CITY OF SAN MATEO
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CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 16 Section Name: {{section.name}} Account Number: 10-2021 File ID: {{item.tracking_number}} TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: Finance Department
MEETING DATE: June 03, 2024
UPDATED CONTENT: Re-Published on June 1, 2024
SUBJECT:
Fiscal Year 2024-25 Proposed Budget and 2024-29 Capital Improvement Program – Review RECOMMENDATION:
Review the fiscal year 2024-25 proposed budget and the 2024-29 Capital Improvement Program and conduct a public hearing prior to the scheduled adoption at the June 17, 2024 City Council meeting.
BACKGROUND:
Prior to the Council’s adoption of the fiscal year (FY) 2024-25 budget on June 17, 2024, it holds two public hearings to receive public comment on the proposed budget and Capital Improvement Program (CIP).
FY 2024-25 marks the first year of our two-year 2024-26 business plan, primarily focusing on developing the City's operating budget. Although the CIP is not typically emphasized during this budget cycle, staff conducted an extensive review of the CIP budget this year due to significant maintenance and repair needs for city facilities.
On April 15, 2024, the Council was presented with a preview of the 2024-29 CIP and the General Fund operating budget.
Additionally, staff provided three scenarios for the General Fund ten-year forecast to illustrate potential fiscal outcomes based on property tax in-lieu of vehicle license fees (VLF) shortfalls and economic conditions. Staff incorporated Council feedback and finalized the proposed budget for the City Council’s review.
The proposed budget was posted to the City’s website on May 30, 2024. Overall, the city-wide budget for FY 2024-25 totals $321.3 million, which includes an operating budget of $256.1 million and a capital budget of $65.2 million. The proposed FY 2024-25 General Fund budget, including transfers, is $180.4 million. A summary of budget highlights is included in the City Manager’s Letter of Transmittal in the first section of the proposed budget. Additional details on all the City's revenues and expenditures are also included through the budget book (Attachment 1).
PERSONNEL BUDGET
As part of the FY 2024-25 budget, proposed personnel updates have been incorporated for the following departments: the City Manager’s Office, Finance Department, Library, Parks and Recreation, Community Development and Public Works Departments. Upon approved, these classification and staffing level changes will become effective as part of the adoption of the 2024-25 budget.
Details on personnel changes are included in the Appendix section of the budget document (Attachment 1).
In summary, the proposed personnel changes include a net addition of 13.0 full-time equivalent (FTE) merit positions.
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Most of the new positions (9.5 FTEs) are funded by special revenue funds and enterprise funds, such as the Construction Service Fund, the Solid Waste Fund, the Sewer Fund, and the Stormwater Fund, to support service demands in those areas.
The General Fund will cover a net increase of 3.5 FTE merit positions, including the following:
•1.0 FTE Senior Management Analyst in the City Manager’s Office to support emergency preparedness, improve communication and community engagement, and support grant writing for all City departments; •0.5 FTE Housing Specialist in the Community Development Department to support affordable housing initiatives;
•2.0 FTE merit positions, Community Service Coordinator and Library Assistant I/II, in the Library to enhance volunteer coordination and customer services.
The costs associated with these 3.5 FTEs will largely be offset by cost recovery from other operating funds or through elimination of per diem positions. As such, the impact to the General Fund is limited. Considering other proposed job classification upgrades and these 3.5 new positions, the net fiscal impact to the General Fund will be $225,000 annually.
BUDGET HIGHLIGHTS
This agenda report provides a high-level summary of the proposed FY 2024-25 budget of the two major operating funds:
the General Fund and the Sewer Fund, and an executive summary of the 2024-29 five-year capital improvement plan.
General Fund
The General Fund, which is the City's primary operating fund, projects total revenues of $169.8 million and total expenditures of $180.4 million, including transfers out and all General Fund sub-funds – Measure S, Downtown Services, Recreation Services, and Golf funds. As projected expenditures exceed projected revenues by $10.5 million, it is anticipated that a draw on the General Fund Rainy Day Reserve is required due to the impact of the VLF shortfall, revenue loss in hotel tax and rising costs of providing core city services.
General Fund Revenues
Total revenues for FY 2024-25 are projected to be $169.8 million, reflecting a $8.0 million increase (5.0%) compared to FY 2023-24 estimates of $161.8 million. Key highlights include:
•Property tax is projected to be $84.0 million, an increase of $6.0 million (7.7%) from the previous year’s $78.0 million. This increase is largely due to the anticipated 3.5% annual growth in secured property tax and the assumption that the State of California will amend its 2024-25 budget to backfill the City’s share of the FY 2022-23 property tax in-lieu of vehicle license fee (VLF) shortfalls amounting to $4.2 million. Without this backfill, property tax revenue for FY 2024-25 would have remained relatively flat at $79.8 million. •Sales tax, including the ¼ cent Measure S transaction tax, is projected to be $30.1 million. This revenue stream is expected to be stable with moderate annual growth of 1-2%. •Real Property Transfer Tax (RPTT) is set at $8.0 for FY 2024-25, reflecting continued weakness due to the high interest rate environment.
•Transient occupancy tax (TOT) is estimated to generate $4.0 million, down from the originally projected $7.0 million, due to a $3.0 million revenue from a major hotel closure. •Franchise fees and business license tax are expected to bring in $3.4 million and $7.8 million, respectively. •Other revenues are expected to maintain stable with moderate growth.
