CITY OF PACIFICA
COUNCIL AGENDA SUMMARY REPORT
6/24/2024
1 SUBJECT:
Adoption of the Fiscal Year 2024-25 Operating and Capital Budget.
RECOMMENDED ACTION:
Hold a public hearing, review, and move to adopt the following resolutions:
1. Adopt the resolution approving the FY 2024-25 Operating and Capital Budget;
2. Adopt the FY 2024-25 Capital Improvement Program appropriation from the Roy Davies Trust Fund by a 4/5 vote;
3. Adopt the resolution establishing the GANN Appropriation Limit for FY 2024-25;
4. Adopt the resolution approving the Master Fee Schedule;
5. Adopt the resolution approving the City's annual review of the Investment Policy included as Exhibit A to the resolution, with minor changes for FY 2024-25.
STAFF CONTACT:
Kevin Woodhouse, City Manager
[email protected]
650-738-7409
Yulia Carter, Assistant City Manager
[email protected]
650-738-7301
BACKGROUND:
Each year, the City of Pacifica adopts an annual operating and capital budget that reflects the planned activities for the next fiscal year based on the best information available at the time of adoption.
The City Council held several study sessions related to the FY 2024-25 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 maintain critical service delivery levels to meet the Council’s Strategic Priorities.
On June 10, 2024, staff provided the Council with the recommended program options for the FY 2024-25 Proposed Budget and received additional policy direction for any additional inclusions or changes to the budget. 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 the Council with the final Proposed FY 2024-25 Operating and Capital Budgets, presented in Attachments 5 and 6, for adoption.
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DISCUSSION
The goal of the budget process is to develop a structurally balanced City Budget by completing a full analysis of the City's revenue structure and current service level to identify necessary service change options that, combined, will reach a balanced and sustainable budget.
Budgetary Reserves and Fund Balance Structure
The Proposed FY 2024-25 Operating and Capital Budget is being presented as a balanced budget, meaning that the City’s operating expenditures do not exceed operating general revenues. With all program options included, which were presented in detail at the last meeting, the General Fund will project an ending surplus of about $ 1,152,229, mainly created by a onetime debt service payment relief to the General Fund. The Proposed Budget also maintains all previously approved reserves necessary for long-term fiscal and operational sustainability.
The General Fund Proposed Budget revenues and transfers-in are projected at $48.1 million.
The total General expenditures and transfers-out are budgeted at $46.9 million, which includes a one-time General Fund contribution of $75,000 towards the FY 2024-25 CIP Budget for the City Facility Electric Vehicle Infrastructure project.
The table below demonstrates the Net change to the General Fund Balance.
FY 2024-25
Adj Base
Budget
05/13/24
FY 2024-25
Proposed
Budget
Revenues:
Operating Revenues $46,551,000 $46,646,300
Operating Transfers In 1,422,000 1,422,000
Total Revenues 47,973,000 48,068,300
Expenditures and Transfers :
Operating Expenditures 44,776,155 46,860,540
Salary Savings (5%) (1,228,782.00) (1,607,069)
Operating Transfers Out 1,587,600 1,587,600
Transfers Out - Capital 75,000 75,000
Total Expenditures and Transfers 45,209,973 46,916,071
Total Revenues Over/Under Expenditures 2,763,027 1,152,229 Putting back Debt Service Trsfr (ongoing in
future years) 2,037,131.00
Adjusted Surplus (Deficit) 725,896 1,152,229
FY 2024-25 PROPOSED BASE BUDGET
NET GENERAL FUND SURPLUS (DEFICIT)
After applying all the changes described above, the Proposed General Fund Budget will have a $1,152,229 surplus, leaving $10.6 million in the Unassigned General Fund Balance. This balance is about 23% of the City’s Operating expenditures, in addition to the 10% or $4.7 million minimum policy reserve, and complies with the Government Finance Officers Association of the US and Canada (GFOA) standards of no less than two months of regular General Fund operating revenues or expenditures, which would be approximately $7.8 million for Pacifica in FY 2024-25.
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 Pacifica City Council 3
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/contingency reserves and assigned balances to pay off unfunded liabilities and to fund infrastructure improvements.
