June 6, 2023
Finance Department
DATE: June 6, 2023,
TO: Mayor Martinez and Members of the City Council
FROM: Shasa Curl, City Manager
Nickie Mastay, Deputy City Manager, Internal Services
LaShonda White, Deputy City Manager, Community
Services
Mubeen Qader, Deputy Director of Finance
Antonio Banuelos, Accounting Manager
Subject:
ACKNOWLEDGE receipt of Fiscal Year 2023-24 Proposed
Second Draft Budget and RECIEVE the draft General Fund
Five-Year Forecast and CalPERS Update
FINANCIAL IMPACT: There is no financial impact to receiving this report.
PREVIOUS COUNCIL
ACTION:
May 2, 2023, May 16, 2023, May 23, 2023
STATEMENT OF THE
ISSUE:
On May 2, 2023, City Council received a draft of the
balanced FY 2023-24 operating budget and FY 2023-2028
Capital Improvement Plan budget. Currently, the draft
General Fund budget is balanced with revenue and
expenditure at $225,374,607. The purpose of this item is to provide the City Council with an overview of the budget documents, discuss potential future revenue and
expenditure adjustments, and receive direction from the City Council prior to final budget adoption. The agenda item also presents a five-year forecast with three scenarios and
CalPERS update as well as cost management strategies per the State Auditor recommendation in the Corrective Action Plan.
AGENDA
REPORT
June 6, 2023
RECOMMENDED
ACTION:
RECEIVE an update on the draft FY 2023-2024 Annual
Operating Budget and FY2023-2028 Five-Year Capital
Improvement Plan Budget; and RECEIVE DIRECTION from
City Council prior to final budget adoption – City Manager’s Office/Finance Department (Shasa Curl, 510-620-6512,
Nickie Mastay, 510-620-6609, Mubeen Qader, 510-412-
2077).
DISCUSSION:
FY 2023-2024 DRAFT BUDGET UPDATE
In accordance with Richmond Municipal Code Section 2.61.010, on May 2, 2023, the City Manager submitted the first draft of the Fiscal Year (FY) 2023-2024 Operating budget, and the draft FY 2023-2024 – 2027-2028 Five-Year Capital Improvement Plan budget. Initially, the General Fund operating budget was balanced with the revenues and expenditures at $221,330,130. On May 23, 2023, a comprehensive Five-Year Capital Improvement Plan draft budget for FY 2023-24 – 2027-2028 was presented to the City Council.
After further review and analysis of the General Fund revenues and expenditures, the second draft General Fund budget is balanced with revised revenue and expenditure amounts of $225,374,607. City staff will provide a FY 2023-2024 budget update, discuss proposed adjustments, and provide an opportunity for City Council to provide direction on additional modifications to the draft budget prior to final approval before June 30, 2023. It is proposed that the City Council adopt the budget on June 20, 2023, and staff will incorporate additional modifications in Quarter 1 and Mid-year to reflect the goals and objectives identified by the City Council in their facilitated meetings with Henry Gardner.
Figure 1: General Fund Budget
FY 2022-23 FY 2023-24 FY 2023-24 PCT
GENERAL FUND REVISED
BUDGET
MAY 2,
DRAFT
BUDGET
JUNE 6,
DRAFT
BUDGET
CHANGE
(Between FY
22-23 and
6/6/23 FY 23-24
budgets)
TOTAL REVENUES (215,103,041) (221,330,130) (225,374,607) 4.78% TOTAL EXPENDITURES 215,139,689 221,330,130 225,374,607 4.76%
NET (-SURPLUS)/+DEFICIT 36,648 - - -100.00%
June 6, 2023
SUMMARY
The FY 2023-2024 city-wide expenditure budget amounts to $543,767,651 of which $225,374,607 is from the General Fund, and $318,393,044 is from non-General Fund accounts.
General Fund: The draft FY 2023-2024 is balanced with revenue and expenditure estimated at $225,374,607. These estimates are an increase from the current FY 2022-2023 revenue and expenditure budget by 4.78 percent and 4.76 percent respectively.
o Revenue: The proposed FY 2023-2024 revenue is estimated at $225,374,607, which is an additional $10.3 million in General Fund revenue in comparison to the current FY 2022-2023 revised General Fund budget. Utility Users Tax and Licenses Permits & Fees are estimated with the highest increases. The General Fund Revenue Summary is available in Attachment
1. o Expenditures: Estimated expenditures for FY 2023-2024 are $225,374,607.
Major expenditure categories are listed below, and additional information can be found in Attachment 2 – General Fund by Department:
Salary/Wages and Fringe Benefits ($148.0 million)
Cost Pool ($21.8 million)
Professional Admin ($23.4 million)
Operating Transfers Out ($17.7 million)
Cost Allocation Plan ($3.5 million)
Other ($11 million)
Multi-Year Position Listing: The proposed budget includes salaries and wages of 741 Full-Time Equivalent (FTE) positions, which are net nine (9) additional FTEs than the current FY 2022-2023 approved FTE total. The Multi-Year Position Listing is available in Attachment 3. Please note that the balanced budget contains a vacancy saving factor of six percent (6%) in addition, Raftelis has initiated a workforce analysis, per the State Audit recommendation and the City’s Corrective Action Plan.
Non-General Fund: The total non-General Fund budget is estimated at $318,393,044 and primarily includes funds dedicated to housing, debt service, enterprise funds, and other city operations. The Non-General Fund by Category summary is included in Attachment 4.
Capital Improvement Plan (CIP): The CIP includes essential capital projects and has
June 6, 2023
a total budget of $126,585,340 spread across several funds (Attachment 5 – List of CIP Projects). The CIP lists many projects that are unfunded; however, the funded projects are budgeted on an annual basis.
American Rescue Plan Act (ARPA): To support Covid-19 relief, the City received $27.7 million in ARPA funds, and the City Council has already approved $11.96 million in allocations and the remaining balance of $15.78 million is available for the City Council to allocate The City Council received an ARPA update at the May 16, 2023, City Council meeting.
