City Council
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Administrative Services
Meeting Date: February 12, 2024
Report #:2311-2233
TITLE
Discuss the FY 2024 Mid-Year Budget Review and Approve 1) FY 2024 Budget Amendments in Various Funds, and 2) Amendments to the FY 2024 Table of Organization to add 1.00 Full Time Equivalent (FTE) Position. CEQA Status – Not a Project.
RECOMMENDATION
Staff recommends that the City Council review, discuss, and approve:
1) Amendments to the Fiscal Year 2024 Budget Appropriation for various funds and various capital projects, as identified in Attachment A, Exhibits 1 and 2 (requires a supermajority, 2/3 approval); and
2) Amend the FY 2024 Table of Organization in Attachment B consistent with the budget amendments in Attachment A, adding 1.00 full time position.
EXECUTIVE SUMMARY
This report provides an extensive update on the City’s financial status as of December 31, 2023.
Included in this report are:
1) Recommended budget adjustments to FY 2024 that reflect urgent / high priority fiscal needs, revenue supported program activities, and technical adjustments, 2) Recommended changes in staffing levels in FY 2024 adding 2.00 positions and deleting 1.00 position,
3) Updated information on the City’s financial position and outlook in FY 2024 including positioning for the upcoming FY 2025 budget process, and 4) FY 2024 2nd quarter financial status updates (Attachment C).
The next significant financial planning and budget discussions will be the review of the FY 2025 proposed operating and capital budgets and municipal fee schedule (May 2024 – June 2024) and recommended utility rate updates (March 2024 – June 2024).
This report addresses the City Council referral adopted with the FY 2024 budget to revisit key Council priority investments, makes recommended funding adjustments based on activities through December 2023, and proposes technical adjustments. If approved, these actions will authorize investments for immediate needs and key priority areas to be addressed in FY 2024 (rather than waiting for the FY 2025 budget process) and position the Council for its FY 2025 budget deliberations in the coming months with the most current financial projections.
The balancing strategy works to continue the practice of funding ongoing activities with ongoing revenue sources to continue use of the uncertainty reserve and excess savings in the Budget Stabilization Reserve to offset projected deficits for the next several years. If this report is approved as recommended, the Uncertainty Reserve will maintain a balance of $9.5 million and the Budget Stabilization will remain at $57.2 million, $3.3 million above the Council- approved 20% level or $53.9 million. These amounts are in line with estimates provided in the FY 2025-2034 Long Range Financial Forecast (LRFF) and this reserve funding will be used in the financial planning for the FY 2025 Proposed Budget and beyond. Staff will continue to monitor these estimates and may bring forward a year-end budget adjustment report in June with any additional refinements to budgeted levels based on the most current information available.
The City Council may amend the annual budget through appropriate motion; Attachment A and B, if approved as recommended, provide the necessary transactional information for official amendment of the annual budget. The budget appropriation actions require a supermajority approval by the City Council (PAMC 2.28.080(c)(1)), or five (5) votes.
BACKGROUND
Staff provides the Mid-Year Budget Review to report the financial status of major funds and the Capital Improvement Program as of the second quarter (Q2) of the current fiscal year and recommends adjustments to the Adopted Budget. This Mid-year Budget Review also recommends funding for priority initiatives in advance of the FY 2025 budget process in alignment with expressed priorities by the City Council during the FY 2024 Adopted Budget process. Additionally, this report aligns estimates for significant changes that have occurred in FY 2024, including projections for major tax revenues.
In the first half of FY 2024, staff brought forward the FY 2023 Annual Comprehensive Financial Report (ACFR) (Staff Report 2311-2230)1 for Council approval and the First Quarter (Q1) FY 2024 Financial Report (Staff Report 2307-1774)2 as an informational report. Staff reported higher annual earnings for general fund revenues in FY 2023 as compared to the budget primarily due to a faster recovery of major tax revenues in the last two quarters of the fiscal year. This recovery trend continued in the first and second quarter of FY 2024, with several major tax 1 January 16, 2024 City Council Meeting: FY 2023 Annual Comprehensive Financial Report https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13566 2 January 22, 2024 City Council Meeting: FY 2024 First Quarter Financial Status Report https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13333 revenue categories tracking to exceed budgeted levels; actual year end results may vary due to continued economic uncertainty. Staff is recommending that the City Council recognize this additional funding as part of this report and anticipates using this additional one-time funding and reserves to support near-term funding priorities and bridge projected shortfalls as part of the FY 2025 budget development. Longer term, staff expects that economic recovery and a more diverse revenue base will help to stabilize the fiscal outlook.
