund critical infrastructure. This project aligns with AB 1600, the Mitigation Fee Act, which allows cities to impose fees, ensuring new developments contribute fairly to community infrastructure.
This significant project requires careful scheduling and substantial resources to ensure its success.
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Given other critical priorities in Finance and Public Works, this consultant selection will occur in the second half of FY 2024-25. The Development Impact Fee study will begin in the last quarter of FY 2024-25, followed by the Cost Allocation Plan and Master Fee Study update in FY 2025-
26. Given this schedule, the existing FY 2024-25 Budget can absorb the limited initial costs, with the majority of this project expected to be funded in FY 2025-26. This strategy will align the budget and staff resources for the project, better equipping staff to negotiate the consulting contract and execute the project’s complex scope.
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.
After further discussions with the Planning Director and City Attorney’s Office, it was recommended to create a new Housing Action Fund to develop affordable housing programs.
This would prevent the potential comingling of legally restricted development-based revenues in the Housing in-Lieu Fund with unrestricted ERAF revenues allocated towards housing programs by Council policy. Staff created the new Housing in Action (Fund 21) and transferred previously allocated ERAF funds in there.
For the upcoming FY 2024-25 Budget, the City Manager recommends allocating Excess ERAF funds as follows (pending Council discussion and confirmation of the non-profit funding):
• $100,000 toward the Pacifica Resource Center
• $10,000 toward the Pacific Beach Coalition
• $25,000 towards the FogFest
• $5,000 towards Pride
• 50% ($1.65m) of the remaining balance toward Fund 38 (Disaster Accounting Fund) • 50% ($1.65m) of the remaining balance toward new Fund 21 (Housing Action Fund) The City Manager is seeking the Council’s confirmation of all these budget strategies or any additional related changes to be incorporated in the FY 2024-25.
Staffing Review and Organizational Capacity
Staff has shared with the Council on several occasions the challenging labor market conditions in the Bay Area. Like many Bay Area agencies, the City has been experiencing critical recruitment and retention challenges, having to conduct multiple recruitments for the most critical professional and management positions.
This is partially due to the fact that more than one-third of City classifications remain below market in total compensation, with some classifications falling more than 20% below market compared to other San Mateo County agencies.
Although the City does not have the resources to bring all classifications to the market median, during the last round of labor negotiations, the City Council approved an unprecedented multimillion-dollar package for Pacifica employees. This package introduced a citywide multi-year Pacifica City Council 5
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and multi-phased equity adjustment scale providing targeted salary adjustments of an additional 1-4% by position, depending on how far a classification is below market. The FY 2024-25 Budget is the second year of the two-year labor agreement that will honor these increases.
Given that the labor agreements are closed until FY 2025-26, the City Manager’s focus this year was on fulfilling the Council’s goal of increasing organizational capacity to be able to fulfill the robust workplan identified in the Council’s Strategic Plan.
Staffing Comparison Study
In addition to the ongoing recruitment and retention challenges, staff has consistently referenced a staffing study that showed Pacifica had historically been staffed approximately 23% lower on average across departments than comparable full-service public agencies of the same size. This study was conducted a few years ago by Management Partners, an independent consulting firm specializing in organizational studies. Since the study was outdated, the City Manager engaged the same consulting team (now Raftelis) to update the study by doing a quick analysis of Pacifica’s staffing in comparison to similar agencies.
The Pacifica Staffing Comparison memo, prepared by Raftelis, compares the staffing levels in the City of Pacifica to eight similar cities in Northern California (Attachment 8). The peer cities were selected based on criteria such as population, median household income, general fund budget, and total FTE staff, ensuring a relevant comparison for understanding how Pacifica’s staffing stands in relation to similar municipalities.
The study reveals that Pacifica still has 17% lower overall citywide staffing level than its peer cities. This trend is particularly evident in the Administrative Services, Police, and Planning departments, where the number of staff per population unit is considerably less.
One of the primary reasons for Pacifica's lower staffing levels is its smaller General Fund budget, which is the second smallest among the peer cities. This limited budget restricts the city’s ability to allocate resources for hiring more staff, which in turn affects the city’s capacity to deliver services. Adequate staffing is crucial for maintaining high standards of service provision, as also highlighted in the study.
While Pacifica's staffing levels are generally lower than those of its peers, there are nuanced differences in departmental structures, service provisions, and other factors that must be considered. Further, in-depth analysis at the departmental level may be needed to draw more precise conclusions and inform specific staffing decisions, especially when it comes to complex operations that are particularly challenging to compare, as they differ significantly from one municipality to another, such as those in the Public Works department.