Reimagining Public Safety Intervention Programs: Programs implemented as part of Youthworks ($1,980,000 million), Office of Neighborhood Safety ($2,057,898 million), Unhoused Intervention ($1,800,000 million), and Community Crisis Response Program ($1 million) are budgeted at an estimated total of $6.8 million for FY 2023-2024.
The Environmental and Community Investment Agreement (ECIA): The ECIA includes $80 million in investments over a ten-year period in community-based greenhouse gas (GHG) reduction programs and community programs. Currently, the City has received $70 million of the $80 million and is in the 8th year of implementation. There is currently approximately $10 million remaining for future expenditures aligned with the GHG reduction programs and approximately $5 million for community programs (this does not include budgeted and unexpended amounts for FY 2022-23), which can be allocated per City Council direction. An updated ECIA budget can be provided after the close of FY 2022-23.
GENERAL FUND
The updated draft FY 2023-24 budget is balanced with revenue and expenditures equal at $225,374,607.
Figure 2: Updated General Fund Draft Budget FY 2022-2023 Revenue & Expenditures GENERAL FUND FY 2023-2024
DRAFT BUDGET
TOTAL REVENUE 225,374,607
TOTAL EXPENSE 225,374,607
Net (-Gap)/+Surplus -
Revenues
The total proposed General Fund revenue for the FY 2023-2024 budget is approximately $225.4 million. City staff are projecting an additional $10.3 million in General Fund revenue above the current FY 2022-2023 Revised General Fund Budget.
June 6, 2023
Detailed information regarding revenue changes can be found in Attachment 1 – General Fund Revenue Summary.
Property Tax – Increase of $2.0 million: In preparing the FY 2023-2024 budget, City staff forecasted Assessed Valuation (AV) growth of 3.3 percent. This was based on the combination of the valuation change of properties sold during the last calendar year, the Chevron Refinery AV remaining flat, and all other properties increasing by two percent.
Actual change in AV will not be known until the Equalized Roll is published by Contra Costa County Assessor, during the first week of July 2023. This roll will list every property in Richmond, including the updated valuations. The AV change impacts the Secure Property Taxes stream within the larger Property Tax category.
Sales Tax – Increase of $1.2 million: This increase is based on updated estimates provided by the City’s sales tax consultants, Avenue Consulting. This increase is in part due to the local economy doing well, bolstered by the big-box stores including Costco, Target, Home Depot, and Wal-Mart. In particular, the Bradley Burns one percent sales tax is projected to increase by four percent, while the two voter-approved half cent measures are expected to increase by an average of 1.3 percent in the coming year compared to the current FY 2022-2023 revised budgeted amounts. Within the Sales Tax category, there is also the Vehicle License Fee Backfill Swap which is tied to Assessed Valuation. Like Secured Property Taxes, the projected growth is 3.3 percent.
The projected overall growth for the Sales Tax category is 2.2 percent. However, it should be noted that this is a volatile revenue stream.
Utility Users Tax (UUT) – Increase of $4.9 million: UUT is an “excise” or usage tax imposed on a person or entity using utility services (i.e., electricity, gas, or communications). An increase of $3.9 million is budgeted stemming from a forecasted increase in the UUT Cap Provision. The cap amount, paid by Chevron, is tied the Consumer Price Index (CPI) for energy services in the San Francisco metropolitan area.
This CPI through the May 2023 postings by the United States Bureau of Labor Statistics corresponds to an increase of over 13 percent. The actual amount will not be known until mid-June 2023. Additionally, UUT for gas and electricity is estimated to increase by $1.2 million. This is an increase of 8.6 percent from the revised budgeted amount for FY 2022-2023. The increase stems from higher than budgeted amounts collected during the fiscal year which are expected to continue through next year. The other UUT streams, such as those for cable and telecommunications, will either remain flat or decrease. The projected growth for the UUT category is 9.7 percent.
Other Taxes – Increase of $785,536: This revenue category includes the Documentary Transfer Tax, whose budgeted amount corresponds to the average Transfer Tax collected since the voter-approved tiered structure went into effect in 2019, as per instructions within the Guiding Fiscal Policies. Using that formula yields an estimate of $13.8 million, which is $545,332,000 less than the amount in the revised FY 2022-2023 budget. The Electricity Franchise Fee which was updated earlier this fiscal year will
June 6, 2023
increase by 50 percent due to the updated Franchise Agreement with PG&E in FY2022- 2023. The projected growth for the Other Taxes category is 3.5 percent.
Licenses, Permits & Fees – Net Increase of $2.2 million: The increase is tied to Measure U Business Tax. In FY 2023-2024 total Business Tax is estimated at $10.5 million, a $2.5 million increase from the revised FY2022-2023 budgeted amount. The estimated amount for the FY 2023-2024 license is based on amounts collected Year- To-Date for both the FY 2021-2022 and FY 2022-2023 Business Tax Accounts received year-to-date. All other revenue streams that tie into this category are estimated to have a net decrease of $269,761 compared to the current year’s revised budget. Much of the decrease, $230,000, is from Recreation fees based on lower than projected usage and the implementation of the fee waiver process. The projected growth for the Licenses, Permits, & Fees category is 19.9 percent.
Other Revenues (Includes Fines & Forfeitures, Use of Money and Property, Charges for Services, Other Revenues, Rental Income, Intergovernmental State Taxes & Grants, Proceeds from Sale of Property, and Loan & Bond Proceeds) – Net decrease of $1.4 million. Most of these adjustments are generated from revenue received year-to-date that were either not originally budgeted, nor expected in the current fiscal year. In some cases, these are one-time revenue that cannot be anticipated, or the amount received year-to-year varies significantly.
Decrease to Fines & Forfeitures of $134,131 or 28.8 percent. Revised amounts are on par with current year trends.
Decrease to Use of Money & Property of $9,512 or 0.9 percent. This revenue stream is estimated to remain flat.
Decrease to Charges for Services of $1 million or 28.2 percent. This is a decrease in the budgeted amount but is flat compared to estimated amounts collected. The main item is $900,000d that was previously budgeted for Public Works related to Street Paving Management that is no longer included in the General Fund.