Where possible, budget change recommendations are brought forward for City Council consideration as part of the approval of the Mid-Year Budget Report to consolidate requests and streamline changes to budget appropriations. These adjustments are necessary as revenues and expenditures vary from the original budget plan for many reasons such as changes in economic factors, project estimates and scope, and City Council policy and direction.
The Mid-Year Budget Report reflects adjustments to align with prior City Council approved direction, fund Council priorities deferred from the FY 2024 Adopted Budget, and clean-up actions based on FY 2023 actual experience or current FY 2024 actual activities.
As discussed in the FY 2025-2034 Long Range Financial Forecast (LRFF)3, and consistent with the projections in the FY 2024 Adopted Budget, deficits are reflected in the near term due to ongoing resources added to support priority initiatives and projected economic stagnation.
Ongoing financial stability will require continued prioritization of spending and utilization of one-time surplus funding and the Uncertainty Reserve to address short term deficits in the next few years.
ANALYSIS
This item serves as a continuation of the many touch points as the City balances responding to emergent priorities with following through on established commitments. Findings and recommended adjustments in this report are based on the data available at the time of reporting and reflect preliminary 2nd Quarter financial activity in FY 2024 (Attachment C). Final Q2 data is typically available at the end of March 2024, though material differences are not expected.
The staff report provides discussion of the balancing strategy as well as key highlights from the detailed adjustments. This report is organized as follows:
1) FY 2024 Mid-Year Budget Adjustments (Attachment A)
a. General Fund
i. Mid-Year Budget Review Balancing Strategy Summary
ii. Recommended Amendments to the FY 2024 Adopted Budget iii. Position/Table of Organization Changes Summary (Attachment B) iv. City’s Financial Position in FY 2024 and FY 2025
3 January 22, 2024 City Council Meeting: 2025-2034 Long Range Financial Forecast https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13333 b. Internal Service Funds
c. Special Revenue Funds
d. Enterprise Funds
e. Capital Funds
2) Preliminary General Fund Q2 Financial Status & public safety overtime (Attachments C & D)
3) Timeline and Next Steps
The following is an overview of the status for the General Fund, Enterprise Funds, and other funds including recommended budget adjustments as they pertain to the City’s FY 2024 Operating and Capital Budgets.
1.a. General Fund
1.a.i. Mid-Year Budget Review Balancing Strategy Summary The following table outlines the major drivers of the General Fund mid-year recommended balancing strategy to offset the collective impact of a few key activities:
- Completion of FY 2023 year-end financial transactions which ended with funding of $3.4 million above the 20% Council adopted target level in the Budget Stabilization Reserve as discussed in the FY 2023 Annual Comprehensive Financial Report (ACFR). - Alignment with current FY 2024 estimated major tax revenue projections as discuss in the FY 2025-2034 Long Range Financial Forecast (LRFF).
- Support to continue Council priority investments as referred during the FY 2024 Adopted Budget process and routing operations.
This report continues to work to balance the immediate needs with the mid- and longer-term forecast needs, using one-time funds as a key tool in bridging uneven economic trends. There are potential risks and benefits associated with continuing this balancing strategy that should be considered when looking beyond FY 2024. The risks would further reduce the City’s ability to fund the current level of services over the next several years, while the benefits could offset costs for a longer period or even increase available funding sources. These are discussed further in the Proposed Balancing Solutions section of this report.
