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: 26 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 17, 2024
SUBJECT:
Fiscal Year 2024-25 Operating and Capital Budgets and Gann Appropriations Limit Adoption and Fiscal Years 2024-29 Capital Improvement Program – Approval
RECOMMENDATION:
Adopt Resolutions to approve the fiscal year 2024-25 operating and capital budgets, the 2024-29 Capital Improvement Program and the fiscal year 2024-25 Gann appropriations limit.
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). Council was presented with a preview of the 2024-25 General Fund budget and the 2024-29 CIP on April 15, 2024, and held the first public hearing on June 3, 2024. In addition, the Measure S Oversight Committee recommended that the City Council approve the Measure S-funded programs and capital improvement projects at its regular meeting on May 16, 2024.
Overall, the Citywide 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 4).
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 4).
In summary, the proposed personnel changes include a net addition of 13.0 full-time equivalent (FTE) merit positions.
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, oversee the City’s real property portfolio, work on special projects , support community engagement and strategic planning and support grant writing for all City departments;
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•0.5 FTE Housing Specialist in the Community Development Department to support affordable housing initiatives; and
•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 program.
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 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 in FY 2024-25. •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 loss 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
The proposed FY 2024-25 budget projects $180.4 million in the General Fund total expenditures, including transfers out.
This reflects 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 4).
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:
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•$4.4 million to support the City’s capital improvement projects; •$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 $10.6 million. This 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 project to update the wastewater collection system and wastewater treatment plant (WWTP).
FY 2024-25 Capital Budget and 2024-29 Five-Year Capital Improvement Program (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 FY 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 4).
Table 1: 2024-29 Capital Improvement Program by Function 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
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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 the 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:
The overall proposed FY 2024-25 budget is $321.3 million, comprised of $256.1 million for the operating budget and $65.2 million for the capital budget.
The General Fund is projected to account for $169.8 million in revenues and $180.4 million in expenditures and transfers out, reflecting an anticipated draw on the Rainy Day Reserve due to increases in costs of providing core City services, and contributions to fund capital improvement projects. Another major fund, the Sewer Fund, is expected to account for $92.0 million in revenues and $85.7 million in expenditures.
ENVIRONMENTAL DETERMINATION:
This budget adoption 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 – Proposed Resolution: Fiscal Year 2024-25 Operating and Capital Budgets Att 2 – Proposed Resolution: Fiscal Years 2024-29 Capital Improvement Program Att 3 – Proposed Resolution: Fiscal Year 2024-25 Gann Appropriations Limit Att 4 – Proposed FY 2024-25 Budget Book
STAFF CONTACT
Karen Huang, Finance Director
[email protected]
(650) 522-7110