Increase to Other Revenue of $45,935 or 23.9 percent. Other revenue is unpredictable. Budgeted amounts are the department’s best estimates of what might be received.
Decrease in Rental Income of $97,479 or 11.1 percent. This is mostly tied to Terminal 4 revenue being moved from the General Fund to the Port Fund. No change to Intergovernmental Taxes. This revenue stream is expected to remain flat next fiscal year.
Decrease of $65,000 or 37.1 percent in Intergovernmental State Grants. This revenue is tied to the State of California’s State Mandated Claims, Reimbursements. The amount may increase if the State budget includes additional reimbursements for cities.
June 6, 2023
Decrease of $13,569 in Intergovernmental Other Grants. Staff is budgeting only the known grants, which thus far is the Supplemental Law Enforcement Revenue from Contra Costa County.
Decrease of $100,000 or 100 percent in Proceeds from Sale of Property. The price of surplus property sales is unknown at this time.
Operating Transfers In – Increase of $590,000 or 3 percent in Operating Transfers-In from the Pension Tax Override Fund. The revenue that flows into the Pension Tax Override fund is expected to increase at the same rate as Property Taxes. In July 2023, the City will begin paying off the 2022 Pension Obligation Bonds that were part of the bond refinancing last year. Payment directly out of this fund will be less than in previous years while the revenue generated will increase, which will result in higher transfers to the General Fund. This has a positive impact on the General Fund.
Proposed General Fund revenue adjustments in the FY 2023-2024 budget for July 1, 2023, are listed below in Figure 3 and in Attachment 1.
Figurer 3: General Fund Revenue Draft Budget
GENERAL FUND
FY 2022-23
REVISED
BUDGET
FY 2023-24
JUNE 6,
DRAFT
BUDGET
PCT
CHANGE
Property Taxes (48,608,929) (50,567,173) 4.03%
Sales & Use Tax (55,554,137) (56,752,495) 2.16%
Utility Users Tax (50,861,279) (55,775,083) 9.66%
Other Taxes (22,452,187) (23,237,723) 3.50%
Licenses, Permits & Fees (11,080,956) (13,286,195) 19.90% Fines & Forfeitures (465,275) (331,144) -28.83%
Use Of Money & Property (1,021,047) (1,011,535) -0.93%
Charges For Services (3,568,792) (2,561,992) -28.21%
Other Revenue (192,545) (238,480) 23.86%
Rental Income (874,506) (777,028) -11.15%
Intergovernmental State Taxes (125,000) (125,000) 0.00% Intergovernmental State Grant (175,000) (110,000) -37.14% Intergovernmental Other Grant (263,569) (250,000) -5.15% Proceeds From Sale of Property (100,000) - -100.00%
Loan/Bond Proceeds (39,400) (40,400) 2.54%
Operating Transfers-In (19,720,418) (20,310,358) 2.99%
Total Revenues (215,103,041) (225,374,607) 4.78%
June 6, 2023
Expenditures
FY 2023-2024 total proposed expenditures are $225,374,607. Overall, total expenditures are increasing by 4.8 percent from the FY 2022-2023 revised budget.
Figure 4 outlines proposed Operating Transfers Out in the budget and below are some of the assumptions used to develop the draft budget:
Salaries and Wages increase of $7,143,040 – The budget is based on the approved MOUs with bargaining units of Executives, Mid-Management, General Employees, Fire, and Police Officers, and include the costs for the implementation of Class and Compensation study and Cost of Living Adjustments in the FY 2023-2024. The budget also includes some estimated place holder amounts for the pending negotiations with Police Management, and Fire Management bargaining units.
The proposed budget includes salaries and wages of 741 Full-Time Equivalent (FTE) positions, which represents a net increase of 9 additional FTEs when compared to the current FY 2022-2023 approved total. A complete list of proposed positions by department for FY 2023-2024 is provided in Attachment 3 – Draft Multi-year Position Listing.
The proposed positions include additions in Community Services, Economic Development, Finance, and Housing to assist with work in progress, as requested by the City Council.
Vacancy Saving -- The June 6 draft budget assumes approximately $11,156,230 in vacancy savings, which is an approximate 6 percent vacancy rate. In FY 2022-2023, the City used a 6 percent vacancy rate that was approximately $8.3 million. The 6 percent vacancy rate will be further refined before the budget is adopted by June 30, 2023.
Payroll/Fringe Benefits, decrease of $2,689,978 – The budget includes the current benefits rates for health care costs, Worker Compensation, and actuarially determined contribution for Other Post Employment Benefits. Retirement costs are based on the rates for the normal cost and Unfunded Actuarial Liability (UAL) annual payment that is provided by CalPERS.
Professional & Administrative, increase of $3,649,980 – The budget includes baseline recurring line items for all departments plus approximately 5 percent of inflation factor. This category also includes about $4.8 million in additional appropriations that is discussed below in this document.
Other Operating, Utilities, Equipment and Contract Services, increase of $111,653 – This provides a baseline budget with about five percent (5%) inflation factor.
June 6, 2023
Cost Pool, increase of $6,499,531 – The vehicle replacement budget is a placeholder pending a prioritized list from the Fleet Services Division, and the General Liability budget is a placeholder pending further analysis from Matrix Consulting. Civic Center rent is allocated based on the debt payment and the square footage.
Asset Capital Outlay, decrease of $4,114,090 – The budget includes information technology equipment replacement project costs and several other small projects.
Debt Service, decrease of $195,656 -- Debt service payments are based on the following repayments: Recovery Zone Economic Development Series 2010, California Energy Commission Loan, and Bank of America Merrill Lynch - Street Light Lease.
A87 Cost Plan Reimbursement, no change – The budget is unchanged from FY 2022-2023 pending a new cost plan by Matrix Consulting.
Grant Expenditures, decrease of $98,835 – Budget for Love Your Block Mini Grants program. Only remaining balances of a grant are budgeted in the beginning of a fiscal year, additional budget is appropriated as new grants are received.