Table 1: General Fund Mid-Year Adjustments and Balancing Solutions Summary of General Fund Adjustments
Net $ Impact
(Cost)/Benefit
FY 2024 Council Budget Referral and Priorities Investments Rental Registry Program $(0.2) M
California Avenue Car Free Streets $(0.1) M
Parklet Prototypes $(0.1) M
Fleet Electrification $(0.1) M
Summary of General Fund Adjustments
Net $ Impact
(Cost)/Benefit
Youth Mental Health $(33,000)
Subtotal FY 2024 Priority Investments: $(0.6) M
Recommended Funding:
Planning and Transportation Services $(0.2) M
Public Safety Services $(0.1) M
Subtotal Recommending Funding: $(0.3) M
Technical Adjustments:
Major Tax Revenues & Investment Earnings
(Property Tax, Sales Tax, Utility Users Tax, Transient Occupancy Tax, Documentary Transfer Tax)
$3.6 M
Utility Equity Transfer FY 2023 True-up $0.3 M
Utility Equity Transfer Case (Net-Neutral Action)
($11.2M for first round of settlement, offset by $11.2M from Reserve) $0.0 M
Supplemental Pension 115 Trust Contribution
($1.7M of the excess FY23 Budget Stabilization Reserve) $(1.7) M
Capital Improvement Funding
($1.7M of the excess FY23 Budget Stabilization Reserve) $(1.7) M
El Camino Real Ballpark/Lot 37 FY 2023 Rent $(0.2) M
Golf Course Services Revenue FY 2023 True-up $(0.1) M
Subtotal Technical Adjustments: $0.2 M
Use of Uncertainty Reserve
(Uncertainty Reserve remains at $9.5M)
$0.6 M
Use of Budget Stabilization Reserve (BSR)
(BSR remains at 21.2% and $3.3 M above the 20.0% target level) $0.1 M
Total Net Impact General Fund Mid-Year Adjustments $0.0 M
1.a.ii. Recommended Amendments to the FY 2024 Adopted Budget This report includes budget adjustments to 1) make key investments in alignment with deferred investments identified by Council through its FY 2024 Budget and priorities, 2) recommended funding for grants, urgent or timely needs, or 3) technical adjustments.
Major changes are recommended as directed by the City Council and/or recommended by staff are below, and all transactions can be found in greater detail in Attachment A. It should be noted that recommended budget adjustments have been prorated for the remainder of the fiscal year where appropriate.
FY 2024 Council Budget Referral and Priorities Investments As part of the FY 2024 budget process, the Finance Committee and City Council referred some priority investments to be reviewed during the FY 2024 Mid-Year Budget Review. This section addresses each of these and the status and investments in alignment with the Council priority objectives:
•Fleet Electrification (PWD): $1,350,000 is requested to allow for nine additional FY 2024 vehicle replacements to be all-electric: 3 Ford F-150s, 2 GMC 6yrd Dump Trucks, 2 Ford Ranger Small Pickup Trucks, and 2 Chevy Blazers. The cost is spread across five funds (General, Electric, Gas, Wastewater Collection, and Water) in the Community Services, Planning and Development Services, and Utilities Departments, with $130,000 in the General Fund. Fleet electrification is ongoing, and staff will return to Council with recommendations for additional replacement of vehicles with electric models as part of the FY 2025 Budget.
•Sea Level Rise (PWD): No additional funding is requested yet. Staff is in the process of evaluating future steps and investments to better inform the request for additional funding in the context of correspondence with the Army Corps of Engineers about the South San Francisco Bay Shoreline Phase II Feasibility Study. Work continues; however, additional funding is likely to be requested as part of the FY 2025 budget process rather than at this time.
•Youth Mental Health (CSD): This brings forward $30,000 in funding to host an event with the goal of nurturing support and sharing knowledge on topics relevant to youth mental health.
In pursuit of this goal, the Community Services Department will actively engage in partnerships with Youth Community Service, Project Safety Net, Allcove, and other partners to identify specific target audiences and refine event formats. Partnership with the Department of Transportation to fund rides through Palo Alto Link ($3,000) for youth attending this event and other locations to access programs and services conducive to enhancing mental health is also included. This is an incremental step and reflects expected activity during the remaining months of FY 2024.
•Eucalyptus Tree Removal (CSD/OES): No additional funding is requested at this time as staff has pursued a grant to support funding for this project to increase wildfire safety. •Unhoused Resident Services (CMO): No additional funding is requested as initially, staff expected to develop a plan for better coordination among homeless individuals and housing/services. However, most services are already managed by the County through the Palo Alto-supported Community Plan to End Homelessness4. To avoid duplication, the focus shifted to strengthening services through improved coordination and launching a pilot outreach worker program. Additionally, staff expects to propose a new Priority Objective 4 https://housingtoolkit.sccgov.org/take-action/santa-clara-county-community-plan-end-homelessness-2020-2025 for 2024 focused on increasing capacity, coordination and effectiveness relating to housing and services for the unhoused in Palo Alto.