General Fund Expenditures
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The proposed FY 2024-25 budget projects $180.4 million in the General Fund total expenditures, an increase of $8.6 million (5.0%) compared to the FY 2023-24 adopted budget. The proposed budget primarily consists of $92.6 million in personnel costs, factoring in the increases in salaries and wages, healthcare, and pension costs. Non-personnel operating expenses are projected to be $40.1 million, which includes modest service level enhancements in certain target areas to support Council priorities. Details on service enhancements are included in the Appendix section of the budget document (Attachment 1).
General Fund Transfers Out
The General Fund also supports other needs through transferring resources to other funds. For FY 2024-25, total transfers out are projected to be $11.6 million, and are distributed as follows:
•$4.4 million to support the City’s capital improvement plan (CIP); •$3.7 million of Measure S funds to support the CIP;
•$2.69 million from Measure S to transfer out for debt service related to flood control and street rehabilitation; •$0.41 million to address building maintenance needs; and •$0.35 million to the 2% Hotel Tax Fund to ensure this fund has sufficient funding for debt service.
In summary, the General Fund total expenditures, including transfers out, are projected to exceed total revenues in FY 2024-25, resulting in a budget deficit of approximately $10.5 million. This budget is developed based on the assumption that the State will honor and fund the VLF shortfalls in 2024-25. If this assumption does not hold, the General Fund’s deficit will increase to $14.7 million. In either scenario, it will require drawing on the General Fund’s Rainy Day Reserve to maintain the City’s core services and investment in capital projects.
Fortunately, the City has built a strong financial position with healthy reserves due to the fiscal prudence of the current and previous Councils and administrations. These reserves provide staff with a runway to commence financial sustainability planning to ensure the City remains resilient in facing these fiscal challenges.
Sewer Fund
The FY 2024-25 proposed budget projects $92.0 million in revenues, principally comprised of sewer service fees of $83.4 million. The projected revenues reflect the approved annual rate increase of 3% for FY 2024-25 to support the capital improvements and maintain ongoing services. Total expenses are projected to be $85.7 million, comprised of $35.7 million in operating expenses, $27.8 million in CIP, and $22.2 million in debt service. CIP expenses will largely be funded by the low-interest loans from the state and federal government and primarily reflects the commitment to complete the Clean Water Program, a comprehensive plan to update the wastewater collection system and wastewater treatment plant (WWTP).
Capital Budget and Five-Year CIP
The 2024-29 five-year CIP demonstrates the City’s commitment to investing in the community, with a total of $240.0 million allocated to the CIP for the next five years. Each fiscal year, the City Council appropriates new funding for Year One of the five-year CIP.
The proposed 2024-25 capital budget is $65.2 million as summarized in the table below, as well as in detail in the proposed budget book (Attachment 1).
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Table 1: 2024-29 Capital Improvement Plan by Function
GANN LIMIT
In addition to the adoption of the FY 2024-25 budget and capital improvement program, there will be one other action requested of Council as part of the overall budget adoption process on June 17th. This action is to establish the City’s appropriations limit for FY 2024-25. The appropriations limit, which was originally established in 1979 by Proposition 4, places a maximum limit of the appropriation of tax proceeds that can be made by the state, school districts, and local governments in California. California Government Code requires that the City annually adopt an appropriations limit for the upcoming fiscal year. The appropriations limit for the City of San Mateo for FY 2024-25 is $268,524,256, while the proceeds of taxes subject to the appropriations limit is $142,816,000. Therefore, the City is well below its appropriations limit for FY 2024-25.
BUDGET IMPACT:
There is no direct budgetary impact resulting from this report. The proposed 2024-25 budget contains a consolidated summary of proposed appropriations for 2024-25 in the Budget Overview section of the document, with comprehensive financial information at the fund level (Fund Information section) and the department level (Departments section) included as well.
ENVIRONMENTAL DETERMINATION:
This proposed 2024-25 budget is not a project subject to CEQA, because it is a government fiscal activity which does 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).)
NOTICE PROVIDED
All meeting noticing requirements were met.
ATTACHMENTS
Att 1 - FY 2024-25 Proposed Budget Book – Updated Version Published on June 1, 2024
STAFF CONTACT
Karen Huang, Finance Director
[email protected]
2024-25 Proposed 2025-26 Plan 2026-27 Plan 2027-28 Plan 2028-29 Plan Five-Year Total Bikeway/Pedestrian 3,086,587 2,433,819 5,588,636 1,150,000 450,000 12,709,042 Bridges 8,930,000 50,000 20,000 750,000 - 9,750,000
Buildings 8,888,900 9,625,000 8,310,000 4,410,000 2,560,000 33,793,900 Parks 2,983,000 14,156,828 2,895,000 2,175,000 1,275,000 23,484,828 Sanitary Sewer and Wastewater Management (Clean Water Program) 27,806,000 7,812,000 27,660,000 20,725,000 19,320,000 103,323,000 Stormwater 550,000 150,000 150,000 150,000 150,000 1,150,000 Streets 9,875,000 8,250,000 8,250,000 8,250,000 8,100,000 42,725,000 Traffic - 2,175,000 1,025,000 325,000 325,000 3,850,000 Other City Capital Projects 3,128,876 1,327,000 1,527,000 2,043,500 1,182,000 9,208,376 Total 5-Year CIP 65,248,363 45,979,647 55,425,636 39,978,500 33,362,000 239,994,146
CITY OF SAN MATEO
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