Operating Transfers Out, decrease of $70,726 – The draft budget includes recurring subsidies for the Hilltop and Marina districts that are increased by three percent (3%).
Department of Children and Youth at 3 percent of the General Fund revenue, Richmond Housing Authority and Employment and Training subsidies are place holders pending final budgets in the respective departments. The budget also includes Reimagining Public Safety contributions to Unhoused Intervention and Youthworks programs. The budget also includes a placeholder subsidy for the Rent Program in lieu of the increase in their General Liability budget. Transfers out are listed below in Figure 4.
Figure 4: General Fund Operating Transfers Out Draft Budget FY 2023-2024 Operating Transfers Out Draft Budget
FY 2023-2024
Debt Service 4,849,954
Hilltop Lighting and Landscaping District 235,988
Marina Bay Lighting and Landscaping District 476,309
Employment and Training 736,201
Information Technology Equipment Replacement 100,000
Department of Children and Youth 6,453,091
Richmond Housing Authority 1,261,082
Pension Fund 152,077
Reimagining Public Safety -Unhoused Intervention 1,320,000 Reimagining Public Safety -Youthworks 1,980,000
Rent Program General Liability Subsidy 150,000
June 6, 2023
Total 17,714,702
Figure 5: General Fund Expenditures
GENERAL FUND
FY 2022-2023
REVISED
BUDGET
FY 2022-2023
JUNE 6,
DRAFT
BUDGET
CHANGE
Salaries and Wages 76,715,696 83,858,736 9.11%
Payroll/Fringe Benefits 66,846,458 64,156,480 -3.35%
Professional & Administrative 20,043,782 23,693,762 16.74% Other Operating 6,954,201 7,029,392 1.08%
Utilities 5,387,756 5,286,750 -1.87%
Equipment & Contract Services 2,718,982 2,853,891 4.96% Provision For Insurance Loss 29,641 32,200 8.63%
Cost Pool 15,277,766 21,777,297 42.54%
Asset/Capital Outlay 5,756,590 1,642,500 -71.47%
Debt Service Expenditures 1,037,009 841,353 -18.87%
A87 Cost Plan Reimbursements (3,531,610) (3,531,611) 0.00% Grant Expenditures 117,990 19,155 -83.77%
Operating Transfers-Out 17,785,428 17,714,702 -0.40%
Total Expenditures 215,139,689 225,374,607 4.76%
General Fund Additional Appropriations
The proposed draft budget includes additional appropriations of about $5.07 million. The additional appropriations are for local arts organizations and for several departments and divisions including, but not limited to Library, Recreation, Fire, Police, Public Works, and Information Technology. The appropriations are focused on enhanced Community Services such as expanded library hours, enhanced programming and hours at the Community Centers and Aquatic Centers, strengthening Public Safety, City staff wellbeing, and investment in technological infrastructure for efficient service delivery.
Economic Development ($135,000)
o $135,000 -- Increased contribution by $45,000 to NAID, Richmond Art Center, and East Bay Performing Arts Center (total $100,000 each) City Manager ($5,000)
o $5,000 -- Increase funding for part-time student administrative intern to assist with City Council and City Manager directed priorities as required. Library ($121,568)
o $25,000 -- The library has experienced considerable turnover in staff and leadership and would like to offer staff trainings and workshops focused on workstyles, diversity and inclusion, and support effective
June 6, 2023
communication, and emotional intelligence to ensure a professional and collegial work environment to maintain focus on community needs and service delivery. The requested funds will be used for professional services of consultants and trainers to address these departmental needs. o $25,500 -- The strategic planning process will raise community awareness of existing library services and direct the library’s future investment in programs, services, and materials.
o $71,068 -- Administrative Student Intern(s) to provide ongoing support for neighborhood councils and volunteer services as well as complete special projects related to volunteer services and community outreach. Recreation ($255,924)
o $47,355 -- Additional resources and supplies to meet the need of in- person enrollment for the community to prepare for enhanced programming and extended hours at the community centers. o $50,008 -- Additional funds will be required to restore programs (youth soccer, basketball, tennis and volleyball, adult softball, outdoor adventure activities).
o $36,959 -- Part-time staff for the Developing Personal Resources Center (DPRC)
o $42,993 -- Part-time staff for the following special events: Chinese New Year, Black History Experience, Senior Info Day, Third of July, and Tree Lighting.
o $29,309 -- Additional staff required due to enhanced precautionary measures in place for rescue scenarios at the swimming pools (as advised by American Red Cross and other CA and regional public pool operators) o $9,300 -- Postage for mailing additional Community Services program guides.
o $40,000 -- Allocation of $2,000 for each neighborhood council for community events and festivities. The budget would help activate and empower the councils, engage residents, and build community. Fire ($491,200)
o $2,000 -- General employee's overtime for special projects that need to be completed in a timely manner such as billing businesses after engine/truck company program inspections (mercantile, apartment).
o $17,200 -- Acting pay of line personnel (Suppression) to fill vacant roster assignments, to meet the minimum staffing requirements, and to support the department’s strategic goal of providing safer communities through fire and medical response coverage to the community
o $10,000 -- The cost for plan reviews by third party needs to be outsourced to expedite the review process for FY23-24. It will allow the Fire Marshal and Deputy Fire Marshal to focus on the additional responsibilities as both have been assigned to perform due to the current staffing ratio.
Completing plan reviews are vital to ensuring that new constructions and tenant improvements in the City are compliant with fire codes.