•Regulate Short Term Rentals (PDS): No additional funding has been brought forward at this time as staff continues to not have the capacity to take on this objective at this time.
Resources, as discussed later, are added for the establishment of a new Rental Registry Program prioritizing that program and other Council Priorities at this time.
In addition to those items referred for consideration as part of this Mid-Year review, limited investment in Council priorities is recommended including:
•California Avenue Car Free Streets Project Management (CMO): Funding of $85,000 is recommended for provisional staff for the oversight of the California Avenue car free street efforts. Recognizing the critical and focused effort needed to support this area, this resource will provide a more flexible means to engage on this multidisciplinary effort going forward with the City's consultant, Urban Field Studio, stakeholders, and City staff. •Rental Registry Program (PDS): A new Senior Planner position and contractual resources of $228,000 are recommended to be added in alignment with the Council priority objecting and prior council direction to establish a Rental Registry Program. •Parklet Prototypes (PDS): This action appropriates $84,000 for the estimated costs of development of up to three parklet prototype concepts. This uses one of the City's on-call contracts with Urban Planning Partners, Inc. and will include long range planning, application processing, and environmental review services.
Recommended Additional Funding
In limited areas staff recommends appropriation of additional funding to continue operations and support needed investment. Key investments are summarized here by service delivery area:
•Planning and Transportation Services: $214,000 revenue, $461,000 expense For the Office of Transportation, this report recommends the recognition of Measure B grant revenue in the amount of $213,725, along with an increase in contract services by the same amount. Staff will use the grant funding to hire a consultant to manage the Safe Routes to School Program. Palo Alto Transportation Management Authority (PATMA) has requested additional funding of $84,000 to maintain existing service levels, but an increase of $42,000 is recommended to support continued services. Staff expects to reassess funding needs in preparation for FY 2025. Although the current contract amount is $200,000, PATMA has identified that the true cost of current services is $330,000 per year and they have utilized surplus funding received in prior years to cover costs. Those surplus funds have been exhausted. PATMA will need to evaluate staff time and outreach at hotels, restaurants, and shops in the City.
For the Planning and Development Services Department, this report includes recommendations to delete an Assistant Chief Building Official position and add a Planning Division Manager for the Development Center and planning special projects to better align with the goals and needs of improving the Development Center and planning operations.
Funding totaling $163,000 is also recommended to continue the Department’s cost allocation fee study, update development impact fee calculations, and fund a new electric vehicle for code enforcement staffing.
•Public Safety Services: $65,000 expense
Ongoing funding of $50,000 for the Fire Department will be used for first responder equipment maintenance and training supplies. This funding addresses maintenance and repair costs for personal protective equipment (PPE), equipment tracking software, and supplied air respirator machines. Ongoing funding of $15,000 will be used to cover cost increases for training drill supplies such as lumber as well as increases due to staff turnover and increased training needs.
Technical Adjustments and Previous Council Direction
This report includes actions that are technical in nature and are needed to align budget with current trends, and previous direction approved by the Council. Major changes are recommended as directed by the City Council and/or recommended by staff are below, and all transactions can be found in greater detail in Attachment A. •Major Tax Revenue ($3.3 million additional revenue; ($300,000) expense reduction): Staff evaluated departmental and major tax revenue through Q2 and recommends actions that result in a net $3.6 million increase. As noted in the Q1 Financial Report, major tax revenue categories are trending higher than budgeted in FY 2024, and a $3.3 million increase is recommended to adjust Sales Tax ($1.6 million increase), Utility Users Tax (UUT) ($1.2 million increase), Investment Earnings ($1.1 million increase), and Property Tax ($0.8 million increase), partially offset by Transient Occupancy Tax (TOT) ($1.3 million decrease) and Documentary Transfer Tax (DTT) ($0.1 million decrease) based on trends experienced in the first half of FY 2024. Since a portion of TOT revenue has been dedicated to fund capital improvements, per Council direction, the reduced TOT revenue estimates warrant a reduction in the transfer from the General Fund to the Capital Improvement Fund ($0.3 million decrease).