Overall, the study provides valuable insights, showing that Pacifica operates with fewer full-time equivalents (FTE) than peer agencies while delivering similar public services with less support.
The findings highlight areas where Pacifica can proactively plan and prepare for future staffing needs, considering the context of rising labor and benefit costs and increasing service demands.
The FY 2024-25 Recommended Budget attempts to address some of these staffing shortages by strategically aligning Pacifica’s limited financial resources with staffing requirements and service expectations from the community.
Position Control Changes to Date:
Last year’s FY 2023-24 Budget included 186.25 FTE. Since the adoption of the budget in June Pacifica City Council 6
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2023, the City Council authorized the following additional service enhancements by adding the following staffing resources and bringing the total FTE count to 193.25.
The position control changes also include converting previously approved ARPA-funded limited -term positions into permanent roles as described below.
Finance and Administrative Services:
• Restored Senior Accountant Position
• Converted a Limited-Term HR Analyst position into a permanent position Police Department:
• Converted a Limited-Term Community Services Officer to a permanent position • Converted a Limited-Term Records Clerk to a permanent position • Added Two Overhire (i.e., Limited-Term) Police Officer Positions Planning Department:
• Converted a Limited-Term Assistant Planner to a permanent position Public Works:
• Added a permanent Maintenance Worker I position
• Added an Operator III position (Wastewater)
• Restored a Project Manager position
Parks, Beaches, and Recreation:
• Added a full-time Recreation Coordinator position
The FY 2024-25 Recommended Budget continues to focus on increasing the City’s organizational capacity, and service delivery, as reflected in the City Manager’s recommended budget options listed below.
City Manager’s Recommendations for the FY 2024-25 Budget The goal of any budget process is to develop the City's Budget by completing a full analysis of the City's revenue structure and current service levels. This analysis aims to identify necessary service increases and/or reduction options, which, when combined, will achieve a balanced and sustainable budget.
Since the last meeting, each City Department has been given an opportunity to submit their prioritized budget requests with reference to the Council’s specific goals and strategies in the newly adopted Strategic Plan. The Recommended Budget is balanced and includes prioritized programs and services recommended for funding in the FY 2024-25.
In developing budget recommendations for service changes, the City Manager had to balance the future financial sustainability with the Council’s strategic vision, staffing, organizational capacity, and impacts on the City operations and services provided to the community. The budget recommendations also fulfill the above-mentioned five budget strategies recommended by the City Manager and supported by the City Council during the April 8, 2024, budget session.
The goal of this budget process was to identify necessary and required service change options, which, in combination, maintain a balanced and sustainable budget.
To this end, the City Manager has reviewed department requests and is presenting the following budget recommendations for the Council’s consideration, as outlined below and in Attachments 1 and 4-6. Each budget option form in the attachment demonstrates how the recommendation aligns with the Strategic Plan. Out of 26 Budget options recommended for FY 2024-25, 21 of Pacifica City Council 7
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them directly impact the General Fund at a total cost of $1.6 million. This includes eight programmatic changes that will result in an additional ongoing cost of $0.7 million and 13 onetime budget recommendations (including multi-year limited-term or pilot programs) budgeted at $0.9 million.
General Fund Program Options
At the last Council meeting, staff reported that the FY 2024-25 Base Budget had a General Fund surplus of $725,900 available for the City’s ongoing service enhancements. The City Manager’s recommendations include eight ongoing service requests with a total estimated cost of $694,000 to the FY 2024-25 General Fund Budget. Taking into account the additional resource option requested below, this leaves approximately $62,500 in remaining surplus, providing additional security for any unanticipated fluctuations in budget projections or assumptions for these programmatic changes that may become necessary throughout the year.
Ongoing Service Enhancements:
Additional Revenues:
• Reopening Community Center Programming after employees move back to the renovated Civic Center projects to generate a net $30,600 in revenues.