June 6, 2023
o $1,500 -- Public educational materials (e.g., junior fire hats, stickers, pamphlets) for community and school events.
o $16,000 -- Maintenance, diagnostic, and repair of chest compression devices and AED defibrillators.
o $2,000 -- Fire apparatus (APD) and boat (PRISM) insurance due to the increase in premiums.
o $2,000 -- HAZMAT registration fee which was previously funded by a grant
o $14,500 -- Office of Emergency Services CERT supplies o $8,800 -- Firecom/DC headset replacement, wildland/structure nozzles, and rescue materials (MPD and Ropes).
o $260,700 -- The Fire Department intends to conduct another fire academy in FY23-24 to fill future vacancies due to anticipated promotions. The additional funding will be used to buy new personal protective equipment for firefighter trainees and replacement of expired turnouts, and medical supplies.
o $8,500 -- Small equipment such as generators and portable lights used by the Emergency Operations division.
o $120,000 -- The Fire Department plans to conduct another series of promotional examinations (Battalion Chief, Fire Engineer, and Fire Inspector), and background investigations, (New Hires) in FY23-24. Part of the funds will be used for fire fighter’s medical exam and screening. o $28,000 -- The additional appropriation will be used by the Training Division: for (a) EMS Training due to the decrease in overall EMS funding from Chevron Community Benefit fund and HAZMAT grant.
Public Works ($127,800)
o $36,000 -- Overtime budget in Streets Maintenance division o $7,000 -- Updated tools are needed to increase the efficiency and safety of traffic signs and lines installations.
o $32,000 -- Overtime budget to support Police Department around the Bart Station
o $2,900 -- Stationary Engineers training and travel for asbestos and swimming pool certification. Personnel training for all 4 modules of APWA advance management skills in public works.
o $9,900 -- Small tools, supplies, and materials
o $40,000 -- Carpenters and Painters, building materials Police ($893,505)
o $125,005 -- Animal control agreement cost increase
o $110,000 -- Police station lease increase
o $253,500 -- Maintenance for Automated License Plate Reader. o $50,000 -- RPD entered into a contract with RippleWorx to provide officers and non-sworn staff with a mental health application to monitor and provide improvement solutions to the users.
o $180,000 -- RPD entered into a contract with Public Safety Family Counseling Group to provide officers and non-sworn staff with specialized
June 6, 2023
law enforcement counseling services provided by a physician aimed at mental health improvements and support. The amount requested is the amount due annually.
o $100,000 -- Increase in training and ammunition supplies to account for the hiring of 30+ positions.
o $50,000 -- Rental expenses to account for the hiring of 30+ positions. o $25,000 – New speed trailer to address over speeding in the City Information Technology ($3,039,978)
o $3,039,978 -- Software replacement, network security, and other costs, final list pending to be finalized
NON-GENERAL FUND/OTHER FUNDS
The total Non-General Fund budget is estimated at $318,393,044 and primarily includes funds dedicated to housing, debt service, enterprise funds, and other city operations.
Other than the General Fund, the City has several funds and each fund’s draft budget is listed in detail in the Attachment 4 – Non-General Fund by Category. A Comprehensive Capital Improvement draft presentation was made to the City Council on May 23, 2023.
Below is the list of Non-General Fund requests for new appropriations:
Non-General Fund Requests for New Appropriations ($4,261,200) Housing, $250,000 -- Financial consultants to support 12th & Macdonald project and Home-key program for homeless housing.
Housing, $1,200 -- Amerinational Loan Service expense Housing, $500,000 -- CalHome Loan Housing Improvement Loan Program Planning & Building, $2,300,000 -- Pass through environmental impact review planning projects
Planning & Building, $750,000 -- Consultant to implement Priority Development Area grant program
Planning & Building, $450,000 -- Pass through legal services for planning projects
Planning & Building, $10,000 -- Additional legal notice requirement for Planning projects
Reimagining Public Safety
In June 2021, the City Council approved the recommendations of the Reimagining Public Safety Community Task Force, which included an allocation of $6.38 million for the four (4) interventions listed below. is noted below:
YouthWORKS: $1,980,000
Office of Neighborhood Safety: $2,057,898
Community Crisis Response Program: $1,000,000
Unhoused Interventions: $1,800,000
June 6, 2023
Port of Richmond Capital Improvement Projects
Currently, the draft Five Year Capital Improvement Plan includes annual appropriation of $9,282,158 in the FY 2022-2023 budget for the following projects in the Port of Richmond/Economic Development:
PORT OF RICHMOND - 5 YEAR CIP BUDGET FISCAL YEAR
DESCRIPTION LOCATION TOTAL FY24 FY25 FY26 FY27 FY28
Area FM CAP - 924,842 924,842
Terminals 7 and 8
Electrification PPMT 1,700,000 1,700,000 - - - -
Terminal 4
Demolition T4 2,500,000 2,500,000
Terminal 4 Wharf
Removal T4 2,687,316 2,687,316
PPMT Electrical and
Water Metering PPMT 365,000 365,000
Processing Building
Window Repair PPMT 350,000 350,000
Electrical
Maintenance PPMT 200,000 60,000 30,000 35,000 35,000 40,000 Pavement
Maintenance PPMT 765,000 150,000 150,000 150,000 155,000 160,000 Riggers Loft Painting PPMT 285,000 285,000
Processing Building
Ventilation PPMT 55,000 55,000
OU1 and OU2
Monitoring PPMT 370,000 70,000 72,000 74,000 76,000 78,000 General Warehouse
Monitoring PPMT 80,000 25,000 15,000 10,000 18,000 12,000 Terminals 7 and 8
Dredging PPMT 1,265,000 65,000 1,200,000
Yacht Entrance
Harbour Dredging Channel 845,000 45,000 800,000
TOTAL 12,392,158 9,282,158 1,067,000 1,469,000 284,000 290,000
Fleet Analysis
FY 2023-2024 budget includes a total of $11 million for vehicles and large equipment.
The $11 million includes a $740,000 carry forward from FY 2021-2022, and a $2,710,000 carry forward from FY 2022-2023. Approximately $7,570,000 is currently proposed for FY 2023-2024. The equipment and vehicle replacement budget is a placeholder as the City staff continue to develop a five-year equipment/vehicle replacement plan and Zero Emission Fleet Infrastructure Ten-Year Transition Plan.
Upon completion of the plans, the budget will be revised for the next fiscal year, the budget will also change based on the prioritized list of the equipment/vehicle.