•Utility Equity Transfer FY 2023 True-up ($293,000 additional revenue): This action increases the equity transfer to the General Fund by $293,000 with additional funding from the Gas Fund ($508,000) partially offset by reduced funding from the Electric Fund ($215,000) in FY 2024. This action is in alignment with the FY 2023 Annual Comprehensive Financial Report (ACFR) as of June 30, 2023 (Staff Report 2311-2230)5 .
•Utility Transfer Litigation (Equity Transfer) Reserve (Net Neutral Expense Adjustment): This action implements the first set of refunds issued to class members as a result of the Green v. City of Palo Alto (Santa Clara Superior Court, Case No. 1-16-CV-300760) settlement. Use of $11.2 million for this first refund leave a remaining reserve balance of $6.3 million for planned future settlement payment needs.
•Uncertainty Reserve: Use of $0.6 million from the FY 2024 Adopted Budget level of $10.1 million is half of the $1.0 million set aside as part of the FY 2024 budget process for additional priority investments. $9.5 million remains in the reserve; approximately $6.0 million of the reserve will be necessary to provide one-time funding for the FY 2025 forecasted deficit outlined in the City's 2025-3034 Long Range Financial Forecast. •Supplemental Pension Trust Contribution ($1.7 million expense): This adjustment adds a $1.7 million transfer to the General Benefits Fund for an additional contribution to the City’s Section 115 Pension Trust. This action was approved by the City Council in the FY 2023 Annual Comprehensive Financial Report (ACFR) for BSR exceeding target levels of 18.5%, reflects General Fund contributions only, and is consistent with the City’s Retiree Benefits Funding Policy. Staff will include adjustments for proportional contributions from other (non-General Fund) funds as part of the FY 2024 year-end or FY 2025 proposed process consistent with past practice and policy guidelines.
•Capital Improvement Funding ($1.7 million expense): This adjustment formalizes City Council actions to allocate $1.7 million resulting from FY 2023 year-end excess BSR, bringing the total base General Fund transfer to the Capital Improvement Fund to $12.5 million in FY 2024 and is consistent with the Council policy guiding use of surplus funds. This funding will increase the fund balance in the Capital Improvement Fund for use in the development of the upcoming 2025-2029 five-year Capital Improvement Plan. •El Camino Real Ballpark/Lot 37 FY 2023 Rent ($221,000 expense): This action will allow the payment of the Fiscal Year 2023 rent due to Stanford for the El Camino Real Ballpark, also referred to as Lot 37. The FY 2023 rent was withheld by the City while a minor error on the rental invoice was resolved with Stanford. Agreement was reached in FY 2024; however, the remaining funding in FY 2023 was inadvertently omitted from the reappropriation process to move funds into FY 2024.
•Golf Course Services Revenue FY 2023 True-up ($51,000 expense): This adjustment increases contract expenditure by $51,000 for City Golf Course operations owed to the management company, OB Sports. The terms of agreement include a revenue share equivalent to 20% of 5 January 16, 2024 City Council Meeting: FY 2023 Annual Comprehensive Financial Report https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=13566 the calculated FY 2023 difference between Gross Revenue and Target Revenue for that fiscal year.
1.a.iii. Position/Table of Organization Changes Summary Two position actions are recommended in this report, both in the Planning and Development Services Department. They include the addition of 1.00 Senior Planner to facilitate the rental registry program and the addition of 1.00 Planning Division Manager and deletion of 1.00 Assistant Chief Building Official. This will increase full-time staffing levels in the General Fund from the FY 2024 adopted level of 586.06 to 587.06. Although staffing challenges remain citywide, staff is focusing on recruitments of current vacant position and all others new staffing requests will be addressed through the FY 2025 annual budget process. This reflects movement towards the City’s practices prior to the pandemic in alignment with best budgeting practices.
Staff will continue to use appropriate temporary staffing measures, such as overstrength positions overseen by the City Manager, to proactively address time sensitive staffing needs and maintain high quality services for residents.
1.a.iv. City’s Financial Position in FY 2024 and FY 2025 With any forecast and adjustments based on projections, there are inherent risks and benefits.
Staff seeks to position the City in order to provide organizational stability, while acknowledging the service and resource needs, capacity to implement, and project pipeline to continue to reinvest at a pace the organization can support.