Expenditure Requests:
1. Convert (2) Overhire Police Officer Positions added at Mid-Year to (2) Permanent FullTime Police Officer Positions - No additional FY 2024-25 Impact to the General Fund as already included in the Base budget
2. Adding a Finance and Administrative Services Director Position with included savings from a potential reorganization of the Finance and Admin Services Department - General Fund $110,407
3. Adding one Assistant Civil Engineer to the Public Works Engineering Division allocated between the General Fund, Street Maintenance Fund, FEMA CIP, and the Esplanade projects in the General Capital Fund - General Fund $48,335
4. Implementation of an Automated License Plate Reader (ALPR) Program - General Fund $45,000
5. Adding (1) Deputy Community Development Director Position - General Fund $126,324
6. Reinstate (1) Crime Prevention Officer (a.k.a. Community Policing Officer) as a Police Corporal Position - General Fund $146,228
7. Adding (1) Permanent full-time Senior Human Resources Analyst position - General Fund $147,648
8. Converting (2) part-time IT Support Assistant positions into a full-time Systems Analyst position - General Fund $70,032
It is important to note that the cost estimate for each new position includes a 25% salary savings in the first year. This assumption is based on the expectation that new employees will be onboarded no earlier than the end of September (an average estimate with some potentially earlier and some potentially later), allowing for the necessary time to complete the recruitment process. It is anticipated that future year budgets will be able to absorb the full annual cost of these new positions through ongoing salary savings from vacant positions (the City has been Pacifica City Council 8
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experiencing a 10-15% vacancy rate in recent years) combined with the anticipated implementation of the cost allocation plan in the next couple of years that is expected to account for updated and more refined General Fund cost-recovery from other funds.
These ongoing service enhancement recommendations align with the Council’s Goal #1 to Enhance Organizational Stability and building capacity. They are also tied to the previously approved budget strategies above and are well within the current operational surplus.
One-time Service Enhancements
During the FY 2024-25 Base Budget presentation at the last meeting, staff also reported that, as an exception, the annual debt service payment will be covered from the excess cash balance in the Debt Service Fund in FY 2024-25.
This decision freed up approximately $2 million for the upcoming year to fund critical one-timeonly service enhancement needs. The City Manager recommends 13 such one-time service enhancements, with a total estimated cost of $947,425, as listed below:
1. Municipal Election Expenses for the November 2024 Election that include cost for 2 Council seats, one ballot measure, and additional election-related expenses in City Clerk’s Office - General Fund $175,000
2. Adding a three-year limited-term Senior Building Maintenance Specialist to help facilitate and coordinate maintenance, repair, and upgrades to aging facilities in the Public Works Department - General Fund $133,252
3. Purchase of fifty new Smith & Wesson handguns and twenty Smith & Wesson patrol rifles to replace current handguns that are approximately sixteen years old in the Police Department - General Fund $90,000
4. Interim Staffing Support in Planning Department - General Fund $100,000
5. Local Coastal Land Use Plan (LCLUP) Certification budget in Planning Department - General Fund $60,000
6. Short-Term Rental Ordinance Update in Planning Department - General Fund $35,000
7. Climate Action Update - Part-Time Program Manager & Consultant Support for Community Engagement in Planning Department - General Fund $75,000
8. State Law Ordinance Updates. Legal cost to update various City land use planning ordinances to implement changes in state law in Planning Department - General Fund $50,000
9. Contractual Services to conduct a storm drain study near 600 Brighton Road to address flooding that occurs due to storm flows from streets in Public Works - General Fund $50,000
10. Weed Abatement augmentation services to timely respond to an increase in service requests from the public in the Public Works Department - General Fund $70,000
11. Citywide Professional Development Training Program for Staff in Human Resources Division - General Fund $25,000
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12. Employee Wellness Program in Police Department - General Fund $34,173
13. Pacifica Libraries Modernization Project Outreach funding in City Clerk’s Office - General Fund $50,000
Additional information related to these programmatic options is presented in budget forms listed in Attachments 4 through 6 to this staff report.
Projected Fund Balance Structure and Budgetary Reserves The Proposed FY 2024-25 Operating Budget is being presented as a balanced budget, meaning that the City’s operating expenditures do not exceed general revenues.
If all program options identified in this report are approved by the City Council, the General Fund will project an ending surplus of about $1.15 million, mainly created by a one-time debt service payment relief to the General Fund, as discussed during the Base Budget presentation.
Additionally, the General Fund will maintain all previously approved reserves necessary for long-term fiscal and operational sustainability.
After factoring in the above-mentioned budget options, the General Fund Proposed Budget revenues and transfers in are projected at $48.1 million. The total General Fund operating expenditures and transfers out are budgeted at $46.8, and capital transfer out of $75,000.
The table below demonstrates the Net change to the General Fund balance.