Paving Index
The proposed Capital Improvement budget for the FY 2023-2024 has a total of $5,755,099 allocated to paving improvement in Gas Tax and Road Repair and Accountability Act (SB1) funds combined. Based on a 2021 study by Pavement
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Engineering Inc., the City’s average Pavement Condition Index (PCI) was fair (60), and the City needed $22.9 million annually to maintain the PCI at 60. With the current average annual investment of about $5 million, the City’s PCI is expected to drop by 9 points by 2026. As such, City staff will continue to work collaboratively with the City Council to refine the budget and allocate funding to improve the PCI as funds become available. For example, the Fleet budget may decrease to increase the Paving Management Program and Traffic Calming Program.
Risk Reserve
The City’s Risk Reserve is funded through Worker’s Compensation and General Liability charges to the departments. The City Council approved the minimum desired confidence level for the Risk Reserve at 80 percent; however, the City also approved a professional services contract with Matrix Consulting to review the rate structure for Workers Compensation and General Liability. At this juncture, the City’s General Liability and Workers Compensation rates are draft and aspire gradually increase towards achieving an 80 percent confidence level over approximately five years.
However, the final rates for General Liability and Workers Compensation are pending completion of the Matrix Consulting analysis and further review.
GENERAL FUND FIVE YEAR FORECAST
On April 4, 2022, the City of Richmond was notified by the California State Auditor that they will be conducting an audit of the City, as approved by the Joint Legislative Audit Committee on June 30, 2021. The State Auditor’s local audit program identifies and supports local government agencies that might be at high risk based upon analysis of the City’s audited financial statements. Richmond’s risk assessment began in February 2021.
At the conclusion of audit, the State Auditor formalized eleven (11) recommendations that the City has grouped into three broad areas: (1) Budget Strategy, (2) Housing Authority Administration, and (3) Operations.
One of the State Auditors recommendations is regarding a Five-Year Forecast:
“Richmond should include multiple scenarios in its financial projections, including scenarios with potential additional risks, such as economic downturns or recessions, and how the city would continue to fund its operations under those circumstances.” (California State Auditor’s 2021-806-Audit)
Following the State Auditor’s Recommendation and the City’s Corrective Action Plan, the City staff prepared three scenarios: Optimistic, Middle of the Road, and Pessimistic with the following assumptions. The scenarios also assume steady staffing and service levels with no major changes in organizational structure or service delivery model.
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Revenue Scenarios & Assumptions
The General Fund Revenue Forecast Scenarios stem from a detailed review of all the General Fund Revenue categories and streams. Even within each category, many of the main revenue streams change year to year based on different criteria. A great example is the Utility Users Tax where the amounts are increasing for some of the items and decreasing for the others. Generally, staff examined historical trends, actual year to date amounts for FY 2022-2023, and where we expect to land, budgeted amounts for FY 2023-2024, and merged that with any known variables. The detailed description below of the revenue assumptions focuses on the middle of the road scenario revenue forecast. Generally, the pessimistic scenario assumes some of the more volatile revenue streams will grow at a much lower pace while in the optimistic scenario, those same revenue streams will grow at a higher pace.
Property Tax – Increase of four percent in FY 2024-2025 and increases averaging five percent in the subsequent years. The last three years, Property Taxes have increased by 3.9 percent while the average growth for the last ten years has been 5.8 percent.
The valuation changes in this category can have significant impacts year to year caused by items such as the valuation changes of the Chevron Refinery or significant increase in large sales.
Sales Tax – Average increase 3.5 percent for the forecasted years. Forecast for the regular Sales Tax and the two voter approved sales tax measures is provided by the City’s sales tax consultant. The consultants assumed FY 2023-2024 would see the economy slowing down a bit, and then going back up again in FY 2024-2025. Within this category we also have the Vehicle License Fee Backfill Swap (VLF) which is directly tied to the City’s yearly AV growth. For the VLF, staff used the same assumptions as that for the Secured Property Taxes.
Utility Users Tax (UUT) – Average increase of 1.1 percent. As mentioned above, this revenue category has individual revenue streams going in very distinct directions. This revenue category also includes the Chevron Tax Settlement which ends in FY 2024- 2025, meaning the City will have a revenue loss of $4 million annually. For all years on the forecast UUT on cable, telecommunications, and prepaid wireless is forecasted to decrease while that on Gas & Electricity and the Cap Amount are both forecasted to increase.
Other Taxes – Average increase of 8.6 percent. Like other revenue streams, this one also includes items that change very independently from each other. This category includes revenues such as the Hotel Tax, Transfer Tax and Franchise Fees. The largest item within this category is Transfer Tax and for that the forecast, although the budget is based on a specific formula tied to the average amount collected since passage by the voters, the forecast incorporates modest growth. One item in this category that will see a significant bump is the Electricity Franchise Fee which was updated earlier this fiscal year and will double in FY 2024-2025 and modest growth thereafter. For the category as whole, because of this change to the Electricity Franchise Fee, an increase of nearly
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15 percent is expected in FY 2024-25 while the subsequent years, the yearly growth is a more modest 7.2 percent.
Licenses, Permits & Fees – Average increase of 5.4 percent. Like in Other taxes, there is one year with a significant bump then steady growth thereafter. Here, the year with the increase is FY 2023-2024. For clarification, the increase is tied to Measure U Business Tax and the comparison here is between budgeted amounts for FY 2023- 2024 versus Revised Budgeted amounts for FY 2022-2023. Actuals amount in FY 2022- 2023 will be higher than future years as we continue with the implementation of the new tax and transition all businesses to have an expiration date of December 31. This transition calls for some businesses to pay both the 2022 and the 2023 Business Taxes within FY 2022-2023. More normal and predictable amounts are expected moving forward at an average rate of four percent per year for the category.
Other Revenues (Includes Fines & Forfeitures, Use of Money and Property, Charges for Services, Other Revenues, Rental Income, Intergovernmental State Taxes & Grants, Proceeds from Sale of Property, and Loan & Bond Proceeds) – These various revenues are expected to remain relatively flat. For these revenue categories, City staff only budget what is known that the City will receive. For FY 2023-2024, there is a reduction of 20 percent in this revenue stream creating a new base that going forward is expected to stay flat. thereafter.