Should the Council approve the actions recommended in this report, there will be three (3) reserves in the General Fund with the following status:
1. Reserve: Utility Transfer Litigation (Equity Transfer) $6.3 million, from $17.5 million Planned to be used for the continued compliance with the Green v. City of Palo Alto (Santa Clara Superior Court, Case No. 1-16-CV-300760) settlement
2. Budget Uncertainty Reserve $9.5 million, from $10.1 million Planned to be used for the FY 2025 projected deficit of $6.0 million with remaining funds to be discussed and planned uses identified as part of the FY 2025 budget process. This reserve was established to help the City manage the immediate term recovery and uncertainty, ensuring that the City has a stable financial plan to address current service levels while investing in core priority service areas. As a reminder the City also is facing a forecasted deficit in FY 2026 of $5.4 million too.
3. Budget Stabilization Reserve estimated to be $57.2 million, which is above the adopted 20% level of $53.9 million by $3.3 million.
The City’s Budget Stabilization Reserve (BSR) serves as the primary General Fund reserve and is maintained at a level between 15% and 20% of General Fund operating expenses in any given year. This is both intended for catastrophic events as well as a repository for unspent operating funds at year-end used to fund one-time unexpected needs that arise outside of the regular budget preparation process. Prudent financial management practices dictate that the BSR not be used to fund or solve on-going, recurring financial needs.
Alternatively, Council could amend this and appropriate the excess BSR of $3.3 million to the Uncertainty Reserve. This would consolidate one-time funding to support FY 2025 and immediate outer years and Council priority investments in one location. If this was done, the Uncertainty Reserve would be $12.8 million, of which $6.0 million is planned to resolve the FY 2025 deficit. Remaining funds could be used for the FY 2026 deficit of $5.4 million and/or investing in Council priorities.
Potential risks and benefits associated with this balancing solution that should be considered when looking beyond FY 2024. The risks would further reduce the City’s ability to fund the current level of services over the next several years, while the benefits could offset costs for a longer period of time or even increase available funding sources.
Risks include but are not limited to the unresolved deficit beyond FY 2025 - estimated deficits in FY 2026 and FY 2027 (approximately $8.8 million in total) need to be resolved; labor contracts will be renegotiated around the time of developing the FY 2026 budget; economic recession or more sever stagnation of economic growth would cause increased deficits over the next several years.
Benefits include but are not limited to the reserve levels to bridge FY 2025 services for at least one more year; revenue and expense estimates may materialize additional available funds; the City’s diligence in funding long term liabilities such as pension have the potential to fund annual pension and retiree healthcare costs to provide short-term relief; a more robust economic recovery.
1.b. Internal Service Funds – Mid-Year Budget Adjustments Mid-Year actions recommended in these funds are related to technical adjustments to align the City’s contributions to the 115 Pension Trust Fund with Council policy, increase funding for higher estimated liability costs, and provide funding for the Council priority for electrification of the City’s fleet. See Attachment A, Exhibit 1 for further information regarding the recommended changes in the Internal Service Funds.
•General Benefits Fund: Supplemental Pension Trust Contribution of $5.7 million in additional contributions to the City’s Section 115 Pension Trust consistent with the funding policies outlined in the City’s Retiree Benefits Funding Policy. This brings total principal contributions to $73.3 million ($47.5 million from the General Fund) since inception in 2017.
Included in this adjustment are true-up actions for FY 2023 excess BSR funds of $1.7 million and $1.2 million in FY 2023 year-end pension savings and $2.8 million in non-General Fund funds proportional contributions to “catch-up” to prior year General Fund contributions. •General Liabilities Fund: Supplemental insurance funding of $355,000 supports increasing insurance premium costs. Specifically, $196,000 in expense for umbrella excess liability insurance and $159,000 for property loss insurance. This brings FY 2024 funding for umbrella excess liability insurance from $4.2 million to $4.4 million and property loss insurance from $0.8 million to $0.9 million.