Under 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 ($205,000)
➢ Compensated Absences Reserve ($0.2 million)
➢ Child Care Reserve ($0.5 million)
➢ Legal Reserves ($0.1 million)
The Recommended FY 2024-25 Budget is balanced and includes an undesignated General Fund Balance of $10.6 million in addition to the rest of the General Fund balances, as detailed in the table below.
Designations Actual
FY 2022-23
Revised
2023-24
FY 2024-25
Adj Base
Budget
05/13/24
FY 2024-25
Proposed
Budget
Beginning Fund Balance $ 16,292,224 $ 20,547,470 $ 18,616,311 $ 18,616,311 Total Revenue 49,008,092 46,695,600 46,695,600 48,068,300 Total Operating Expenditures 42,923,365 47,288,761 45,134,973 46,841,071 Total Capital Project Expenditures 1,829,481 1,338,000 75,000 75,000 Ending Fund Balance 20,547,470 18,616,311 20,101,940 19,768,540 Non-Spendable 3,528,523 3,528,523 3,528,523 3,528,523
Restricted for PARS PENSION 185,519 371,500 539,000 539,000 Assigned Reserves
Policy Level of 10% of Expenditures 4,777,623 4,728,876 4,513,497 4,684,107 2/3 Emergencies 3,185,082 3,152,584 3,008,998 3,122,738 1/3 Economic Contigency 1,592,541 1,576,292 1,504,499 1,561,369 Facility Maintenance & Replacement 205,000 205,000 205,000 205,000 Compensated Absences 200,000 200,000 200,000 200,000
Child Care Reserve 494,591 494,591 494,591 494,591
Legal Reserves 100,000 100,000 100,000 100,000
Assigned Reserves 5,777,214 5,728,467 5,513,088 5,683,698 Total Designations 9,491,256 9,256,990 9,041,611 9,212,221 Unassigned Fund Balance 11,056,214 9,359,321 11,060,329 10,556,319 Operating Expenses 42,923,365 47,288,761 45,134,973 46,841,071 Unassigned Fund Balance as % of Op. Expenses 26% 19.8% 24.5% 23% FY2024-25 ADOPTED BUDGET
GENERAL FUND (ASSIGNED & UNASSIGNED BALANCES)
Maintaining a sufficient level of the projected ending fund balance is necessary for the City’s fiscal and operational sustainability.
Other Funds
Staff used the same basic assumptions for all other funds to factor in the cost-of-living increase for most contract and professional services and materials and supply categories, as well as proposed program options, as discussed at the last meeting. The summary of Revenues, Expenditures, and Fund Balances for the City’s fund categories is shown in the table below and further described in Attachment 7. Revenues under expenditures for the Enterprise Fund and Internal Service Fund reflect the uses of the available fund balance for one-time needs (e.g., capital investments in Wastewater infrastructure or vehicle replacement purchases in the Motor Pool Fund).
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Fund Name
Projected
Fund Balance
6/30/2024
Revenues &
Transfers In
Revised Budget
Expenditures &
Transfers Out
Revised Budget
Revenue
Over (Under)
Expenditures
Projected
Fund Balance
6/30/2025
GENERAL FUND $ 18,616,311 $ 48,068,300 $ 46,916,071 $ 1,152,229 $ 19,768,540 ENTERPRISE FUNDS 24,430,184 20,902,000 34,462,626 (13,560,626) 10,869,558 SPECIAL REVENUE FUNDS 22,642,688 10,312,747 9,243,848 1,068,899 23,711,587 INTERNAL SERVICE FUNDS 3,569,624 5,517,859 6,039,659 (521,800) 3,047,824 DEBT SERVICE FUNDS 2,699,165 483,226 2,522,941 (2,039,715) 659,450 Total Other Funds 53,341,661 37,215,832 52,269,074 (15,053,242) 38,288,419 Total All Funds $ 71,957,972 $ 85,284,132 $ 99,185,145 $ (13,901,013) $ 58,056,959 Other Matters (Action Items):
GANN Appropriation Limit
The City is required by the State Constitution to annually establish and adhere to a limit on the amount of its appropriations. Such limit is prescribed by a State formula calculated by taking the prior year's limit and applying growth factors as appropriate. The growth factors are determined by 1) the change in population in either the City or the County and 2) the change in per capita income or non-residential new construction. For the Fiscal Year 2024-25, staff has calculated that the appropriations limit is $54.5 million. Per the Recommended FY 2024-25 Budget, the City expects to collect and has budgeted to appropriate $38.0 million, which is 30.3% or $16.5 million below the appropriations limit (Attachment 2).