Operating Transfers In – Nearly all the revenue that gets transferred into the General Fund comes from the Pension Tax Override Fund. This revenue stream is increasing and decreasing through the forecast. The revenue that flows into the Pension Tax Override fund is expected to increase at the same rate as Property Taxes, the expenditures are lower this year and thus a higher excess amount available to be transferred to the General Fund. In FY 2025-2026 there is significantly higher payment out of this fund, reducing the excess amount and thus less revenue available to transfer inti the General Fund. Subsequent years we see the revenue stream becoming more consistent.
Proposed General Fund revenue assumptions for FY 2023-2024 through FY 2027-2028 are found in the table below.
Figure 6: Five-Year Revenue Forecast Scenario Assumptions General Fund Revenues FY24-25 FY25-26 FY26-27 FY27-28 FY28-29 FY29-30 30 - PROPERTY TAXES 5.04% 3.97% 5.12% 5.77% 5.98% 4.02% 31 - SALES & USE TAXES 6.03% 4.28% 3.03% 2.52% 2.56% 2.80% 32 - UTILITY USERS TAXES 2.26% 1.52% 0.96% 0.85% 0.53% 0.51% 33 - OTHER TAXES 15.42% 8.14% 9.63% 7.68% 6.31% 4.27%
33 - TRANSFER TAXES 15.42% 8.14% 9.63% 7.68% 6.31% 4.27% 34 - BUSINESS TAXES 12.57% 6.76% 2.50% 4.78% 2.41% 3.52% 34 - LICENSES, PRMITS & FEES 12.57% 6.76% 2.50% 4.78% 2.41% 3.52%
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35 - FINES & FORFEITURES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 36 - USE OF MONEY&PROPRTY -1.14% 0.00% 0.00% 0.00% 0.00% 0.00% 37 - CHARGES FOR SERVICES 1.50% 1.50% 1.50% 1.50% 1.50% 1.50% 38 - OTHER REVENUE 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
39 - RENTAL INCOME 14.80% 2.00% 2.00% 2.00% 2.00% 2.00% 3A - INTERGOV STATE TAXES 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3B - INTERGOV FED GRANT 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3C - INTERGOV STATE GRANT 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3D - INTERGOV OTHER GRANT 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 60 - PROC FR SLE PROP 0.00% 0.00% 0.00% 0.00% 0.00% 2.00% 61 - LOAN/BOND PROCEEDS 0.00% 0.00% 0.00% 0.00% 0.00% 2.00% 90 - OPER XFERS IN 3.05% -8.95% 2.41% 2.46% 2.46% 2.51% TOTALS 6.64% 2.42% 3.33% 3.29% 3.75% 2.51%
Expenditure Scenarios & Assumptions
Salaries and Benefits -- all three scenarios use same universal assumptions regarding the personnel costs, the forecasts assume in-place MOUs for all bargaining units through FY 2024-2025 and a three percent (3%) annual increase in the years thereafter.
Retirement Costs -- The City’s financial consultant GovInvest anticipates the City’s Unfunded Accrued Liability (UAL) with PERS will increase over the next few years. The main reason for the increase is, PERS had a - seven- and one-half percent (7.5%) return (loss) on investment last year and to date has approximately a four percent (4%) return on investment.
Both, negative return (loss) and the lower than assumed return in the long- term plan will increase the Unfunded Accrued Liability. Additionally, given the general economic conditions that exist, it may be difficult for PERS to make its projected earnings next year as well. The chart below shows the estimated UAL annual payments for the coming years.
The UAL is the present value of future employer contributions for service that has already been earned (retirees) and is in addition to future normal cost contributions for active members.
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Figure 7: Unfunded Accrued Liability Payment Forecast
Non-Personnel Costs: for the Pessimistic and Middle of the Road Scenarios all non- personnel categories use a zero percent growth rate for FY 2024-2025 and a three percent (3%) annual growth rate for the years thereafter.
For the Optimistic scenario, there is a two percent (2%) growth rate for FY 2024-2025 and a four percent (4%) annual growth rate for the years thereafter. The table below summarizes the growth rates in a table format.
Figure 8: Five-Year Forecast Scenario Assumptions
FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28
Universal Growth Rates (Personnel Costs)
Salaries & Wages Proposed Budget MOU 3% 3% 3%
Benefits Proposed Budget MOU 3% 3% 3%
CalPERS Normal Cost PERS Rates PERS Rates PERS Rates PERS Rates PERS Rates CalPERS Unfunded Liability CalPERS GovInvest GovInvest GovInvest GovInvest Non-Personnel Costs
Pessimistic Scenario Proposed Budget 0% 3% 3% 3%
Middle of the Road Scenario Proposed Budget 0% 3% 3% 3% Optimistic Scenario Proposed Budget 2% 4% 4% 5%
Figure 9: Five-Year Forecast, Pessimistic Scenario
2023 2024 2025 2026 2027 2028
Revenues 215,103,041 225,374,607 238,843,933 243,243,012 250,092,434 257,279,354 Expenditures 215,139,687 225,374,607 240,503,329 249,276,243 258,213,985 266,846,849 $24.46
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Surplus/(Deficit) (36,647) - (1,659,396) (6,033,231) (8,121,551) (9,567,495)
Table 1: Five-Year Forecast, Pessimistic Scenario
Figure 10: Five-Year Forecast, Middle of the Road Scenario 2023 2024 2025 2026 2027 2028
Revenues 215,103,041 225,374,607 240,336,167 246,144,984 254,347,132 262,707,395 Expenditures 215,139,687 225,374,60 240,574,735 249,349,990 258,290,142 266,925,489 Surplus/(Deficit) (36,647) - (238,567) (3,205,006) (3,943,009) (4,218,095)
Figure 11: Five-Year Forecast, Middle of the Road Scenario
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Figure 12: Five-Year Forecast, Optimistic Scenario
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Revenues 215,103,041 225,374,607 241,697,698 248,791,175 258,227,107 267,656,166 Expenditures 215,139,687 225,374,607 241,742,538 251,148,408 260,761,915 270,759,775 Surplus/(Deficit) (36,647) - (44,841) (2,357,232) (2,534,808) (3,103,608)
Figure 12s: Five-Year Forecast, Optimistic Scenario
CALPERS UPDATE AND COST MANAGEMENT STRATEGIES
The City of Richmond’s (the “City”) unfunded accrued liability (“UAL”), also known as the net pension liability (“NPL”), has grown from $263 million as of fiscal year end 2015, to a projected $381 million, as of fiscal year end 2022. Annual costs to amortize this debt with CalPERS have risen from $14 million, to $29 million, over the last 6 years and are projected to grow another 46 percent (46%) by fiscal year 2031. Rising pension costs are one of the largest financial challenges facing agencies state-wide and are projected to impact the City’s budget significantly soon, potentially crowding out other critical priorities and projects.