•Vehicle Replacement and Maintenance Fund: Fleet Electrification adjustment adds $1.3 million in expense and revenue to allow for 9 additional FY 2024 vehicle replacements to be all-electric: 3 Ford F-150s, 2 GMC 6yrd Dump Trucks, 2 Ford Ranger Small Pickup Trucks, and 2 Chevy Blazers. The cost of $1.3 million is spread across 5 funds (General Fund, Electric Fund, Gas Fund, Wastewater Collection Fund, and Water Fund) in the Community Services, Planning and Development Services, and Utilities Departments, with $130,000 in the General Fund. Fleet electrification is ongoing, and staff will return to Council with recommendations for additional replacement of vehicles with electric models as part of the FY 2025 Budget. A new vehicle to support a new Code Enforcement Supervisor position added in FY 2024 in the amount of $64,000 for a new electric Chevy Blazer supporting daily off-site duties and sustainability goals is also added.
1.c. Special Revenue Funds – Mid-Year Budget Adjustments Mid-Year actions recommended in these funds are related to technical adjustments to align updated revenue projections from the State for Gas Tax funding and align a transfer from the Community Development Block Grant Fund to the Capital Improvement Fund for Sidewalk repair work. See Attachment A, Exhibit 1 for further information regarding the recommended changes in the Special Revenue Funds.
•Gas Tax Fund: The City receives revenues from California’s Highway Users Tax Account (HUTA) and the Road Maintenance and Rehabilitation Account (RMRA SB1). In January, the Department of Finance’s updates for estimated revenues from these accounts indicated that receipts would be lower than what is currently in the City’s budget. To align with the new estimates, gas tax revenues will be reduced by $16,194, and transfers to the Capital Improvement Fund for the Street Maintenance project (PE-86070) will be reduced by the same amount.
•Community Development Block Grant: A technical adjustment is needed to align the FY 2024 Budget with the FY 2023-24 CDBG Action Plan by recognizing a $211,673 transfer from CDBG to the Capital Improvement Fund for the Sidewalk Repairs project (PO-89003).
1.d. Enterprise Funds – Mid-Year Budget Adjustments
Mid-year actions being recommended in these funds are primarily related to the alignment of the Utilities Department budgets with current market conditions for revenues and expenses related to the purchase of commodities and the operation of utilities. The actions recommended for FY 2024 mid-year will align revenues and expenses for interfund transfers for the Gas and Electric Fund Utilities Equity Transfers; Electric Fund revenue projections and commodity costs; and shared costs for Water, Gas, Wastewater Utility GIS Data project WS- 02014. See Attachment A, Exhibits 1 and 2 for further information regarding the recommended changes in the Enterprise Funds.
Capital Budget – Mid-Year Budget Adjustments
Several Capital Improvement Program projects require adjustments in FY 2024. For a detailed view of all project adjustments by Fund, see Attachment A, Exhibit 2. •All remaining funding in the Automated External Defibrillator Replacement (FD-21000) and Extrication Tool Replacement (FD-22000) projects will be removed because both projects have been completed. The remaining amounts are $38,000 of revenue in FD-21000, and $20,845 of revenue and $79,153 of appropriation in FD-22000. •As approved by the Valley Transportation Agency (VTA), Measure B revenue will be reallocated from the Railroad Grade Separation and Safety Improvements project (PL- 17001) to the Traffic Signal and Intelligent Transportation Systems (PL-05030) and Transportation and Parking Improvements (PL-12000) projects in the amounts of $701,500 and $233,833, respectively.
•Align the Street Maintenance project (PE-86070) with reduced gas tax revenue estimates discussed in the Gas Tax Fund section above with a reduction of $16,194. •Align the Roth Building Rehabilitation project (PF-23001) with County grants awarded for the building’s windows and roof in the amount of $387,590, as well as $200,000 of interest earnings on Transfer Development Rights (TDR) funding reserved for this project in the Capital Improvement Fund.
•$211,673 of appropriation and CDBG grant revenue will be added to the Sidewalk Repairs project (PO-89003) to align the FY 2024 budget with the FY 2023-24 CDBG Annual Action Plan.