After applying all the changes described above, the Proposed General Fund Budget will have a $1.15 million surplus, leaving $10.6 million in the Unassigned General Fund Balance, which is about 23% of the City’s Operating expenditures in addition to 10% or $4.6 million in the Pacifica City Council 10 June 10, 2024
minimum policy reserve.
The City’s Fund Balance Policy identifies fund balances (or reserves) that fall into the following categories: non-spendable items or portions of fund balance that cannot be liquidated, restricted amounts for use by outside agencies, committed amounts by Council action such as emergency /contingency reserves and assigned balances to pay off unfunded liabilities and to fund infrastructure improvements.
In accordance with GASB Statement No. 54 requirements and the City policy, the Council established the following designations or contingencies of the General Fund Committed Balance.
➢ Budget Shortfall Policy Reserve of 10% of Expenditures ($4.7 million) ➢ Facilities Maintenance & Replacement (restored back to $0.2 million) ➢ Compensated Absences Reserve ($0.2 million)
➢ Child Care Reserve ($0.5 million)
➢ Legal Reserves ($0.1 million)
The General Fund balances for the FY 2024-25 Recommended Budget are detailed in the table below. If all options presented in this report are approved by the Council, the City will have a balanced FY 2024-25 Budget with an undesignated General Fund Balance of approximately $10.6 million.
Maintaining a sufficient level of the projected ending fund balance is necessary for fiscal and operational sustainability. After factoring in the restricted reserves and operating contingency, the ending undesignated General Fund balance is projected to be close to $10.6 million or 23% of the General Fund operating expenditures (excluding one-time capital transfers), which Pacifica City Council 11 June 10, 2024
equates to slightly less than three months of regular operating expenditures and is slightly above the Government Finance Officers Association of the US and Canada (GFOA) minimum recommendation for government entities of no less than two months of regular general fund operating expenditures (approx. $7.8 million for the City of Pacifica in FY2024-25).
Other Funds Program Options
The City Manager’s FY 2024-25 Budget recommendations for other funds are shown below and further described in Attachment 7.
Other funds include three one-time expense amendment recommendations at an additional cost of $1.2 million and two ongoing expense amendment options for $0.2 million.
The complete list of Recommended Budget Options across all funds is presented below and in Attachment 1 to this report:
One-time Programs
1. Adding (1) Project Manager Position for Public Works Wastewater. The Project Manager's time will be charged to already funded capital projects in the Sewer Capital Fund - Sewer Facility Construction Fund (Fund 34), $153,887 (Ongoing).
2. Adding (1) Part-Time Maintenance Assistant position - Sewer Operating Fund (Fund 18), $30,000 (On-going)
3. Housing Element Program Implementation - Housing Action Fund (Fund 21), $423,000 (One-time)
4. Additional allocation in vehicle replacement fund towards the purchase of ten new vehicles and equipment citywide in accordance with the City’s vehicle replacement schedule. - Motor Pool Replacement (Fund 72), $750,000 (One-time).
5. Civic Spark Fellow and Partnership for Bay's Future Interns - Housing Action Fund (Fund 21), $50,000 (One-time)
Additional information about these budget options can be found in Attachment 6 to this report.
ALTERNATIVE ACTION:
The City Council is asked to provide input and direction on the FY2024-25 Proposed Budget. No alternative action is identified.
RELATION TO CITY COUNCIL GOALS AND WORK PLAN:
A balanced and structurally sustainable budget is consistent with all City Council strategic goals and to ensure that City-wide revenue meets the cost of providing City-wide services.
FISCAL IMPACT:
Because the recommendation is to review and discuss budget options, no direct fiscal impact is associated with this item. City Council direction on the proposed budget options will be factored in the FY 2024-25 Budget document that will be brought forward for adoption on June 24, 2024.
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ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 - FY2024-25 Recommended Budget Options (PDF) Attachment 2 - FY 2024-25 Recommended Budget General Fund Revenues NEW (PDF) Attachment 3 - FY 2024-25 Recommended Budget General Fund Expenditures (PDF) Attachment 4 - FY 2024-25 Recommended Revenue Amendment Options - Budget Forms (PDF)
Attachment 5 - FY 2024-25 Recommended Expenditure Amendment Options - Budget Forms (PDF)
Attachment 6 - FY 2024-25 Recommended Other Funds Budget Options - Budget Forms(PDF) Attachment 7 - FY 2024-25 Projected Fund Balance Schedule (PDF) Attachment 8 - Pacifica Staffing Comparison(PDF)