NHA Advisors will provide a presentation that will provide an overview of recent pension cost trends, projected future cost trends, and several cost-management strategies for City Council consideration. Their presentation is intended to follow the GovInvest pension education presentation received on May 16, 2023, and 2022 Pension Refunding Bonds presentation update on July 19, 2022. The June 6, 2023, presentation will reiterate essential CalPERS concepts previously presented, but also include more detail relating to (1) the City’s Pension Tax Override Revenues, (2) the 2022 Pension Refunding Bonds Restructuring and (3) pension cost management strategies that can be explored.
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The City of Richmond, like most cities in California, has a UAL associated with its CalPERS pension plans for Safety and Non-Safety employees. A UAL occurs when current pension plan assets are not projected to be sufficient to pay projected pension costs in future years. As of June 30, 2021 (the most recent CalPERS valuation), the City's UAL was $249 million. However, CalPERS reported an investment return of -7.5 percent for fiscal year 2022, which is projected to increase the City's UAL to approximately $381 million.
CalPERS investment earnings for fiscal year 2023 were not meeting its target as of the end of March, which, if unchanged, may increase the UAL to more than $409 million at the plan’s June 30, 2023, valuation. CalPERS effectively charges the City of Richmond a 6.8 percent interest rate on this debt and requires a repayment schedule that escalates quickly over the next decade, as shown in the chart above. Payments to amortize this debt have risen from $14 million in fiscal year 2018, to $29 million in fiscal year 2023, and are projected to rise to close to $43 million by the end of the decade. In addition to the City’s $29 million in UAL costs, other pension costs include $12 million for CalPERS Normal Costs and $6 million for the 2022 Pension Obligation Bonds, bringing overall pension costs for FY 2023 to approximately $47 million.
Unique to the City of Richmond, and approximately 20 other public agencies statewide, is a property tax override (PTO) levied to cover a portion of pension costs, related to benefits was in place prior to 1978. This provides the City of Richmond a tool to assist with managing rising pension costs. Based on the most recent independent actuarial report, approximately 82 percent of overall (UAL, Normal Cost and POB) pension costs can legally be paid for by the PTO revenues (PTORS). However, the City of Richmond also has a constraint on the PTO levy of 0.14 percent of assessed valuation, which currently generates approximately $25 million of revenue (covering approximately 53 percent of the total $47 million of annual pension costs). Additionally, secured annual debt service on the City’s 2022 Pension Refunding Bonds have a first lien on PTO revenues received by the City. As such, the City will want to consider all available cost management options for addressing the UAL.
Historical Efforts: The City has taken some proactive steps to control pension costs already. In July 2022, the City approved the establishment of a Section 115 Trust with PARS. Benefits of a Section 115 Trust include (1) the ability to use the funds in the future to pay down the plan’s UAL or help smooth required CalPERS expenses; (2) enhanced budgetary flexibility; (3) investment diversification of pension assets away from CalPERS; and (4) increased investment earnings vs. other City reserves.
The City has also historically taken advantage of the prepayment discount offered by CalPERS by making a lump sum UAL payment at the beginning of each fiscal year.
Currently, the prepayment discount is approximately 3.3 percent. Additionally, the City issued Pension Refunding Bonds in August 2022, to strategically restructure prior pension obligation bonds and eliminate the City’s exposure to interest rate swaps.
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By matching the term of the bonds with the UAL, the City was able to restructure a portion of its pension expenses to better align with projected PTO revenues, generating significant savings to the General Fund over the next decade. However, with pension costs increasing significantly due to poor CalPERS investment performance, in conjunction with PTORs being limited by the 0.14 percent levy cap, it is imperative that the City continue to evaluate ways to manage growing expenses and implement cost management strategies to help stabilize future pension cost volatility.
Cost-Management Strategies: As noted above, the NHA Advisors presentation will provide an overview of the recent pension cost trends, as well as projected future trends. Most importantly, it will provide options for the City Council to consider implementing in the short- and long term. Thereby, proactively preparing for imminent cost increases. Specifically, the presentation will discuss the benefits of setting aside reserves and/or surplus funds to build up the City’s Section 115 Trust. The presentation will also discuss other alternatives, such as Additional Discretionary Payments (ADPs) directly to CalPERS and the UAL Restructuring concept. With guidance from the City Council, it is anticipated that City staff will continue to explore the viability of all these pension cost management strategies over the next several months.
NEXT STEPS
The next step in this process is for the City staff to proceed with the additional adjustments based on direction from the City Council, and update the FY 2023-2024 budget for final adoption. City staff will bring back a balanced FY 2023-2024 budget for adoption on June 20, 2023. City staff will also present CalPERS funding options to the City Council in the coming weeks. Additional adjustments can continue throughout the fiscal year to implement the City Council’s adopted goals and objectives.
DOCUMENTS ATTACHED:
Attachment 1 – General Fund Revenue Summary
Attachment 2 – General Fund by Department
Attachment 3 – Multi Year Position Listing
Attachment 4 – Non-General Fund by Category
Attachment 5 – List of Capital Projects