•Nine projects require technical adjustments to align FY 2024 budgets with FY 2023 actual financial activity, with no changes to project schedules or scopes. 2) Preliminary Q2 Financial Status & public safety overtime (Attachment C & D) Attachments C and D provide summary information on actual preliminary financial activity through December 2023. These actuals have been factored into the analysis and projections used in the development of this Mid-Year Budget Review. Overall, they remain consistent with trends seen in the first quarter of the fiscal year. Staff will continue to monitor trends and update assumptions as part of the FY 2025 budget process as necessary. 3) Timeline and Next Steps
Staff is actively working on the FY 2025 budget and regular reporting activities over the coming months. Below is a list of expected reports and Council updates planned for the remainder of FY 2024. The Council and Finance Committee will continue to be updated through these planned discussions with adjustments brought forward as necessary. Expected upcoming financial status and budget reporting include:
March/April 2024:
➢Utility Advisory Commission (UAC) and Finance Committee Meetings – Five Year Utility Financial Plans and FY 2025 Rate Recommendations
May 2024:
➢Release of the FY 2025 Proposed Operating and Capital Budgets & Municipal Fee Changes
➢Public Budget Hearings on the Proposed Budgets with Finance Committee, including Utility Rates, Municipal Fees, and the 5-Year Capital Improvement Plan June 2024:
➢FY 2024 Third Quarter (Q3) Fiscal Analysis Report (information) ➢FY 2025 Operating and Capital Budget Adoption
➢FY 2025 Municipal Fee Adoption
➢FY 2025 Utility Rates adoption
In addition, routine information reports including but not limited to utilities risk management, investment reports, contracts and lease reporting will continue.
FISCAL/RESOURCE IMPACT
Approval of the attached transactions is required to amend the FY 2024 budget appropriation.
With the approval of these amendments, the Budget Stabilization Reserve (BSR) would be reduced by $0.1 million and the projected ending balance of the General Fund BSR is anticipated to be $57.2 million, which is $3.3 million above the 20% City Council target level $53.9 million.
As mentioned previously, Council could amend this and appropriate the excess BSR of $3.3 million to the Uncertainty Reserve. This would consolidate one-time funding to support FY 2025 and immediate outer years and Council priority investments in one location. If this was done, the Uncertainty Reserve would be $12.8 million, of which $6.0 million is planned to resolve the FY 2025 deficit. Remaining funds could be used for the FY 2026 deficit of $5.4 million and/or investing in Council priorities.
The projected changes to the fund balance for all other funds including Capital Funds, Enterprise Funds, Internal Services Funds, and Special Revenue Funds, and are outlined in Attachment A and accompanying exhibits and impacts to fund balance by fund are summarized as follows:
Table 2: Resource Impact (Non-General Fund)
Fund Type Fund Amount
Capital Capital Improvement Fund $0.7 M
Enterprise Airport Fund $(36,000)
Electric Fund $24.4 M
Fiber Optics Fund $(38,000)
Gas Fund $(0.1 M)
Refuse Fund $(0.1 M)
Stormwater Management Fund $(0.1 M)
Utility Administration Fund $(0.1 M)
Wastewater Collection Fund $0.2 M
Wastewater Treatment Fund $(0.9 M)
Water Fund $(2.3 M)
Internal Service General Benefits Fund $(4.0 M)
General Liabilities Fund $(0.4 M)
Information Technology Fund $(0.4 M)
Print and Mail Services Fund $(9,000)
Vehicle Replacement Fund $(0.1 M)
Workers’ Compensation Fund $(11,000)
Special Revenue California Avenue Parking Fund $(6,000) Community Development Block Grant Fund $(0.2 M)
Gas Tax Fund $(16,000)
Housing In Lieu Fund $(2,000)
Public Art Fund $(6,000)
Residential Parking Permit Fund $(11,000)
University Avenue Parking Fund ($22,000)
STAKEHOLDER ENGAGEMENT
The Office of Management and Budget has coordinated with all departments city-wide and the City Manager’s Office, as appropriate, to bring forward the changes discussed and recommended in this report.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA) because the amendments to the FY 2024 Budget Appropriation and FY 2024 Table of Organization are fiscal activities which do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. CEQA Guidelines section 15378(b)(4).
ATTACHMENTS
Attachment A, Exhibit 1: FY 2024 Recommended Operating Budget Adjustments Attachment A, Exhibit 2: FY 2024 Recommended Capital Budget Adjustments Attachment B: Amended FY 2024 Table of Organization
Attachment C: Preliminary FY 2024 2nd Quarter Financial Status Attachment D: Public Safety Overtime Analysis
APPROVED BY:
Kiely Nose, Assistant City Manager