Investment Policy
Following the CA Government Code requirement for annual review of the Investment Policy, staff is bringing the City's Investment Policy to City Council together with the budget to satisfy this requirement. The Investment Policy is included in Attachment 4 to this report. During the last audit cycle, the auditors recommended revisions to the Investment Policy to accurately reflect the City’s operational practices of quarterly closures and preparation of quarterly Treasurer’s reports. Therefore, minor revisions to the Investment Policy to remove reference to monthly reporting have been included. The second change is related to the timing of the treasurer’s reports to the Council. The policy currently calls for 30 days after the end of each quarter. However, staff often does not receive all bank statements until 30 days after the end of the quarter, not to mention the time needed to conduct bank reconciliation, close the quarter, and prepare the Treasurer’s report to the Council. The recommended change will allow staff to prepare the Treasurer’s reports to the Council within 30 days of receiving the last bank statement.
Master Fee Schedule & Charges
The Master Fee Schedule, which includes all City user fees, charges for services, and business license tax rates, is revised annually, as required by Pacifica Administrative Policy No.2. The proposed Master Fee Schedule for FY 2024-25 is provided as Attachment 3 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 community's needs (i.e., recreation class fees). At the same time, others may result from a comprehensive study and also depend on the amount of time spent on services (i.e., development review).
The Cost Allocation Plan and Fee Study was last developed in 2013 and has been used as a budget baseline since then, adjusted annually by CPI. Since an update of the Cost Allocation Plan, Development Impact Fees, and Master Fee Schedule project is included in the FY 2024- 25 work plan, there were no changes to the Master Fee Schedule other than the annual increase by the Consumer Price Index (CPI) of 2.6% this year derived from the December 2023 Pacifica City Council 5
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Consumer Price Index from the U.S. Bureau of Statistics for the Western Metropolitan Area (San Francisco-Oakland-Hayward).
Conclusion
In conclusion, the FY2024-25 Proposed Budget is presented as a structurally balanced, transparent, and prudent plan that maintains critical programs and services for the Pacifica community. This budget reflects significant efforts to enhance staffing and support essential services while making progress on the City Council’s Strategic Plan.
Despite these improvements designed to maintain organizational capacity, Pacifica continues to face long-term challenges, including the need for sustainable financial strategies to address future staffing levels and infrastructure needs. City staff remain dedicated to exploring operational efficiencies, appropriate fee structures, and new revenue opportunities to secure Pacifica’s financial sustainability. We look forward to collaborating with the City Council and the community to address these challenges and ensure that Pacifica remains a desirable place to live, work, and play.
ALTERNATIVE ACTION:
The City Council is being asked to adopt 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 goals.
FISCAL IMPACT:
The FY 2024-25 Recommended Budget is balanced. The General Fund Operating Revenues Budget is $48.1 million and exceeds the General Fund Operating Expenditures Budget of $46.9 million. General Fund expenditures include $75,000 in a one-time transfer toward the CIP program. The FY 2024-25, Other Funds revenues and expenditures total $37.2 million and $52.3 million, respectively, and include the FY 2024-25 Capital Improvement Plan (CIP) budget of $19.7 million, which is partially funded by one-time use of various fund reserves and outside funding sources.
ORIGINATED BY:
City Manager's Office
ATTACHMENT LIST:
Attachment 1 - Resolution Adopting Budgets (PDF)
Attachment 2 - GANN Resolution - 24-25 (DOCX)
Attachment 3 - Resolution approving the Master Fee Schedule (PDF) Attachment 4a - Investment Policy Resolution (PDF)
Attachment 4b - Investment Policy - Redline (PDF)
Attachment 5 - FY2024-25 Proposed Operating Budget (PDF) Attachment 6 - CIP 2024-2029 (PDF)
Attachment 7 - FY 2024-25 Fund Balance Summary (PDF)